1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 20, 1996
REGISTRATION NO. 333-15571
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 1
To
Form S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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DAIMLER-BENZ VEHICLE TRUST 1996-A
(Trust in which the Certificates represent undivided interests)
DAIMLER-BENZ VEHICLE RECEIVABLES CORPORATION
(Originator of the Trust described herein)
(Exact name of registrant as specified in its charter)
DELAWARE 9999 13-3770955
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or Classification Code No.) No.)
organization)
1201 NORTH MARKET STREET, SUITE 1406, WILMINGTON, DELAWARE 19801 (302) 426-1900
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
HARVEY S. TRAISON C/O DAIMLER-BENZ NORTH AMERICA CORPORATION, 375 PARK AVENUE,
SUITE 3001,
NEW YORK, NEW YORK 10152 (212) 909-9700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
STEVEN J. MOLITOR, ESQ. ANDREW M. FAULKNER, ESQ.
MORGAN, LEWIS & BOCKIUS LLP SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
101 PARK AVENUE 919 THIRD AVENUE
NEW YORK, NEW YORK 10178-0060 NEW YORK, NEW YORK 10022
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, 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 of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE PROPOSED MAXIMUM REGISTRATION
TO BE REGISTERED REGISTERED PER CERTIFICATE* OFFERING PRICE* FEE**
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Asset Backed Certificates,
Class A................... $795,188,137.94 100% $795,188,137.94 $240,966.10
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* Estimated solely for the purpose of calculating the registration fee.
** $303.03 of which has been previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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CROSS REFERENCE SHEET FURNISHED PURSUANT TO
ITEM 501(b) OF REGULATION S-K
ITEMS AND CAPTION IN FORM S-1 CAPTION IN PROSPECTUS
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1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.... Forepart of the Registration Statement;
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus................................ Inside Front Page and Outside Back Cover
Page of Prospectus
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges.............. Prospectus Summary; Risk Factors
4. Use of Proceeds............................. Use of Proceeds
5. Determination of Offering Price............. *
6. Dilution.................................... *
7. Selling Security Holders.................... *
8. Plan of Distribution........................ Underwriting
9. Description of Securities to Be
Registered................................ Prospectus Summary; Formation of the Trust;
The Trust Property; The Receivables; Yield
Considerations; Pool Factors and Other
Information; The Certificates
10. Interests of Named Experts and Counsel...... *
11. Information with Respect to the
Registrant................................ The Seller
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................... *
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* Answer negative or Item inapplicable.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
SUBJECT TO COMPLETION, DATED NOVEMBER 20, 1996
LOGO
$795,188,137.94
DAIMLER-BENZ VEHICLE TRUST 1996-A
% ASSET BACKED CERTIFICATES, CLASS A
DAIMLER-BENZ VEHICLE RECEIVABLES CORPORATION
SELLER
MERCEDES-BENZ CREDIT CORPORATION
SERVICER
---------------------
The % Asset Backed Certificates (the "Certificates") will consist of two
Classes of Certificates, the "Class A Certificates" and the "Class B
Certificates." Only the Class A Certificates are offered hereby. The Class A
Certificates will evidence in the aggregate an undivided ownership interest of
92.15% of the principal balance of, and a portion of the interest accruing
under, the Receivables (as defined below) held by a trust (the "Trust") to be
formed pursuant to a Pooling and Servicing Agreement to be entered into among
Daimler-Benz Vehicle Receivables Corporation, as Seller (the "Seller"),
Mercedes-Benz Credit Corporation, in its individual capacity and as Servicer
(the "Servicer"), and Citibank, N.A., as Trustee, Payahead Agent, Class A Agent
and Class B Agent. The Class B Certificates, which initially will be retained by
the Seller, will evidence in the aggregate an undivided ownership interest of
7.85% of the principal balance of, and a portion of the interest accruing under,
the Receivables. The Class A Certificates and the Class B Certificates represent
in the aggregate an undivided ownership interest of 100% of the Trust, other
than the Retained Yield, which the Seller will retain the right to receive. The
rights of the Class B Certificateholders to receive distributions with respect
to the Receivables are subordinated to the rights of the Class A
Certificateholders, to the extent described herein. To the extent that the
amount of principal collections allocable to the Class A Certificates with
respect to any Distribution Date is less than the amount of principal to be paid
to the Class A Certificateholders on such Distribution Date pursuant to the
Pooling and Servicing Agreement, such shortfall may be covered out of available
interest collections after the application of such amounts to the payment of
interest on the Class A Certificates and the Class B Certificates.
Principal, and interest at the Pass-Through Rate of % per annum, will be
distributed on the 20th day of each month (or, if the 20th day of any month is
not a business day, the next following business day) beginning December 20, 1996
(each, a "Distribution Date"). The final scheduled Distribution Date on the
Certificates will be the July 2003 Distribution Date (the "Final
(Continued on next page)
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK FACTORS"
BEGINNING ON PAGE 11. ---------------------
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST AND DO NOT REPRESENT INTERESTS
IN OR OBLIGATIONS OF THE SELLER, THE SERVICER OR ANY OF THEIR RESPECTIVE
AFFILIATES.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC DISCOUNT THE SELLER(1)(2)
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Per Class A Certificate................................ % % %
Total.................................................. $ $ $
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(1) Plus accrued interest at the Pass-Through Rate calculated from November 20,
1996.
(2) Before deducting expenses payable by the Seller estimated to be $626,000.
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The Class A Certificates are offered by the Underwriters when, as and if
issued and accepted by the Underwriters and subject to their right to reject
orders in whole or in part. It is expected that the Class A Certificates will be
delivered in book-entry form on or about , through the facilities of
The Depository Trust Company ("DTC") against payment therefor in immediately
available funds.
GOLDMAN, SACHS & CO.
CITICORP SECURITIES, INC.
CS FIRST BOSTON
DEUTSCHE MORGAN GRENFELL INC.
MERRILL LYNCH & CO.
J.P. MORGAN & CO.
UBS SECURITIES
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The date of this Prospectus is November , 1996.
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(Continued from previous page)
Scheduled Distribution Date"). The Trust Property will include a pool of retail
installment contracts for, and retail loans evidenced by notes secured by, new
and used medium- and heavy-duty trucks and tractors manufactured by Freightliner
Corporation ("Freightliner"), and used trucks and tractors manufactured by
companies other than Freightliner (collectively, the "Receivables"), certain
monies due thereunder on or after November 1, 1996 (the "Cutoff Date"), the
Seller's security interests in the new and used medium- and heavy-duty trucks
and tractors manufactured by Freightliner and used trucks and tractors
manufactured by companies other than Freightliner securing the Receivables, a
Shortfall Amount Agreement between Mercedes-Benz Credit Corporation and the
Seller (see "The Certificates -- Shortfall Amount Agreement") and certain other
property. See "The Trust Property." The aggregate principal balance of the
Receivables on the Cutoff Date was $862,927,984.74.
The Class A Certificates will be represented initially by certificates
registered in the name of Cede & Co., as nominee of DTC. The interests of
beneficial owners of the Class A Certificates will be represented by book
entries on the records of DTC and participating members thereof. Definitive
Class A Certificates will be available only under the limited circumstances
described herein. See "The Certificates -- General," "-- Book Entry
Registration" and "-- Definitive Certificates."
THERE CURRENTLY IS NO SECONDARY MARKET FOR THE CLASS A CERTIFICATES AND
THERE IS NO ASSURANCE THAT ONE WILL DEVELOP. THE UNDERWRITERS EXPECT, BUT ARE
NOT OBLIGATED, TO MAKE A MARKET IN THE CLASS A CERTIFICATES AND MAY DISCONTINUE
MARKET MAKING AT ANY TIME. ACCORDINGLY, NO ASSURANCE CAN BE GIVEN AS TO THE
LIQUIDITY OF, OR TRADING MARKET FOR, THE CLASS A CERTIFICATES.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A
CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
The Seller has filed with the Securities and Exchange Commission (the
"Commission"), on behalf of the Trust, a Registration Statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Class A Certificates offered pursuant to this Prospectus. For further
information, reference is made to such Registration Statement, and the exhibits
thereto, which are available for inspection without charge at the public
reference facilities of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, as well as the Regional Offices of the Commission at 500 West
Madison Street, Chicago, Illinois 60661, and 7 World Trade Center, New York, New
York 10048. Copies of such information can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Such reports and other documents may also be obtained from the
web site that the Commission maintains at http://www.sec.gov. The Servicer, on
behalf of the Trust, will also file or cause to be filed with the Commission
such periodic reports as may be required under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), the rules and regulations of the
Commission thereunder and the January 6, 1995 "no-action" letter of the
Commission's Division of Corporation Finance regarding Daimler-Benz Vehicle
Trust 1994-A, but only to the extent that the continued registration of the
Class A Certificates under the Exchange Act is required to qualify the Class A
Certificates as "publicly offered security(ies)" pursuant to the regulations of
the United States Department of Labor promulgated under the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"). See "ERISA Considerations."
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REPORTS TO THE CLASS A CERTIFICATEHOLDERS
Unless and until definitive Class A Certificates are issued, monthly and
annual reports concerning the Receivables and the Trust will be prepared by the
Servicer and sent by the Trustee, on behalf of the Trust, only to Cede & Co., as
nominee of DTC and as registered holder of the Class A Certificates, pursuant to
the Agreement (as defined herein). Such reports may be available to beneficial
owners of Certificates ("Certificate Owners") in accordance with the regulations
and procedures of DTC. Such reports will not contain audited financial
statements with respect to the Trust. The Seller does not intend to send any of
its financial reports to Certificateholders or to Certificate Owners. See "The
Certificates -- Book Entry Registration" and "-- Statements to Class A
Certificateholders."
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PROSPECTUS SUMMARY
This Summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus. Certain capitalized terms
used in this Summary are defined elsewhere in this Prospectus. See the Index of
Principal Terms for the location herein of the definitions of capitalized terms.
Issuer..................... Daimler-Benz Vehicle Trust 1996-A (the "Trust"), to
be formed by the Seller pursuant to a Pooling and
Servicing Agreement to be dated as of November 1,
1996 (the "Agreement"), among the Seller, the
Servicer, MBCC, the Payahead Agent, the Class A
Agent, the Class B Agent and the Trustee.
Seller..................... Daimler-Benz Vehicle Receivables Corporation, a
wholly-owned subsidiary of Mercedes-Benz Credit
Corporation ("MBCC").
Servicer................... MBCC, a wholly-owned subsidiary of Daimler-Benz
North America Corporation ("DBNA").
The Certificates........... The Certificates consist of two classes, entitled
% Asset Backed Certificates, Class A (the
"Class A Certificates") and % Asset Backed
Certificates, Class B (the "Class B Certificates").
Only the Class A Certificates are being offered
hereby. Each Certificate will represent a
fractional undivided ownership interest in certain
assets of the Trust.
Class A Certificates....... The Class A Certificates will evidence, in the
aggregate, an undivided ownership interest of
92.15% (the "Class A Percentage") of the principal
balance of, and a portion of the interest accruing
under, the Receivables held by the Trust (which
principal initially represents $795,188,137.94).
See "The Certificates -- Distributions on
Certificates." The Class A Certificates will be
offered for purchase in denominations of $1,000 and
integral multiples thereof. See "The Certificates
-- General."
Class B Certificates....... The Class B Certificates will evidence, in the
aggregate, an undivided ownership interest of 7.85%
(the "Class B Percentage") of the principal balance
of, and a portion of the interest accruing under,
the Receivables held by the Trust (which principal
initially represents $67,739,846.80). The Class B
Certificates are subordinated to the Class A
Certificates, to the extent described herein. The
Class B Certificates are not being offered hereby.
The Seller will initially retain the Class B
Certificates but may, in its discretion,
subsequently sell all or part of the Class B
Certificates.
Retained Yield............. The Seller will retain the right to receive
distributions (the "Retained Yield"), with respect
to each Receivable, equal to the interest accrued
on such Receivable, during each period between
payment dates for such Receivable, at a rate equal
to the excess, if any, of (i) the annual percentage
rate of interest ("APR") of such Receivable over
(ii) the sum of the Pass-Through Rate and the
Servicing Rate.
Trust Property............. The property of the Trust (the "Trust Property")
will include (i) a pool of retail installment
contracts for, and retail loans evidenced by notes
(collectively, the "Receivables") secured by new
and used medium- and heavy-duty trucks and tractors
manufactured by Freightliner Corporation
("Freightliner") and used trucks and
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tractors manufactured by companies other than
Freightliner, together with all accessions thereto
(the "Financed Vehicles"), (ii) all monies due
under the Receivables on or after November 1, 1996
(the "Cutoff Date") (but excluding Excess Amounts),
(iii) all amounts and property from time to time
held in or credited to the Collection Account and
the Certificate Account, (iv) all of the Seller's
security interests in the Financed Vehicles, (v)
all rights to receive payments under certain
circumstances from the Reserve Funds, (vi) all of
the Seller's rights under the Shortfall Amount
Agreement, (vii) all of the Seller's rights to
receive proceeds from claims on physical damage,
credit life and disability insurance policies
covering the Financed Vehicles or from the obligors
under the Receivables (the "Obligors"), (viii) all
of the Seller's right to all documents contained in
the Receivable Files, (ix) certain rights under the
Purchase Agreement, (x) all of the Seller's rights,
if any, of recourse against Dealers arising out of
breaches by Dealers in connection with the
Receivables, (xi) all property (including the right
to receive future Liquidation Proceeds and
Recoveries) that secures a Receivable and that will
have been acquired by or on behalf of the Trustee,
(xii) the Servicing Guaranty Agreement, and (xiii)
all proceeds (within the meaning of Section 9-306
of the Uniform Commercial Code (the "UCC")) of the
foregoing. See "The Trust Property."
The Receivables will be purchased by the Seller
from MBCC pursuant to a Purchase Agreement (the
"Purchase Agreement") between the Seller and MBCC
providing for such purchase on or before the date
of initial issuance of the Certificates (the
"Closing Date").
Pass-Through Rate.......... % per annum, calculated on the basis of a
360-day year consisting of twelve 30-day months
(the "Pass-Through Rate").
Distribution Date.......... The 20th day of each month (or, if such 20th day is
not a business day, the next following business
day) (each, a "Distribution Date") beginning
December 20, 1996.
Interest................... On each Distribution Date, the Trustee will
distribute an amount pro rata to the holders of
record of Class A Certificates (the "Class A
Certificateholders") as of the 19th day of the
current calendar month (or, if Definitive
Certificates are issued, the last day of the
calendar month immediately preceding such
Distribution Date) (the "Record Date"). Such amount
will be equal to 30 days' interest at the Pass-
Through Rate on the Class A Principal Balance as of
the first day of the preceding calendar month (less
principal distributions to be made on the
Distribution Date in such month) generally to the
extent of funds available from (i) the Available
Interest after payment of the Servicing Fee, (ii)
the Class A Reserve Fund and (iii) the Class B
Percentage of the Available Principal.
The "Class A Principal Balance" will initially
equal $795,188,137.94 (the "Original Class A
Principal Balance") and will thereafter be reduced
by all amounts previously distributed to the Class
A Certificateholders and allocable to principal.
See "The Certificates -- Distributions on
Certificates."
Principal.................. On each Distribution Date, the Trustee will
distribute pro rata to Class A Certificateholders,
as of the related Record Date, Class A
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8
Principal, generally to the extent of funds
available from (i) Available Principal, (ii) the
Class A Reserve Fund and (iii) Available Interest
remaining after payment of the Servicing Fee, Class
A Interest, Class A Interest Carryover Shortfall,
Class B Interest and Class B Interest Carryover
Shortfall.
"Class A Principal" will consist of the Class A
Percentage of (a) the principal portion of all
scheduled payments due on Receivables during the
preceding Collection Period, (b) the Principal
Balance of each Receivable that became a Prepaid
Receivable during the preceding Collection Period
(except to the extent included in (a) or (d)), (c)
the Principal Balance of each Receivable that was
purchased by the Servicer or repurchased by the
Seller, in each case, under an obligation that
arose during the preceding Collection Period
(except to the extent included in (a)), and (d) the
Principal Balance of each Receivable which became a
Defaulted Receivable during the preceding
Collection Period (except to the extent included in
(a) or (b)).
A "Collection Period" with respect to a
Distribution Date will be the calendar month
preceding the month in which such Distribution Date
occurs. See "The Certificates -- Distributions on
Certificates."
A "Prepaid Receivable" is a Receivable which is
prepaid in full or accelerated under certain
circumstances or with respect to which the related
Financed Vehicle is repossessed and sold or becomes
a total loss. A "Defaulted Receivable" is a
Receivable which by its terms is in default and as
to which (a) a scheduled payment is 180 or more
days past due, (b) the Servicer has determined, in
accordance with its customary servicing procedures,
that eventual payment in full is unlikely or (c)
the Servicer has repossessed and disposed of the
related Financed Vehicle.
Registration of
Certificates............... The Class A Certificates will be represented
initially by physical certificates registered in
the name of Cede & Co. as nominee of The Depository
Trust Company ("DTC"). No person acquiring a
beneficial ownership interest in the Class A
Certificates ("Class A Certificate Owners" or
"Certificate Owners") will be entitled to receive a
definitive certificate representing such person's
interest in the Trust except in certain limited
circumstances, as described herein. Under the terms
of the Agreement, unless definitive certificates
are issued, Class A Certificate Owners will not be
recognized as Class A Certificateholders and will
be permitted to exercise the rights of the Class A
Certificateholders only indirectly through DTC. See
"The Certificates -- General," "-- Book Entry
Registration" and "-- Definitive Certificates."
Servicing Fee.............. A monthly fee for servicing the Receivables will be
payable to the Servicer on each Distribution Date
in an amount equal to one-twelfth of the product of
the Servicing Rate and the Pool Balance as of the
first day of the preceding Collection Period, and
will be payable generally out of collections of
interest on the Receivables prior to distributions
to the Certificateholders (the "Servicing Fee").
The "Servicing Rate" will equal 1.00% per annum.
The Servicer will also be entitled to receive other
amounts, including all late payment fees
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and charges paid with respect to the Receivables as
additional servicing compensation. See "The
Certificates -- Servicing Compensation."
Pool Balance............... The "Pool Balance" means, as of any date, the
aggregate outstanding Principal Balance of the
Receivables (excluding Defaulted Receivables) as of
the close of business on such date.
Subordination.............. The rights of holders of record of the Class B
Certificates (the "Class B Certificateholders" and,
together with the Class A Certificateholders, the
"Certificateholders") to receive distributions to
which they would otherwise be entitled with respect
to the Receivables will be subordinated to the
rights of the Class A Certificateholders to the
extent described herein. See "The Certificates --
Distributions on Certificates" and "--
Subordination of the Class B Certificates and
Retained Yield; Reserve Funds."
The Class B Certificateholders generally will not
receive distributions of interest on a Distribution
Date (other than from the Class B Reserve Fund)
unless the Class A Certificateholders receive the
full amount of interest due to them on such
Distribution Date (including from amounts on
deposit in the Class A Reserve Fund), and the Class
B Certificateholders will not receive distributions
of principal on a Distribution Date (other than
from the Class B Reserve Fund) unless the Class A
Certificateholders receive the full amount of
interest and principal due to them on such
Distribution Date (including from amounts on
deposit in the Class A Reserve Fund). However,
distributions of interest on the Class B
Certificates will not be subordinated to
distributions of principal on the Class A
Certificates.
In addition, the rights of the Seller to receive
the Retained Yield will be subordinated to the
rights of the Class A Certificateholders and the
Class B Certificateholders to receive amounts due
to each of them. Accordingly, the Seller will not
receive distributions attributable to the Retained
Yield on any Distribution Date unless all interest
and principal due to the Class A Certificateholders
and Class B Certificateholders have been paid and
amounts on deposit in the Class A Reserve Fund and
Class B Reserve Fund are at least equal to the
Specified Class A Reserve Balance and Specified
Class B Reserve Balance, respectively (each as
defined below).
Reserve Funds.............. General. A separate reserve fund will be created
for the Class A Certificates and the Class B
Certificates (the "Class A Reserve Fund" and the
"Class B Reserve Fund," respectively, and
collectively, the "Reserve Funds"). Amounts on
deposit in the Class A Reserve Fund will be
available on any Distribution Date to cover
Shortfall Amounts (as defined below) and shortfalls
in distributions of interest and principal on the
Class A Certificates to the extent attributable to
losses and delinquencies on the Receivables.
Amounts on deposit from time to time in the Class A
Reserve Fund and the Class B Reserve Fund will be
invested, as provided in the Agreement, in Eligible
Investments maturing on or prior to the next
succeeding Distribution Date; provided, however,
that to the extent permitted by the Rating
Agencies, amounts on deposit in the Class A Reserve
Fund and the Class B Reserve Fund may be invested
in Eligible
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Investments that mature later than the next
succeeding Distribution Date.
Class A Reserve Initial Deposit. The Class A
Reserve Fund initially will be funded by the Seller
with cash or Eligible Investments maturing on or
prior to the initial Distribution Date and having,
on the Closing Date, a value of approximately
$25,887,839.54 (the "Class A Reserve Initial
Deposit"). The Class A Reserve Initial Deposit will
be augmented on each Distribution Date by the
deposit by MBCC in the Class A Reserve Fund of an
amount equal to the aggregate Shortfall Amount for
the related Collection Period and by the deposit
therein of cash otherwise distributable to the
Seller as Retained Yield to the extent necessary to
maintain the amount in the Class A Reserve Fund at
an amount equal to the Specified Class A Reserve
Balance (as defined below).
Amounts in the Class A Reserve Fund on any
Distribution Date (reduced by the amount of all
distributions made on such Distribution Date) in
excess of the Specified Class A Reserve Balance for
such Distribution Date generally will be released
for deposit into the Class B Reserve Fund or, to
the extent the amount on deposit therein is equal
to the Specified Class B Reserve Balance (as
defined below), for payment to the Seller.
Specified Class A Reserve Balance. The "Specified
Class A Reserve Balance" with respect to any
Distribution Date will equal $25,887,839.54;
provided, however, that with respect to any
Distribution Date on which (i) the annualized
average for the preceding three Collection Periods
of the ratios of net losses (that is, the net
balances of all Receivables which are determined to
be uncollectible in the applicable Collection
Period, less any Liquidation Proceeds or Recoveries
received in such Collection Period) to the Pool
Balance as of the first day of each such Collection
Period exceeds 2.5% or (ii) the average for the
preceding three Collection Periods of the ratios of
the balance of Receivables that are delinquent 60
days or more to such outstanding Pool Balance
exceeds 3.5%, the Specified Class A Reserve Balance
for such Distribution Date will equal
$32,359,799.43. The Class A Reserve Fund will be
maintained with the Class A Agent as an Eligible
Deposit Account and will not be part of the Trust.
See "The Certificates -- Subordination of the Class
B Certificates and Retained Yield; Reserve Funds."
The Seller may reduce the Specified Class A Reserve
Balance provided that both Rating Agencies confirm
in writing to the Class A Agent and the Seller
prior to such reduction that such reduction will
not result in a lowering of or a withdrawal of the
then current rating of the Class A Certificates.
Specified Class B Reserve Balance. The "Specified
Class B Reserve Balance" will initially be zero and
remain zero for so long as the Seller retains the
Class B Certificates. At such time, if any, that
the Seller sells the Class B Certificates, the
Specified Class B Reserve Balance will be an amount
determined by the Seller in consultation with the
Rating Agencies in order to achieve the desired
rating for the Class B Certificates.
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Shortfall Amount........... The "Shortfall Amount" is the amount calculated by
the Servicer with respect to each Prepaid
Receivable during a Collection Period equal to the
excess, if any, of (i) the sum of (x) the Principal
Balance of such Receivable at the beginning of the
Collection Period in which such Receivable becomes
a Prepaid Receivable and (y) one month's interest
on such Principal Balance at the APR of such
Receivable over (ii) the amount received from the
related Obligor in connection with such prepayment.
Shortfall Amount
Agreement................ MBCC will enter into a shortfall amount agreement
(the "Shortfall Amount Agreement") with the Seller,
which will assign the Shortfall Amount Agreement to
the Trust. To the extent that amounts on deposit in
the Class A Reserve Fund are not sufficient on any
Distribution Date to cover the Shortfall Amounts
with respect to such Distribution Date, pursuant to
the Shortfall Amount Agreement, MBCC will pay to
the Certificate Account the amount of such
insufficiency. See "The Certificates -- Shortfall
Amount Agreement."
Advances................... The Servicer each month will advance to the Trust,
in respect of each Receivable, that portion of
scheduled payments that was not timely made (an
"Advance"). The Servicer will be entitled to
reimbursement of Advances from subsequent payments
on or with respect to the Receivables. The Servicer
will not be required to make any Advance to the
extent that it does not expect to recoup the
Advance from subsequent collections or recoveries.
See "The Certificates -- Advances."
Repurchases and Purchases
of Certain Receivables... The Seller will be obligated to repurchase any
Receivable if the interest of the Trust and the
Certificateholders therein is materially and
adversely affected by a breach of any
representation or warranty made by the Seller with
respect to the Receivable, if the breach has not
been cured by the last day of the Collection
Period, which includes the 60th day after the date
of discovery by or notice to the Seller of the
breach. Simultaneously with the Seller's repurchase
from the Trust, MBCC will be obligated to
repurchase the Receivable from the Seller pursuant
to the Purchase Agreement. See "The Certificates --
Mandatory Repurchase of Receivables."
The Servicer will be obligated to purchase any
Receivable if, among other things, the Servicer (i)
extends the date for final payment by the Obligor
of such Receivable beyond the last day of the
Collection Period immediately preceding the Final
Scheduled Distribution Date, (ii) changes the
amount or the number of the scheduled payments of
such Receivable or (iii) fails to maintain a
perfected security interest in the related Financed
Vehicle in accordance with the Servicer's customary
servicing procedures. See "The Certificates --
Servicing Procedures."
Optional Purchase.......... In the event that the Pool Balance as of the last
day of a Collection Period has declined to 10% or
less of the initial Pool Balance, the Servicer may
purchase all remaining Receivables at a purchase
price equal to the aggregate of the Purchase
Amounts thereof on the Distribution Date occurring
in any subsequent Collection Period which
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follows the Collection Period in which appropriate
notice is given to Certificateholders. See "The
Certificates -- Termination."
Trustee.................... Citibank, N.A. (the "Trustee").
Class A Agent, Class B
Agent and Payahead
Agent.................... Citibank, N.A. (the "Class A Agent," the "Class B
Agent" and the "Payahead Agent").
Tax Status................. In the opinion of Morgan, Lewis & Bockius LLP,
special tax counsel to the Seller, the Trust will
be classified for federal income tax purposes as a
grantor trust and not as a partnership or as an
association taxable as a corporation. Class A
Certificateholders must report their respective
allocable shares of income earned on Trust assets
(excluding certain amounts retained by the Seller
as described herein) and, subject to certain
limitations applicable to individuals, estates and
trusts, may deduct their respective allocable
shares of reasonable servicing and other fees. See
"Certain Federal Income Tax Consequences."
Rating..................... It is a condition to the issuance of the Class A
Certificates that the Class A Certificates be rated
Aaa by Moody's Investors Service, Inc. ("Moody's")
and AAA by Standard & Poor's Ratings Services, a
Division of The McGraw-Hill Companies, Inc. ("S&P")
(each, a "Rating Agency"). The rating assigned to
the Class A Certificates by a Rating Agency will
reflect such Rating Agency's assessment of the
likelihood that Class A Certificateholders will
receive the payments of interest and principal
required to be made under the Agreement, in the
case of principal, on or prior to the Final
Scheduled Distribution Date, and in the case of
interest, on each Distribution Date. A rating of a
security is not a recommendation to buy, sell or
hold securities and may be revised or withdrawn at
any time by the assigning Rating Agency.
ERISA Considerations....... Under final regulations issued by the Department of
Labor, the Trust's assets would not be deemed to be
"plan assets" of an employee benefit plan and
certain other retirement plans and arrangements
(all of which are hereinafter referred to as a
"Plan"), subject to ERISA, acquiring a Class A
Certificate if certain conditions are met,
including the condition that the Class A
Certificates be held by at least 100 persons upon
completion of the public offering being made
hereby. The Underwriters expect, although no
assurances can be given, that the Class A
Certificates will be held by at least 100 persons,
and it is anticipated that the other conditions of
the regulations will be met. If the Trust's assets
were deemed to be "plan assets" of a Plan, by
virtue of such Plan's acquisition of a Class A
Certificate, certain transactions concerning the
Trust's assets could result in a prohibited
transaction or other violations of the fiduciary
responsibility provisions of ERISA and Section 4975
of the Internal Revenue Code of 1986, as amended.
Accordingly, the fiduciary contemplating the
purchase of Class A Certificates should consult its
counsel before making a purchase. See "ERISA
Considerations."
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RISK FACTORS
Investors should consider, among other things, the following factors in
connection with the purchase of the Class A Certificates.
LIMITED LIQUIDITY
There currently is no secondary market for the Class A Certificates. The
Underwriters expect, but are not obligated, to make a market in the Class A
Certificates and may discontinue market making at any time. There is no
assurance that any such market will develop or, if one does develop, that it
will provide liquidity of investment or will continue for the life of the Class
A Certificates.
POTENTIAL PRIORITY OF CERTAIN OTHER INTERESTS
The Seller will cause financing statements to be filed with the appropriate
governmental authorities to perfect the interest of the Trust in its purchase of
the Receivables, and the Servicer will hold the Receivables, either directly or
through subservicers, as custodian for the Trustee following the sale and
assignment of the Receivables to the Trust. The Receivables will not be
segregated, stamped or otherwise marked to indicate that they have been sold to
the Trust. If, through inadvertence or otherwise, another party purchases (or
takes a security interest in) the Receivables for new value in the ordinary
course of business and takes possession of the Receivables without actual
knowledge of the Trust's interest, the purchaser (or secured party) will acquire
an interest in the Receivables superior to the interest of the Trust and as a
result reductions in the amounts of distributions to Certificateholders could
result. See "Certain Legal Aspects of the Receivables -- Rights in the
Receivables."
The Seller will assign its security interests in the Financed Vehicles
along with the sale and assignment of the Receivables to the Trustee, and the
Servicer will hold the certificates of title or ownership relating to the
Financed Vehicles, either directly or through subservicers, as custodian for the
Trustee following the sale and assignment of the Receivables to the Trust. The
certificates of title or ownership will not be endorsed or otherwise amended to
identify the Trust as the new secured party. Because the Trust will not be
identified as the secured party on any certificates of title or ownership, the
security interest of the Trust in a Financed Vehicle (i) might be defeated
through fraud, forgery, negligence or error and (ii) may not be perfected in
every state and as a result reductions in the amounts of distributions to
Certificateholders could result. See "Certain Legal Aspects of the Receivables
- -- Security Interests in the Financed Vehicles."
POTENTIAL EFFECTS OF INSOLVENCY
The Seller has taken steps in structuring the transactions contemplated
hereby that are intended to ensure that the voluntary or involuntary application
for relief by MBCC under Title 11 of the United States Code (the "Bankruptcy
Code") or similar state laws (collectively, "Insolvency Laws") will not result
in consolidation of the assets and liabilities of the Seller with those of MBCC.
These steps include the creation of the Seller as a separate, limited-purpose
subsidiary of MBCC pursuant to a certificate of incorporation containing certain
limitations (including restrictions on the nature of the Seller's business and a
restriction on the Seller's ability to commence a voluntary case or proceeding
under any Insolvency Law without the prior unanimous affirmative vote of all of
its directors). However, there can be no assurance that the activities of the
Seller would not result in a court concluding that the assets and liabilities of
the Seller should be consolidated with those of MBCC in a proceeding under any
Insolvency Law. If a court were to reach such a conclusion, or a filing were
made under any Insolvency Law by or against the Seller, or if an attempt were
made to litigate any of the foregoing issues, then delays in distributions on
the Certificates could occur or reductions in the amounts of such distributions
could result. See "The Seller."
It is intended by MBCC and the Seller that the transfer of the Receivables
by MBCC to the Seller under the Purchase Agreement constitute a "true sale" of
the Receivables to the Seller. If the transfer constitutes such a "true sale,"
the Receivables and the proceeds thereof would not be part of MBCC's
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bankruptcy estate under Section 541 of the Bankruptcy Code should MBCC become
the subject of a bankruptcy case subsequent to the transfer of the Receivables
to the Seller.
In Octagon Gas Systems, Inc. v. Rimmer, 995 F.2d 948 (10th Cir. 1993),
cert. denied, 114 S. Ct. 554 (1993), the United States Court of Appeals for the
10th Circuit suggested that even where a transfer of accounts from a seller to a
buyer constitutes a "true sale," the accounts would nevertheless constitute
property of the seller's estate in a bankruptcy of the seller. If MBCC or the
Seller were to become subject to a bankruptcy proceeding and a court were to
follow the Octagon court's reasoning, Certificateholders might experience delays
in payment or possibly losses on their investment in the Certificates. As part
of the opinion of Special Counsel (as defined herein) regarding the "true sale"
of the Receivables by MBCC to the Seller described herein, such counsel will
advise the Seller that the reasoning of the Octagon case appears to be
inconsistent with precedent and the UCC. See "The Seller."
PREPAYMENT CONSIDERATIONS
The weighted average life of the Class A Certificates may be reduced by
prepayments in full on Receivables. The Receivables are prepayable at any time.
Prepayments may also result from liquidations due to default, the receipt of
proceeds from physical damage or other insurance, repurchases by the Seller as a
result of certain uncured breaches of the warranties made by it in the Agreement
with respect to the Receivables, purchases by the Servicer as a result of
certain uncured breaches of the covenants made by it in the Agreement with
respect to the Receivables, or the Servicer exercising its optional purchase
right. The rate of prepayments on the Receivables may be influenced by a variety
of economic, social, and other factors, including the fact that if an Obligor
sells or transfers a Financed Vehicle, the related Receivable must be repaid in
full.
MBCC does not generally maintain records of the historical prepayment
experience of its Commercial Vehicle Contract portfolio. No assurance can be
given that prepayments on the Receivables will conform to any historical
experience and no prediction can be made as to the actual prepayment experience
on the Receivables. See "The Receivables -- Maturity and Prepayment
Assumptions." Any reinvestment risk resulting from the rate of prepayments of
the Receivables and the distribution of such prepayments to Class A
Certificateholders will be borne entirely by the Class A Certificateholders.
There can be no assurance that the Certificateholders will be able to reinvest
funds in an instrument with a comparable interest rate in the event the
Certificates are prepaid.
LIMITED ASSETS; SUBORDINATION
The Trust does not have, nor is it permitted or expected to have, any
significant assets or sources of funds other than the Receivables and other
Trust Property, including the right to receive payments under certain
circumstances pursuant to the Shortfall Amount Agreement and from the Reserve
Funds. The Class A Certificates represent interests solely in the Trust and the
Class A Certificates are not obligations of, and will not be insured or
guaranteed by, the Seller, the Servicer, DBNA, the Trustee or any other person
or entity. Consequently, Class A Certificateholders must rely for payment upon
payments on or on account of the Receivables (to the extent described herein),
payments under the Shortfall Amount Agreement and, if and to the extent
available, amounts on deposit in the Class A Reserve Fund.
Amounts on deposit in the Class A Reserve Fund will be available on any
Distribution Date to cover Shortfall Amounts and shortfalls in distributions of
interest and principal on the Class A Certificates to the extent attributable to
losses and delinquencies on the Receivables. If the Class A Reserve Fund is
exhausted, the Trust will depend solely on current payments on the Receivables
(to the extent available to make payments to the Class A Certificateholders) and
payments under the Shortfall Amount Agreement to make distributions on the Class
A Certificates. See "The Certificates -- Shortfall Amount Agreement" and "--
Distributions on Certificates." Although the Class B Certificates will be
subordinate to the Class A Certificates to the extent described herein,
distributions of interest due to the Class B Certificateholders will not be
subordinate to distributions of principal due to the Class A Certificate-
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holders. Moreover, the Class A Certificateholders will not be entitled to
distributions from amounts on deposit in the Class B Reserve Fund.
RISK OF DELINQUENCIES, REPOSSESSIONS AND LOSSES; SOCIAL, LEGAL AND ECONOMIC
FACTORS
Delinquencies, repossessions and losses on commercial vehicle contracts are
particularly sensitive to adverse factors affecting the U.S. industrial sector.
The Seller, however, is unable to determine and has no basis to predict whether,
or to what extent, social, legal or economic factors will affect future payment
patterns.
LIMITED NATURE OF CERTIFICATE RATING
It is a condition to the issuance of the Class A Certificates that the
Class A Certificates be rated Aaa by Moody's and AAA by S&P. The rating is based
primarily on the credit quality of the Receivables and the level of
subordination of the Class B Certificates. There is no assurance that the rating
will remain for any given period of time or that the rating will not be lowered
or withdrawn entirely by the assigning Rating Agency, if in its judgment
circumstances in the future so warrant. The rating assigned to the Class A
Certificates by a Rating Agency will reflect such Rating Agency's assessment of
the likelihood that Class A Certificateholders will receive the payments of
interest and principal required to be made under the Agreement, in the case of
principal, on or prior to the Final Scheduled Distribution Date, and in the case
of interest, on each Distribution Date. The rating is not a recommendation to
purchase, hold or sell Class A Certificates, inasmuch as a rating does not
comment as to market price or suitability for a particular investor.
NEWLY FORMED TRUST
The Seller will establish the Trust by selling and assigning the
Receivables and certain other Trust Property to the Trustee in exchange for the
Certificates. The Trust will have no operating history and will not acquire any
assets other than the Trust Property, nor will the Trust engage in any business
activity other than acquiring and holding Trust Property and proceeds therefrom,
issuing Certificates, making payments thereon and related activities. See
"Formation of the Trust."
EFFECTS OF BOOK ENTRY REGISTRATION OF THE CLASS A CERTIFICATES
The Class A Certificates will be represented initially by physical
certificates registered in the name of Cede & Co. as nominee of DTC, and will
not be registered in the names of the Certificate Owners or their nominees. No
Class A Certificate Owner will be entitled to receive a definitive certificate
representing such person's interest in the Trust except in certain limited
circumstances, as described herein. Under the terms of the Agreement, unless
definitive certificates are issued, Class A Certificate Owners will not be
recognized as Certificateholders, and will be permitted to exercise the rights
of the Certificateholders only indirectly through DTC. See "The Certificates --
General," "-- Book Entry Registration" and "-- Definitive Certificates." Unless
and until Definitive Certificates are issued, monthly and annual reports
concerning the Trust will be sent to Cede & Co., as nominee of DTC and
registered holder of the Class A Certificates, and not directly to Certificate
Owners who may obtain such reports through DTC and its Indirect Participants.
See "Reports to the Class A Certificateholders."
TAX ACCOUNTING ISSUES
There is uncertainty with respect to a number of issues that could affect
the amount, character and timing of income required to be reported by Class A
Certificate Owners for federal income tax purposes because there are no judicial
or administrative authorities addressing substantially similar facts. In
general, these issues include whether the Internal Revenue Service will view the
Class A Certificate Owners as owning undivided interests in each Receivable and
each other asset of the Trust or, alternatively, as owning an undivided interest
in a single debt obligation of the Seller; the allocation of tax basis among
various items, including the Shortfall Amount Agreement; the methodology and
assumptions
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relating to the calculation of original issue discount; and the treatment and
characterization of certain payments, including whether any portion of the
Servicing Fees would be treated as "stripped coupons" under Section 1286 of the
Code. Furthermore, for administrative convenience, the Servicer intends to adopt
certain conventions for calculating income on the Receivables which include
estimation of accrued amounts on and calculating income from all of the
Receivables and the Shortfall Amount Agreement on an aggregate basis. The use of
such methods could result in the income reported to Class A Certificate Owners
for any period being different from the income that would be reported if income
were reported on a Receivable-by-Receivable basis over the period during which
income accrues on each Receivable. If reporting on such basis results in
under-reporting of income, or if the Internal Revenue Service were to take a
position different from that adopted by the Trust with respect to any issue, a
Class A Certificate Owner could be required to pay interest on underpayments of
tax and could be subject to penalties for under-reporting of income. For a
further discussion of the foregoing, see "Certain Federal Income Tax
Consequences -- Tax Accounting Issues" herein.
FORMATION OF THE TRUST
The Seller will establish the Trust by selling and assigning the
Receivables and certain other Trust Property to the Trustee in exchange for the
Certificates. Prior to such sale and assignment, the Trust will have no assets
or obligations or any operating history. The Trust will not engage in any
activity other than acquiring and holding Trust Property and proceeds therefrom,
issuing Certificates, making payments thereon and related activities.
The Servicer will service the Receivables, either directly or through
subservicers, and will be paid the Servicing Fee out of collections from the
Receivables, prior to distributions to Certificateholders. Certain other
expenses of the Trust will be paid by or on behalf of the Servicer or the Seller
as provided in the Agreement. See "The Certificates -- Servicing Procedures,"
"-- Servicing Compensation" and "-- Distributions on Certificates."
The Servicer will hold the Receivables and the certificates of title or
ownership relating to the Financed Vehicles as custodian for the Trustee.
However, the Receivables will not be marked or stamped to indicate that they
have been sold to the Trust, and the certificates of title or ownership for the
Financed Vehicles will not be endorsed or otherwise amended to identify the
Trust as the new secured party. Under such circumstances and in certain
jurisdictions, the Trust's interest in the Receivables and the Financed Vehicles
may be defeated. See "Certain Legal Aspects of the Receivables."
The Trust will not acquire any assets other than the Trust Property, and it
is not anticipated that the Trust will have any need for additional capital
resources. Because the Trust will have no operating history upon its
establishment and will not engage in any business other than acquiring and
holding the Trust Property, issuing the Certificates and distributing payments
on the Certificates, no historical or pro forma financial statements or ratios
of earnings to fixed charges with respect to the Trust have been included
herein.
THE TRUST PROPERTY
Each Certificate will represent a fractional undivided interest in certain
assets of the Trust. The Trust Property will include (i) the Receivables, (ii)
all monies due thereunder on or after the Cutoff Date (but excluding Excess
Amounts), (iii) all amounts and property from time to time held in or credited
to the Collection Account and the Certificate Account, (iv) all of the Seller's
security interests in the Financed Vehicles, (v) all rights to receive payments
under certain circumstances from the Reserve Funds, (vi) all of the Seller's
rights under the Shortfall Amount Agreement, (vii) all of the Seller's rights to
receive proceeds from claims on physical damage, credit life and disability
insurance policies covering the Financed Vehicles or the Obligors, (viii) all of
the Seller's right to all documents contained in the Receivable Files, (ix)
certain rights under the Purchase Agreement, including the right of the Seller
to cause MBCC to repurchase Receivables from time to time from the Seller under
certain circumstances
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specified therein, (x) all of the Seller's rights, if any, of recourse against
Dealers arising out of breaches by Dealers in connection with the Receivables,
(xi) all property (including the right to receive future Liquidation Proceeds
and Recoveries) that secures a Receivable and that will have been acquired by or
on behalf of the Trustee, (xii) the Servicing Guaranty Agreement, and (xiii) all
proceeds (within the meaning of Section 9-306 of the UCC) of the foregoing.
MBCC'S COMMERCIAL VEHICLE CONTRACT PORTFOLIO
GENERAL
MBCC currently purchases commercial vehicle retail installment contracts
for, and retail loans evidenced by notes secured by, medium- and heavy-duty
trucks, tractors and trailers (the "Commercial Vehicle Contracts") directly from
authorized Freightliner commercial vehicle dealers ("Dealers") throughout the
United States. The Commercial Vehicle Contracts are originated by the Dealers
who regularly sell such contracts to MBCC as well as to other finance sources.
MBCC purchases Commercial Vehicle Contracts in accordance with its established
underwriting procedures, subject to the terms of an agreement with a Dealer (the
"Dealer Agreement").
The Dealer Agreement, among other things, obligates the Dealer to
repurchase any Commercial Vehicle Contract for the outstanding principal balance
if the Dealer breaches certain representations and warranties. The
representations and warranties typically relate to the origination of the
Commercial Vehicle Contract and the security interest in the related medium- or
heavy-duty truck, tractor or trailer (a "Commercial Vehicle") and not to the
creditworthiness of the obligors under the Commercial Vehicle Contract or the
collectability of the contract.
MBCC purchases Commercial Vehicle Contracts relating to new and used
medium- and heavy-duty trucks and tractors manufactured by Freightliner and
Commercial Vehicle Contracts relating to used trucks and tractors and new and
used trailers manufactured by companies other than Freightliner. See "--
Underwriting" below.
UNDERWRITING
MBCC's underwriting standards emphasize each prospective obligor's ability
to pay and creditworthiness as well as the asset value of the Commercial Vehicle
that secures the Commercial Vehicle Contract. Prior to its purchase of
Commercial Vehicle Contracts, MBCC reviews credit applications from the
obligors. An assessment is made of the relative degree of credit risk indicated
by these criteria and the decision to grant or deny credit is made at the
appropriate management level.
SERVICING AND COLLECTION
MBCC measures delinquency by the number of days elapsed from the date a
payment is due under the Commercial Vehicle Contract (the "Due Date"). MBCC
considers a payment to be past due or delinquent when the obligor fails to pay
$50 or more of a scheduled payment by the related Due Date. MBCC generally
begins collection activities with respect to delinquent Commercial Vehicle
Contracts on the 11th day after the Due Date if payment has not been received.
MBCC also uses an automated system of monitoring delinquency, which categorizes
delinquent accounts into different priorities of collection activity, based on
the level of delinquency of each account.
MBCC's collectors are assigned to specific obligors and attempt to contact
the delinquent obligor by telephone or by letter based on the term of
delinquency and the history of the account. Repossession procedures typically
begin when a Commercial Vehicle Contract becomes between 60 to 90 days
delinquent. Repossession is carried out pursuant to specific procedures adopted
by MBCC.
Any deficiencies remaining after repossession and sale of the related
Commercial Vehicle or after the full charge-off of the related Commercial
Vehicle Contract are pursued by MBCC to the extent practicable and legally
permitted. Obligors are contacted, and when warranted by individual
circumstances,
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repayment schedules are established and monitored until the deficiencies are
either paid in full or become impractical to pursue.
PHYSICAL DAMAGE INSURANCE
Each Commercial Vehicle Contract requires the obligor to obtain physical
damage insurance covering loss or damage to the Commercial Vehicle, except in
the case of certain fleet customers which are permitted to be self-insured in
accordance with MBCC's customary standards. Except for contracts for such fleet
customers, the Dealer Agreements include a requirement that the Dealers provide
MBCC with written confirmation that there is physical damage insurance
acceptable to MBCC covering each Commercial Vehicle at the time that MBCC
purchases the Commercial Vehicle Contracts from the Dealers. If an obligor
required to maintain physical damage insurance fails to maintain the required
insurance, MBCC will, upon receipt of notice of the obligor's failure, contact
the obligor in an attempt to correct the obligor's failure.
DELINQUENCY AND LOSS EXPERIENCE
Set forth below is certain information concerning MBCC's entire portfolio
of Commercial Vehicle Contracts, including Commercial Vehicle Contracts
previously sold which MBCC continues to service. There is no assurance that the
delinquency and loss experience of the Receivables will be comparable to MBCC's
experience shown in the following tables.
DELINQUENCY EXPERIENCE OF THE PORTFOLIO(1)
(DOLLARS IN THOUSANDS)
NINE MONTHS ENDED SEPT.
30, YEARS ENDED DECEMBER 31,
------------------------ ------------------------------------------------
1996 1995 1995 1994 1993 1992
---------- ---------- ---------- ---------- -------- --------
Gross Balance
Outstanding
at end of period... $1,859,527 $1,445,732 $1,528,290 $1,232,260 $856,389 $572,222
Gross Balance Past
Due as a Percentage
of Gross Balance
31-60 Days......... 3.68% 2.95% 3.36% 1.49% 1.85% 2.64%
61-90 Days......... 1.19 0.51 0.89 0.19 0.44 0.32
91 Days or more.... 2.77 0.26 2.62 1.61 0.26 0.84
---------- ---------- ---------- ---------- -------- --------
Total...... 7.64% 3.72% 6.87% 3.29% 2.55% 3.80%
========== ========== ========== ========== ========= =========
- ---------------
(1) The period of delinquency is based on the number of days payments are
contractually past due. Percentages are calculated by dividing the gross
remaining balance past due by the gross balances of the portfolio at the
end of the period.
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NET CREDIT LOSS AND REPOSSESSION EXPERIENCE OF THE PORTFOLIO(1)
(DOLLARS IN THOUSANDS)
NINE MONTHS
ENDED SEPT. 30, YEARS ENDED DECEMBER 31,
-------------------------- -----------------------------------------------
1996 1995 1995 1994 1993 1992
----------- ----------- ----------- --------- --------- ---------
Principal Amount
Outstanding............... $ 1,443,000 $ 1,128,000 $ 1,198,800 $ 976,000 $ 694,400 $ 457,100
Average Principal Amount
Outstanding............... $ 1,301,398 $ 1,039,130 $ 1,072,077 $ 850,808 $ 588,892 $ 369,277
Number of Units
Outstanding............... 37,628 28,815 $ 31,231 24,429 17,631 13,072
Average Number of Units
Outstanding............... 34,067 26,289 27,271 21,202 15,556 11,564
Net Losses(2)............... $ 7,876 $ 2,636 $ 5,297 $ 6,340 $ 2,840 $ 9,076
Number of Repossessions as a
Percent of the Average
Number of Units
Outstanding(3)............ 4.73% 3.02% 2.91% 1.82% 2.75% 2.01%
Net Losses as a Percentage
of Principal
Outstanding............... 0.73%(4) 0.31%(4) 0.44% 0.65% 0.41% 1.99%
Net Losses as a Percentage
of Average Principal
Outstanding............... 0.81%(4) 0.34%(4) 0.49% 0.75% 0.48% 2.46%
- ---------------
(1) All amounts and percentages except as indicated are based on the
principal balances of the Commercial Vehicle Contracts net of unearned finance
and other charges. Averages are computed by taking a simple average of month end
outstandings for each period presented.
(2) Net Losses are equal to the total aggregate principal balance
(including accrued interest up to the time of repossession) determined to be
uncollectible in the period plus all costs of repossession and disposal less
recoveries received.
(3) Number of Repossessions means the number of repossessed Commercial
Vehicles during the period presented.
(4) Annualized rate. The nine-month period ending September 30, 1996 is
not necessarily indicative of a full year's actual results.
MBCC's loss experience for its Commercial Vehicle Contract portfolio is
dependent upon general economic conditions, receivable levels, the number of
repossessions, the amount outstanding at the time of repossession, and the
resale value of repossessed vehicles. MBCC believes that fluctuations in
delinquencies, repossessions and losses on its Commercial Vehicle Contract
portfolio generally follow cycles in the overall business environment.
Delinquencies, repossessions and losses are particularly sensitive to adverse
factors affecting the U.S. industrial sector, because that sector generates a
significant portion of the freight tonnage hauls.
Higher losses in 1992 reflect an increase in default frequency attributable
to a weakened economy and a softened used commercial vehicle market. The
reduction in net losses for 1993, 1994 and 1995 are the result of higher vehicle
resale values, lower repossession rates and the consolidation of MBCC's truck
financing operations. MBCC believes that the increase in delinquencies,
repossessions and losses during the nine months ended September 30, 1996 was due
to the relative overcapacity in the number of freight carriers versus tonnage
hauled. MBCC's underwriting and collection policies have remained constant over
all years presented, while its computerized systems have had significant
software enhancements over the past two years in the areas of collections,
repossession inventory tracking and remarketing of repossession inventory.
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THE RECEIVABLES
SELECTION CRITERIA
The Receivables were purchased by MBCC from Dealers in the ordinary course
of business in accordance with MBCC's underwriting standards. The Receivables
were selected from the MBCC portfolio by several criteria, including the
following: (i) each Receivable was secured by one or more Commercial Vehicles,
(ii) each Receivable had an annual percentage rate of interest ("APR") of at
least 6.90% and not more than 21.04%, (iii) each Receivable had a remaining
maturity, as of the Cutoff Date, of not more than 80 months, and an original
maturity of not more than 84 months, (iv) each Receivable had a remaining
balance (net of unearned precomputed finance charges, as of the Cutoff Date) of
not more than $7,380,657.16 and not less than $527.08, (v) no Receivable was
more than 60 days delinquent as of the Cutoff Date, (vi) no Financed Vehicle had
been repossessed as of the Cutoff Date, (vii) each Receivable is a Fully
Amortizing Receivable or a Balloon Receivable, (viii) each Receivable was
originated prior to November 1, 1996, (ix) no Obligor was, as of the Cutoff
Date, to the knowledge of MBCC, the subject of a proceeding under the Bankruptcy
Code, (x) each Receivable was originated in the United States by a Dealer in
connection with the retail sale of one or more Financed Vehicles in the ordinary
course of such Dealer's business and (xi) the Obligor under each Receivable had
a current billing address in the United States as of the Cutoff Date. The
Receivables are believed by MBCC to be representative of all the Commercial
Vehicle Contracts in MBCC's portfolio that met the above criteria. "Fully
Amortizing Receivables" are Receivables that provide for monthly payments that
fully amortize the amount financed over its original term to maturity. "Balloon
Receivables" are Receivables that provide for monthly payments except that a
larger payment becomes due on the final maturity date for such Receivables.
CERTAIN CHARACTERISTICS
The composition of the Receivables, geographical distribution of the
Receivables, distribution by outstanding balance of the Receivables,
distribution by remaining maturity of the Receivables, distribution by APR of
the Receivables and composition of Balloon Receivables as of the Cutoff Date are
set forth in the following tables:
COMPOSITION OF THE RECEIVABLES
Aggregate Principal Balance...........................................$862,927,984.74
Number of Receivables..........................................................12,301
Number of Commercial Vehicles..................................................18,727
Average Number of Commercial Vehicles per Receivable.............................1.52
Average Receivable Principal Balance.......................................$70,151.04
Average Principal Balance per Commercial Vehicle...........................$46,079.35
Average Original Receivables Amount Financed...............................$86,092.82
(Range)..................................................$3,318.32 to $7,598,965.03
Weighted Average APR...........................................................10.54%
(Range).............................................................6.90% to 21.04%
Weighted Average Original Term to Maturity...............................49.64 months
(Range)..............................................................6 to 84 months
Weighted Average Remaining Term to Maturity..............................40.01 months
(Range)..............................................................1 to 80 months
No single Obligor accounts for more than 2% of the initial aggregate Principal
Balance of the Receivables.
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GEOGRAPHIC DISTRIBUTION OF THE RECEIVABLES(1)
PERCENTAGE OF
TOTAL AGGREGATE
STATE PRINCIPAL BALANCE
- -------------------------------------------------------------------------- -----------------
Alabama................................................................... 4.90%
Arkansas.................................................................. 6.37
California................................................................ 5.03
Colorado.................................................................. 1.43
Florida................................................................... 5.00
Georgia................................................................... 2.36
Illinois.................................................................. 7.09
Indiana................................................................... 3.25
Iowa...................................................................... 1.05
Kansas.................................................................... 1.11
Louisiana................................................................. 2.06
Michigan.................................................................. 2.22
Minnesota................................................................. 1.29
Mississippi............................................................... 1.68
Missouri.................................................................. 3.09
Montana................................................................... 1.08
Nebraska.................................................................. 1.24
New Jersey................................................................ 2.17
New York.................................................................. 2.07
North Carolina............................................................ 2.24
Ohio...................................................................... 6.24
Oklahoma.................................................................. 5.83
Pennsylvania.............................................................. 3.32
Tennessee................................................................. 4.44
Texas..................................................................... 6.83
Virginia.................................................................. 1.02
Washington................................................................ 1.13
Wisconsin................................................................. 4.60
All Other(2).............................................................. 9.85
Total(3)............................................................. 100.00%
=====
- ---------------
(1) Based on the addresses of the Obligors as reflected on the records of MBCC.
(2) No other state accounts for more than 1% of the initial outstanding Pool
Balance.
(3) Percentages may not add to 100.00% due to rounding.
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DISTRIBUTION BY OUTSTANDING
BALANCE OF THE RECEIVABLES
PERCENTAGE
OF AGGREGATE
REMAINING REMAINING
OUTSTANDING NUMBER OF PRINCIPAL PRINCIPAL
BALANCES RECEIVABLES BALANCE BALANCE(1)
------------------------------------ ----------- --------------- ------------
$ 24,999.99 and Less 2,867 $ 43,753,921.73 5.07%
25,000.00 to $ 49,999.99 4,142 152,672,030.53 17.69
50,000.00 to $ 74,999.99 3,013 185,015,676.91 21.44
75,000.00 to $ 99,999.99 1,267 106,666,906.61 12.36
100,000.00 to $249,999.99 508 78,569,970.00 9.11
250,000.00 to $499,999.99 265 89,715,430.14 10.40
500,000.00 to $999,999.99 194 131,543,802.22 15.24
1,000,000.00 and Greater 45 74,990,246.60 8.69
----------- --------------- ------------
Total..................... 12,301 $862,927,984.74 100.00%
=========== =============== =============
- ---------------
(1) Percentages may not add to 100.00% due to rounding.
DISTRIBUTION BY REMAINING MATURITY
OF THE RECEIVABLES POOL
PERCENTAGE
OF AGGREGATE
REMAINING REMAINING REMAINING
MATURITY NUMBER OF PRINCIPAL PRINCIPAL
(MONTHS) RECEIVABLES BALANCE BALANCE(1)
- --------- ----------- --------------- ------------
1 to 11 671 $ 11,835,850.35 1.37%
12 to 23 1,896 90,425,984.14 10.48
24 to 35 3,755 213,523,375.57 24.74
36 to 47 3,416 290,509,032.52 33.67
48 to 59 2,231 226,951,674.63 26.30
60 to 71 306 27,085,820.03 3.14
72 to 80 26 2,596,247.50 0.30
----------- --------------- ------------
Total 12,301 $862,927,984.74 100.00%
=========== =============== =============
- ---------------
(1) Percentages may not add to 100.00% due to rounding.
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DISTRIBUTION BY APR OF THE RECEIVABLES
PERCENTAGE
OF AGGREGATE
REMAINING
NUMBER OF REMAINING PRINCIPAL
APR RANGE(%) RECEIVABLES PRINCIPAL BALANCE BALANCE(1)
- ------------------ ----------- ----------------- ------------
6.900 to 6.999 29 $ 17,515,031.32 2.03%
7.000 to 7.999 453 114,614,892.75 13.28
8.000 to 8.999 1,042 185,042,626.02 21.44
9.000 to 9.999 1,335 118,763,789.79 13.76
10.000 to 10.999 1,281 93,845,925.81 10.88
11.000 to 11.999 1,129 71,208,863.63 8.25
12.000 to 12.999 1,657 88,198,087.59 10.22
13.000 to 13.999 1,504 62,846,824.11 7.28
14.000 to 14.999 1,817 56,343,246.09 6.53
15.000 to 15.999 1,331 36,749,755.72 4.26
16.000 to 16.999 463 10,731,738.99 1.24
17.000 to 17.999 170 4,102,759.67 0.48
18.000 to 18.999 58 1,951,728.16 0.23
19.000 to 19.999 30 959,983.16 0.11
20.000 and Greater 2 52,731.93 0.01
----------- ----------------- ------------
Total 12,301 $862,927,984.74 100.00%
=========== ================ =============
- ---------------
(1) Percentages may not add to 100.00% due to rounding.
COMPOSITION OF BALLOON RECEIVABLES
WEIGHTED
WEIGHTED WEIGHTED AVERAGE
REMAINING REMAINING WEIGHTED AVERAGE AVERAGE ORIGINAL
BALLOON PRINCIPAL AVERAGE ORIGINAL REMAINING AMORTIZATION
TERM (MONTHS) BALANCE COUPON TERM (MONTHS) TERM (MONTHS) TERM (MONTHS)(1)
- ------------- --------------- -------- ------------- ------------- ----------------
1 to 36 $124,902,107.32 8.74% 37 26 54
37 to 48 65,440,323.96 8.87 49 42 64
49 to 60 54,051,679.85 9.74 60 55 72
61 to 72 3,778,704.95 10.81 70 68 81
73 to 80 469,940.85 9.28 84 79 93
-- -- --
--------------- --------
All Balloon
Receivables $248,642,756.93 9.02% 46 37 61
=============== ========= =============== =============== ==================
- ---------------
(1) Amortization term of receivable used to determine monthly payment amount
(excluding balloon payment).
Approximately 51.5% of the total number of Receivables included in the
Trust, and approximately 77.9% by principal balance of the Receivables included
in the Trust, relate to new Commercial Vehicles. Approximately 48.5% of the
total number of Receivables included in the Trust, and approximately 22.1% by
principal balance of the Receivables included in the Trust, relate to used
Commercial Vehicles.
Because the Receivables included in the Trust will not include any
Receivable which has an APR which is less than the sum of the Pass-Through Rate
and the Servicing Rate, certain Receivables may be excluded from the Trust as
ultimately constituted following the determination of the Pass-Through Rate.
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PAYMENTS ON THE RECEIVABLES
MBCC generally allocates payments received on all of the Receivables
according to the "actuarial" method. The actuarial method provides for
amortization of the loan over a series of fixed level monthly installments.
However, Balloon Receivables provide for monthly payments consisting of monthly
installments except that a larger payment becomes due on the final maturity date
for such Receivables. Each monthly installment is deemed to consist of an amount
of interest equal to a percentage of the stated APR of the loan multiplied by
the scheduled principal balance. The remainder of the scheduled payment is
applied to principal. Generally, no adjustment is made in the event of early or
late payments, although in the latter case the obligor is subject to a late
payment penalty.
Notwithstanding that scheduled payments are allocated by MBCC in accordance
with the actuarial method, in the event of a Prepaid Receivable, the amount
owing by the Obligor will be determined by considering that previous payments on
the Receivable were allocated according to the "simple interest" or "Rule of
78's" method. Unlike the actuarial method, the simple interest method treats
each monthly payment as including an installment of interest which is calculated
on the basis of the outstanding principal balance of the receivable multiplied
by the stated APR and further multiplied by the period elapsed (as a fraction of
a calendar year) since the preceding payment of interest was made. As payments
are received, the simple interest method provides that the amount received is
applied first to interest accrued to the date of payment and the balance is
applied to reduce the unpaid principal balance. Accordingly, under the simple
interest method, if an obligor pays a fixed monthly installment before its
scheduled due date, the portion of the payment allocable to interest for the
period since the preceding payment was made will be less than it would have been
had the payment been made as scheduled, and the portion of the payment applied
to reduce the unpaid principal balance will be correspondingly greater.
Conversely, under the simple interest method, if an obligor pays a fixed monthly
installment after its scheduled due date, the portion of the payment allocable
to interest for the period since the preceding payment was made will be greater
than it would have been had the payment been made as scheduled, and the portion
of the payment applied to reduce the unpaid principal balance will be
correspondingly less.
A Rule of 78's receivable provides for the payment by the obligor of a
specified total amount of equal monthly installments, which total represents the
principal amount financed plus add-on interest in an amount calculated on the
basis of the stated annual interest rate for such receivable. Under the Rule of
78's, the amount of a payment allocable to interest on a receivable is
determined by multiplying the total amount of add-on interest payable over the
term of the receivable 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 receivable has as its denominator a number equal to the sum of a series of
numbers representing the number of each monthly payment due under the
receivable. For example, with a receivable providing for 12 payments, the
denominator of each month's fraction will be 78, the sum of a series of numbers
from 1 to 12. The numerator of the fraction for a given month is the number of
payments remaining before giving effect to the payment to which the fraction is
being applied. Accordingly, in the example of a twelve payment receivable, 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
to determine the 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.
Because of the method of determining the amount owing by the Obligor in the
event of a Prepaid Receivable, the amount received or receivable from the
Obligor upon such Receivable might not in certain cases be equal to the full
Principal Balance of the Receivable as reflected on the books of the Trust
together with a full month's interest on such Principal Balance at the APR of
the Receivable. Such cases generally would be limited to circumstances in which
the Obligor generally had been making payments of the monthly amount owed on the
Receivable earlier than the date scheduled for such monthly payment.
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"Principal Balance" means, with respect to any Receivable as of any date,
the Amount Financed minus the sum of: (i) that portion of all scheduled payments
due on or prior to such date and, with respect to periods prior to the initial
Collection Period, the amount indicated in such Receivable as required to be
paid by the Obligor in each such period, whether or not paid, allocable to
principal in accordance with the actuarial method, and (ii) any prepayment in
full applied by the Servicer to reduce the unpaid principal balance of such
Receivable; provided, however, that the Principal Balance of any Receivable for
any Collection Period after the Collection Period in which it becomes a
Defaulted Receivable will be zero. "Pool Balance" means, as of any date, the
aggregate outstanding Principal Balance of the Receivables (excluding Defaulted
Receivables) as of the close of business on such date. The "Amount Financed" in
respect of a Receivable means the amount originally advanced under such
Receivable toward the purchase price of the related Financed Vehicle and related
costs.
MBCC has agreed in the Shortfall Amount Agreement to pay to the Seller (and
the Seller has assigned its rights to such payment to the Trust), to the extent
there are insufficient funds in the Class A Reserve Fund, the amount (the
"Shortfall Amount") for each Receivable representing the excess of (i) the sum
of (x) the Principal Balance at the beginning of the Collection Period in which
the Receivable becomes a Prepaid Receivable and (y) one month's interest on such
Principal Balance at the APR of such Receivable over (ii) the amount received
from the related Obligor in connection with such prepayment.
In the event that the amount received from an Obligor on a Prepaid
Receivable exceeds the Principal Balance of such Receivable at the beginning of
the Collection Period in which such Receivable becomes a Prepaid Receivable plus
one month's interest on such Principal Balance at the APR of such Receivable,
the excess (the "Excess Amount") will be payable to MBCC and will not be an
asset of the Trust. To the extent that the funds on deposit in the Class A
Reserve Fund on any Distribution Date are less than the Specified Class A
Reserve Balance, the Servicer will be required to deposit investment earnings on
the amounts on deposit in the Collection Account and the Payahead Account and
MBCC will be required to deposit Excess Amounts in the Class A Reserve Fund in
an aggregate amount not greater than the excess of the aggregate Shortfall
Amount for the related Collection Period over the amount deposited therein by
MBCC with respect to such Shortfall Amounts on such Distribution Date.
The Receivables are prepayable by the Obligors at any time. Prepayments may
also result from liquidations due to default, the receipt of proceeds from
physical damage or other insurance, repurchases by the Seller as a result of
certain uncured breaches of the warranties made by it in the Agreement with
respect to the Receivables, purchases by the Servicer as a result of certain
uncured breaches of the covenants made by it in the Agreement with respect to
the Receivables, or the Servicer exercising its option to purchase all of the
remaining Receivables. The rate of prepayments on the Receivables may be
influenced by a variety of economic, social, and other factors, including the
fact that if an Obligor sells or otherwise transfers a Financed Vehicle, the
related Receivable must be repaid in full.
MATURITY AND PREPAYMENT ASSUMPTIONS
Prepayments in full on Receivables will have the effect of reducing the
weighted average life of the Certificates, while delinquencies by Obligors under
the Receivables, as well as extensions on the Receivables, will have the effect
of increasing the weighted average life of the Certificates except to the extent
that the Servicer has made Advances with respect to such delinquent Receivables.
The Receivables may be prepaid at any time and mandatory prepayments of a
Receivable may result from, among other things, the sale, insured loss or other
disposition of the Financed Vehicle or the Receivable becoming a Defaulted
Receivable. MBCC does not generally maintain records of the historical
prepayment experience of its Commercial Vehicle Contract portfolio. No assurance
can be given as to the rate of prepayments or as to whether there will be a
substantial amount of prepayments, nor can any assurance be given as to the
level or timing of prepayments, because prepayments are affected by numerous
social, economic and other factors. Certificateholders will bear all
reinvestment risk resulting from the rate of prepayment of the Receivables.
It is generally recognized by the commercial vehicle finance industry that
the average actual maturity of a commercial vehicle loan portfolio tends to be
less than the average stated contractual maturity. The
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rate of prepayments on the Receivables may be influenced by a variety of
economic, social and other factors. Any reinvestment risk resulting from the
rate of prepayments of the Receivables and the distribution of such prepayments
to Class A Certificateholders will be borne entirely by the Class A
Certificateholders. In addition, early retirement of the Certificates may be
effected by the exercise of the option of the Servicer, or any successor to the
Servicer, to purchase all of the Receivables remaining in the Trust when the
Pool Balance is 10% or less of the initial Pool Balance. See "The Certificates
- -- Termination."
YIELD CONSIDERATIONS
Interest on the Receivables will be passed through to Class A
Certificateholders on each Distribution Date to the extent of the Pass-Through
Rate, applied to the Class A Principal Balance on the first day of the preceding
Collection Period (reduced by the amount of distributions of principal to be
made on the Distribution Date occurring in such Collection Period). In the event
of prepayments on Receivables, Class A Certificateholders will receive an amount
equal to thirty (30) days' interest on such Class A Principal Balance to the
extent that amounts, including amounts otherwise allocable to the Class B
Certificates or the Seller, are available from the Available Interest (after
reduction of the Servicing Fee), the Class A Reserve Fund and the Class B
Percentage of the Available Principal and are sufficient for such purpose. If
such amounts are insufficient, the amount of interest distributed to the Class A
Certificateholders may be less than that described above. See "The Certificates
- -- Distributions on Certificates."
Although the Receivables have different APRs, disproportionate rates of
prepayments between Receivables with APRs greater than or less than a rate equal
to the sum of the Pass-Through Rate and the Servicing Rate will generally not
affect the yield to Certificateholders. However, higher rates of prepayments of
Receivables with higher APRs will decrease the amount available to cover
delinquencies and defaults on the Receivables and may decrease the amount
available to and from the Reserve Funds. See "The Certificates -- Distributions
on Certificates" and "-- Subordination of the Class B Certificates and Retained
Yield; Reserve Funds."
POOL FACTORS AND OTHER INFORMATION
The "Class A Pool Factor" will be a seven-digit decimal which the Servicer
will compute each month equal to the Class A Principal Balance as of the close
of business on the Distribution Date in that month, divided by the Original
Class A Principal Balance. The Class A Pool Factor will be 1.0000000 as of the
date of the initial issuance of the Certificates (the "Closing Date"), and
thereafter will decline to reflect reductions in the Class A Principal Balance.
A Class A Certificate Owner's portion of the Class A Principal Balance is
the product of (i) the original principal balance of the beneficial interest in
the Class A Certificates purchased by such Class A Certificate Owner and (ii)
the Class A Pool Factor.
Pursuant to the Agreement, the Class A Certificateholders will receive from
the Trustee monthly reports concerning the payments received on the Receivables,
the Pool Balance, the Class A Pool Factor and various other items of
information. Class A Certificateholders of record during any calendar year will
be furnished information by the Trustee for tax reporting purposes not later
than the latest date permitted by law. See "The Certificates -- Statements to
Class A Certificateholders." Such monthly reports and annual tax information may
be available to Certificate Owners in accordance with the regulations and
procedures of DTC. See "Reports to the Class A Certificateholders."
USE OF PROCEEDS
The net proceeds to be received by the Seller from the sale of the Class A
Certificates will be applied to the purchase of the Receivables from MBCC.
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THE SELLER
Corporate Formation and Existence. The Seller, a wholly-owned subsidiary
of MBCC, was incorporated in the State of Delaware on May 24, 1994. The Seller
was organized for limited purposes, which include purchasing receivables from
MBCC and transferring such receivables to third parties and any activities
incidental to and necessary or convenient for the accomplishment of such
purposes. The principal executive offices of the Seller are located at 1201
North Market Street, Suite 1406, Wilmington, Delaware 19801. The telephone
number of such offices is (302) 426-1900.
Bankruptcy Considerations. The Seller has taken steps in structuring the
transactions contemplated hereby that are intended to prevent any voluntary or
involuntary application for relief by MBCC under any Insolvency Law from
resulting in consolidation of the assets and liabilities of the Seller with
those of MBCC. These steps include the creation of the Seller as a separate,
limited-purpose subsidiary pursuant to a certificate of incorporation containing
certain limitations (including restrictions on the nature of the Seller's
business and a restriction on the Seller's ability to commence a voluntary case
or proceeding under any Insolvency Law without the prior unanimous affirmative
vote of all of its directors). However, there can be no assurance that the
activities of the Seller would not result in a court concluding that the assets
and liabilities of the Seller should be consolidated with those of MBCC in a
proceeding under any Insolvency Law.
The Seller will receive the opinion of its special counsel, Morgan, Lewis &
Bockius LLP ("Special 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 MBCC in the event of the application
of the federal bankruptcy laws to MBCC. Among other things, it will be assumed
by Special Counsel that the Seller will follow certain procedures in the conduct
of its affairs, including maintaining records and books of account separate from
those of MBCC, refraining from commingling its assets with those of MBCC and
refraining from holding itself out as having agreed to pay, or being liable for,
the debts of MBCC. The Seller intends to follow and has represented to such
counsel that it will follow these and other procedures related to maintaining
its separate corporate identity. 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 MBCC. If a court were to reach such a conclusion, or
a filing were made under any Insolvency Law by or against the Seller, or if an
attempt were made to litigate any of the foregoing issues, then delays in
distributions on the Certificates could occur or reductions in the amounts of
such distributions could result.
"True Sale" Considerations. It is intended by MBCC and the Seller that the
transfer of the Receivables by MBCC to the Seller under the Purchase Agreement
constitute a "true sale" of the Receivables to the Seller. If the transfer
constitutes such a "true sale," the Receivables and the proceeds thereof would
not be part of MBCC's bankruptcy estate under Section 541 of the Bankruptcy Code
should MBCC become the subject of a bankruptcy case subsequent to the transfer
of the Receivables to the Seller.
The Seller will receive the opinion of its Special Counsel to the effect
that, subject to certain facts, assumptions and qualifications, in the event
MBCC were to become the subject of a voluntary or involuntary case under the
Bankruptcy Code subsequent to the transfer of the Receivables to the Seller, the
transfer of the Receivables by MBCC to the Seller pursuant to the Purchase
Agreement would be characterized as a "true sale" of the Receivables from MBCC
to the Seller and the Receivables and the proceeds thereof would not form part
of MBCC's bankruptcy estate pursuant to Section 541 of the Bankruptcy Code.
In Octagon Gas Systems, Inc. v. Rimmer, 995 F.2d 948 (10th Cir. 1993),
cert. denied, 114 S. Ct. 554 (1993), the United States Court of Appeals for the
10th Circuit suggested that even where a transfer of accounts from a seller to a
buyer constitutes a "true sale," the accounts would nevertheless constitute
property of the seller's bankruptcy estate in a bankruptcy of the seller. If
MBCC or the Seller were to become subject to a bankruptcy proceeding and a court
were to follow the Octagon court's
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reasoning, Certificateholders might experience delays in payment or possibly
losses on their investment in the Certificates. As part of the opinion of
Special Counsel described above, such counsel will advise the Seller that the
reasoning of the Octagon case appears to be inconsistent with precedent and the
UCC.
THE SERVICER
MBCC was incorporated in the State of Delaware on April 14, 1981 and is a
wholly-owned subsidiary of DBNA. DBNA, based in New York City, was established
as a holding company in 1982 to achieve financial benefits through the
consolidation of certain Daimler-Benz activities in North America.
MBCC and its subsidiaries comprise the captive finance company for the
Daimler-Benz group in North America. MBCC provides a variety of comprehensive
financial services to dealers and customers of products manufactured or
distributed by Daimler-Benz companies in North America. MBCC and certain of its
subsidiaries primarily provide retail and wholesale financing, leasing, and
other financial services to authorized Mercedes-Benz automobile and Freightliner
commercial vehicle dealers and their customers. Additionally, a wholly-owned
subsidiary provides financing for Daimler-Benz non-vehicle products. The
headquarters of MBCC are located at 201 Merritt 7, Suite 700, Norwalk,
Connecticut 06856-5425. Its telephone number is (203) 847-4500.
DBNA is a wholly-owned subsidiary of Daimler-Benz AG, which is
headquartered in Stuttgart, Germany. Daimler-Benz AG and its consolidated
subsidiaries (collectively "Daimler-Benz") is the largest industrial group in
Germany and a leading provider of traffic and transportation products and
services worldwide. Daimler-Benz business units include passenger cars and
commercial vehicles (Mercedes-Benz), aircraft, space systems, defense and civil
systems, propulsion systems (Daimler-Benz Aerospace), IT services and mobile
communications services, trading, insurance brokerage, and financial services to
primarily support the sale of Daimler-Benz products (Daimler-Benz InterServices
- -debis), as well as rail systems (Adtranz) and microelectronics (Temic). The
worldwide consolidated group consists of approximately 320 subsidiaries. For the
year ended December 31, 1995, Daimler-Benz reported consolidated revenues of
U.S. $72 billion and, according to United States generally accepted accounting
principles, consolidated net loss of U.S. $4 billion.
FREIGHTLINER CORPORATION
Freightliner Corporation ("Freightliner"), headquartered in Portland,
Oregon, is a subsidiary of DBNA and the leading manufacturer of Class 8 trucks
(33,000 pounds gross vehicle weight and above) in North America. Freightliner's
Class 8 sales and market share in the U.S. and Canada are as follows:
1995 1994 1993
------- ------- -------
United States
Sales (units).......................... 52,890 45,593 37,867
Market share........................... 26.3% 25.0% 23.9%
Canada
Sales (units).......................... 6,416 5,538 3,325
Market share........................... 24.5% 23.0% 18.8%
Freightliner entered the Business Class 6/7 (26,000 to 33,000 pounds gross
vehicle weight) market in 1991 and has experienced growing success in this
market; unit sales were 8,268, 6,142 and 3,567 in 1995, 1994 and 1993
respectively, in the United States and Canada. Freightliner trucks are
distributed in North America through a network of 250 independent dealers.
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THE CERTIFICATES
The Class A Certificates will be issued pursuant to the Agreement. Copies
of the Agreement may be obtained by the Class A Certificateholders upon written
request to the Trustee and may be available to Certificate Owners in accordance
with the regulations and procedures of DTC. The following summary does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, the Agreement.
GENERAL
The Class A Certificates will be offered for purchase generally in
denominations of $1,000 and integral multiples thereof and will be represented
initially by physical certificates registered in the name of Cede & Co. as
nominee of DTC. No Class A Certificate Owner will be entitled to receive a
definitive certificate representing such person's interest in the Trust except
in the event that Definitive Certificates are issued under the limited
circumstances described herein. Unless and until Definitive Certificates are
issued, all references to actions by Class A Certificateholders will refer to
actions taken by DTC upon instructions from its Direct Participants and all
references to distributions, notices, reports and statements to Class A
Certificateholders will refer to distributions, notices, reports and statements
to DTC which distributions, notices, reports and statements may be available to
Certificate Owners in accordance with the regulations and procedures of DTC. See
"Reports to the Class A Certificateholders," "-- Book Entry Registration" and
"-- Definitive Certificates."
In general, it is intended that Class A Certificateholders receive, on each
Distribution Date, the Class A Percentage of the aggregate scheduled payments of
principal (including Advances) and the aggregate prepayments in full of
principal on the Receivables made during or with respect to the preceding
calendar month (the "Collection Period"), plus an amount equal to 30 days'
interest at the Pass-Through Rate on the Class A Principal Balance. See "--
Distributions on Certificates." Principal and interest to be distributed to
Class A Certificateholders may be provided by payments made by or on behalf of
Obligors (to the extent available for payment to the Class A
Certificateholders), the payment of Purchase Amounts by the Seller or the
Servicer, Advances made by the Servicer, draws from the Class A Reserve Fund,
payments under the Shortfall Amount Agreement, proceeds from physical damage
insurance, net liquidation proceeds upon the repossession and sale of Financed
Vehicles or net recoveries of deficiencies from Obligors after the repossession
and sale of Financed Vehicles. See "-- Sale and Assignment of the Receivables"
and "-- Servicing Procedures." In the event that, on any Distribution Date,
funds available from the foregoing sources are insufficient to provide for such
distributions, any shortfall will be payable on the subsequent Distribution
Date, to the extent funds are available therefor.
The Certificates will evidence interests in the Trust created pursuant to
the Agreement. The Class A Certificates will evidence, in the aggregate, an
undivided ownership interest (the "Class A Percentage") of 92.15% of the initial
Principal Balance of, and a portion of the interest accruing under, the
Receivables held by the Trust and the Class B Certificates will evidence, in the
aggregate, an undivided ownership interest (the "Class B Percentage") of 7.85%
of the initial Principal Balance of, and a portion of the interest accruing
under, the Receivables held by the Trust. The Class B Certificates, which are
not being offered hereby, will be retained initially by the Seller, but the
Seller may, at its discretion, subsequently sell all or part of the Class B
Certificates.
BOOK ENTRY REGISTRATION
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York UCC, and a "clearing agency"
registered pursuant to Section 17A of the Exchange Act. DTC was created to hold
securities for its participating organizations ("Direct Participants") and to
facilitate the clearance and settlement of securities transactions between
Direct Participants through electronic book-entries, thereby eliminating the
need for physical movement of certificates. Direct Participants include
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securities brokers and dealers, banks, trust companies, and clearing
corporations, and may include certain other organizations. Indirect access to
the DTC system is also available to others such as banks, brokers, dealers, and
trust companies that clear through or maintain a custodial relationship with a
Direct Participant, either directly or indirectly ("Indirect Participants").
Class A Certificate Owners that are not Direct Participants or Indirect
Participants but desire to purchase, sell, or otherwise transfer ownership of,
or other interests in, Class A Certificates may do so only through Direct
Participants or Indirect Participants. In addition, Class A Certificate Owners
will receive all distributions from the Trustee through Direct Participants or
Indirect Participants. DTC will forward such payments to its Direct Participants
which thereafter will forward them to Indirect Participants or Class A
Certificate Owners. It is anticipated that the only "Class A Certificateholder"
will be Cede & Co. as nominee of DTC. Class A Certificate Owners will not be
recognized by the Trustee as Class A Certificateholders, as such term is used in
the Agreement, and Class A Certificate Owners will be permitted to exercise the
rights of Class A Certificateholders only indirectly through DTC and its Direct
Participants and Indirect Participants.
Under the rules, regulations, and procedures creating and affecting DTC and
its operations (the "Rules"), DTC will be required to make book entry transfers
of Class A Certificates among Direct Participants and to receive and transmit
payments with respect to the Class A Certificates. Direct Participants and
Indirect Participants with which Class A Certificate Owners have accounts with
respect to the Class A Certificates similarly are required to make book entry
transfers and receive and transmit such payments on behalf of their respective
Class A Certificate Owners.
Because DTC can only act on behalf of Direct Participants, who in turn act
on behalf of Indirect Participants, and on behalf of certain banks, trust
companies, and other persons approved by it, the ability of a Class A
Certificate Owner to pledge Class A Certificates to persons or entities that do
not participate in the DTC system, or to otherwise act with respect to such
Class A Certificates, may be limited due to the absence of physical certificates
for such Certificates.
DTC has advised the Seller that it will take any action permitted to be
taken by a Class A Certificateholder under the Agreement only at the direction
of one or more Direct Participants to whose accounts with DTC the Class A
Certificates are credited. Additionally, DTC has advised the Seller that to the
extent that the Agreement requires that any action may be taken only by holders
of Class A Certificates representing specified percentages of the aggregate
outstanding principal balance thereof, DTC will take such action only at the
direction of and on behalf of Direct Participants whose holdings include
undivided interests that satisfy such specified percentages. DTC may take
conflicting actions with respect to other undivided interests to the extent that
such actions are taken on behalf of Direct Participants whose holdings include
such undivided interests.
None of the Seller, the Servicer or the Trustee will have any liability for
any aspect of the records relating to or payment made on account of beneficial
ownership interests of the Class A Certificates held by Cede & Co., as nominee
of DTC, or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
DEFINITIVE CERTIFICATES
The Class A Certificates will be issued in fully registered, certificated
form ("Definitive Certificates") to Class A Certificate Owners or their
nominees, rather than to DTC or its nominee, only if (i) the Seller advises the
Trustee in writing that DTC is no longer willing or able to discharge properly
its responsibilities as depository with respect to the Class A Certificates and
the Trustee or the Seller is unable to locate a qualified successor, (ii) the
Seller, at its option, elects to terminate the book entry system through DTC, or
(iii) after the occurrence of an Event of Servicing Termination, with respect to
the Class A Certificates, Class A Certificate Owners representing in the
aggregate not less than a majority of the aggregate outstanding Class A
Principal Balance advise the Trustee and DTC through Direct Participants in
writing, and DTC will so notify the Trustee, that the continuation of a book
entry system through DTC (or a successor thereto) is no longer in the Class A
Certificate Owners' best interests.
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Upon the occurrence of any event described in the immediately preceding
paragraph, the Trustee is required to notify all Direct Participants through DTC
of the availability of Definitive Certificates. Upon surrender by DTC of the
physical certificates representing the Class A Certificates and receipt by the
Trustee of instructions from DTC for re-registration, the Trustee will reissue
the Class A Certificates as Definitive Certificates, and thereafter the Trustee
will recognize the registered holders of such Definitive Certificates as Class A
Certificateholders under the Agreement ("Holders").
Distributions of principal of, and interest on, the Definitive Certificates
will be made by the Trustee directly to Holders in accordance with the
procedures set forth herein and in the Agreement. Distributions of principal and
interest on each Distribution Date will be made to Holders in whose names the
Definitive Certificates were registered at the close of business on the
preceding Record Date. Such distributions will be made by check mailed to the
address of such Holder as it appears on the register maintained by the Trustee.
The final payment on any Definitive Certificate, however, will be made only upon
presentation and surrender of such Definitive Certificate at the office or
agency specified in the notice of final distribution mailed to Holders.
Definitive Certificates will be transferable and exchangeable at the
offices of the Trustee. No service charge will be imposed for any registration
of transfer or exchange, but the Trustee may require payment of a sum sufficient
to cover any tax or other governmental charge imposed in connection therewith.
SALE AND ASSIGNMENT OF THE RECEIVABLES
At or prior to the time of issuance of the Class A Certificates, pursuant
to the Purchase Agreement MBCC will sell and assign to the Seller, without
recourse, its entire interest in the Receivables (other than payments with
respect to Excess Amounts), including its security interests in the Financed
Vehicles. At the time of issuance of the Class A Certificates the Seller will
sell and assign to the Trustee, without recourse, the Seller's entire interest
in the Receivables, including its security interests in the Financed Vehicles.
Each Receivable conveyed by the Seller to the Trust will be identified in a
schedule incorporated by reference into the Agreement. The Trustee will,
concurrently with such sale and assignment, execute, authenticate and deliver
the Certificates to the Seller in exchange for the Receivables. The Seller will
sell the Class A Certificates to the Underwriters. See "Underwriting."
In the Purchase Agreement, MBCC will represent and warrant to the Seller,
and in the Agreement, the Seller will represent and warrant to the Trustee,
among other things, that (i) the information provided with respect to the
Receivables is correct in all material respects; (ii) except with respect to
certain fleet customers which are permitted by MBCC's standards to self-insure,
the Obligor on each Receivable is required to obtain physical damage insurance
in accordance with MBCC's normal requirements; (iii) at the date of issuance of
the Certificates, the Receivables are free and clear of all security interests,
liens, charges, and encumbrances and no setoffs, defenses, or counterclaims
against it have been asserted or, to the best of MBCC's or the Seller's
knowledge, as relevant, threatened (other than the interest of the Trustee);
(iv) to the best of MBCC's or the Seller's knowledge, as relevant, at the date
of issuance of the Certificates, each of the Receivables is or will be secured
by a first perfected security interest in the Financed Vehicle in favor of MBCC;
and (v) each Receivable, at the time it was originated, complied, and at the
date of issuance of the Certificates complies, in all material respects, with
applicable federal and state laws, including consumer credit, truth in lending,
equal credit opportunity, and disclosure laws.
The only recourse the Trustee and the Certificateholders will have against
the Seller for breach or failure to be true of any of the foregoing
representations and warranties with respect to a Receivable will be to require
the Seller to repurchase the Receivable. See "-- Mandatory Repurchase of
Receivables."
To assure uniform quality in servicing the Receivables and to reduce
administrative costs, the Trustee will appoint the Servicer as initial custodian
of the Receivables. The Servicer, in its capacity as custodian, will hold the
Receivables and all electronic entries, documents, instruments and writings
relating thereto (each, a "Receivable File"), either directly or through
subservicers, on behalf of the Trustee for the benefit of Certificateholders.
The Receivables will not be stamped or otherwise marked to reflect the sale and
assignment of the Receivables to the Trust and will not be segregated from other
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receivables held by the Servicer or the subservicers. However, UCC financing
statements reflecting the sale and assignment of the Receivables by MBCC to the
Seller and by the Seller to the Trustee will be filed, and the Servicer's
accounting records and computer systems will be marked to reflect such sale and
assignment. See "Formation of the Trust" and "Certain Legal Aspects of the
Receivables."
MANDATORY REPURCHASE OF RECEIVABLES
In the event of a breach or failure to be true of any representation or
warranty with respect to the Receivables described in "-- Sale and Assignment of
the Receivables," which breach or failure materially and adversely affects the
interests of the Trust and the Certificateholders in a Receivable, the Seller,
unless such breach or failure has been cured by the last day of the Collection
Period which includes the 60th day after the date on which the Seller becomes
aware of, or receives written notice from the Trustee or the Servicer of, such
breach or failure, will be required to repurchase the Receivable from the
Trustee, and MBCC will be required to repurchase such Receivable from the
Seller, in each case as of the first day of the subsequent Collection Period,
for the Purchase Amount. The Purchase Amount is payable on the Distribution Date
in such subsequent Collection Period. The obligation of the Seller to repurchase
a Receivable is not conditioned on performance by MBCC of its obligation to
repurchase a Receivable. The repurchase obligation will constitute the sole
remedy available to the Certificateholders or the Trustee against the Seller for
any such uncured breach or failure. No Class A Certificateholder will have any
right under the Agreement to institute any proceeding with respect to the
Agreement, unless such holder has given the Trustee written notice of default
and unless the holders of Certificates evidencing not less than a majority of
the sum of the Class A Principal Balance and Class B Principal Balance
(excluding any Certificates held by the Seller or any Affiliate (as defined in
the Agreement) of the Seller) have made a written request to the Trustee to
institute such proceeding in its own name as Trustee thereunder and have offered
to the Trustee reasonable indemnity, and the Trustee for 30 days has neglected
or refused to institute any such proceeding.
The "Purchase Amount" of any Receivable means, with respect to any
Distribution Date and a Purchased Receivable on such Distribution Date, an
amount equal to the sum of (a) the outstanding principal balance of such
Receivable as of the first day of the Collection Period preceding the Collection
Period in which such Distribution Date occurs, and (b) the amount of accrued
interest on such principal balance at the related APR from the date a payment
was last made by or on behalf of the Obligor through the due date for payment of
such Receivable in the Collection Period preceding the Collection Period in
which such Distribution Date occurs, and after giving effect to the receipt of
monies collected on such Receivable in such preceding Collection Period and any
Payahead Balance with respect to such Receivable.
ACCOUNTS
The Trustee will establish two accounts in the name of the Trustee on
behalf of the Trust and the Certificateholders, the first into which certain
payments made on or with respect to the Receivables will be deposited (the
"Collection Account") and the second from which all distributions with respect
to the Receivables and the Certificates will be made (the "Certificate
Account"). The Seller will establish the Class A Reserve Fund as an account with
the Class A Agent, on behalf of the Trust and the Class A Certificateholders and
will establish the Class B Reserve Fund as an account with the Class B Agent on
behalf of the Trust and the Class B Certificateholders. The Collection Account,
the Certificate Account, the Reserve Funds and the Payahead Account (as
described below) are collectively referred to as the "Accounts." The Reserve
Funds and the Payahead Account will not be assets of the Trust.
Each Account will be maintained at all times in an Eligible Deposit
Account. "Eligible Deposit Account" means either (a) a segregated account with
an Eligible Bank or (b) a segregated trust account with the trust department of
a depository institution organized under the laws of the United States of
America or any one of the states thereof or the District of Columbia (or any
domestic branch of a foreign bank), having trust powers and acting as trustee
for funds deposited in such account, so long as the long-term unsecured debt of
such depository institution will have a credit rating from each Rating
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Agency in one of its generic rating categories which signifies investment grade
(which, for Moody's, is Baa3 or higher, and for S&P, is BBB- or higher).
"Eligible Bank" means any depository institution with trust powers (which
may be the Trustee), organized under the laws of the United States of America or
any one of the states thereof or the District of Columbia, which has a net worth
in excess of $50,000,000, the deposits of which are insured to the full extent
permitted by law by the Federal Deposit Insurance Corporation (the "FDIC"),
which is subject to supervision and examination by federal or state banking
authorities and which has (i) a rating of P-1 from Moody's and A-1+ from S&P
with respect to short-term deposit obligations, or (ii) if such institution has
issued long-term unsecured debt obligations, a rating of A2 or higher from
Moody's and AAA from S&P with respect to long-term unsecured debt obligations.
Funds in the Accounts will be invested as provided in the Agreement in
Eligible Investments. "Eligible Investments" are generally limited to
investments acceptable to the Rating Agencies as being consistent with the
rating of the Class A Certificates. Eligible Investments are limited to
obligations or securities that mature not later than the next Distribution Date.
However, to the extent permitted by each Rating Agency, funds on deposit in the
Reserve Funds may be invested in securities that will not mature prior to the
next Distribution Date with respect to the Certificates and will not be sold to
meet any shortfalls. Investment earnings on amounts on deposit in the Collection
Account will be deposited in the Class A Reserve Fund in an amount not to exceed
the Shortfall Amount with respect to such Distribution Date to the extent that
the funds on deposit therein are less than the Specified Class A Reserve
Balance. Any earnings (net of losses and investment expenses) on amounts on
deposit in the other Accounts, except as otherwise specified herein, will be
paid to the Seller, the Class B Certificateholders, MBCC or the Servicer, as
specified in the Agreement, and will not be available to Class A
Certificateholders.
The Trustee will also establish an account (the "Payahead Account"), on
behalf of the Obligors, in which payments by or on behalf of an Obligor on a
Receivable received during each Collection Period and not due in such Collection
Period (other than prepayments in full) or not overdue from a prior Collection
Period ("Payaheads") and not permitted to be held by the Servicer will be
deposited until such time as the payment falls due, whereupon the payment will
be transferred to the Certificate Account on the Distribution Date in the
Collection Period following the scheduled payment due date. Such amounts will be
permitted to be held by the Servicer if either (i) each Monthly Remittance
Condition is satisfied or (ii) a Monthly Remittance Condition is not satisfied
but such failure will not affect the rating of the Class A Certificates by the
Rating Agencies. Until such time as payments are transferred from the Payahead
Account to the Certificate Account, they will not constitute collected interest
or collected principal, and will not be available for distribution to the
Certificateholders. Investment earnings on amounts on deposit in the Payahead
Account with respect to any Collection Period will be deposited in the Class A
Reserve Fund in an amount not to exceed the Shortfall Amount with respect to
such Distribution Date to the extent that the funds on deposit therein are less
than the Specified Class A Reserve Balance on the related Distribution Date.
COLLECTIONS ON THE RECEIVABLES
The Servicer will deposit all payments on Receivables, including
Liquidation Proceeds and Recoveries, but excluding (i) Payaheads (which will be
deposited in the Payahead Account or held by the Servicer), (ii) Excess Amounts
(which will be paid to MBCC), and (iii) certain amounts payable to the Servicer
under the Agreement, including late fees and charges on the Receivables (which
are not required to be deposited in the Collection Account), into the Collection
Account not later than two business days after receipt thereof unless:
(x) (i) MBCC is the Servicer, (ii) the obligation of the Servicer to
make required remittances under the Agreement on each Distribution Date is
unconditionally guaranteed by DBNA pursuant to a guaranty agreement in
favor of the Trustee (the "Servicing Guaranty Agreement") and DBNA will
have a rating of at least P-1 from Moody's and at least A-1 from S&P with
respect to its short-term
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obligations and (iii) no Event of Servicing Termination shall have occurred
(each, a "Monthly Remittance Condition"), or
(y) the failure to satisfy a Monthly Remittance Condition will not
affect the rating of the Class A Certificates as confirmed in writing by
the Rating Agencies,
in which case such amounts will be paid into the Collection Account on the
Distribution Date.
The Seller or the Servicer will also deposit into the Collection Account on
the Distribution Date the Purchase Amount of each Receivable to be repurchased
or purchased by it pursuant to an obligation that arose during the preceding
Collection Period. The Servicer will be entitled to withhold, or to be
reimbursed from amounts otherwise payable into, or on deposit in, the Collection
Account with respect to a Collection Period, the amounts previously deposited in
the Collection Account but later determined to have resulted from mistaken
deposits or postings or checks returned unpaid for insufficient funds or other
reasons.
In those cases where a subservicer is servicing a Receivable pursuant to a
subservicing agreement, as described below, the Servicer will cause the
subservicer to remit to the relevant Account the amounts collected by such
subservicer on or with respect to the Receivables being serviced by it, within
the period after receipt, and subject to the limitations, described above.
As an administrative convenience, so long as no Event of Servicing
Termination has occurred, the Servicer will be permitted to make deposits of
amounts for a Collection Period net of distributions to be made to it with
respect to such Collection Period. The Servicer will account to the Trustee and
to the Certificateholders, however, as if all such deposits and distributions
were made individually.
SERVICING PROCEDURES
The Servicer will make reasonable efforts to collect all payments due with
respect to the Receivables in a manner consistent with the Agreement and will
exercise the degree of skill and care that the Servicer exercises with respect
to similar commercial vehicle receivables owned and/or serviced by the Servicer.
Although it has no current plans to do so, the Servicer may enter into
subservicing agreements with Eligible Servicers for the subservicing of
Receivables. Any such subservicing agreements will contain provisions identical
to those contained in the Agreement and may contain such other provisions as are
not inconsistent with the terms of the Agreement. The Servicer may terminate a
subservicing agreement and either service the related Receivables directly or
enter into a new subservicing agreement for such Receivables with another
subservicer, provided that any such subservicer is an Eligible Servicer.
Notwithstanding any subservicing agreement, the Servicer will remain obligated
and liable to the Trustee and the Certificateholders for servicing and
administering the Receivables in accordance with the Agreement as if the
Servicer alone were servicing the Receivables. References herein to actions
required or permitted to be taken, or restrictions on actions to be taken, by
the Servicer include such actions by a subservicer. References herein to amounts
received by the Servicer include amounts received by a subservicer.
"Eligible Servicer" means (a) any subsidiary of DBNA or (b) any person
which, at the time of its appointment as Servicer or as a subservicer, (i) has a
net worth of not less than $50,000,000, (ii) is servicing a portfolio of
commercial vehicle installment contracts and/or commercial vehicle retail loans,
(iii) is legally qualified, and has the capacity, to service the Receivables,
(iv) has demonstrated the ability to service a portfolio of commercial vehicle
installment contracts and/or commercial vehicle loans similar to the Receivables
professionally and competently in accordance with standards of skill and care
that are consistent with prudent industry standards, and (v) is qualified and
entitled to use pursuant to a license or other written agreement, and agrees to
maintain the confidentiality of, the software which the Servicer or any
subservicer uses in connection with performing its duties and responsibilities
under the Agreement or the related subservicing agreement or obtains rights to
use, or develops at its own expense, software which is adequate to perform its
duties and responsibilities under the Agreement or the related subservicing
agreement.
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The Servicer will covenant in the Agreement that: (A) the Financed Vehicle
securing each Receivable will not be released from the security interest granted
by the Receivable in whole or in part, except as contemplated by the Agreement,
(B) the Servicer will not (nor will it permit any subservicer to) impair in any
material respect, the rights of the Certificateholders in the Receivables,
certain rights under the Dealer Agreements related to breach of representations
and warranties of Dealers with respect to the Receivables, or any physical
damage or other insurance policy and (C) the Servicer will not increase or
decrease the number or amount of payments or the amount financed under a
Receivable, or extend, rewrite or otherwise modify the payment terms of a
Receivable; provided, however, that the Servicer may extend any Receivable for
credit-related reasons that would be acceptable to the Servicer with respect to
Commercial Vehicle Contracts serviced by it for its own account in accordance
with its customary standards if the cumulative extensions with respect to any
Receivable will not cause the term of such Receivable to extend beyond the last
day of the Collection Period immediately preceding the Final Scheduled
Distribution Date (the "Final Scheduled Maturity Date"); provided, further, that
such extensions will not be made if the extension would modify the terms of such
Receivable in such a manner so as to constitute a cancellation of such
Receivable and the creation of a new Receivable for federal income tax purposes.
In the event of a breach by the Servicer of any covenant described above
that materially and adversely affects the interest of the Trust and the
Certificateholders in a Receivable, unless such breach has been cured by the
last day of the Collection Period which includes the 60th day after the date on
which the Servicer becomes aware of, or receives written notice of, such breach,
the Servicer will be required to purchase as of the first day of the subsequent
Collection Period the Receivable from the Trustee for the Purchase Amount which
will be paid on the Distribution Date in such subsequent Collection Period or
earlier under certain circumstances; provided, however, that the Servicer will
be required to purchase any Receivable from the Trustee which has been extended
beyond the Final Scheduled Maturity Date. The purchase obligation will
constitute the sole remedy available to the Certificateholders or the Trust
against the Servicer for any such uncured breach, except with respect to certain
indemnities of the Servicer under the Agreement related thereto.
The Agreement will also require the Servicer to charge-off a Receivable as
a Defaulted Receivable in accordance with its customary standards and to follow
such of its normal collection practices and procedures as it deems necessary or
advisable, and that are consistent with the standard of care required by the
Agreement, to realize upon any Receivable. In addition, the Agreement requires
the Servicer to treat a Receivable as a Defaulted Receivable no later than the
date on which such Receivable becomes 180 days past due. The Servicer may sell
each Financed Vehicle securing such Receivable at judicial sale or take any
other action permitted by applicable law. See "Certain Legal Aspects of the
Receivables." The net proceeds of such realization will be deposited in the
Collection Account at the time and in the manner described above.
The Agreement will provide that the Servicer will defend and indemnify the
Trust and the Certificateholders against any and all costs, expenses, losses,
damages, claims, and liabilities, including reasonable fees and expenses of
counsel and expenses of litigation, arising out of or resulting from the use,
ownership, or operation by the Servicer or any affiliate thereof of any Financed
Vehicle or in respect of any action taken by the Servicer with respect to any
Receivable or Financed Vehicle; provided that the Servicer will have no
obligation to indemnify the Trust and the Certificateholders against any credit
losses on any Receivable serviced by the Servicer in accordance with the
requirements of the Agreement. The Servicer's obligations to indemnify the Trust
and the Certificateholders for the Servicer's actions or omissions will survive
the removal of the Servicer, but will not apply to any action or omission of a
successor Servicer.
ADVANCES
To the extent the collection of interest and principal on a Receivable with
respect to a Collection Period is less than the respective scheduled payment, an
Advance will be made by the Servicer. The amount of an Advance will be equal to
that portion of the scheduled payment of a Receivable that was
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not timely made by the Obligor. On or before the applicable Distribution Date,
the Servicer will cause the Advance to be deposited in the Collection Account.
The Servicer will recoup the Advance from subsequent payments by or on behalf of
the respective Obligor or from insurance or Liquidation Proceeds with respect to
the Receivable, or, upon the determination that reimbursement from the preceding
sources is unlikely, will recoup the Advance from any collections made on other
Receivables.
The Servicer will not be required to make any Advance with respect to a
Receivable to the extent that it does not expect to recoup the Advance from
subsequent payments on such Receivable. In determining whether to make an
Advance in connection with a delinquent Receivable, the Servicer will consider
certain factors with respect to the delinquent Receivable. Among such factors
will be the payment history for such Receivable, the financial condition of the
Obligor, and the Obligor's reason for the delinquency. The Servicer's decision
not to make an Advance in connection with a delinquent Receivable would
generally coincide with the charge-off of such Receivable.
SERVICING COMPENSATION
The Servicer will be entitled to receive the Servicing Fee for each
Collection Period, in an amount equal to one-twelfth of the product of the
Servicing Rate and the Pool Balance as of the first day of such Collection
Period. If it is acceptable to each Rating Agency without a reduction in the
rating of the Class A Certificates, the Servicing Fee in respect of a Collection
Period (together with any portion of the Servicing Fee that remains unpaid from
prior Collection Periods) at the option of the Servicer may be paid at or as
soon as possible after the beginning of such Collection Period. The Servicing
Rate will equal 1.00% per annum. The Servicer will also be entitled to receive
as additional servicing compensation, to the extent not required to be deposited
in the Class A Reserve Fund, earnings on amounts on deposit in the Collection
Account and the Payahead Account, and all late payment and prepayment fees
actually collected and other administrative fees and expenses paid with respect
to the Receivables. The Servicing Fee will be paid out of collections from the
Receivables, prior to distributions to the Certificateholders.
The Servicing Fee and the additional servicing compensation will compensate
the Servicer for performing the functions of a third-party servicer of
Commercial Vehicle Contracts and for administering the Receivables on behalf of
the Certificateholders, including collecting payments, accounting for
collections, furnishing monthly and annual statements to the Trustee with
respect to distributions, responding to inquiries of Obligors, investigating
delinquencies, and providing collection and repossession services in cases of
Obligor default. In addition, the Servicing Fee and the additional servicing
compensation will provide further compensation for certain taxes, accounting
fees, outside auditor fees, data processing costs, and other costs incurred by
the Servicer under the Agreement in connection with administering and servicing
the Receivables.
SHORTFALL AMOUNT AGREEMENT
Payments of Shortfall Amounts will be made from funds on deposit in the
Class A Reserve Fund or, as described below, from amounts to be paid by MBCC
pursuant to the Shortfall Amount Agreement. Amounts withdrawn from the Class A
Reserve Fund or paid by MBCC with respect to Shortfall Amounts will be applied
as Available Principal or Available Interest, as applicable.
Simultaneously with the sale and assignment of the Receivables by MBCC to
the Seller, MBCC and the Seller will enter into the Shortfall Amount Agreement.
The Shortfall Amount Agreement will provide for the payment by MBCC into the
Certificate Account on each Distribution Date of the excess of the Shortfall
Amounts, if any, with respect to such Distribution Date over the amount
available for the payment of such amounts in the Class A Reserve Fund. The
Seller will assign the Shortfall Amount Agreement to the Trust.
DISTRIBUTIONS ON CERTIFICATES
Determination of Distributable Amounts. On or before the earlier of (a)
the sixteenth calendar day of each month or (b) the second business day
preceding the Distribution Date in each month (the
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"Determination Date"), the Servicer will inform the Trustee of the amount of
aggregate collections on the Receivables; the aggregate Advances to be made by
the Servicer; the aggregate Purchase Amount of Receivables to be repurchased by
the Seller or to be purchased by the Servicer; the aggregate Shortfall Amounts;
all with respect to the preceding Collection Period.
The Servicer will determine on each Determination Date the Total Available
Amount, the Available Interest, the Available Principal, the Shortfall Amount,
the Class A Distributable Amount, the Class B Distributable Amount and the
Retained Yield and, based on the Total Available Amount and the other
distributions to be made on such Distribution Date, as described below, the
Servicer will determine the amount to be distributed to Certificateholders of
each class and to the Seller as Retained Yield.
On or before each Distribution Date the Trustee, acting in accordance with
the instructions of the Servicer, will transfer the Total Available Amount from
the Collection Account to the Certificate Account. On or before each
Distribution Date, the Servicer will cause such amounts to be transferred from
the Payahead Balance to the Certificate Account as constitute scheduled payments
due during the related Collection Period or as may be applied to full
prepayments on the Receivables. On or before each Distribution Date, the
Servicer will cause Advances relating to such Distribution Date to be deposited
in the Collection Account.
The "Total Available Amount" for a Distribution Date (being the funds
available for distribution to Certificateholders of each class with respect to
such Distribution Date in accordance with the priorities described below) will
be the sum of the Available Interest and Available Principal.
The "Available Interest" for a Distribution Date will be the sum of the
following amounts with respect to the preceding Collection Period: (i) that
portion of all collections on the Receivables (including amounts withdrawn from
the Payahead Balances but excluding amounts added to the Payahead Balances)
allocable to interest due on such Receivables during such Collection Period,
(ii) all proceeds of the liquidation of Defaulted Receivables which become
Defaulted Receivables during such Collection Period, net of expenses incurred by
the Servicer in connection with such liquidation and any amounts required by law
to be remitted to the Obligor on each such Defaulted Receivable ("Liquidation
Proceeds") to the extent allocable to interest due thereon in accordance with
the Servicer's customary servicing procedures and all proceeds of Defaulted
Receivables which became Defaulted Receivables during prior Collection Periods,
net of expenses incurred by the Servicer in connection with such liquidation and
any amounts required by law to be remitted to the Obligor on such Defaulted
Receivable ("Recoveries"), (iii) all Advances made by the Servicer of interest
due on Receivables, (iv) the Purchase Amount of each Receivable that was
repurchased by the Seller or purchased by the Servicer under an obligation which
arose during such Collection Period (each such Receivable a "Purchased
Receivable"), to the extent allocable to accrued interest thereon and (v) the
portion of Shortfall Amounts, if any, allocable to interest received by the
Trustee. A "Defaulted Receivable" is a Receivable which by its terms is in
default and as to which (a) a scheduled payment is 180 or more days past due,
(b) the Servicer has determined, in accordance with its customary servicing
procedures that eventual payment in full is unlikely or (c) the Servicer has
repossessed and disposed of the related Financed Vehicle.
The "Available Principal" for a Distribution Date will be the sum of the
following amounts with respect to the preceding Collection Period: (i) that
portion of all collections on the Receivables (including amounts withdrawn from
the Payahead Balances but excluding amounts added to the Payahead Balances)
allocable to principal, (ii) all Liquidation Proceeds allocable to principal in
accordance with the Servicer's customary servicing procedures, (iii) all
Advances made by the Servicer of principal due on the Receivables, (iv) to the
extent allocable to principal, the Purchase Amount received with respect to each
Purchased Receivable and (v) the portion of the Shortfall Amounts, if any,
allocable to principal received by the Trustee.
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The Available Interest and the Available Principal on any Distribution Date
will exclude the following:
(i) amounts received on Receivables (including Purchase Amounts) to
the extent that unreimbursed Advances have previously been made by the
Servicer;
(ii) Liquidation Proceeds and Recoveries with respect to a particular
Receivable to the extent of any unreimbursed Advances; and
(iii) the amount received upon the prepayment in full of a Receivable
to the extent that such amount is an Excess Amount.
The "Payahead Balance" on a Receivable means the sum, on the last day of a
Collection Period, of all Payaheads made by or on behalf of the Obligor with
respect to such Receivable (including any amount paid by or on behalf of the
Obligor prior to the Cutoff Date that is due on or after the Cutoff Date and was
not used to reduce the principal balance of such Receivable), as reduced by
applications of previous Payaheads with respect to such Receivable.
Calculation of Distributable Amounts. The "Class A Distributable Amount"
with respect to a Distribution Date will be an amount equal to the sum of:
(i) the "Class A Principal," consisting of the Class A Percentage of:
(a) the principal portion of all scheduled payments due on
Receivables during the preceding Collection Period;
(b) the Principal Balance of each Receivable that became a Prepaid
Receivable during the preceding Collection Period (except to the extent
included in (a) above or (d) below);
(c) the Principal Balance of each Receivable that was purchased by
the Servicer or repurchased by the Seller, in each case, under an
obligation that arose during the preceding Collection Period (except to
the extent included in (a) above); and
(d) the Principal Balance of each Receivable which became a
Defaulted Receivable during the preceding Collection Period (except to
the extent included in (a) or (b) above);
(ii) the "Class A Interest," consisting of an amount equal to 30 days'
interest at the Pass-Through Rate on the Class A Principal Balance on the
first day of the related Collection Period (less principal distributions to
be made on the Distribution Date in such Collection Period);
(iii) the Class A Interest Carryover Shortfall as of the close of
business on the preceding Distribution Date; plus
(iv) the Class A Principal Carryover Shortfall as of the close of
business on the preceding Distribution Date.
In addition to the items specified in clauses (i)(a) through (d) above, on
the Final Scheduled Distribution Date, Class A Principal will include the lesser
of (x) the Class A Percentage of any payments of principal due and remaining
unpaid on each Receivable in the Trust as of the last day of the preceding
Collection Period (except to the extent covered by Advances), and (y) the
portion of such amount necessary (after giving effect to the other amounts
described above to be distributed to the Class A Certificateholders on such
Distribution Date and allocable to principal) to reduce the Class A Principal
Balance to zero.
"Class A Interest Carryover Shortfall" means, as of the close of business
on any Distribution Date, the excess, if any, of the Class A Interest for such
Distribution Date plus any outstanding Class A Interest Carryover Shortfall from
the preceding Distribution Date over the amount of interest that the Class A
Certificateholders actually received on such current Distribution Date (plus
thirty (30) days' interest on the amount of such excess, to the extent permitted
by law, at the Pass-Through Rate).
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"Class A Principal Carryover Shortfall" means, as of the close of business
on any Distribution Date, the excess of Class A Principal plus any outstanding
Class A Principal Carryover Shortfall from the preceding Distribution Date over
the amount of principal that the Class A Certificateholders actually received on
such current Distribution Date.
The "Class A Principal Balance" will equal, initially, the Original Class A
Principal Balance and, thereafter, the Original Class A Principal Balance,
reduced by all amounts previously distributed to Class A Certificateholders and
allocable to principal.
The "Class B Distributable Amount" with respect to a Distribution Date will
be an amount equal to the sum of:
(i) the "Class B Principal," consisting of the Class B Percentage of
the amounts set forth under (i)(a) through (i)(d) above with respect to the
Class A Principal;
(ii) the "Class B Interest," consisting of an amount equal to 30 days'
interest at the Pass-Through Rate on the Class B Principal Balance on the
first day of the related Collection Period (less principal distributions to
be made on the Distribution Date in such Collection Period);
(iii) the Class B Interest Carryover Shortfall as of the close of
business on the preceding Distribution Date; plus
(iv) the Class B Principal Carryover Shortfall as of the close of
business on the preceding Distribution Date.
In addition, on the Final Scheduled Distribution Date the "Class B
Principal" will include the lesser of (x) the Class B Percentage of any payments
of principal due and remaining unpaid on each Receivable in the Trust as of the
Final Scheduled Maturity Date (except to the extent previously Advanced) and (y)
the portion of such amount that is necessary (after giving effect to the other
amounts to be distributed to the Class B Certificateholders on such Distribution
Date and allocable to principal) to reduce the Class B Principal Balance to
zero, and, in the case of clauses (x) and (y) in this paragraph, remaining after
any required distribution of the amount described in clause (x) or (y) of the
paragraph above describing the inclusion of certain items in the definition of
"Class A Principal" with respect to the Final Scheduled Distribution Date.
"Class B Interest Carryover Shortfall" means, as of the close of business
on any Distribution Date, the excess, if any, of the Class B Interest for such
Distribution Date plus any outstanding Class B Interest Carryover Shortfall from
the preceding Distribution Date over the amount of interest that the Class B
Certificateholders actually received on such current Distribution Date (plus
thirty (30) days' interest on the amount of such excess, to the extent permitted
by law, at the Pass-Through Rate).
"Class B Principal Carryover Shortfall" means, as of the close of business
on any Distribution Date, the excess of Class B Principal plus any outstanding
Class B Principal Carryover Shortfall from the preceding Distribution Date over
the amount of principal that the Class B Certificateholders actually received on
such current Distribution Date.
The "Class B Principal Balance" initially will equal $67,739,846.80 (the
"Original Class B Principal Balance") and, thereafter, the Original Class B
Principal Balance, reduced by all amounts previously distributed to Class B
Certificateholders and allocable to principal.
Payment of Distributable Amounts. Prior to each Distribution Date, the
Servicer will calculate the amount to be distributed to each class of
Certificateholders. On each Distribution Date, the Trustee will distribute to
Certificateholders the following amounts from the sources specified in the
following order of priority:
(i) to the Class A Certificateholders, an amount equal to the Class A
Interest and any outstanding Class A Interest Carryover Shortfall as of the
close of the preceding Distribution Date, such amount to be paid (a) first,
from the Class A Percentage of Available Interest (after reducing Available
Interest by payment of the Servicing Fee, including any unpaid Servicing
Fees with respect to prior Collection Periods), (b) second, from the
amounts available in the Class A Reserve Fund, (c) third, from the Class B
Percentage of Available Interest (after reducing Available Interest by
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payment of the Servicing Fee, including any unpaid Servicing Fees with
respect to prior Collection Periods) and (d) fourth, from the Class B
Percentage of Available Principal;
(ii) to the Class B Certificateholders, an amount equal to the Class B
Interest and any outstanding Class B Interest Carryover Shortfall as of the
close of the preceding Distribution Date, such amount to be paid (a) first,
from Available Interest (after payment to the Class A Certificateholders of
the amount set forth above in clause (i)) and (b) second, from the amounts
available in the Class B Reserve Fund;
(iii) to the Class A Certificateholders, an amount equal to Class A
Principal and any outstanding Class A Principal Carryover Shortfall as of
the close of the preceding Distribution Date, such amount to be paid (a)
first, from the Class A Percentage of Available Principal, (b) second, from
Available Interest remaining after the payment of the amounts set forth in
clauses (i) and (ii), (c) third, from amounts available in the Class A
Reserve Fund and (d) fourth, from the Class B Percentage of the Available
Principal; and
(iv) to the Class B Certificateholders, an amount equal to Class B
Principal and any outstanding Class B Principal Carryover Shortfall as of
the close of the preceding Distribution Date, such amount to be paid (a)
first, from the Class B Percentage of Available Principal, (b) second, from
the Available Interest remaining after the payment of the amounts set forth
in clauses (i), (ii), and (iii) and (c) third, from amounts available in
the Class B Reserve Fund.
Any portion of Available Interest remaining after distributions are made as
set forth above to the Class A Certificateholders and the Class B
Certificateholders will be (i) first, deposited in the Class A Reserve Fund to
the extent that the amount on deposit therein (after giving effect to any
deposit thereto by MBCC or the Servicer with respect to Shortfall Amounts) is
less than the Specified Class A Reserve Balance, (ii) second, deposited in the
Class B Reserve Fund to the extent that the amount on deposit therein is less
than the Specified Class B Reserve Balance and (iii) third, distributed to the
Seller in payment of Retained Yield.
SUBORDINATION OF THE CLASS B CERTIFICATES AND RETAINED YIELD; RESERVE FUNDS
The rights of the Class B Certificateholders to receive distributions with
respect to the Receivables will be subordinated, to the extent described herein
and in the Agreement, to the rights of the Class A Certificateholders in the
event of defaults and delinquencies on the Receivables. Thus, the Class B
Certificateholders generally will not receive distributions of interest on a
Distribution Date (other than from the Class B Reserve Fund) unless the Class A
Certificateholders receive the full amount of interest due to them on such
Distribution Date (including from amounts on deposit in the Class A Reserve
Fund), and the Class B Certificateholders will not receive distributions of
principal on a Distribution Date (other than from the Class B Reserve Fund)
unless the Class A Certificateholders receive the full amount of interest and
principal due to them on such Distribution Date (including from amounts on
deposit in the Class A Reserve Fund). Distributions of interest on the Class B
Certificates will not be subordinated to distributions of principal on the Class
A Certificates.
In addition, the rights of the Seller to receive the Retained Yield will be
subordinated to the rights of the Class A Certificateholders and the Class B
Certificateholders to receive amounts due to each of them. Accordingly, the
Seller will not receive distributions attributable to the Retained Yield on any
Distribution Date unless all interest and principal due to the Class A
Certificateholders and the Class B Certificateholders has been paid and amounts
on deposit in each Reserve Fund at least equal the Specified Class A Reserve
Balance or the Specified Class B Reserve Balance, as the case may be.
In the event of losses and delinquencies on the Receivables, the protection
afforded to the Class A Certificateholders will be effected by the application
of Available Interest and Available Principal for each Distribution Date in the
priority specified under " -- Distributions on Certificates -- Payment of
Distributable Amounts." In addition, the Class A Certificateholders will have
the benefit of the Class A Reserve Fund.
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The "Specified Class A Reserve Balance" with respect to any Distribution
Date means $25,887,839.54; provided, however, that with respect to any
Distribution Date on which (i) the annualized average for the preceding three
Collection Periods of the ratios of net losses (that is, the net balances of all
Receivables which are determined to be uncollectible in the applicable
Collection Period, less any Liquidation Proceeds or Recoveries received in such
Collection Period) to the Pool Balance as of the first day of each such
Collection Period exceeds 2.5% or (ii) the average for the preceding three
Collection Periods of the ratios of the balance of Receivables that are
delinquent 60 days or more to such outstanding Pool Balance exceeds 3.5%, the
Specified Reserve Balance for such Distribution Date will equal $32,359,799.43.
The Seller may reduce the Specified Class A Reserve Balance provided that the
Rating Agencies confirm in writing to the Class A Agent and the Seller prior to
such reduction that such reduction will not result in a lowering of or a
withdrawal of the then current rating of the Class A Certificates. The
"Specified Class B Reserve Balance" will initially be zero and remain zero for
so long as the Seller holds the Class B Certificates. At such time, if any, that
the Seller determines to sell the Class B Certificates, the Specified Class B
Reserve Balance shall be an amount determined by the Seller in consultation with
the Rating Agencies in order to achieve the desired rating for the Class B
Certificates.
Amounts on deposit in the Class A Reserve Fund will be available on any
Distribution Date to cover Shortfall Amounts and shortfalls in distributions of
interest and principal on the Class A Certificates to the extent attributable to
losses and delinquencies on the Receivables. The Class A Reserve Fund will not
be a part of or otherwise includible in the Trust and will be an Eligible
Deposit Account initially held by the Class A Agent. On any Distribution Date,
if, after giving effect to any withdrawals from the Class A Reserve Fund on such
Distribution Date, the amounts on deposit therein are less than the Specified
Class A Reserve Balance, (i) to the extent of the aggregate Shortfall Amounts
for the related Collection Period, MBCC will be required to make a deposit to
the Class A Reserve Fund of an amount equal to such Shortfall Amounts, and, if
MBCC fails to make such deposit, the Servicer will be required to deposit
investment earnings on deposit in the Collection Account and the Payahead
Account and MBCC will be required to deposit Excess Amounts for the related
Collection Period in an aggregate amount not to exceed the aggregate Shortfall
Amounts for the related Collection Period and (ii) the Trustee will, after
payment of amounts required to be distributed to the Class A Certificateholders
and Class B Certificateholders and the payment of the Servicing Fee due with
respect to the related Collection Period (including any unpaid Servicing Fees
with respect to prior Collection Periods) withdraw from the Collection Account
and deposit in the Class A Reserve Fund the amount remaining in the Collection
Account that would otherwise be distributed to the Seller as Retained Yield, or
such lesser portion thereof as is sufficient to restore the amount in the Class
A Reserve Fund to such Specified Class A Reserve Balance. If the amount on
deposit in the Class A Reserve Fund on such Distribution Date (after giving
effect to all deposits or withdrawals therefrom on such Distribution Date) is
greater than the Specified Class A Reserve Balance for such Distribution Date,
the Class A Agent will release such excess amount from the Class A Reserve Fund
and (i) deposit such excess amount in the Class B Reserve Fund to the extent
that the amount on deposit therein is less than the Specified Class B Reserve
Balance, and (ii) distribute any remaining excess to the Seller. Upon any
deposit of amounts in the Class B Reserve Fund or distribution to the Seller,
the Class A Certificateholders will have no rights in, or claims to, such
amounts.
Amounts held from time to time in the Class A Reserve Fund will continue to
be held solely for the benefit of the Class A Certificateholders and amounts
held in the Class B Reserve Fund will be held solely for the benefit of the
Class B Certificateholders. Amounts held in the Class B Reserve Fund will not be
available to cover shortfalls in amounts due to the Class A Certificateholders.
Amounts on deposit from time to time in the Class A Reserve Fund and Class B
Reserve Fund will be invested, as provided in the Agreement, in Eligible
Investments maturing on or prior to the next succeeding Distribution Date;
provided, however, that to the extent permitted by the Rating Agencies, amounts
on deposit in the Class A Reserve Fund and the Class B Reserve Fund may be
invested in Eligible Investments that mature later than the next Distribution
Date. The Seller will be entitled to receive all investment earnings on amounts
in the Reserve Funds. Investment earnings on amounts in the Reserve Funds will
not be available for distribution to the Certificateholders or otherwise subject
to any claims or rights of the Class A Certificateholders or the Class B
Certificateholders.
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Whether amounts on deposit in the Class A Reserve Fund will equal the
Specified Class A Reserve Balance at any time after the Closing Date will be
affected by the delinquency, credit loss and repossession and prepayment
experience of the Receivables and, therefore, cannot be accurately predicted.
The subordination of the Class B Certificates and the creation of the Class
A Reserve Fund are intended to enhance the likelihood of receipt by Class A
Certificateholders of the full amount of principal and interest on the
Receivables due to them and to decrease the likelihood that the Class A
Certificateholders will experience losses. However, in certain circumstances,
the Class A Reserve Fund could be depleted and shortfalls could result.
STATEMENTS TO CLASS A CERTIFICATEHOLDERS
On each Distribution Date, the Trustee will include with the distribution
to each Class A Certificateholder a statement prepared by the Servicer setting
forth the following information for the preceding Collection Period:
(i) the amount of the distribution allocable to principal;
(ii) the amount of the distribution allocable to interest;
(iii) the amount of the Servicing Fee and additional servicing
compensation from administrative fees and charges (including late fees and
charges) collected on the Receivables paid to the Servicer with respect to
such Collection Period;
(iv) the Class A Principal Balance, the Class A Pool Factor, the Class
B pool factor, if applicable, and the Class B Principal Balance as of such
Distribution Date, after giving effect to payments allocated to principal
reported under clause (i) above;
(v) the Pool Balance as of the close of business on the last day of
such Collection Period;
(vi) the amount of the Class A Interest Carryover Shortfall, Class B
Interest Carryover Shortfall, Class A Principal Carryover Shortfall and
Class B Principal Carryover Shortfall, if any, for such Distribution Date;
(vii) the amount, if any, otherwise distributable to the Seller that
is distributed to Class A Certificateholders and Class B Certificateholders
on such Distribution Date;
(viii) the balance of the Reserve Funds on such Distribution Date,
after giving effect to changes therein on such Distribution Date; and
(ix) the aggregate Purchase Amount of Receivables repurchased by the
Seller or purchased by the Servicer.
Each amount set forth pursuant to clauses (i), (ii), (iii) and (vii) above
will be expressed in the aggregate and as a dollar amount per $1,000 of original
denomination of the Certificates.
Within a reasonable period of time after the end of each calendar year, but
not later than the latest date permitted by law, the Trustee will furnish to
each person who at any time during such calendar year was a Certificateholder a
statement prepared by the Servicer containing the sum of the amounts described
in clauses (i), (ii), (iii) and (vii) above and such other information as is
available to the Servicer as the Servicer deems necessary or desirable to enable
Certificateholders to prepare their federal income tax returns. See "Certain
Federal Income Tax Consequences."
Such monthly reports and annual tax statements may be available to
Certificate Owners in accordance with the regulations and procedures of DTC. See
"Reports to the Class A Certificateholders."
EVIDENCE AS TO COMPLIANCE
The Agreement will provide that a firm of independent certified public
accountants, who may provide audit and other services to the Servicer, will
furnish to the Trustee, on or before March 31 of each year, beginning March 31,
1998, a report of examination as to compliance by the Servicer during the
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12 months (or longer period in the case of the first such report) ended the
preceding December 31 with certain standards relating to the servicing of the
Receivables.
The Agreement will also provide for delivery to the Trustee, on or before
March 31 of each year, beginning March 31, 1998, of a certificate signed by an
officer of the Servicer stating that the Servicer has fulfilled its obligations
under the Agreement throughout the 12 months (or longer period in the case of
the first such certificate) ended the preceding December 31 or, if there has
been a default in the fulfillment of any such obligation, describing each such
default.
Certificateholders and Certificate Owners may obtain copies of such reports
of examination as to compliance by the Servicer and copies of such certificates
signed by an officer of the Servicer by written request addressed to the
Trustee. See "-- Duties of the Trustee."
CERTAIN MATTERS REGARDING THE SERVICER
The Agreement will provide that the Servicer may not resign from its
obligations and duties as Servicer thereunder, except upon a determination that
the Servicer's performance of such obligations or duties is no longer
permissible under applicable law.
Any corporation or other entity into which the Servicer may be merged or
consolidated, or that may result from any merger, conversion, or consolidation
to which the Servicer is a party, or any entity that may succeed by purchase and
assumption to all or substantially all of the business of the Servicer, where
the Servicer is not the surviving entity and where such corporation is an
Eligible Servicer and assumes the obligations of the Servicer under the
Agreement, will be the successor to the Servicer under the Agreement.
INDEMNIFICATION AND LIMITS ON LIABILITY
The Agreement will provide that the Servicer will be liable only to the
extent of the obligations specifically undertaken by it under the Agreement and
will have no other obligations or liabilities thereunder.
The Agreement will also provide that the Servicer will be under no
obligation to appear in, prosecute, or defend any legal action that is not
incidental to the Servicer's servicing responsibilities under the Agreement and
that, in its opinion, may cause it to incur any expense or liability. The
Servicer may, however, at its expense undertake any reasonable action that it
may deem necessary or desirable in respect of the Agreement and the rights and
duties of the parties thereto and the interests of the Certificateholders
thereunder.
EVENTS OF SERVICING TERMINATION
The following events will constitute "Events of Servicing Termination"
under the Agreement: (i) any failure by the Servicer to deliver to the Trustee
on or before the Determination Date the certificate required to be delivered
pursuant to the Agreement with respect to the preceding Collection Period (which
failure continues beyond the earlier of three business days from the date such
Servicer's certificate was due to be delivered and the Distribution Date next
succeeding such Collection Period), (ii) any failure by the Servicer (or, for so
long as the Servicer is an Affiliate (as defined in the Agreement) of the
Seller, the Seller) to deliver to the Collection Account or any other Account
any required payment or deposit including, so long as MBCC is the Servicer,
pursuant to the Shortfall Amount Agreement, which failure continues unremedied
for five business days following the due date, (iii) any failure by the Servicer
(or, for so long as the Servicer is an Affiliate (as defined in the Agreement)
of the Seller, the Seller) duly to observe or perform in any material respect
any other covenant or agreement in the Certificates and the Agreement, which
failure materially and adversely affects the rights of Certificateholders and
which continues unremedied for 90 days after written notice of such failure is
given to the Servicer by the Trustee or to the Servicer and the Trustee by the
Certificateholders evidencing not less than 25% of the aggregate Class A
Principal Balance and the Class B Principal Balance (excluding any Certificates
held by the Seller or any Affiliate (as defined in the Agreement) of the
Seller), (iv) certain events of bankruptcy, receivership, insolvency,
readjustment of debt, marshalling of assets
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and liabilities, or similar proceedings and certain actions by the Servicer
indicating its insolvency or reorganization pursuant to bankruptcy,
receivership, conservatorship, insolvency, or similar proceedings, and (v)
failure of the Servicer to be an Eligible Servicer. The Certificateholders
evidencing not less than a majority of the Class A Principal Balance and the
Class B Principal Balance (excluding any Certificates held by the Seller or any
Affiliate (as defined in the Agreement) of the Seller) may waive any Event of
Servicing Termination except an event resulting from the failure to make any
required deposit or payment to any Account.
The Trustee will have no obligation to notify Class A Certificateholders of
any event which, with lapse of time to cure, would become an Event of Servicing
Termination, until after the expiration of any applicable cure period.
RIGHTS UPON AN EVENT OF SERVICING TERMINATION
As long as an Event of Servicing Termination remains unremedied, the
Trustee or the Certificateholders evidencing not less than a majority of the
Class A Principal Balance and the Class B Principal Balance (excluding any
Certificates held by the Seller or any Affiliate (as defined in the Agreement)
of the Seller) may terminate the Servicer's rights and obligations under the
Agreement, whereupon the Trustee or a servicer appointed by the Trustee will
succeed to all the responsibilities, duties, and liabilities of the Servicer
under the Agreement. Thereafter, the successor Servicer will be entitled to the
compensation payable to the Servicer. In the event that the Trustee is unwilling
or legally unable so to act, the Trustee may appoint, or petition a court of
competent jurisdiction for the appointment of, an Eligible Servicer to act as
successor to the outgoing Servicer under the Agreement. In no event may the
servicing compensation to be paid to such successor be greater than the
servicing compensation payable to the Servicer under the Agreement. In the event
of the bankruptcy of the Servicer, the bankruptcy trustee or the Servicer, as
debtor in possession, may have the power to prevent a termination of the
Servicer's rights and obligations under the Agreement.
AMENDMENT
The Agreement may be amended by the Seller, the Servicer, MBCC, the
Payahead Agent, the Class A Agent, the Class B Agent and the Trustee, without
the consent of the Certificateholders, (i) to cure any ambiguity, to correct or
supplement any provision therein which may be inconsistent with any other
provision therein, to add, change or eliminate any other provision with respect
to matters or questions arising under the Agreement which are not inconsistent
with the provisions of the Agreement; provided that such action will not, in the
opinion of counsel (which may be internal counsel to the Seller or the Servicer)
satisfactory to the Trustee, materially and adversely affect the interest of any
Certificateholder, and (ii) to provide for the transfer of the Class B
Certificates; provided that certain conditions specified in the Agreement are
satisfied prior to such transfer, including written confirmation from each
Rating Agency that such transfer will not result in the qualification,
downgrading or withdrawal of the then current rating assigned to the Class A
Certificates by such Rating Agency, and that such amendment will not change the
timing of, or the amount of, any distributions that the Class A
Certificateholders are entitled to receive under the Agreement; and provided,
further, that an opinion of independent outside counsel will be delivered to the
Trustee to the effect that such amendment will not adversely affect the status
of the Trust as a grantor trust for federal or applicable state tax purposes.
The Agreement also may be amended by the Seller, the Servicer and the
Trustee with the consent of the Class A Certificateholders and Class B
Certificateholders, each voting as a class, evidencing not less than a majority
of the Class A Principal Balance and Class B Principal Balance, respectively,
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the Agreement or modifying the rights of
the Certificateholders. However, no such amendment may (i) increase or reduce in
any manner the amount of, or accelerate or delay the timing of, or change the
allocation or priority of, collections of payments on Receivables or
distributions that are required to be made on any Certificate, without the
consent of all adversely affected Certificateholders, (ii) reduce the aforesaid
percentage of the Class A Principal Balance or Class B Principal Balance, which
is required to consent to any such amendment, without the consent of all
Certificateholders of the relevant class, or
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(iii) adversely affect the rating of the Class A Certificates by the Rating
Agencies without the consent of Class A Certificateholders evidencing not less
than 66 2/3% of the Class A Principal Balance, except that, the interest
evidenced by any Class A Certificate or interest in the Retained Yield
registered in the name of the Seller, the Servicer, or any person actually known
to an authorized officer of the Trustee to be an Affiliate (as defined in the
Agreement) of the Seller or the Servicer, will not be taken into account in
determining whether the requisite percentage necessary to effect any such
consent will have been obtained.
LIST OF CERTIFICATEHOLDERS
If Definitive Certificates have been issued, the Trustee, upon written
request of the Certificateholders evidencing not less than 25% of the aggregate
Class A Principal Balance, will afford such Certificateholders access during
business hours to the current list of Certificateholders for purposes of
communicating with other Class A Certificateholders with respect to their rights
under the Agreement. Prior to such time, neither the Trustee nor DTC will have
an obligation to maintain, or provide Class A Certificate Owners with access to,
a list of Class A Certificate Owners.
The Agreement will not provide for holding any annual or other meetings of
Certificateholders.
TERMINATION
The obligations of the Seller, the Servicer, and the Trustee under the
Agreement will, except with respect to certain reporting requirements, terminate
upon the earliest of (i) the Distribution Date next succeeding the Servicer's
purchase of the Receivables, as described below, (ii) payment to
Certificateholders of all amounts required to be paid to them pursuant to the
Agreement and (iii) the Distribution Date next succeeding the month which is six
months after the maturity or other liquidation of the last Receivable and the
disposition of any amounts received upon liquidation of any property remaining
in the Trust in accordance with the terms and priorities set forth in the
Agreement.
In order to avoid excessive administrative expense, the Servicer will be
permitted, at its option, in the event that the Pool Balance as of the last day
of a Collection Period has declined to 10% or less of the initial Pool Balance,
to purchase from the Trust, on the Distribution Date occurring in any subsequent
Collection Period which follows the Collection Period in which appropriate
notice is given to Certificateholders (with effect from the first day of the
Collection Period in which such Distribution Date occurs), all remaining
Receivables in the Trust at a purchase price equal to the aggregate of the
Purchase Amounts thereof. The exercise of this right will effect an early
retirement of the Certificates.
The Trustee will give written notice of termination of the Trust to each
Certificateholder of record. The final distribution to any Certificateholder
will be made only upon surrender and cancellation of such holder's Certificate
(whether a Definitive Certificate or the physical certificate representing the
Certificates) at the office or agency of the Trustee specified in the notice of
termination. Any funds remaining in the Trust, after the Trustee has taken
certain measures to locate a Certificateholder and such measures have failed,
will be distributed to the Servicer or as otherwise provided in the Agreement.
THE TRUSTEE
Citibank, N.A. will be the Trustee. The Trustee, in its individual capacity
or otherwise, and any of its affiliates, may hold Certificates in their own
names or as pledgee. In addition, for the purpose of meeting the legal
requirements of certain jurisdictions, the Servicer and the Trustee, acting
jointly (or in some instances, the Trustee, acting alone), will have the power
to appoint co-trustees or separate trustees of all or any part of the Trust. In
the event of such appointment, all rights, powers, duties, and obligations
conferred or imposed upon the Trustee by the Agreement will be conferred or
imposed upon the Trustee and such co-trustee or separate trustee jointly, or, in
any jurisdiction where the Trustee is incompetent or unqualified to perform
certain acts, singly upon such co-trustee or separate trustee who will exercise
and perform such rights, powers, duties, and obligations solely at the direction
of the Trustee.
The Trustee may resign at any time, in which event the Servicer will be
obligated to appoint a successor trustee. The Servicer may also remove the
Trustee if the Trustee ceases to be eligible to serve,
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becomes legally unable to act, is adjudged insolvent, or is placed in
receivership or similar proceedings. In such circumstances, the Servicer will be
obligated to appoint a successor trustee. Any resignation or removal of the
Trustee and appointment of a successor trustee will not become effective until
acceptance of the appointment by the successor trustee.
The Agreement will provide that the Servicer will pay or cause to be paid
the Trustee's fees. The Agreement will also provide that the Trustee will be
entitled to indemnification by the Servicer for, and will be held harmless
against, certain loss, liability, or expense incurred by the Trustee not
resulting from the Trustee's own willful misfeasance, bad faith, or negligence.
Indemnification will be unavailable to the Trustee to the extent that any such
loss, liability, or expense results from a breach of any of the Trustee's
representations or warranties set forth in the Agreement, and for any tax, other
than those for which the Seller or the Servicer is required to indemnify the
Trustee.
The Trustee's Corporate Trust Office is located at 120 Wall Street, New
York, NY 10043. The Seller, the Servicer, and their respective affiliates may
have other banking relationships with the Trustee and its affiliates in the
ordinary course of their business.
In addition, Citibank, N.A. will act as Class A Agent, Class B Agent and
Payahead Agent.
DUTIES OF THE TRUSTEE
The Trustee will make no representations as to the validity or sufficiency
of the Agreement, any Dealer Agreement, the Certificates (other than the
execution and authentication of the Certificates), the Receivables, or any
related documents, and will not be accountable for the use or application by the
Seller or the Servicer of any funds paid to the Seller or the Servicer in
respect of the Certificates or the Receivables or for any monies prior to the
time such monies are deposited into the Collection Account. The Trustee will be
accountable for any monies deposited into any Account only if the Trustee is
maintaining such account. The Trustee will not independently verify the
Receivables.
If no Event of Servicing Termination has occurred and is continuing, the
Trustee will be required to perform only those duties specifically required of
it under the Agreement. Generally, those duties are limited to the receipt of
the various certificates, reports, or other instruments required to be furnished
by the Servicer to the Trustee under the Agreement, in which case the Trustee
will only be required to examine such instruments to determine whether they
conform to the requirements of the Agreement.
The Trustee will be under no obligation to exercise any of the rights or
powers vested in it by the Agreement or to institute, conduct, or defend any
litigation thereunder or in relation thereto at the request, order, or direction
of any of the Certificateholders, unless such Certificateholders have offered
the Trustee reasonable security or indemnity against the costs, expenses, and
liabilities which may be incurred therein or thereby. No Class A
Certificateholder will have any right under the Agreement to institute any
proceeding with respect to the Agreement, unless such Class A Certificateholder
has given the Trustee written notice of default and unless the holders of
Certificates evidencing not less than a majority of the Class A Principal
Balance and the Class B Principal Balance (excluding any Certificates held by
the Seller or any Affiliate (as defined in the Agreement) of the Seller) have
made a written request to the Trustee to institute such proceeding in its own
name as Trustee thereunder and have offered to the Trustee reasonable indemnity,
and the Trustee for 30 days has neglected or refused to institute any such
proceeding.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
RIGHTS IN THE RECEIVABLES
The Receivables are "chattel paper" as defined in the UCC in effect in each
relevant state. Pursuant to the UCC, for most purposes, a sale of chattel paper
is treated in a manner similar to a transaction creating a security interest in
chattel paper. MBCC and the Seller will cause financing statements to be filed
with the appropriate governmental authorities to perfect the interest of the
Seller and the Trust, as the case may be, in the Receivables.
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Pursuant to the Agreement, the Servicer will hold the Receivables, either
directly or through subservicers, as custodian for the Trustee following the
sale and assignment of the Receivables to the Trust. The Seller will take such
action as is required to perfect the rights of the Trustee in the Receivables.
The Receivables will not be segregated, stamped, or otherwise marked, to
indicate that they have been sold to the Trust. If, through inadvertence or
otherwise, another party purchases (or takes a security interest in) the
Receivables for new value in the ordinary course of business and takes
possession of the Receivables without actual knowledge of the Trust's interest,
the purchaser (or secured party) will acquire an interest in the Receivables
superior to the interest of the Trust.
Under the Agreement, the Servicer will be obligated from time to time to
take such actions as are necessary to protect and perfect the Trust's interest
in the Receivables and their proceeds.
SECURITY INTERESTS IN THE FINANCED VEHICLES
Generally, retail installment contracts and retail loans such as the
Receivables evidence the credit sale of or financing of Commercial Vehicles by
dealers to obligors; the contracts also constitute personal property security
agreements and include grants of security interests in the vehicles under the
UCC. Perfection of a security interest in a Commercial Vehicle is generally
governed by the motor vehicle registration laws of the state in which the
vehicle is located. In most states in which the Receivables have been
originated, a security interest in a Commercial Vehicle is perfected by notation
of the secured party's lien on the Commercial Vehicle's certificate of ownership
or title.
MBCC's practice is to take such action as is required in order to perfect
its security interest in a Commercial Vehicle under the laws of the jurisdiction
in which the Commercial Vehicle is registered. If MBCC, because of clerical
error or otherwise, has failed to take such action with respect to a Financed
Vehicle, it will not have a perfected security interest in the Financed Vehicle
and its security interest may be subordinate to the interests of, among others,
subsequent purchasers of the Financed Vehicle that give value without notice of
MBCC's security interest and to whom a certificate of ownership or title is
issued in such purchaser's name, holders of perfected security interests in the
Financed Vehicle, and the trustee in bankruptcy of the Obligor. MBCC's security
interest may also be subordinate to such third parties in the event of fraud or
forgery by the Obligor or administrative error by state recording officials or
in the circumstances noted below. As described more fully below, MBCC and the
Seller (i) will represent and warrant in the Purchase Agreement and the
Agreement, respectively, that, to the best of their knowledge, an enforceable
first priority perfected security interest exists for the benefit of the Seller
and Trustee, respectively, with respect to each Financed Vehicle and (ii) will
be required to repurchase the related Receivable in the event of an uncured
breach or failure to be true of such warranty if the interests of the Seller and
the Trustee, respectively, therein are materially and adversely affected by such
breach or failure. This repurchase obligation will constitute the sole remedy
available to the Trustee and the Certificateholders for such breach or failure.
Pursuant to the Purchase Agreement, MBCC will assign its security interests
in the Financed Vehicles, along with the sale and assignment of the Receivables,
to the Seller and, pursuant to the Agreement, the Seller will assign its
security interests in the Financed Vehicles, along with the sale and assignment
of the Receivables, to the Trust. The Servicer will hold the certificates of
title relating to the Financed Vehicles, either directly or through
subservicers, as custodian for the Trustee following such sale and assignment.
The certificates of title will not be endorsed or otherwise amended to identify
the Trust as the new secured party, however, because of the administrative
burden and expense involved. The Seller will assign its rights under the
Purchase Agreement to the Trust.
In most states, an assignment of a security interest in a Financed Vehicle
along with the applicable Receivable is an effective conveyance of a security
interest without amendment of any lien noted on such Financed Vehicle's
certificate of title or ownership, and the assignee succeeds thereby to the
assignor's rights as secured party. However, because the Trust will not be
identified as the secured party on any such certificate, the security interest
of the Trust in any Financed Vehicle could be defeated through fraud, forgery,
negligence or error. In most states, in the absence of fraud or forgery by the
Financed Vehicle owner or of fraud, forgery, negligence or error by MBCC or
administrative error by state or local
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agencies, the notation of MBCC's lien on the certificates of ownership or
possession of such certificates with such notation will be sufficient to protect
the Trust against the rights of subsequent purchasers of a Financed Vehicle or
subsequent lenders who take a security interest in a Financed Vehicle. If there
are any Financed Vehicles as to which the Trust fails to obtain a perfected
security interest, its security interest would be subordinate to, among others,
subsequent purchasers of the Financed Vehicles and holders of perfected security
interests.
MBCC and the Seller will represent and warrant in the Purchase Agreement
and the Agreement, respectively, as to each Receivable that to the best of their
knowledge, immediately prior to the sale, assignment, and transfer of each
Receivable by MBCC to the Seller, such Receivable was secured by a validly
perfected first priority security interest in the related Financed Vehicle in
favor of MBCC as secured party and, at such time as enforcement of such security
interest is sought, there will exist a valid, subsisting, and enforceable first
priority perfected security interest in such Financed Vehicle for the benefit of
the Trustee (subject to any statutory or other liens arising after the Closing
Date by operation of law or any rights of third parties arising after the
Closing Date as a result of the fraud or forgery of the Commercial Vehicle owner
or administrative error by state recording officials which are prior to such
security interest). In the event of an uncured breach or failure to be true of
such warranty, MBCC and the Seller, pursuant to the terms of the Purchase
Agreement and the Agreement, respectively, will be required to repurchase such
Receivable for its Purchase Amount if the interests of the Seller or the Trust,
respectively, therein are materially and adversely affected by such breach or
failure. This repurchase obligation will constitute the sole remedy available to
the Trust and the Certificateholders for such breach or failure. MBCC's and the
Seller's warranties with respect to perfection and enforceability of a security
interest in a Financed Vehicle will not cover statutory or other liens arising
after the Closing Date by operation of law or any rights of third parties
arising as a result of the fraud or forgery of the Commercial Vehicle owner as
described above or administrative error by state recording officials as
described above which are prior to such security interest. Accordingly, any such
lien or right would not by itself give rise to a repurchase obligation on the
part of MBCC and the Seller.
Under the laws of most states, a perfected security interest in a
Commercial Vehicle continues for four months after the Commercial Vehicle is
moved to a new state from the one in which it was initially registered and
thereafter until the Commercial Vehicle owner re-registers the Commercial
Vehicle in the new state, but in any event not beyond the surrender of the
certificate. A majority of states requires surrender of a certificate of title
to re-register a Commercial Vehicle and requires that notice of such surrender
be given to each secured party noted on the certificate of title. In those
states that require a secured party to take possession of a certificate of title
to perfect a security interest, the secured party would learn of the
re-registration through the request from the obligor to surrender possession of
the certificate of title. In those states that require a secured party to note
its lien on a certificate of title to perfect a security interest but do not
require possession of the certificate of title, the secured party would learn of
the re-registration through the notice from the state department of motor
vehicles that the certificate of title had been surrendered. The requirements
that a certificate of title be surrendered and that notices of such surrender be
given to each secured party also apply to re-registrations effected following a
sale of a Commercial Vehicle. MBCC would therefore have the opportunity to
re-perfect its security interest in a Financed Vehicle in the state of
re-registration following relocation of the Obligor and would be able to require
satisfaction of the related Receivable following a sale of the Financed Vehicle.
In states that do not require a certificate of title for registration of a
Commercial Vehicle, re-registration could defeat perfection. In the ordinary
course of servicing Commercial Vehicle installment contracts and loans, MBCC
takes steps to effect re-perfection upon receipt of notice of re-registration or
information from the Obligor as to relocation.
Under the laws of many states, liens for repairs performed on a Commercial
Vehicle and liens for unpaid taxes take priority over a perfected security
interest in the Commercial Vehicle. The Code also grants priority to certain
federal tax liens over the lien of a secured party. The laws of certain states
and federal law permit the confiscation of Commercial Vehicles under certain
circumstances if used in unlawful activities, which may result in the loss of a
secured party's perfected security interest in the confiscated Commercial
Vehicle. MBCC and the Seller will warrant in the Purchase Agreement and the
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Agreement, respectively, that, to the best of their knowledge, as of the Closing
Date, no such liens or rights of confiscation are pending. In the event of a
breach or failure to be true of such warranty which has a material and adverse
effect on the interests of the Trust and the Certificateholders, MBCC and the
Seller, pursuant to the terms of the Purchase Agreement and the Agreement,
respectively, will be required to repurchase the Receivable secured by the
Financed Vehicle involved. This repurchase obligation will constitute the sole
remedy available to the Trust and the Certificateholders for such breach. Any
liens for repairs or taxes or rights of confiscation arising at any time after
the Closing Date during the term of a Receivable would not give rise to a
repurchase obligation on the part of MBCC and the Seller.
REPOSSESSION
In the event of a default by an obligor under a retail installment contract
or loan, the holder of a receivable such as a Receivable has all the remedies of
a secured party under the UCC, except where specifically limited by other state
laws or by contract. The remedies of a secured party under the UCC include the
right to repossession by means of self-help, unless such means would constitute
a breach of the peace. Self-help repossession is the method employed by MBCC in
most cases, and is accomplished simply by taking possession of the Commercial
Vehicle. Generally, where the obligor objects or raises a defense to
repossession, a court order must be obtained from the appropriate state court
and the Commercial Vehicle must then be repossessed in accordance with that
order. In the event of a default by an obligor, many jurisdictions require that
the obligor be notified of the default and be given a time period within which
he may cure the default prior to repossession.
NOTICE OF SALE; REDEMPTION RIGHTS
The UCC and other state laws require the secured party to provide an
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. The
obligor generally has the right to redeem the collateral prior to actual sale by
paying the secured party the unpaid principal balance of the obligation plus, in
most cases, reasonable expenses for repossessing, holding, and preparing the
collateral for disposition and arranging for its sale plus, in many
jurisdictions, reasonable attorneys' fees. In some states, the obligor has the
right, prior to actual sale, to reinstatement of the original loan terms and to
return of the collateral by payment of delinquent installments of the unpaid
balance. Generally, this right of reinstatement may be exercised on a limited
number of occasions in any one-year period.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The resale proceeds of Financed Vehicles generally will be applied first to
the expenses of repossession and resale and then to the satisfaction of the
indebtedness on the related Receivable. While some states impose prohibitions or
limitations on deficiency judgments if the net proceeds from resale do not cover
the full amount of the indebtedness, a deficiency judgment can be sought in
those states that do not prohibit or limit such judgments. Any such deficiency
judgment would be a personal judgment against the Obligor for the shortfall,
however, and a defaulting Obligor may 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 not paid at all. MBCC generally seeks to recover
any deficiency existing after repossession and sale of a Commercial Vehicle.
Occasionally, after resale of a repossessed Commercial Vehicle and payment
of all expenses and indebtedness, there is a surplus of funds. In that case, the
UCC requires the secured party to remit the surplus to any other holder of a
lien with respect to the Commercial Vehicle or, if no such lienholder exists or
funds remain after paying such other lienholders, to the former owner of the
Commercial Vehicle.
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
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Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the
Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations B, Z, and
AA, and other similar acts, state adoptions of the National Consumer Act and of
the Uniform Consumer Credit Code and state motor vehicle retail installment
sales acts, retail installment sales acts, and other similar laws. Also, state
laws impose finance charge and late 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 the ability of an assignee, such as the
Trustee, to enforce Receivables to the extent they are consumer finance
contracts subject to such requirements. The "Credit Practices" Rule of the
Federal Trade Commission (the "FTC") imposes additional restrictions on contract
provisions and credit practices.
The FTC's holder-in-due-course rule (the "FTC Rule") has the effect of
subjecting a seller (and certain related lenders and their assignees) in a
consumer credit transaction and any assignee of the seller to all claims and
defenses which the purchaser could assert against the seller of the goods.
Liability under the FTC Rule is limited to the amounts paid by the purchaser
under the contract, and the holder of the contract may also be unable to collect
any balance remaining due thereunder from the purchaser. The FTC Rule is
generally duplicated by state statutes or the common law in certain states.
Accordingly, the Trustee, as holder of the Receivables, will be subject to
claims or defenses, if any, that the purchaser of a Financed Vehicle may assert
against the seller of such vehicle.
Under the Commercial Vehicle dealer licensing laws of most states, sellers
of Commercial Vehicles are required to be licensed to sell such vehicles at
retail sale and to originate certain installment contracts or loans in
connection with such sales. In addition, with respect to used Commercial
Vehicles, the FTC's Rule on Sale of Used Vehicles requires that all sellers of
used Commercial Vehicles prepare, complete, and display a "Buyer's Guide" which
explains the warranty coverage for such vehicles. Federal Odometer Regulations
promulgated under the Commercial Vehicle Information and Cost Savings Act
require that all sellers of used Commercial Vehicles furnish a written statement
signed by the seller certifying the accuracy of the odometer reading. If a
seller is not properly licensed or if either a Buyer's Guide or Odometer
Disclosure Statement was not properly provided to the purchaser of a financed
vehicle, such purchaser may be able to assert a defense as to a retail
installment contract or loan against the seller of such vehicle or of a
subsequent holder of the retail installment contract or loan.
Courts have applied general equitable principles to secured parties
pursuing repossession or 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.
MBCC and the Seller will represent and warrant in the Purchase Agreement
and the Agreement, respectively, as to each Receivable that such Receivable
complied at the time it was originated and as of the Closing Date in all
material respects with all requirements of applicable law. If, as of the Cutoff
Date, an Obligor had a claim against the Trust for violation of any law and such
claim materially and adversely affected the Trust's interest in a Receivable,
such violation would create an obligation of MBCC and the Seller under the
Purchase Agreement and the Agreement, respectively, to repurchase the Receivable
unless the breach were cured. This repurchase obligation will constitute the
sole remedy of the Trustee and the Certificateholders against the Seller in
respect of any such uncured breach. See "The Certificates -- Sale and Assignment
of the Receivables."
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including Insolvency Laws, may interfere
with or affect the ability of a lender to realize upon collateral or enforce a
deficiency judgment. For example, in a proceeding under the Bankruptcy Code, a
court may prevent a lender from repossessing a Commercial Vehicle.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the material United States federal
income tax consequences of the purchase, ownership and disposition of Class A
Certificates which are anticipated to be relevant to most categories of
investors. This summary is based upon laws, regulations, rulings and decisions
currently in effect, all of which are subject to change, which change may be
retroactive. The discussion does not cover all federal income tax consequences
which may be material to all categories of investors, some of which may be
subject to special rules, and does not discuss the status of the Trust or the
Class A Certificates or the tax treatment of any Class A Certificate Owner under
the laws of any foreign, state or local jurisdiction. In addition, this summary
is limited to investors who will hold the Class A Certificates as "capital
assets" (generally, property held for investment) within the meaning of Section
1221 of the Internal Revenue Code of 1986, as amended (the "Code"). Prospective
investors should note that no rulings have been or will be sought from the
Internal Revenue Service (the "IRS") with respect to any of the federal income
tax consequences discussed below, and no assurance can be given that the IRS
will not take contrary positions.
INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS TO DETERMINE THE FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THEIR PURCHASE, OWNERSHIP
AND DISPOSITION OF THE CLASS A CERTIFICATES.
TAX STATUS AS A GRANTOR TRUST; SCOPE OF TAX OPINION
Morgan, Lewis & Bockius LLP, special tax counsel to the Seller ("Special
Tax Counsel"), has advised that, in its opinion, for federal income tax
purposes, (i) the Trust will be classified as a grantor trust and not as a
partnership or as an association which is taxable as a corporation and (ii) each
Class A Certificate Owner will be treated as an owner of an undivided pro rata
interest in the income (other than the Retained Yield) and corpus attributable
to the Trust. In addition, Special Tax Counsel has prepared or reviewed the
statements in this Prospectus under the headings "Prospectus Summary -- Tax
Status" and "Certain Federal Income Tax Consequences," and is of the opinion
that such statements, to the extent that such statements describe matters of
federal income tax law, are correct in all material respects. Such statements
constitute an explanatory discussion of the possible effects of the
classification of the Trust as a grantor trust for federal income tax purposes
on investors generally and of related tax matters affecting investors generally.
Further, such statements 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 tax advisor. Accordingly, each investor is
advised to consult its tax advisor with regard to the tax consequences to it of
investing in the Class A Certificates.
TREATMENT OF CLASS A CERTIFICATE OWNERS' INVESTMENTS IN THE CERTIFICATES
Classification as a grantor trust should cause each Class A Certificate
Owner to be treated for federal income tax purposes as if it owned directly its
interest in each asset owned by the Trust, received or accrued directly its
share of income paid to or accrued by the Trust and paid or incurred directly
its share of reasonable expenses paid or incurred by the Trust. Accordingly,
each Class A Certificate Owner should be viewed as owning an interest in each
Receivable and each other asset which is held by the Trust. It is also possible
that each Class A Certificate Owner would be considered to own an undivided
interest in a single debt obligation of the Seller and generally having a
principal amount equal to the total stated principal amount of the Receivables
and an interest rate equal to the applicable Pass-Through Rate. Special Tax
Counsel is unable to opine as to which characterization will govern because no
authority exists addressing the characterization of transactions having assets
and other characteristics identical to those of the Trust. The Agreement will
express the intent of the Seller to sell, and the Class A Certificate Owners to
purchase, the Receivables (other than the Retained Yield and Excess Amounts) and
the Seller, each Certificateholder and each Class A Certificate Owner, by
accepting a beneficial interest in a Certificate, will agree to treat the Class
A Certificates as ownership interests in the Receivables. Unless otherwise
specified, the remainder of this section will discuss the manner in which
49
52
income would be reported if each Class A Certificate Owner were viewed as owning
an interest in each Receivable and each other asset which is held by the Trust.
TAX ACCOUNTING ISSUES
For administrative convenience, the Servicer intends to report information
with respect to a Class A Certificate Owner's investment in a Class A
Certificate on an aggregate basis as though such Class A Certificate Owner's
investment in the Receivables and other assets will be equal to such Class A
Certificate Owner's share of the initial Class A Principal Balance and on which
interest and Shortfall Amounts are payable at a combined rate equal to the sum
of the Pass-Through Rate and the Servicing Rate. Unless otherwise specified, the
remainder of this section will discuss the manner in which income would be
reported on an asset-by-asset basis, although the Servicer will report on an
aggregate basis.
If the IRS were to require reporting on an asset-by-asset basis, the
timing, amount and character of income reportable to Class A Certificate Owners
for any period could differ from that which is reportable on an aggregate basis.
If reporting on an aggregate basis results in under-reporting of income, or if
the IRS were to take a position different from that adopted by the Trust with
respect to any issue, a Class A Certificate Owner could be required to pay
interest on underpayments of tax and could be subject to penalties for
under-reporting of income. Special Tax Counsel is unable to opine with respect
to a number of issues which could affect the timing, amount and characterization
of income because no authority exists addressing the characterization of
transactions having assets and other characteristics identical to those of the
Trust.
Except to the extent that the original issue discount rules are applicable
(as discussed below), ordinary income on the Class A Certificate Owner's
interest in the Receivables and other Trust assets will be reportable by a Class
A Certificate Owner in accordance with its usual method of accounting as such
amounts are accrued on the Receivables or, in the case of Class A Certificate
Owners who are cash basis taxpayers, ordinary income will be reportable when
received by the Servicer as agent for the Class A Certificate Owners. Because
items of income generally accrue on the Receivables over various monthly periods
ending in the calendar month preceding the calendar month which includes the
related Distribution Date, in general, distributions made on a Class A
Certificate will represent amounts which accrued over a period that began
between 75 and 45 days prior to such Distribution Date. The portion of each
distribution to a Class A Certificate Owner that is allocable to principal on
the Receivables (other than amounts representing accrued market discount, as
described below) will reduce the tax basis of such Class A Certificate Owner's
interest in the Receivables. See "-- Payments Under the Shortfall Amount
Agreement -- Shortfall Amounts."
PAYMENTS UNDER THE SHORTFALL AMOUNT AGREEMENT
Excess Amounts. Excess Amounts are to be retained by MBCC. It is possible
that Excess Amounts will be viewed as constructively received by the Trust and
then paid to MBCC as a fee for the rights granted under the Shortfall Amount
Agreement, in which case such Excess Amounts may be includible in income by the
Class A Certificate Owners and deductible by Class A Certificate Owners subject
to the rules discussed below. See "-- Servicing Fees."
Shortfall Amounts. A Shortfall Amount compensates the Class A Certificate
Owners for the excess, if any, of the interest which would have accrued on a
Receivable at its APR prior to prepayment or acceleration using the actuarial
method over the interest which actually accrued on such Receivable at such rate
over such period using the simple interest method. See "The Receivables --
Payments on the Receivables." Shortfall Amounts are paid to Class A Certificate
Owners from amounts on deposit in the Class A Reserve Fund or by MBCC pursuant
to the Shortfall Amount Agreement to eliminate this difference in yield. A Class
A Certificate Owner may be required to allocate a portion of its purchase price
for a Receivable to its contingent right to receive Shortfall Amounts. See "--
Application of the Original Issue Discount Rules to the Receivables."
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53
Shortfall Amounts should be treated as ordinary income which is not
interest income. However, because the Trust will have accounted for each
Receivable (in accordance with its terms) using the actuarial method, by the
time a Shortfall Amount is received, a Class A Certificate Owner on the accrual
basis method of accounting should previously have overcounted (and thus may have
over-reported with respect to prior collection periods) its interest income by
an amount equal to the Shortfall Amount, which amount should instead have been
accounted for as a recovery of basis. A Class A Certificate Owner that takes the
position that the Shortfall Amount should be treated as basis recovery (because
an identical amount was previously over-reported as income) could be challenged
by the IRS if the difference in character (basis recovery vs. interest) or
timing of the reported amounts affects such Class A Certificate Owner's tax
liability. Another possible alternative is that the Shortfall Amounts could be
treated as an adjustment to the purchase price of the Receivables. In that
event, the amount of discount on the Receivables would increase compared with
the amount of such discount if the Shortfall Amounts were not treated as an
adjustment to the purchase price of Receivables.
It is not clear whether payments analogous to the Shortfall Amounts should
be treated as "fixed or determinable annual or periodic" income (within the
meaning of Section 871(a)(1) or 881(a)(1) of the Code) and, therefore, subject
to United States withholding tax. Furthermore, Shortfall Amounts will not be
treated as interest and, therefore, will not qualify as "portfolio interest"
(within the meaning of Section 871(h)(2) or 881(c)(2) of the Code).
APPLICATION OF THE ORIGINAL ISSUE DISCOUNT RULES TO THE RECEIVABLES
The Receivables bear interest at varying rates. Because the Seller will
retain the Retained Yield, the issuance of the Class A Certificates will result
in the separation of ownership ("stripping") of a portion of the rights to
interest payments on those Receivables (the "High Yield Receivables") that bear
an interest rate which is greater than the sum of the Pass-Through Rate and the
Servicing Rate from the principal of and remaining interest on such Receivables.
Those Receivables that bear an interest rate which is equal to the sum of the
Pass-Through Rate and the Servicing Rate do not provide rights to receive
interest in excess of the sum of the Pass-Through Rate and the Servicing Rate
and, therefore, will not be treated as stripped instruments.
As discussed below, the stripping of the High Yield Receivables may result
in original issue discount ("OID"). Furthermore, in determining whether the High
Yield Receivables (or any High Yield Receivable) purchased by the Class A
Certificate Owners have OID or whether any other Receivables (or any other
Receivable) have market discount, the purchase price of a Class A Certificate
should be allocated among the High Yield Receivables and the Trust's other
assets based on their respective fair market values. The Trust's other assets
include the Class A Certificate Owner's undivided interest in accrued but unpaid
interest and amounts collected as of the time of purchase but not yet
distributed, and, possibly, contingent rights to receive Shortfall Amounts
pursuant to the Shortfall Amount Agreement. As a result, the portion of the
purchase price allocable to a Class A Certificate Owner's undivided interest in
the Receivables (or any Receivable) will be decreased and the potential OID or
market discount on the Receivables (or any Receivable) could be increased.
The "stripped bond" rules of Section 1286 of the Code will apply to the
High Yield Receivables (the "stripped Receivables"). Under Section 1286 of the
Code, a stripped bond is treated as if it had been newly issued on the date of
the stripping with an issue price equal to the purchase price allocable to the
stripped bond (based on its fair market value). If the stated redemption price
at maturity exceeds the issue price, the difference is treated as OID. Under
regulations under Section 1286 of the Code and under the OID provisions of the
Code (the "OID Regulations"), it appears that the interest on the stripped
Receivables would be treated as "qualified stated interest." Thus, the stated
redemption price at maturity should not include such interest payments, and
should therefore equal the principal amount of the stripped Receivables.
It is unclear under Section 1286 of the Code and the OID Regulations
whether stripped bonds which are deemed to be issued in a single transaction
should be aggregated. The OID Regulations generally
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provide for the aggregation of debt instruments issued by a single "issuer" to a
single holder. Although it is not clear whether the Seller, as the entity
stripping the Receivables, should be treated as the "issuer" of the stripped
Receivables for purposes of the OID Regulations, as described above, the
Servicer will prepare reports as if the OID Regulations allow aggregation.
The rules that follow would apply regardless of whether the stripped
Receivables are aggregated (and thus treated as a single Receivable for OID
purposes) or not aggregated (and thus analyzed on a Receivable-by-Receivable
basis for OID purposes), although the amount and timing of OID recognition may
differ under the two methods.
If the excess of a stripped Receivable's "stated redemption price at
maturity" (which should equal the Receivable's principal amount) over the
purchase price which the Class A Certificate Owner is deemed to have paid for
such stripped Receivable is less than a statutorily defined de minimis amount,
such stripped Receivable would not be treated as having OID. In general, the
amount of OID on a stripped Receivable will be de minimis if it is less than
1/4 of 1% multiplied by the product of the stated redemption price at maturity
and the number of full years of weighted average life remaining after the
purchase date until the final maturity of the Receivable. It is not clear
whether the maturity date which would be used for determining whether OID on a
stripped Receivable is de minimis should be calculated taking into account
expected prepayments and, absent further guidance to the contrary, the Servicer
does not intend to apply a prepayment assumption, for purposes of either
applying the de minimis rule or calculating OID generally. If the amount of OID
on any stripped Receivable is de minimis under this rule, the actual amount of
discount on such Receivable would be includible in income proportionately as
principal payments are received on the Receivable in the proportion that the
amount that each principal payment bears to the total principal amount of the
stripped Receivable.
If OID on a stripped Receivable is not treated as de minimis, a Class A
Certificate Owner will be required to include OID in income as it accrues on a
daily basis, regardless of when cash payments are received, using a method
reflecting a constant yield-to-maturity on such stripped Receivable. The OID
that accrues from time to time would increase a Class A Certificate Owner's tax
basis in the Class A Certificate. Distributions of principal and other items
attributable to accrued OID (other than payments of interest at the sum of the
Pass-Through Rate and Servicing Rate) would reduce a Class A Certificate Owner's
tax basis. The accrual of income by a Class A Certificate Owner under the OID
rules could be accelerated as compared with reporting income at the sum of the
Pass-Through Rate and the Servicing Rate. Application of the OID rules,
particularly if a prepayment assumption is required and the Receivables are not
aggregated, would be complex and could significantly affect the timing of
inclusion of income on a Class A Certificate.
For the reasons discussed above, the Receivables other than the High Yield
Receivables will not be treated as stripped bonds. However, to the extent that
the portion of the purchase price allocated to a Certificate Owner's undivided
interest in a Receivable other than a High Yield Receivable is less than the
"stated redemption price at maturity," such Receivable could have market
discount. The market discount on such a Receivable will be considered to be zero
if it is less than a statutorily defined de minimis amount. The allocation of a
portion of the purchase price of a Class A Certificate to the rights to payments
under the Shortfall Amount Agreement, accrued interest and/or amounts collected
and undistributed as of the date such Class A Certificate was purchased may
cause or increase the amount of market discount.
In general, under the market discount provisions of the Code, principal
payments received by the Trust and all or a portion of the gain recognized upon
a sale or other disposition of a Receivable other than a High Yield Receivable
or upon the sale or other disposition of a Class A Certificate by a Class A
Certificate Owner, will be treated as ordinary income to the extent of accrued
market discount. Any payments received by a Class A Certificate Owner upon a
sale or other disposition of a Certificate in an amount in excess of accrued
market discount will be treated as capital gain. In addition, a portion of the
interest deductions of the Class A Certificate Owner attributable to any
indebtedness treated as incurred or continued to purchase or carry a Receivable
may have to be deferred, unless a Class A Certificate
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Owner makes an election to include market discount in income currently as it
accrues, which election would apply to all debt instruments acquired by the
taxpayer on or after the first day of the first taxable year to which such
election applies. Taxpayers may, in general, elect to accrue market discount
either (i) under a constant yield-to-maturity method or (ii) in the proportion
that the stated interest paid on the obligation for the current period bears to
the total remaining interest on the obligation.
SERVICING FEES
An amount equal to each Class A Certificate Owner's allocable share of the
Servicing Fee and other compensation to the Servicer will be treated as having
been received by and will be includible in the income of such Class A
Certificate Owner. A corporate Class A Certificate Owner or a Class A
Certificate Owner who holds a Class A Certificate in connection with a trade or
business will be entitled to deduct, consistent with its method of accounting,
its pro rata share of amounts paid as fees and other expenses under Section 162
of the Code to the extent that such fees and expenses represent reasonable
compensation for services rendered. Other Class A Certificate Owners will be
entitled to deduct, under Section 212 of the Code, their pro rata share of
amounts paid as reasonable fees and expenses only if such amounts, when added to
certain other "miscellaneous itemized deductions," exceed 2% of adjusted gross
income for the taxable year in which the deductions may be claimed. In addition,
in the case of Class A Certificate Owners who are individuals, certain otherwise
allowable itemized deductions will be reduced, but not by more than 80%, by an
amount equal to 3% of the Class A Certificate Owner's adjusted gross income in
excess of a statutorily defined amount adjusted annually for inflation ($117,950
for married couples filing jointly for the taxable year beginning in 1996).
The Servicer believes that the Servicing Fees will be considered reasonable
compensation for services rendered. Although the IRS has issued guidance as to
what constitutes reasonable compensation for servicing residential mortgages,
there are no guidelines as to either the maximum amount of compensation that may
be considered reasonable for servicing debt instruments similar to the
Receivables or whether the reasonableness of such compensation would be
determined on a weighted average or a Receivable-by-Receivable basis.
If amounts paid to the Servicer exceed reasonable compensation for services
provided, the Servicer may be viewed as having, for federal income tax purposes,
an ownership interest in a portion of each interest payment with respect to each
Receivable under the "stripped bond" rules. In such case, the portion of each
interest payment treated as a strip owned by the Servicer will not be included
in the Class A Certificate Owner's income, and the Class A Certificate Owner's
deduction for Servicing Fees will be reduced accordingly.
Any prepayment penalties, late payment fees, extension and administrative
fees or similar charges (collectively, "Late Fees") paid by the Obligors under
the Receivables and any interest on amounts collected by the Servicer are to be
retained by the Servicer. Thus, such Late Fees and interest should not
constitute taxable income to the Class A Certificate Owners as additional
compensation. Accordingly, the Trustee will not report to the Class A
Certificate Owners such Late Fees and interest received. However, it is possible
that such Late Fees and interest might be viewed as constructively received by
the Trust and then paid to the Servicer as additional servicing fees, in which
case such Late Fees and interest may be includible in income by the Class A
Certificate Owners and become deductible by Class A Certificate Owners subject
to the rules discussed above.
SALE OF A CERTIFICATE
If a Certificate is sold, gain or loss will be recognized equal to the
difference between the amount realized on the sale and the Class A Certificate
Owner's adjusted basis in the Certificate. A Class A Certificate Owner's
adjusted basis generally will equal the purchase price the Certificate Owner is
deemed to have paid for the Certificate, increased by any OID or market discount
previously included in income, and decreased by any deduction previously allowed
for amortized premium and by the amount of payments previously received on the
Receivables which are allocable to principal or previously included
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OID or market discount for tax purposes. Gain realized will be treated as
ordinary income to the extent that market discount accrued in respect of a
Receivable had not previously been taken into account. Any remaining gain would
be treated as capital gain and any loss realized would be treated as capital
loss.
FOREIGN CLASS A CERTIFICATE OWNERS
To the extent that amounts paid to a Class A Certificate Owner that is not
a United States person (a "Foreign Class A Certificate Owner") are treated as
interest or OID for federal income tax purposes, such amounts generally will be
exempt from the normal 30% United States withholding tax, provided that such
Foreign Class A Certificate Owner is not engaged in a trade or business in the
United States and that such Certificate Owner fulfills certain certification
requirements. Under such requirements, a Foreign Class A Certificate Owner must
certify, under penalties of perjury, that it is not a "United States person,"
among other things. However, since Shortfall Amounts will not qualify as
"portfolio interest" within the meaning of Section 871(h)(2) or 881(c)(2) of the
Code, such payments may be subject to United States withholding tax at a 30% or
lower treaty reduced rate. To the extent that an Excess Amount is treated as
constructively received by the Trust, it is not clear whether all or a portion
of such Excess Amount may qualify as "portfolio interest" (within the meaning of
Section 871(b)(2) or 881(c)(2) of the Code) which would be exempt from United
States withholding tax. See "-- Payments Under the Shortfall Amount Agreement --
Excess Amounts." The term "United States person" means a citizen or resident of
the United States, a corporation, partnership or other entity created or
organized in or under the laws of the United States or any political subdivision
thereof, and an estate or trust whose income is includible in gross income for
United States federal income tax purposes regardless of its source. Potential
investors who are not United States persons should consult their own tax
advisors regarding the specific tax consequences to them of owning a Class A
Certificate.
BACKUP WITHHOLDING
Payments made to a Class A Certificate Owner and proceeds from the sale of
the Certificates will not be subject to a 31% "backup" withholding tax unless,
in general, such Class A Certificate Owner fails to comply with certain
reporting procedures and is not an exempt recipient under applicable provisions
of the Code.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Code impose certain requirements on employee benefit plans and certain
other retirement plans and arrangements, including individual retirement
accounts and annuities, Keogh plans and collective investment funds and separate
accounts in which such plans, accounts or arrangements are invested that are
subject to ERISA and the Code (all of which are hereinafter referred to as a
"Plan") and on persons who are fiduciaries with respect to such Plans. In
accordance with ERISA's general fiduciary standards, before investing in a Class
A Certificate, a Plan fiduciary should determine whether such an investment is
permitted under the governing Plan instruments and is appropriate for the Plan
in view of its overall investment policy and the composition and diversification
of its portfolio. Other provisions of ERISA and the Code prohibit certain
transactions involving the assets of a Plan and persons who have certain
specified relationships to the Plan ("parties in interest" within the meaning of
ERISA or "disqualified persons" within the meaning of the Code). Thus, a Plan
fiduciary considering an investment in Class A Certificates should also consider
whether such an investment might constitute or give rise to a prohibited
transaction under ERISA or the Code.
An investment in Class A Certificates by a Plan might result in the assets
of the Trust being deemed to constitute Plan assets, which in turn might mean
that certain aspects of such investment, including the operation of the Trust,
might be prohibited transactions under ERISA and the Code. There may also be an
improper delegation of the responsibility to manage Plan assets if Plans that
purchase the Class A Certificates are deemed to own an interest in the
underlying assets of the Trust. Neither ERISA nor the
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Code defines the term "plan assets." Under Section 510.3-101 of the United
States Department of Labor ("DOL") regulations (the "Regulation"), a Plan's
assets may include an interest in the underlying assets of an entity (such as a
trust) for certain purposes, including the prohibited transaction provisions of
ERISA and the Code, if the Plan acquires an "equity interest" in such entity.
The Seller believes that the Class A Certificates will give Class A
Certificateholders an equity interest in the Trust for purposes of the
Regulation. Under the Regulation, when a Plan acquires an equity interest that
is neither a "publicly offered security" nor a security issued by an investment
company registered under the Investment Company Act of 1940, as amended, the
underlying assets of the entity will be considered "plan assets" unless the
entity is an "operating company" or equity participation in the entity by
benefit plan investors is not "significant." A publicly offered security is a
security which is (1) held by 100 or more investors independent of the issuer
and of each other, (2) freely transferable, and (3) sold as part of an offering
pursuant to an effective registration statement under the Securities Act, and
then registered under Section 12(b) or 12(g) of the Exchange Act. The Regulation
provides that participation is significant if immediately after the most recent
acquisition of any equity interest in the entity, whether or not from an issuer
or an underwriter, twenty-five percent (25%) or more of the value of any class
of equity interest is held by "benefit plan investors," which are defined as
Plans and employee benefit plans not subject to ERISA (for example, governmental
plans).
The Trust will not be an "operating company" as defined in the Regulation,
and it will not be an investment company registered under the Investment Company
Act of 1940, as amended. It is expected that the Class A Certificates will meet
the criteria of publicly offered securities as set forth above. The Underwriters
expect (although no assurances can be given) that the Class A Certificates will
be held by at least 100 independent investors at the conclusion of the offering
made by this Prospectus; there are no restrictions imposed on the transfer of
the Class A Certificates; and the Seller intends to cause the registration
requirements to be satisfied. If, however, none of the exceptions set forth in
the Regulation applies, the persons providing services with respect to the
assets of the Trust may be subject to the fiduciary responsibility provisions of
Title I of ERISA and be subject to the prohibited transaction provisions of
ERISA and the Code unless exemptions from such provisions apply. For example,
based on the reasoning of the United States Supreme Court in John Hancock Life
Ins. Co. v. Harris Trust and Sav. Bank, 114 S. Ct. 517 (1993), an insurance
company's general account may be deemed to include assets of the Plans investing
in the general account (e.g., through the purchase of an annuity contract), and
the insurance company might be treated as a fiduciary with respect to such plans
by virtue of such investment. Certain exemptions issued by the DOL from the
prohibited transaction rules could be applicable, depending in part upon the
type and circumstances of the Plan fiduciary making the decision to acquire a
Class A Certificate. Included among these exemptions are DOL Prohibited
Transaction Exemptions 84-14 (Class Exemption for Plan Asset Transactions
Determined by Independent Qualified Professional Asset Managers), 91-38 (Class
Exemption for Certain Transactions Involving Bank Collective Investment Funds),
90-1 (Class Exemption for Certain Transactions Involving Insurance Company
Pooled Separate Accounts), 95-60 (Class Exemption for Certain Transactions
Involving Insurance Company General Accounts) and 96-23 (Class Exemption for
Plan Asset Transactions Determined by In-House Asset Managers).
Any Plan fiduciary considering whether to purchase Class A Certificates on
behalf of a Plan should consult with its counsel regarding the applicability of
the fiduciary responsibility and prohibited transaction provisions of ERISA and
the Code to such investment.
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UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), the Seller has agreed to sell to each of the
underwriters named below (the "Underwriters"), and each of the Underwriters, for
whom Goldman, Sachs & Co. are acting as representatives (the "Representatives"),
has severally agreed to purchase from the Seller, the principal amount of Class
A Certificates set forth opposite its name below:
AGGREGATE
PRINCIPAL AMOUNT OF
CLASS A CERTIFICATES
UNDERWRITERS TO BE PURCHASED
---------------------------------------------------------------- --------------------
Goldman, Sachs & Co............................................. $
Citicorp Securities, Inc........................................
CS First Boston Corporation.....................................
Deutsche Morgan Grenfell/C.J. Lawrence Inc......................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated........................................
J.P. Morgan Securities Inc......................................
UBS Securities LLC..............................................
----------
Total........................................................... $ 795,188,137.94
==========
In the Underwriting Agreement, the several Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all the Class
A Certificates offered hereby if any of the Class A Certificates are purchased.
In the event of a default by any Underwriter, the Underwriting Agreement
provides that, in certain circumstances, purchase commitments of the
nondefaulting Underwriters may be increased or the Underwriting Agreement may be
terminated.
The Seller has been advised by the Representatives that the several
Underwriters propose initially to offer the Class A Certificates to the public
at the price set forth on the cover page hereof, and to certain dealers at such
price less a concession not in excess of % of the Class A Certificate
denominations. The Underwriters may allow and such dealers may reallow a
concession not in excess of % of the Class A Certificate denominations
to certain other dealers. After the initial public offering, the public offering
price and such concessions may be changed.
The Seller does not intend to apply for listing of the Class A Certificates
on a national securities exchange, but has been advised by the Underwriters that
they intend to make a market in the Class A Certificates. The Underwriters are
not obligated, however, to make a market in the Class A Certificates and may
discontinue market making at any time without notice. No assurance can be given
as to the liquidity of, or the trading market for, the Class A Certificates.
The Underwriting Agreement provides that the Seller will indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act or contribute to payments the Underwriters may be required to
make in respect thereof.
In the ordinary course of their respective businesses, certain of the
Underwriters and their affiliates have engaged, and may in the future engage, in
commercial banking and investment banking transactions with DBNA, MBCC and their
affiliates.
VALIDITY OF THE CERTIFICATES
Certain legal matters relating to the validity of the Certificates will be
passed upon for the Seller by Morgan, Lewis & Bockius LLP, New York, New York.
The validity of the Certificates will be passed upon for the Underwriters by
Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York. Skadden, Arps,
Slate, Meagher & Flom LLP has from time to time represented MBCC, DBNA and their
affiliates in connection with certain matters.
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INDEX OF PRINCIPAL TERMS
PAGE
----------
Accounts........................................................................ 30
Advance......................................................................... 9
Agreement....................................................................... 4
Amount Financed................................................................. 23
APR............................................................................. 4, 18
Available Interest.............................................................. 35
Available Principal............................................................. 35
Balloon Receivables............................................................. 18
Bankruptcy Code................................................................. 11
Certificate Account............................................................. 30
Certificate Owners.............................................................. 3, 6
Certificateholders.............................................................. 7
Certificates.................................................................... 1
Class A Agent................................................................... 10
Class A Certificate Owners...................................................... 6
Class A Certificateholders...................................................... 5, 28
Class A Certificates............................................................ 1, 4
Class A Distributable Amount.................................................... 36
Class A Interest................................................................ 36
Class A Interest Carryover Shortfall............................................ 36
Class A Percentage.............................................................. 4, 27
Class A Pool Factor............................................................. 24
Class A Principal............................................................... 6, 36
Class A Principal Balance....................................................... 37
Class A Principal Carryover Shortfall........................................... 37
Class A Reserve Fund............................................................ 7
Class A Reserve Initial Deposit................................................. 8
Class B Agent................................................................... 10
Class B Certificateholders...................................................... 7
Class B Certificates............................................................ 1, 4
Class B Distributable Amount.................................................... 37
Class B Interest................................................................ 37
Class B Interest Carryover Shortfall............................................ 37
Class B Percentage.............................................................. 4, 27
Class B Principal............................................................... 37
Class B Principal Balance....................................................... 37
Class B Principal Carryover Shortfall........................................... 37
Class B Reserve Fund............................................................ 7
Closing Date.................................................................... 5, 24
Code............................................................................ 49
Collection Account.............................................................. 30
Collection Period............................................................... 6, 27
Commercial Vehicle.............................................................. 15
Commercial Vehicle Contracts.................................................... 15
Commission...................................................................... 2
Cutoff Date..................................................................... 2, 5
Daimler-Benz.................................................................... 26
DBNA............................................................................ 4
Dealer Agreement................................................................ 15
57
60
PAGE
----------
Dealers......................................................................... 15
Defaulted Receivable............................................................ 6, 35
Definitive Certificates......................................................... 28
Determination Date.............................................................. 35
Direct Participants............................................................. 27
Distribution Date............................................................... 1, 5
DOL............................................................................. 55
DTC............................................................................. 1, 6
Due Date........................................................................ 15
Eligible Bank................................................................... 31
Eligible Deposit Account........................................................ 30
Eligible Investments............................................................ 31
Eligible Servicer............................................................... 32
ERISA........................................................................... 2, 54
Events of Servicing Termination................................................. 41
Excess Amount................................................................... 23
Exchange Act.................................................................... 2
FDIC............................................................................ 31
Final Scheduled Distribution Date............................................... 1
Final Scheduled Maturity Date................................................... 33
Financed Vehicles............................................................... 5
Foreign Class A Certificate Owner............................................... 54
Freightliner.................................................................... 2, 4, 26
Fully Amortizing Receivables.................................................... 18
FTC............................................................................. 48
FTC Rule........................................................................ 48
High Yield Receivables.......................................................... 51
Holders......................................................................... 29
Indirect Participants........................................................... 28
Insolvency Laws................................................................. 11
IRS............................................................................. 49
Late Fees....................................................................... 53
Liquidation Proceeds............................................................ 35
MBCC............................................................................ 4
Monthly Remittance Condition.................................................... 32
Moody's......................................................................... 10
Obligors........................................................................ 5
OID............................................................................. 51
OID Regulations................................................................. 51
Original Class A Principal Balance.............................................. 5
Original Class B Principal Balance.............................................. 37
Pass-Through Rate............................................................... 5
Payahead Account................................................................ 31
Payahead Agent.................................................................. 10
Payahead Balance................................................................ 36
Payaheads....................................................................... 31
Plan............................................................................ 10, 54
Pool Balance.................................................................... 7, 23
Prepaid Receivable.............................................................. 6
Principal Balance............................................................... 23
Purchase Agreement.............................................................. 5
58
61
PAGE
----------
Purchase Amount................................................................. 30
Purchased Receivable............................................................ 30
Rating Agency................................................................... 10
Receivable File................................................................. 29
Receivables..................................................................... 2, 4
Record Date..................................................................... 5
Recoveries...................................................................... 35
Regulation...................................................................... 55
Representatives................................................................. 56
Reserve Funds................................................................... 7
Retained Yield.................................................................. 4
Rules........................................................................... 28
S&P............................................................................. 10
Securities Act.................................................................. 2
Seller.......................................................................... 1
Servicer........................................................................ 1
Servicing Fee................................................................... 6
Servicing Guaranty Agreement.................................................... 31
Servicing Rate.................................................................. 6
Shortfall Amount................................................................ 9, 23
Shortfall Amount Agreement...................................................... 9
Special Counsel................................................................. 25
Special Tax Counsel............................................................. 49
Specified Class A Reserve Balance............................................... 8, 39
Specified Class B Reserve Balance............................................... 8, 39
stripped Receivables............................................................ 51
stripping....................................................................... 51
Total Available Amount.......................................................... 35
Trust........................................................................... 1, 4
Trust Property.................................................................. 4
Trustee......................................................................... 10
UCC............................................................................. 5
Underwriters.................................................................... 56
Underwriting Agreement.......................................................... 56
United States person............................................................ 54
59
62
- ---------------------------------------------------------
- ---------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE SELLER, THE SERVICER, CITIBANK, N.A. OR
THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
------------------
TABLE OF CONTENTS
PAGE
------
Available Information.................... 2
Reports to the Class A
Certificateholders..................... 3
Prospectus Summary....................... 4
Risk Factors............................. 11
Formation of the Trust................... 14
The Trust Property....................... 14
MBCC's Commercial Vehicle Contract
Portfolio.............................. 15
The Receivables.......................... 18
Yield Considerations..................... 24
Pool Factors and Other Information....... 24
Use of Proceeds.......................... 24
The Seller............................... 25
The Servicer............................. 26
Freightliner Corporation................. 26
The Certificates......................... 27
Certain Legal Aspects of the
Receivables............................ 44
Certain Federal Income Tax
Consequences........................... 49
ERISA Considerations..................... 54
Underwriting............................. 56
Validity of the Certificates............. 56
Index of Principal Terms................. 57
UNTIL (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE CLASS A CERTIFICATES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ---------------------------------------------------------
- ---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
$795,188,137.94
DAIMLER-BENZ
VEHICLE TRUST 1996-A
% ASSET BACKED
CERTIFICATES, CLASS A
DAIMLER-BENZ VEHICLE RECEIVABLES
CORPORATION
SELLER
MERCEDES-BENZ CREDIT CORPORATION
SERVICER
------------------
PROSPECTUS
------------------
GOLDMAN, SACHS & CO.
CITICORP SECURITIES, INC.
CS FIRST BOSTON
DEUTSCHE MORGAN GRENFELL INC.
MERRILL LYNCH & CO.
J.P. MORGAN & CO.
UBS SECURITIES
---------------------------------------------------------
---------------------------------------------------------
63
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Registration Fee..................................................... $240,966.10*
Printing and Engraving............................................... 35,000.00
Trustee's Fee........................................................ 20,000.00
Legal Fees and Expenses.............................................. 80,000.00
Blue Sky Fees and Expenses........................................... 10,000.00
Accountant's Fees and Expenses....................................... 45,000.00
Rating Agency Fees................................................... 185,000.00
Miscellaneous Fees and Expenses...................................... 10,033.90
-------
Total Expenses.................................................. $626,000.00
=======
- ---------------
* $303.03 of which has been previously paid.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of Delaware provides as follows:
145 Indemnification of Officers, Directors, Employees and Agents; Insurance
(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and
II-1
64
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made (1) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (2) if there are no such directors, or if such directors
so direct, by independent legal counsel in a written opinion, or (3) by the
stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or director
in defending any civil, criminal, administrative or investigative action, suit
or proceeding may be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that he is not entitled to be indemnified by the corporation as
authorized in this section. Such expenses (including attorneys' fees) incurred
by other employees and agents may be so paid upon such terms and conditions, if
any, as the board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees or agents, so that any
person who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
II-2
65
(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction to
hear and determine all actions for advancement of expenses or indemnification
brought under this section or under any bylaw, agreement, vote of stockholders
or disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees).
Article VI of the By-Laws of Daimler-Benz Vehicle Receivables Corporation
provides as follows:
To the full extent permitted by law, the corporation may indemnify any
person, or his heirs, distributees, next of kin, successors, appointees,
executors, administrators, legal representatives and assigns, who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, domestic or foreign,
against expenses, attorneys' fees, court costs, judgments, fines, amounts paid
in settlement and other losses actually and reasonably incurred by him in
connection with such action, suit or proceeding.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Not applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
NUMBER DESCRIPTION
------ ----------------------------------------------------------------------------
1.1 Form of Underwriting Agreement
3.1 Restated Certificate of Incorporation of the Seller; incorporated by
reference to Exhibit 3.1 to Registrant's Registration Statement on Form S-1
(No. 33-79574)
3.2 Bylaws of the Seller; incorporated by reference to Exhibit 3.2 to
Registrant's Registration Statement on Form S-1 (No. 33-79574)
4.1 Form of Pooling and Servicing Agreement among the Seller, the Servicer,
MBCC, the Trustee, the Class A Agent, the Class B Agent and the Payahead
Agent
5.1 Opinion of Morgan, Lewis & Bockius LLP re Legality
8.1 Opinion of Morgan, Lewis & Bockius LLP re Tax Matters
10.1 Form of Purchase Agreement between Mercedes-Benz Credit Corporation and the
Seller
10.2 Form of Servicing Guaranty Agreement between Daimler-Benz North America
Corporation and the Trustee (contained in Exhibit 4.1)
24.1 Consent of Morgan, Lewis & Bockius LLP (contained in Exhibit 5.1)
24.2 Consent of Morgan, Lewis & Bockius LLP (contained in Exhibit 8.1)
(B) FINANCIAL STATEMENT SCHEDULES
Not applicable.
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66
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes as follows:
(a) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in such
names as required by the Underwriters to permit prompt delivery to each
purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
(c) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act of 1933 shall be deemed to be part of this registration
statement as of the time it was declared effective.
(d) For the purpose of determining any liability under the Securities Act
of 1933, each post effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
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67
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the State of New
York, City of New York, on November 19, 1996.
DAIMLER-BENZ VEHICLE RECEIVABLES
CORPORATION
By: /s/ HARVEY S. TRAISON
------------------------------------
Harvey S. Traison
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
- ------------------------------------- ----------------------------------- ------------------
/s/ HARVEY S. TRAISON Director and President November 19, 1996
- ------------------------------------- (principal executive officer)
Harvey S. Traison
* November 19, 1996
- ------------------------------------- Director and Secretary and
David A. Klanica Treasurer (principal financial
officer and principal accounting
officer)
* November 19, 1996
- ------------------------------------- Director
Klaus Jacobs
* November 19, 1996
- ------------------------------------- Director
Charles B. McKenna
*By: /s/ HARVEY S. TRAISON
- -------------------------------------
Harvey S. Traison
Attorney-in-Fact
68
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------ ---------------------------------------------------------------------
1.1 Form of Underwriting Agreement
3.1 Restated Certificate of Incorporation of the Seller; incorporated by
reference to Exhibit 3.1 to Registrant's Registration Statement on
Form S-1 (No. 33-79574)
3.2 Bylaws of the Seller; incorporated by reference to Exhibit 3.2 to
Registrant's Registration Statement on Form S-1 (No. 33-79574)
4.1 Form of Pooling and Servicing Agreement among the Seller, the
Servicer, MBCC, the Trustee, the Class A Agent, the Class B Agent and
the Payahead Agent
5.1 Opinion of Morgan, Lewis & Bockius LLP re Legality
8.1 Opinion of Morgan, Lewis & Bockius LLP re Tax Matters
10.1 Form of Purchase Agreement between Mercedes-Benz Credit Corporation
and the Seller
10.2 Form of Servicing Guaranty Agreement between Daimler-Benz North
America Corporation and the Trustee (contained in Exhibit 4.1)
24.1 Consent of Morgan, Lewis & Bockius LLP (contained in Exhibit 5.1)
24.2 Consent of Morgan, Lewis & Bockius LLP (contained in Exhibit 8.1)