==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
DAIMLER-BENZ VEHICLE OWNER TRUST 1998-A
(Issuer with respect to the Notes)
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 (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code No.)
organization)
1201 NORTH MARKET STREET
SUITE 1406
WILMINGTON, DE 19801
(302) 426-1900
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
HARVEY S. TRAISON
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 &
101 PARK AVENUE FLOM LLP
NEW YORK, NY 10178-0060 919 THIRD AVENUE
(212) 309-6183 NEW YORK, NY 10022
(212) 735-2853
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable on or after the effective date of the Registration Statement.
If the only securities being registered on this Form are to be offered
pursuant to dividend or interest reinvestment plans, please check the
following box. |_|
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box. |_|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities
Act registration 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. |_|
CALCULATION OF REGISTRATION FEE
========================================================================================
TITLE OF EACH
CLASS PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO PROPOSED MAXIMUM AGGREGATE OF
BE AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER SECURITY (1) PRICE (1) FEE
---------------- ------------ ---------------- ---------------- ------------
[ ]% Class A-1
Asset Backed
Notes............. $333,334 100% $333,334 $98.34
- ---------------------------------------------------------------------------------------
[ ]% Class A-2
Asset Backed
Notes............. $333,333 100% $333,333 $98.33
- ---------------------------------------------------------------------------------------
[ ]% Class A-3
Asset Backed
Notes............. $333,333 100% $333,333 $98.33
- --------------------------------------------------------------------------------------
Total............. $1,000,000 100% $1,000,000 $295.00
======================================================================================
(1)Estimated solely for purpose of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL 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.
[FLAG]
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 SEPTEMBER , 1998
PROSPECTUS
[LOGO]
DAIMLER-BENZ VEHICLE OWNER TRUST 1998-A
$________ ___% ASSET BACKED NOTES, CLASS A-1
$________ ___% ASSET BACKED NOTES, CLASS A-2
$________ ___% ASSET BACKED NOTES, CLASS A-3
DAIMLER-BENZ VEHICLE RECEIVABLES CORPORATION
Seller
MERCEDES-BENZ CREDIT CORPORATION
Servicer
Daimler-Benz Vehicle Owner Trust 1998-A (the "Trust") was formed pursuant
to a Trust Agreement dated as of , 1998, between Daimler-Benz Vehicle
Receivables Corporation (the "Seller") and [ ], as Owner Trustee. The Trust
will issue $[ ] aggregate principal amount of Asset Backed Notes
(collectively, the "Notes") consisting of $[ ] aggregate principal amount
of [ ]% Class A-1 Asset Backed Notes (the "Class A-1 Notes"), $[ ]
aggregate principal amount of [ ]% Class A-2 Asset Backed Notes (the "Class
A-2 Notes") and $[ ] aggregate principal amount of [ ]% Class A-3 Asset
Backed Notes (the "Class A-3 Notes"), pursuant to an Indenture to be dated
as of [ ], 1998, between the Trust and [ ], as Indenture Trustee. The Trust
will also issue $[ ] aggregate principal amount of Class B Asset Backed
Certificates (the "Certificates" or the "Class B Certificates"). The
Certificates are not being offered hereby.
(continued on next page)
-----------
Prospective investors should consider the factors set forth under "Risk
Factors" beginning on page 12 herein.
-----------
THE NOTES REPRESENT OBLIGATIONS OF THE TRUST ONLY AND DO NOT REPRESENT
OBLIGATIONS OF OR INTERESTS IN THE SELLER, THE SERVICER OR ANY OF THEIR
RESPECTIVE AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
===========================================================================
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE(1) DISCOUNT (2) THE SELLER(1)
Per Class A-1 Note..... % % %
Per Class A-2 Note..... % % %
Per Class A-3 Note..... % % %
Total.................. $ $ $
===========================================================================
(1) Plus accrued interest, if any, from the date of issuance.
(2) Before deduction of expenses estimated to be $ .
-----------
The Notes are offered subject to prior sale when, as and if issued by the
Trust and accepted by the Underwriters and subject to their right to reject
orders in whole or in part. It is expected that delivery of the Notes in
book-entry form will be made through the facilities of The Depository Trust
Company, Cedel Bank, societe anonyme ("Cedel"), and the Euroclear System
("Euroclear Participants") on or about [ ].
-----------
The date of this Prospectus is , 1998.
(continued from previous page)
The assets of the Trust will include a pool of vehicle retail
installment sale contracts originated on or after [ ] and certain rights
and obligations thereunder (collectively, the "Receivables"), all monies
due or received thereunder on or after [ ] (the "Cutoff Date"), the
Seller's security interests in new and used Mercedes-Benz automobiles and
new and used medium- and heavy-duty trucks and tractors manufactured by
Freightliner Corporation and its subsidiaries (collectively,
"Freightliner") and used trucks and tractors and new and used trailers
manufactured by companies other than Freightliner securing the Receivables
and certain other property, as more fully described herein. The Notes will
be secured by the assets of the Trust pursuant to the Indenture. Interest
on the Notes will accrue at the rates per annum set forth herein. Interest
accrued on the Notes for each Interest Period will be payable on the 20th
day of each month (or, if the 20th day of the month is not a Business Day,
the next following Business Day) beginning [ ] (each, a "Payment Date").
Principal of the Notes will be payable on each Payment Date to the extent
described herein. The rights of Certificateholders will be subordinated to
the rights of the Noteholders to the extent described herein.
The Final Payment Date for the Class A-1 Notes will be the [ ]
Payment Date, the Final Payment Date for the Class A-2 Notes will be the
[ ] Payment Date and the Final Payment Date for the Class A-3 Notes will be
the [ ] Payment Date.
The Notes will be subject to redemption in whole, but not in part, on
any Payment Date on which the Servicer exercises its option to purchase the
Receivables, which can occur on any Payment Date with respect to which the
Pool Balance as of the end of the related Collection Period is 10% or less
of the Initial Pool Balance, at a redemption price equal to the unpaid
principal amount of the Notes and of the Certificates, in each case plus
accrued and unpaid interest thereon.
Certain persons participating in this offering may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Notes offered hereby, including over-allotment transactions, stabilizing
transactions, syndicate covering transactions and penalty bids. For a
description of these activities, see "Underwriting."
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 Notes 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, 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 material may also be obtained from
the World Wide Web site maintained by the Commission (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"), and the
rules and regulations of the Commission thereunder.
REPORTS TO NOTEHOLDERS
Unless and until Definitive Notes are issued under the limited
circumstances described herein, monthly and annual reports concerning the
Receivables and the Trust will be prepared by the Servicer and sent on
behalf of the Trust only to Cede & Co., as nominee of The Depository Trust
Company ("DTC") and registered holder of the Notes. 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 Noteholders. See
"Description of the Notes-Book Entry Registration" and "-Statements to
Noteholders."
Certain of the matters discussed under the caption "The
Receivables-Maturity and Prepayment Considerations" in this Prospectus may
constitute forward-looking statements within the meaning of Section 27A of
the Securities Act, and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results,
performance or achievements of the Receivables to be materially different
from any future results, performance or achievements expressed or implied
by such forward-looking statements.
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 Owner Trust 1998-A (the
"Trust" or the "Issuer"), a Delaware business
trust established pursuant to a Trust Agreement
dated as of [ ] (as amended and supplemented from
time to time, the "Trust Agreement") between the
Seller and the Owner 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").
Indenture Trustee....... [ ], as trustee under the Indenture
(the "Indenture Trustee").
Owner Trustee........... [ ], as trustee under the Trust
Agreement (the "Owner Trustee").
The Notes............... The Trust will issue the Notes in an aggregate
initial principal amount of $[ ] pursuant to an
Indenture to be dated as of [ ] (as amended and
supplemented from time to time, the "Indenture"),
between the Trust and the Indenture Trustee. The
Notes will be issued in three classes consisting
of: (1) [ ]% Class A-1 Asset Backed Notes in the
aggregate initial principal amount of $[ ] (the
"Class A-1 Notes"), (2) [ ]% Class A-2 Asset
Backed Notes in the aggregate initial principal
amount of $[ ] (the "Class A-2 Notes") and (3) [
]% Class A-3 Asset Backed Notes in the aggregate
initial principal amount of $[ ] (the "Class A-3
Notes" and, together with the Class A-1 Notes and
the Class A-2 Notes, the "Notes" or the "Class A
Notes"). The Notes will be secured by the assets
of the Trust pursuant to the Indenture. The Notes
will be offered for purchase in denominations of
$1,000 and integral multiples thereof. See
"Description of the Notes-General."
The Certificates........ Concurrently with the issuance of the Notes,
pursuant to the Trust Agreement, the Trust will
issue the [ ]% Class B Asset Backed Certificates
(the "Certificates" or the "Class B
Certificates"). The Certificates will be
certificates of beneficial interest evidencing an
undivided ownership interest in the Trust
Property. The Certificates will be subordinated
to the Notes to the extent described herein. The
Certificates are not being offered hereby and
initially will be retained by the Seller or an
affiliate. Any information contained herein
relating to the Certificates is presented solely
to provide a better understanding of the Notes.
The Certificates evidence beneficial ownership of
the Trust and will entitle Certificateholders to
receive distributions of amounts not required to
be used to make payments on the Notes or to pay
expenses of the Trust. The initial aggregate
principal amount of the Certificates will equal
$[ ]. Thereafter, the principal amount of the
Certificates will be reduced on each Payment Date
by principal payments made on the Certificates.
Trust Assets............ The property of the Trust (the "Trust Property")
will include (i) the Receivables, (ii) all monies
due or received thereunder on or after [ ] (the
"Cutoff Date"), (iii) the Seller's security
interests in the Financed Vehicles, (iv) all
amounts and property from time to time held in or
credited to the Collection Account, the
Distribution Account, the Payahead Account and
the Reserve Accounts, (v) 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 under the Receivables (the
"Obligors"), (vi) all of the Seller's rights to
all documents contained in the Receivables Files,
(vii) certain rights under the Purchase Agreement
and the Sale and Servicing Agreement, (viii) all
of the Seller's rights, if any, of recourse
against Dealers arising out of breaches by
Dealers in connection with the Receivables, (ix)
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 Indenture
Trustee, (x) the Servicing Guaranty Agreement,
and (xi) all proceeds (within the meaning of
Section 9-306 of the Uniform Commercial Code (the
"UCC")) of the foregoing.
The Receivables......... The Receivables will consist of a pool of retail
installment sale contracts secured by new and
used Mercedes-Benz automobiles and new and used
medium- and heavy-duty trucks and tractors
manufactured by Freightliner and used trucks and
tractors and new and used trailers manufactured
by companies other than Freightliner, together
with all accessions thereto (the "Financed
Vehicles"), including rights to receive certain
payments made with respect to such Receivables,
security interests in the Financed Vehicles, and
the proceeds thereof. As of the Cutoff Date, the
Receivables had an aggregate outstanding
principal balance of $[ ] (the "Initial Pool
Balance").
The Receivables will be purchased by the Trust
from the Seller pursuant to a Sale and Servicing
Agreement, to be dated as of [ ] (as amended or
supplemented from time to time, the "Sale and
Servicing Agreement"), among the Trust, the
Seller and the Servicer providing for such
purchase on or before the date of issuance of the
Notes (the "Closing Date"). The Receivables will
be purchased by the Seller from MBCC pursuant to
a Purchase Agreement, to be dated as of [ ] (as
amended or supplemented from time to time, the
"Purchase Agreement"), between the Seller and
MBCC providing for such purchase on or before the
Closing Date. The Receivables will be selected
from the Contracts owned by MBCC based on the
criteria specified in the Sale and Servicing
Agreement and described herein. No Receivable
will have a scheduled maturity later than [ ]
(the "Final Scheduled Maturity Date"). See "The
Receivables."
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. A
"Collection Period" with respect to a Payment
Date will be the calendar month preceding the
month in which such Payment Date occurs.
Registration of Notes... The Notes will be represented initially by one or
more physical notes registered in the name of
Cede & Co. ("Cede"), as nominee of DTC.
Beneficial owners of Notes may elect to hold
their Notes through DTC (in the United States) or
Cedel or Euroclear (in Europe). Transfers within
DTC, Cedel or Euroclear, as the case may be, will
be made in accordance with the usual rules and
operating procedures of the relevant system.
Cross-market transfers between persons holding
directly or indirectly through DTC in the United
States, on the one hand, and counterparties
holding directly or indirectly through Cedel or
Euroclear, on the other, will be effected in DTC
through the relevant Depositaries of Cedel or
Euroclear.
No person acquiring a beneficial ownership
interest in the Notes (a "Note Owner") will be
entitled to receive a Definitive Note, except in
certain limited circumstances. Under the terms of
the Indenture, Note Owners will not be recognized
as Noteholders and will be permitted to exercise
the rights of the Noteholders only indirectly
through DTC and its participants. See
"Description of the Notes-Definitive Notes."
Payment Dates........... Payments of interest on and principal of the Notes
and the Certificates will be made on the 20th day
of each month or, if the 20th day of such month
is not a Business Day, the next following
Business Day (each, a "Payment Date"), commencing
[ ]. Payments will be made to holders of record
of the Class A Notes (the "Class A Noteholders"
or the "Noteholders") and of the Certificates
(the "Class B Certificateholders" or the
"Certificateholders") as of the day immediately
preceding each Payment Date or, if Definitive
Notes are issued, as of the 20th day of the
preceding month (each, a "Record Date"). A
"Business Day" is a day other than a Saturday, a
Sunday or a day on which banking institutions or
trust companies in New York, New York or
Wilmington, Delaware are authorized or obligated
by law, regulation or executive order to be
closed.
Interest Rates.......... The Class A-1 Notes will bear interest at the rate
of [ ]% per annum (the "Class A-1 Rate"), the
Class A-2 Notes will bear interest at the rate of
[ ]% per annum (the "Class A-2 Rate") and the
Class A-3 Notes will bear interest at the rate of
[ ]% per annum (the "Class A-3 Rate"). The Class
B Certificates will bear interest at the rate of
[ ]% per annum (the "Class B Rate"). The interest
rates on the various classes of Notes and on the
Certificates are referred to herein collectively
as the "Interest Rates."
Interest................ Interest on the outstanding principal amount of
each class of the Notes and on the Certificates
will accrue at the applicable Interest Rate (a)
with respect to the Class A-1 Notes, from and
including the Closing Date (in the case of the
first Payment Date) or from and including the
most recent Payment Date on which interest has
been paid, to but excluding the following Payment
Date and (b) with respect to the Class A-2 Notes,
the Class A-3 Notes and the Class B Certificates,
from and including the Closing Date (in the case
of the first Payment Date) or from and including
the 20th day of the calendar month preceding each
Payment Date to but excluding the 20th day of the
following calendar month. Interest on the Class
A-1 Notes will be calculated on the basis of the
actual number of days elapsed and a 360-day year.
Interest on the Class A-2 Notes, the Class A-3
Notes and the Class B Certificates will be
calculated on the basis of a 360-day year of
twelve 30-day months. No payments of interest
will be made on the Class B Certificates on any
Payment Date until all interest then due to the
Class A Notes has been paid. See "Description of
the Notes-Interest."
Principal............... Principal on the Notes will be payable on each
Payment Date in an amount equal to the Principal
Distribution Amount (as defined below) for such
Payment Date (to the extent that funds are
available therefor, as described herein) and will
be paid to the holders of the various classes of
Notes sequentially in order until the principal
amount of each successive class of Notes is paid
in full. Accordingly, on each Payment Date, an
amount equal to the Principal Distribution Amount
will be paid to the holders of the Class A-1
Notes (the "Class A-1 Noteholders") until the
Class A-1 Notes are paid in full; then, to the
holders of the Class A-2 Notes (the "Class A-2
Noteholders") until the Class A-2 Notes are paid
in full; then, to the holders of the Class A-3
Notes (the "Class A-3 Noteholders") until the
Class A-3 Notes are paid in full; and finally, to
the holders of the Class B Certificates (the
"Class B Certificateholders" or the
"Certificateholders") until the Class B
Certificates are paid in full.
Principal of the Notes and of the Certificates
will be payable on each Payment Date in an
aggregate amount equal to the Principal
Distribution Amount for such Payment Date to the
extent described in "Description of the Notes-The
Indenture Cash Flows." The "Principal
Distribution Amount" for a Payment Date will be
the sum of (i) the Scheduled Principal for such
Payment Date plus (ii) any outstanding Principal
Carryover Shortfall as of the close of business
on the preceding Payment Date; provided, however,
that the Principal Distribution Amount shall not
exceed the outstanding aggregate principal
balance of the Notes and of the Certificates; and
provided, further, that, on the Final Payment
Date for each class of Notes or for the
Certificates, the principal required to be
deposited in the Distribution Account will
include the amount necessary (after giving effect
to the other amounts to be deposited in the
Distribution Account on such Payment Date and
allocable to principal) to reduce the outstanding
principal amount of such class of Notes or of the
Certificates to zero.
Notwithstanding the foregoing, on each Payment
Date occurring on or after the date on which the
maturity dates of the Notes have been accelerated
following the occurrence of an Event of Default,
an amount equal to the Principal Distribution
Amount will be paid (A) to the Class A-1
Noteholders, the Class A-2 Noteholders and the
Class A-3 Noteholders pro rata in proportion to
the respective principal balances of the Class
A-1 Notes, the Class A-2 Notes and the Class A-3
Notes until all of such classes have been paid in
full and (B) following payment in full of the
Class A Notes, to the Class B Certificateholders
until the Class B Certificates have been paid in
full.
To the extent not previously paid, the
outstanding principal amount of (i) the Class A-1
Notes will be payable on the [ ] Payment Date
(the "Class A-1 Final Payment Date"), (ii) the
Class A-2 Notes will be payable on the [ ]
Payment Date (the "Class A-2 Final Payment
Date"), (iii) the Class A-3 Notes will be payable
on the [ ] Payment Date (the "Class A-3 Final
Payment Date") and (iv) the Class B Certificates
will be payable on the [ ] Payment Date (the
"Class B Final Payment Date" and, collectively
with the foregoing, the "Final Payment Dates").
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.
Optional Redemption..... The Notes and the Certificates will be redeemed in
whole, but not in part, on any Payment Date on
which the Servicer exercises its option to
purchase the Receivables, which can occur on any
Payment Date with respect to which the Pool
Balance as of the end of the related Collection
Period is 10% or less of the Initial Pool
Balance, at a redemption price equal to the
unpaid principal amount of the Notes and the
Certificates, in each case plus accrued and
unpaid interest thereon. See "Description of the
Notes-Optional Redemption."
Reserve Accounts........ Separate reserve accounts will be established for
the Class A Notes and for the Class B
Certificates (the "Class A Reserve Account" and
the "Class B Reserve Account," respectively, and
collectively, the "Reserve Accounts"). Amounts on
deposit in the Class A Reserve Account will be
available on any Payment Date to cover (i)
amounts necessary to reimburse the Servicer for
Advances, (ii) the Total Servicing Fee and (iii)
shortfalls in distributions of interest and
principal on the Class A Notes to the extent
attributable to losses and delinquencies on the
Receivables. Amounts on deposit in the Class B
Reserve Account will be available on any Payment
Date to cover (i) amounts necessary to reimburse
the Servicer for Advances, (ii) the Total
Servicing Fee and (iii) shortfalls in
distributions of interest and principal on the
Class B Certificates to the extent attributable
to losses and delinquencies on the Receivables.
Amounts on deposit from time to time in the
Reserve Accounts will be invested in Permitted
Investments maturing on or prior to the next
succeeding Payment Date; provided, however, that
to the extent permitted by the Rating Agencies,
amounts on deposit in the Reserve Accounts may be
invested in Permitted Investments that mature
later than the next succeeding Payment Date.
Class A Reserve Initial Deposit. The Class A
Reserve Account will be funded by the Seller with
cash or Permitted Investments maturing on or
prior to the initial Payment Date and having, on
the Closing Date, a value of approximately
$___________ (the "Class A Reserve Initial
Deposit"). The Class A Reserve Initial Deposit
will be augmented on each Payment Date by the
deposit in the Class A Reserve Account of
Available Funds to the extent necessary to
maintain the amount in the Class A Reserve
Account at an amount equal to the Specified Class
A Reserve Balance (as defined below).
Amounts in the Class A Reserve Account on any
Payment Date (reduced by the amount of all
distributions made on such Payment Date) in
excess of the Specified Class A Reserve Balance
for such Payment Date generally will be released
for deposit into the Class B Reserve Account or,
to the extent the amount on deposit therein is
equal to the Specified Class B Reserve Balance
(as defined below), payment to the Seller.
Specified Class A Reserve Balance. The "Specified
Class A Reserve Balance" with respect to any
Payment Date will equal $___________, except
where on any Payment Date (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 ____% 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 ____%,
then the Specified Class A Reserve Balance for
such Payment Date will equal $____________. See
"Description of the Notes-Subordination of the
Class B Certificates; Reserve Accounts."
The Seller may reduce the Specified Class A
Reserve Balance provided that both Rating
Agencies confirm in writing to the Indenture
Trustee and to the Seller prior to such reduction
that such reduction will not result in a lowering
of or a withdrawal of the then-current ratings of
each class of the Notes.
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,
as the Seller determines to sell 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.
Collection Account;
Priority of Payments.... If MBCC is the Servicer, collections received may
be paid into an account in the name of the
Indenture Trustee (the "Collection Account") on
the Payment Date so long as (i) the obligation of
the Servicer to make required remittances under
the Sale and Servicing Agreement on each Payment
Date is unconditionally guaranteed by DBNA
pursuant to the Servicing Guaranty Agreement (as
defined herein) 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 obligations and
(ii) no Event of Servicing Termination (as
defined herein) shall have occurred.
Alternatively, even if all of the foregoing
conditions are not satisfied, such collections
may be paid into the Collection Account on the
Payment Date if the Rating Agencies confirm in
writing that such failure to satisfy the
foregoing conditions will not affect the rating
of any class of Notes. If none of the above
occur, the Servicer will be required to remit
collections received with respect to the
Receivables within two Business Days of receipt
thereof to the Collection Account.
Pursuant to the Sale and Servicing Agreement, the
Servicer will have the power, which may be
revoked by the Indenture Trustee or by the Owner
Trustee with the consent of the Indenture
Trustee, to instruct the Indenture Trustee to
withdraw funds on deposit in the Collection
Account for the related Collection Period
(including funds, if any, deposited therein from
the Reserve Accounts and the Payahead Account)
following the withdrawal therefrom of the amount
necessary to reimburse the Servicer for Advances
previously made by the Servicer to the extent due
and payable to the Servicer on such Payment Date
and to apply such funds on each Payment Date as
follows (in the priority indicated): (i) the
Total Servicing Fee to the Servicer, (ii) the
Accrued Interest on each class of Notes into the
Distribution Account, (iii) the Accrued Interest
on the Certificates into the Distribution
Account, (iv) the Principal Distribution Amount
with respect to the Notes into the Distribution
Account, (v) the Principal Distribution Amount
with respect to the Certificates into the
Distribution Account; (vi) the amount necessary
to bring the amounts on deposit in the Class A
Reserve Account up to the Specified Class A
Reserve Balance, (vii) the amount necessary to
bring the amounts on deposit in the Class B
Reserve Account up to the Specified Class B
Reserve Balance and (viii) any remaining funds to
the Seller. Notwithstanding the foregoing, on
each Payment Date following the occurrence of an
Event of Default which has resulted in
acceleration of the Notes, the principal amount
of the Class A Notes must be paid in full prior
to any payment of principal on the Class B
Certificates. See "Description of the Notes-The
Accounts" and "-The Indenture Cash Flows."
Servicing Fee........... A monthly fee for servicing the Receivables (the
"Servicing Fee") will be payable to the Servicer
on each Payment Date in an amount equal to the
product of one-twelfth of the Servicing Rate and
the Pool Balance as of the first day of the
related Collection Period and will be payable
generally out of collections on the Receivables
prior to distributions to Noteholders and the
Certificateholders. The "Servicing Rate" will
equal [ ]% per annum. As additional servicing
compensation, the Servicer will also be entitled
to earnings (net of losses and investment
expenses) on amounts on deposit in the Payahead
Account and late payment fees and charges
collected on the Receivables. So long as it does
not cause to occur a reduction in the rating of
any class of the Class A Notes, the Servicing Fee
in respect of a Collection Period (together with
any portion of the Servicing Fee that remains
unpaid from prior Collection Periods) will be
paid at the beginning of such Collection Period
out of collections for such Collection Period.
See "Description of the Transfer and Servicing
Agreements-Servicing Compensation."
Advances................ The Servicer will make an advance in respect of
each Collection Period for any portion of the
scheduled payment on each Receivable that has not
been made (an "Advance"). Subsequent collections
on Receivables and funds on deposit in the
Reserve Accounts will be used to reimburse the
Servicer for Advances to the extent described
herein. The Servicer will not be required to make
any Advance to the extent that it does not expect
to recoup the Advances from subsequent
collections or recoveries. See "Description of
the Notes--The Indenture Cash Flows" and
"--Advances."
Repurchases and Purchases
of Certain Receivables.. The Seller will be obligated to repurchase any
Receivable if the interest of the Trust therein
is materially and adversely affected by a breach
of any representation or warranty made by the
Seller with respect to the Receivable and 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
"Description of the Transfer and Servicing
Agreements-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 Maturity Date, (ii) changes the
amount or the number of the scheduled payments of
such Receivable (except for certain
credit-related reasons) or (iii) fails to
maintain a perfected security interest in the
related Financed Vehicle in accordance with the
Servicer's customary servicing procedures. See
"Description of the Transfer and Servicing
Agreements-Servicing Procedures."
Tax Status.............. In the opinion of Morgan, Lewis & Bockius LLP, for
U.S. Federal income tax purposes, the Notes will
be characterized as debt, and the Trust will not
be characterized as an association (or a publicly
traded partnership) taxable as a corporation.
Each Noteholder, by the acceptance of a Note,
will agree to treat the Notes as indebtedness.
See "Certain Federal Income Tax Consequences."
Legal Investment........ The Class A-1 Notes are structured to be eligible
for purchase by money market funds under Rule
2a-7 under the Investment Company Act of 1940, as
amended. A money market fund should consult its
legal advisors regarding the eligibility of the
Class A-1 Notes under Rule 2a-7 and whether an
investment by the money market fund in the Class
A-1 Notes satisfies the money market fund's
investment policies and objectives.
Rating of the Notes..... It is a condition to the issuance of the Notes that
the Class A-1 Notes be rated in the highest
short-term rating category, and that the Class
A-2 Notes and the Class A-3 Notes each be rated
in the highest long-term rating category, in each
case by each of Moody's Investors Service, Inc.
("Moody's") and Standard & Poor's Ratings
Services, a division of The McGraw-Hill Companies
("S&P," and together with Moody's, each, a
"Rating Agency"). There can be no assurance that
a rating will not be lowered or withdrawn by a
Rating Agency if circumstances so warrant.
ERISA Considerations.... Subject to the considerations discussed under
"ERISA Considerations," the Notes may, in
general, be purchased by or on behalf of employee
benefit plans subject to ERISA. Any employee
benefit plan fiduciary considering a purchase of
Notes should, among other things, consult with
legal counsel regarding the availability of a
statutory or administrative exemption from the
prohibited transaction rules of ERISA and the
Code.
RECENT DEVELOPMENTS
On May 7, 1998, Daimler-Benz AG entered into a Business Combination
Agreement (as amended and restated, the "Combination Agreement") with
Chrysler Corporation, a Delaware corporation ("Chrysler"), and
DaimlerChrysler AG, a stock corporation (Aktiengesellschaft) organized and
existing under the laws of the Federal Republic of Germany
("DaimlerChrysler AG") providing for the exchange of shares in Daimler-Benz
AG and shares of Chrysler for shares in DaimlerChrysler AG. The transaction
will have the effect of combining the respective businesses, stockholder
groups, managements and other constituencies of Chrysler and Daimler-Benz
AG in a "merger-of-equals" transaction. As a result of the transaction,
Daimler-Benz AG will be merged with and into DaimlerChrysler AG, with
DaimlerChrysler AG remaining as the surviving entity, and Chrysler will
become a wholly-owned subsidiary of DaimlerChrysler AG. The former
stockholders of Chrysler and Daimler-Benz AG will own all the issued and
outstanding DaimlerChrysler AG ordinary shares. As a result of the
transaction, by operation of applicable law, DaimlerChrysler AG will be
substituted for, and will succeed to the rights and obligations of,
Daimler-Benz AG.
Consummation of the transaction is subject to various conditions, and
it is currently expected that the transaction will be completed by year-end
1998, but delays could result if all conditions to the transaction are not
satisfied. The Combination Agreement may be terminated by either party if
the transaction is not consummated by January 31, 1999. Additionally, the
Combination Agreement may be terminated at any time prior to the effective
time of the transaction by the mutual consent of Chrysler and Daimler-Benz
AG and by either of them individually under certain specified circumstances.
RISK FACTORS
LIMITED LIQUIDITY
There currently is no secondary market for the Notes, and there is no
assurance that one will develop. The Underwriters expect, but will not be
obligated, to make a market in each class of Notes. 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
related Notes.
CERTAIN LEGAL ASPECTS - THE RECEIVABLES
The Seller will cause financing statements to be filed with the
appropriate governmental authorities to perfect the interest of the Trust
in the Receivables, and the Servicer will hold the Receivables, either
directly or through subservicers, as custodian for the Indenture Trustee
and the Trust 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) one
or more 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 such
Receivables superior to the interest of the Trust and as a result
reductions in the amounts of distributions to Noteholders could result. See
"Certain Legal Aspects of the Receivables-Rights in the Receivables."
The Seller will assign its security interests in the Financed
Vehicles to the Trust in connection with the sale and assignment of the
Receivables to the Trust. Following the sale and assignment of the
Receivables to the Trust, the Servicer will hold the certificates of title
or ownership relating to the Financed Vehicles, either directly or through
subservicers, as custodian for the Indenture Trustee and 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. See "Certain Legal Aspects of the
Receivables-Security Interests in the Financed Vehicles."
CERTAIN LEGAL ASPECTS - BANKRUPTCY CONSIDERATIONS
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 ("Insolvency
Laws") will not result in consolidation of the assets and liabilities of
the Seller with those of MBCC. These steps include the maintenance 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. 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
payments on the Notes could occur or reductions in the amounts of such
payments could result. See "The Seller."
MBCC and the Seller intend that the transfer of the Receivables by
MBCC to the Seller 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 it 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 Tenth 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
reasoning, Noteholders might experience delays in payment or possibly
losses on their investment in the Notes. Counsel to the Seller has advised
the Seller that the reasoning of the Octagon case appears to be
inconsistent with other precedent. In addition, the Permanent Editorial
Board of the UCC has issued an official commentary (PEB Commentary No. 14)
which characterizes the Octagon court's interpretation of Article 9 of the
UCC as erroneous. Such commentary states that nothing in Article 9 is
intended to prevent the transfer of ownership of accounts or chattel paper.
See "The Seller."
MATURITY AND PREPAYMENT CONSIDERATIONS
The weighted average life of each class of Notes may be reduced by
prepayments on Receivables because the rate of payment of principal of each
class of Notes depends on the rate of payment (including prepayments) of
the principal balance of the Receivables. The Receivables are prepayable at
any time without penalty. 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 Sale and Servicing 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 Sale and
Servicing Agreement with respect to the Receivables, or the Servicer
exercising its optional purchase right. See "The Receivables-Maturity and
Prepayment Considerations."
The rate of prepayments on the Receivables may be influenced by a
variety of economic, social and other factors in addition to those
described in the preceding paragraph.
MBCC does not generally maintain records of the historical prepayment
experience of its portfolio of Contracts (as defined herein). 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 rates which will be experienced on the Receivables. Noteholders
will bear all reinvestment risk resulting from the rate of prepayment of
the Receivables and corresponding payments on the Notes. There can be no
assurance that the Noteholders will be able to reinvest funds in an
instrument with a comparable rating and interest rate in the event the
Notes are prepaid.
It is expected that the final payment of each class of Notes will
occur on or prior to its respective Final Payment Date because of the
considerations set forth above. However, if sufficient funds are not
available to pay any class of Notes in full on or prior to its respective
Final Payment Date, an Event of Default will occur and final payment of
such class of Notes could occur later than such date.
LIMITED ASSETS; DEFICIENCIES FROM SALE UPON INSOLVENCY OF SELLER
Limited Assets. The Trust does not have, nor is it permitted or
expected to have, any significant assets or sources of funds other than the
Receivables and other Trust Property, including the right to receive
payments under certain circumstances from the Reserve Accounts. The Notes
represent obligations solely of the Trust. The Notes will not be insured or
guaranteed by the Seller, the Servicer, the Indenture Trustee, the Owner
Trustee or any other person or entity. Consequently, Noteholders must rely
for payment of the Notes upon payments on the Receivables (to the extent
described herein) and, if and to the extent available, amounts on deposit
in the Class A Reserve Account.
Amounts on deposit in the Class A Reserve Account will be available
on any Payment Date to cover the payment of the Total Servicing Fee,
Accrued Interest on the Notes, the Principal Distribution Amount with
respect to the Notes and to reimburse the Servicer for the aggregate amount
of Advances previously made by the Servicer that are due and payable to the
Servicer with respect to such Payment Date to the extent of any shortfalls
in the Trust's receipt of payments on Receivables (after giving effect to
payments of any Advances) that are allocable to the payment of the Total
Servicing Fee, the Accrued Interest on the Notes, the Principal
Distribution Amount with respect to the Notes and the reimbursement of
Advances. See "Description of the Notes-The Indenture Cash Flows" and
"Subordination of the Class B Certificates; Reserve Accounts." If the
amounts on deposit in the Class A Reserve Account were exhausted, the Trust
would depend solely on current payments on the Receivables (to the extent
available to make payments to the Noteholders), Advances by the Servicer,
Liquidation Proceeds of Defaulted Receivables and Recoveries to make the
Total Required Payment. See "Description of the Notes-The Indenture Cash
Flows." Although the Class B Certificates will be subordinate to the Class
A Notes 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 Noteholders. Moreover, the Class A Noteholders
will not be entitled to distributions from amounts on deposit in the Class
B Reserve Account.
Although the Indenture authorizes the Indenture Trustee to sell the
Receivables in accordance with the Indenture following an acceleration of
the Notes upon an Event of Default, there is no assurance that the market
value of the Receivables will at any time be equal to or greater than the
aggregate outstanding principal amount of the Notes. Therefore, upon an
Event of Default, there can be no assurance that sufficient funds will be
available to repay Noteholders in full. In addition, the amount of
principal required to be distributed to Noteholders, in the aggregate under
the Indenture on any Payment Date, other than a Final Payment Date with
respect to any class of Notes, will generally be limited to amounts
available to be deposited in the Distribution Account. Therefore, the
failure to pay principal on a class of Notes may not result in the
occurrence of an Event of Default until the Final Payment Date for that
class of Notes.
GEOGRAPHIC CONCENTRATION
Economic conditions in the states where the Obligors under the
Contracts reside may affect the delinquency, credit loss and repossession
experience of the Trust with respect to the Contracts. Based on the Cutoff
Date Pool Balance, [ ]% of the Receivables will have been originated in [
], [ ]% in [ ] and [ ]% in [ ]. Accordingly, adverse economic conditions or
other factors affecting [ ], [ ] or [ ] in particular could adversely
affect the delinquency, loan loss or repossession experience of the Trust.
EVENT OF DEFAULT CONSIDERATIONS
If the maturity dates of the Notes have been accelerated following
the occurrence of an Event of Default, the Notes may be prepaid in advance
of their respective maturity dates. The acceleration of the maturity dates
following the occurrence of an Event of Default will also change the order
of priority for the payment of principal on the different classes of Notes.
If the maturity dates of the Notes have been accelerated following the
occurrence of an Event of Default, the Principal Distribution Amount will
be paid (i) to the Class A-1 Noteholders, the Class A-2 Noteholders and the
Class A-3 Noteholders pro rata in proportion to the respective principal
balances of the Class A-1 Notes, the Class A-2 Notes and the Class A-3
Notes until all of such classes have been paid in full and (ii) then to the
Class B Certificateholders until the Class B Certificates are paid in full.
BOOK ENTRY REGISTRATION
The Notes of each class will be represented initially by one or more
physical notes registered in the name of Cede as nominee of DTC. No Note
Owner will be entitled to receive a Definitive Note except in certain
limited circumstances. Under the terms of the Indenture, Note Owners will
not be recognized as Noteholders, and will be permitted to exercise the
rights of the Noteholders only indirectly through DTC and its participants.
See "Description of the Notes-Book Entry Registration" and "-Definitive
Notes."
RISK OF YEAR 2000
MBCC has conducted an evaluation of the actions necessary in order to
ensure that its computer systems will be able to function without
disruption with respect to the application of dating systems in the year
2000. As a result of these evaluations, MBCC is engaged in the process of
upgrading and replacing certain of its information and other computer
systems so as to be able to operate without disruption due to year 2000
issues. MBCC's remedial actions are scheduled to be completed during the
second quarter of 1999. However, there can be no assurance that the
remedial actions being implemented by MBCC will be able to be completed by
the time necessary to avoid dating systems problems. In addition,
disruptions with respect to the computer systems of vendors or customers,
which systems are outside the control of MBCC, could impair the ability of
MBCC to obtain necessary materials or products or to sell to or service
their customers. Disruptions of MBCC's computer systems, or the computer
systems of MBCC's vendors or customers, could have a material adverse
effect upon MBCC's ability to service the Receivables.
THE TRUST
GENERAL
The Issuer, Daimler-Benz Vehicle Owner Trust 1998-A, is a business
trust formed under the laws of the State of Delaware pursuant to the Trust
Agreement for the transactions described in this Prospectus. The Trust will
hold title to the Receivables, issue the Notes and the Certificates and
distribute payments on the Notes and the Certificates. The Trust's
principal offices are in the State of Delaware in care of [ ], as Owner
Trustee, at the address listed below. See "-The Owner Trustee."
The Trust will initially be capitalized through the issuance of the
Notes and the Certificates. The Trust will purchase the Receivables from
the Seller pursuant to the Sale and Servicing Agreement in exchange for the
proceeds of the Notes and the issuance to the Seller or an affiliate
thereof of the Certificates. The Seller or an affiliate initially will
retain the Certificates. The Seller may not transfer or assign the
Certificates unless it receives an Opinion of Counsel as to certain tax
matters.
The Servicer will service the Receivables, either directly or through
subservicers, and will be paid the Total Servicing Fee out of collections
from the Receivables, prior to distributions to Noteholders and
Certificateholders. Certain other expenses of the Trust will be paid by the
Servicer or by the Seller as provided in the Sale and Servicing Agreement.
See "Description of the Transfer and Servicing Agreements-Servicing
Procedures," "-Servicing Compensation" and "Description of the Notes-The
Indenture Cash Flows."
The Servicer will hold the Receivables and the certificates of title
or ownership relating to the Financed Vehicles as custodian for the
Indenture Trustee and the Trust. 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
security interest in the Receivables and the Financed Vehicles may be
defeated or may not be perfected. 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 and issuing and distributing payments on the
Notes and 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.
If the protection provided to the Noteholders by the subordination of
the Certificates and by amounts on deposit in the Class A Reserve Account
from time to time is insufficient, the Noteholders would have to look
principally to the Receivables that are not Defaulted Receivables, the
proceeds from the repossession and sale of Financed Vehicles which secure
Defaulted Receivables and the proceeds from recourse, if any, against
Dealers with respect to the Receivables for payment of the Notes. In such
event, certain factors, such as the Trust's not having perfected security
interests in the Financed Vehicles in all states, may affect the Trust's
ability to repossess and sell the collateral securing the Receivables, and
thus may reduce the proceeds to be distributed to Noteholders. See
"Description of the Notes-The Indenture Cash Flows" and "Certain Legal
Aspects of the Receivables."
CAPITALIZATION OF THE TRUST
The following table illustrates the capitalization of the Trust as of
the Closing Date:
Class A-1 Notes............................................ $
Class A-2 Notes............................................
Class A-3 Notes............................................
Class B Certificates......................................._________________
Total....................................................$
THE OWNER TRUSTEE
[ ] is the Owner Trustee under the Trust Agreement. The Owner
Trustee's Corporate Trust Office is located at [ ]. The Seller, the
Servicer and their respective affiliates may have other banking
relationships with the Owner Trustee and its affiliates in the ordinary
course of their businesses.
THE TRUST PROPERTY
The Notes will be secured by the Trust Property. The Trust Property
will include (i) the Receivables, (ii) all monies due or received
thereunder on or after the Cutoff Date, (iii) the Seller's security
interests in the Financed Vehicles; (iv) all amounts and property from time
to time held in or credited to one or more accounts maintained by the
Indenture Trustee pursuant to the Sale and Servicing Agreement as described
herein, including the Collection Account, the Distribution Account, the
Reserve Accounts and the Payahead Account, (v) 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, (vi) all of the Seller's right to all documents contained in the
Receivable Files, (vii) 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 specified
therein, and under the Sale and Servicing Agreement, (viii) all of the
Seller's rights, if any, of recourse against Dealers arising out of
breaches by Dealers in connection with the Receivables, (ix) 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 Indenture Trustee, (x) the Servicing Guaranty Agreement, and (xi)
all proceeds (within the meaning of Section 9-306 of the UCC) of the
foregoing.
MBCC'S VEHICLE CONTRACT PORTFOLIO
GENERAL
MBCC currently purchases motor vehicle retail installment contracts
(the "Motor Vehicle Contracts") directly from authorized Mercedes-Benz
motor vehicle dealers ("Mercedes-Benz Dealers") throughout the United
States. 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," and together with the Motor Vehicle Contracts, the "Contracts")
directly from authorized Freightliner commercial vehicle dealers
("Commercial Vehicle Dealers" and, together with Mercedes-Benz Dealers,
"Dealers") throughout the United States. The Contracts are originated by
the Dealers who regularly sell such contracts to MBCC as well as to other
finance sources. MBCC purchases Contracts in accordance with its
established underwriting procedures, subject to the terms of an agreement
with each Dealer (each, a "Dealer Agreement").
Motor Vehicle Contracts. Each Dealer Agreement with respect to Motor
Vehicle Contracts, among other things, obligates the Dealer to repurchase
any Motor Vehicle Contract for the outstanding principal balance if the
Dealer breaches certain representations and warranties. Each Dealer
warrants with respect to Motor Vehicle Contracts that (i) all Motor Vehicle
Contracts are genuine and the only instruments executed for the related
motor vehicles ("Motor Vehicles") described therein, and are and will
continue free from defenses and off-sets; (ii) all statements contained
therein will be true, and unpaid balances shown therein are correct; (iii)
all amounts and numbers submitted to MBCC will be correct and accurately
reflect the true nature of the agreement between the Obligor and the
Dealer; (iv) the transactions conform to all applicable laws and
regulations; (v) the contents of any form used other than MBCC's will be
legally sufficient and enforceable; (vi) the Motor Vehicles shall have been
delivered and accepted and the Dealer will comply with all of its
obligations with respect thereto; (vii) each instrument will evidence a
valid reservation of title to, or first lien upon, the Motor Vehicle and
will have been so filed and recorded, if permitted or required by law, as
to be effective against all persons and to preserve the priority of such
lien; and (viii) such Motor Vehicle shall be insured for fire, theft,
combined additional coverage, and collision in a manner and with insurance
carriers satisfactory to MBCC. Upon breach of any representation or
warranty made by a Dealer with respect to a Motor Vehicle Contract, MBCC
has a right of recourse against such Dealer to require it to repurchase
such Contract. Generally, in determining whether to exercise such right,
MBCC considers the prior performance of the Dealer and other business and
commercial considerations. MBCC, as Servicer, is obligated to enforce such
rights with respect to Dealer Agreements relating to the Receivables in
accordance with such customary practices, and the right to any proceeds
received upon such enforcement will be conveyed to the Trust under the Sale
and Servicing Agreement. All terms of the Dealer Agreements which are
material to the Certificateholders are described in this Prospectus.
MBCC purchases Motor Vehicle Contracts relating to new Motor Vehicles
manufactured by Daimler-Benz AG (or its affiliates) and Motor Vehicle
Contracts relating to used Motor Vehicles manufactured by Daimler-Benz AG
(or its affiliates) and other automobile manufacturers. MBCC applies the
same underwriting standards to its purchase of Motor Vehicle Contracts
whether or not the Motor Vehicle Contract relates to a Motor Vehicle
manufactured by Daimler-Benz. See "-Underwriting" below.
Mercedes-Benz of North America. Inc. ("MBNA") imports, distributes,
markets and supports a select line of Mercedes-Benz Motor Vehicles to all
50 states in the United States. In 1997, MBNA sold 122,265 vehicles. MBNA
currently has 320 Mercedes-Benz Dealers in the United States, 10 authorized
service-only dealers and one company-owned dealership, Mercedes-Benz of
Manhattan.
Commercial Vehicle Contracts. Each Dealer Agreement with respect to
Commercial Vehicle Contracts, 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 (each, a "Commercial
Vehicle," and the Commercial Vehicles, together with Motor Vehicles, the
"Vehicles") 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.
Freightliner Corporation (together with its subsidiaries,
"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 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. Freightliner trucks are
distributed in North America through a network of 250 independent dealers.
Freightliner acquired the heavy-truck business of Ford Motor Company in
1997, renamed Sterling Truck Corporation ("Sterling"), and the first
Sterling Trucks began to be produced in April 1998. Sterling produces a
range of trucks in Classes 6 to 8. There are 219 Sterling dealers in North
America, and they all provide parts, service and a customer support network
for Sterling and Freightliner.
UNDERWRITING
Motor Vehicle Contracts. MBCC's National Car Office ("NCO"), which is
located in Atlanta, Georgia, oversees and coordinates the activities of the
car financing operations throughout the United States. The NCO maintains
three regional offices that are dedicated to supporting and servicing
Dealers and customers throughout the United States. Through these regional
offices, which are located in Atlanta, Georgia, Wilmington, Delaware and
Portland, Oregon, MBCC purchases Motor Vehicle Contracts from Dealers using
consistent underwriting policies and procedures. Certain Receivables were
originated by Dealers in accordance with MBCC's requirements under existing
agreements with such Dealers and were purchased in accordance with MBCC's
underwriting standards which emphasize, among other factors, the
applicant's willingness and ability to repay according to the terms of the
Receivable.
Applications received from Dealers must be signed by the applicant
and must contain, among other information, the applicant's name, address,
residential status, source and amount of monthly income and the amount of
monthly rent or mortgage payment. All applications are checked for
completeness and entered into MBCC's on-line credit applications system. In
conjunction with the entering of the application information, credit bureau
reports on the customer are collected and attached electronically to the
application form.
A preliminary review of the application is then performed and, if
deemed necessary, additional information is requested from the Dealer. When
all relevant information is obtained, the credit analysis commences. At a
minimum, this analysis includes: (i) a review of credit bureau reports,
including the timeliness of payment history and the amount of payments;
(ii) budget analysis, including such ratios as Motor Vehicle Contract
payment to income and total debt payment to total income; (iii)
verification of the value of the Motor Vehicle if the credit request is for
a used Motor Vehicle; and (iv) analysis of employment history, with
particular attention to time spent with current employer. The credit
decision is based upon the information described above as well as the
applicant's credit score as obtained from a statistically derived credit
scoring process and other qualitative considerations. The final credit
decision is made based upon the degree of credit risk perceived and the
amount of credit requested.
After analysis, the credit decision is communicated to the Dealer. If
the credit is accepted, and the applicant agrees to the terms of the
Contract, the Contract is funded.
Commercial Vehicle Contracts. MBCC's National Truck Office ("NTO") is
headquartered in Lisle, Illinois, near Chicago. This operation provides
staff and resources dedicated exclusively to support Freightliner and,
beginning in May 1998, Sterling customers and dealers throughout the United
States.
NTO provides a wide range of financial services to Freightliner and
Sterling dealers in the United States. New business consists primarily of
the purchase of retail installment and lease contracts resulting from the
sale of new and used Freightliner and Sterling medium- and heavy-duty
trucks and to a lesser extent, used truck equipment of other manufacturers
sold through Freightliner and Sterling and working capital loans to
authorized Freightliner and Sterling dealerships. All the underwriting,
collections, remarketing and customer service functions are performed
centrally at NTO.
Beginning in May 1998, NTO began providing financial services for
Sterling trucks, a new line of medium- and heavy- duty trucks, resulting
from the recent purchase by Freightliner Corporation of the Ford Motor
Company's heavy-duty truck division, which is now named Sterling Truck
Corporation. The Sterling line offers a wide variety of models for both
vocational and on-highway use. The operations for NTO's Sterling segment
are structured similarly to the operations for the Freightliner segment.
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. All loan applications are forwarded by the
Dealers to NTO. Once the application is received, credit bureau reports are
obtained. Dun and Bradstreet reports are obtained for applicants that are
corporations. Employment verifications are completed according to specified
procedures. Direct credit verification is made for references not included
in the credit bureau or Dun and Bradstreet reports. Applicant information,
including financial statements and any direct credit references are
distributed to a credit analyst for review and analysis. After reviewing
the information along with other information such as advances and credit
history, the analyst will reach a credit decision. For certain large fleet
transactions, a more comprehensive review of the transaction is performed.
This review includes, but is not limited to, a review of: the customer and
Dealer; traffic lanes and products hauled; market segment data; guarantor
information; and existing fleet characteristics. The NTO has established a
number of credit authority levels within the organization.
SERVICING AND COLLECTION
MBCC measures delinquency by the number of days elapsed from the date
a payment is due under the Contracts (the "Due Date"). MBCC considers an
account to be past due or delinquent when the Obligor has an overdue
balance in excess of a predetermined minimum amount. MBCC generally begins
collection activities with respect to delinquent Contracts on the 11th day
after the Due Date of the scheduled payment. 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 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
Vehicle after the full charge-off of the related Contract are pursued by
MBCC to the extent practicable and legally permitted. Obligors are
contacted, and when warranted by individual circumstances, repayment
schedules are established and monitored until the deficiencies are either
paid in full or become impractical to pursue.
PHYSICAL DAMAGE INSURANCE
Motor Vehicle Contracts. Each Motor Vehicle Contract requires the
Obligor to maintain specific levels of physical damage insurance during the
term of the Contract. At the time of purchase, the Dealer and the Obligor
sign a statement indicating that the level of insurance required by MBCC is
in place as well as providing the name and address of the insurance
company. However, on an ongoing basis, MBCC does not monitor the insurance
coverage on the Motor Vehicles to ensure that such coverage is maintained.
In the event that the Servicer is notified that such insurance coverage is
not maintained, the Servicer has the right, but is not obligated, to
declare the Contract to be in default. The Servicer is not obligated, and
does not intend, to purchase required insurance on any Financed Vehicle and
charge the Obligor for the cost of such insurance if the Obligor fails to
do so.
Commercial Vehicle Contracts. 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 Contracts, including Contracts previously sold which MBCC
continues to service. There is no assurance that the delinquency,
repossession or loss experience of the Receivables will be comparable to
MBCC's experience shown in the following tables.
DELINQUENCY EXPERIENCE OF THE MOTOR VEHICLE PORTFOLIO(1)
(DOLLARS IN THOUSANDS)
AT [ ____ ], AT DECEMBER 31,
-------------------------------
MOTOR VEHICLES 1998 1997 1997 1996 1995 1994
- ----------------------------- ------- ------- ------- ------- ------- ------
Gross Balance Outstanding at
End of Period................ $ $ $ $ $ $
Gross Balance Past Due as a
Percentage
of Gross Balance
31-60 Days................ % % % % % %
61-90 Days................ % % % % % %
91 Days or More........... % % % % % %
------- ------- ------- ------- ------- -------
TOTAL.................. % % % % % %
======= ======= ======= ======= ======= =======
- ---------------
(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.
DELINQUENCY EXPERIENCE OF THE COMMERCIAL VEHICLE PORTFOLIO(1)
(DOLLARS IN THOUSANDS)
AT [ ____ ], AT DECEMBER 31,
-------------------------------
COMMERCIAL VEHICLES 1998 1997 1997 1996 1995 1994
- ----------------------------- ------- ------- ------- ------- ------- -------
Gross Balance Outstanding at
End of Period................ $ $ $ $ $ $
Gross Balance Past Due as a
Percentage
of Gross Balance
31-60 Days................ % % % % % %
61-90 Days................ % % % % % %
91 Days or More........... % % % % % %
------- ------- ------- ------- ------- -------
TOTAL.................. % % % % % %
======= ======= ======= ======= ======= =======
- ---------------
(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.
NET CREDIT LOSS AND REPOSSESSION EXPERIENCE OF MOTOR VEHICLE PORTFOLIO(1)
(DOLLARS IN THOUSANDS)
AT [ ____ ], AT DECEMBER 31,
-------------------------------
MOTOR VEHICLES 1998 1997 1997 1996 1995 1994
- ----------------------------- ------- ------- ------- ------- ------- -------
Principal Amount Outstanding. $ $ $ $ $ $
Average Principal Amount
Outstanding............... $ $ $ $ $ $
Number of Contracts
Outstanding..................
Average Number of Contracts
Outstanding...............
Net Losses(2)................ $ $ $ $ $ $
Number of Repossessions as a
Percentage of the Average
Number of Contracts
Outstanding(3)............ %(4) %(4) % % % %
Net Losses as a Percentage
of Principal Outstanding..... %(4) %(4) % % % %
Net Losses as a Percentage
of Average Principal
Outstanding............... %(4) %(4) % % % %
- ---------------
(1) All amounts and percentages except as indicated are based on the
principal balances of the Motor 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 Motor
Vehicles in a given period.
(4) Annualized rate. The [ ]-month period ending [ ], 1998, is not
necessarily indicative of a full year's actual results.
NET CREDIT LOSS AND REPOSSESSION EXPERIENCE OF COMMERCIAL VEHICLE PORTFOLIO(1)
(DOLLARS IN THOUSANDS)
AT [ ____ ], AT DECEMBER 31,
-------------------------------
COMMERCIAL VEHICLES 1998 1997 1997 1996 1995 1994
- ----------------------------- ------- ------- ------- ------- ------- -------
Principal Amount Outstanding. $ $ $ $ $ $
Average Principal Amount
Outstanding............... $ $ $ $ $ $
Number of Contracts
Outstanding..................
Average Number of Contracts
Outstanding...............
Net Losses(2)................ $ $ $ $ $ $
Number of Repossessions as a
Percentage of the Average
Number of Contracts
Outstanding(3)............ %(4) %(4) % % % %
Net Losses as a Percentage
of Principal Outstanding.. %(4) %(4) % % % %
Net Losses as a Percentage
of Average Principal
Outstanding............... %(4) %(4) % % % %
- ---------------
(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 in a given period.
(4) Annualized rate. The [ ]-month period ending [ ], 1998, is not
necessarily indicative of a full year's actual results.
MBCC's retail loss experience is dependent upon receivables levels,
the number of repossessions, the amount outstanding at the time of
repossession, and the resale value of repossessed vehicles.
[Discussion of Tables to follow]
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 a new or used
Mercedes-Benz Motor Vehicle or one or more Commercial Vehicles; (ii) each
Receivable had an annual percentage rate ("APR") of at least [ ]% and not
more than [ ]%; (iii) each Receivable had a remaining maturity as of the
Cutoff Date of not more than [ ] months, and an original maturity of not
more than [ ] months; (iv) each Receivable had a remaining balance (net of
unearned precomputed finance charges, as of the Cutoff Date) of not more
than $[ ] and not less than $[ ] as of the Cutoff Date; (v) no Receivable
was more than [ ] 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 [ ]; (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. "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 as of [ ] and the geographical
distribution and distribution by APR of the Pool Balance as of [ ] are set
forth in the following tables.
COMPOSITION OF THE RECEIVABLES
Commercial
Motor Vehicles Vehicles Total
--------------- ----------------- ---------------
Aggregate Principal Balance $______________ $______________ $____________
Percentage of Total
Aggregate
Principal Balance ______% ______% 100%
Number of Receivables ______ ______ ______
Percentage of Total
Number of Receivables _____% _____% 100%
Average Remaining Principal
Balance $______________ $______________ $___________
Average Original Amount
Financed $______________ $______________ $___________
(Range) $_____ to $_____ $_____ to $_____ $_____ to $_____
Weighted Average APR _____% _____% _____%
(Range) ____% to ___% ___% to ___% ___% to ___%
Weighted Average Original
Term to Maturity _____months _____months _____months
(Range) ___ to ___ month s ___ to ___ month s ___ to ___ months
Weighted Average Remaining
Term to Maturity _____months _____months _____months
(Range) ___ to ___ month s ___ to ___ month s ___ to ___ months
GEOGRAPHIC DISTRIBUTION OF THE RECEIVABLES(1)
PERCENTAGE PERCENTAGE
OF AGGREGATE OF AGGREGATE
PRINCIPAL PRINCIPAL
STATE BALANCE STATE BALANCE
Alabama................... % Montana................... %
Alaska.................... Nebraska..................
Arizona................... Nevada....................
Arkansas.................. New Hampshire.............
California................ New Jersey................
Colorado.................. New Mexico................
Connecticut............... New York..................
Delaware.................. North Carolina............
District of Columbia...... North Dakota..............
Florida................... Ohio......................
Georgia................... Oklahoma..................
Hawaii.................... Oregon....................
Idaho..................... Pennsylvania..............
Illinois.................. Rhode Island..............
Indiana................... South Carolina............
Iowa...................... South Dakota..............
Kansas.................... Tennessee.................
Kentucky.................. Texas.....................
Louisiana................. Utah......................
Maine..................... Vermont...................
Maryland.................. Virginia..................
Massachusetts............. Washington................
Michigan.................. West Virginia.............
Minnesota................. Wisconsin.................
Mississippi............... Wyoming...................
Missouri.................. All Other(2).............. ----------
Total(3)........ %
===========
- ---------------
(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.
DISTRIBUTION BY APR OF THE RECEIVABLES
PERCENTAGE
TOTAL OF TOTAL
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
APR RANGE (%) RECEIVABLES BALANCE BALANCE
- ------------- ----------- --------- ----------
1.00 to 2.00..................... _____ $__________ ______%
2.01 to 3.00..................... _____ __________ _____
3.01 to 4.00..................... _____ __________ _____
4.01 to 5.00..................... _____ __________ _____
5.01 to 6.00..................... _____ __________ _____
6.01 to 7.00..................... _____ __________ _____
7.01 to 8.00..................... _____ __________ _____
8.01 to 9.00..................... _____ __________ _____
9.01 to 10.00..................... _____ __________ _____
10.01 to 11.00...................... _____ __________ _____
11.01 to 12.00...................... _____ __________ _____
12.01 to 13.00...................... _____ __________ _____
13.01 to 14.00...................... _____ __________ _____
14.01 to 15.00...................... _____ __________ _____
15.01 to 16.00...................... _____ __________ _____
16.01 to 17.00...................... _____ __________ _____
17.01 to 18.00...................... _____ __________ _____
18.01 to 19.00...................... _____ __________ _____
19.01 to 20.00...................... _____ __________ _____
20.01 to [ ]................... _____ __________ _____
------
Total (1).................. ===== $========== =====%
- ---------------
(1) Percentages may not add to 100.00% due to rounding.
COMPOSITION OF BALLOON RECEIVABLES FOR VEHICLES
WEIGHTED
AVERAGE
WEIGHTED WEIGHTED ORIGINAL
REMAINING REMAINING WEIGHTED AVERAGE AVERAGE AMORTIZATION
BALLOON PRINCIPAL AVERAGE ORIGINAL REMAINING TERM (MONTHS)
TERM (MONTHS) BALANCE APR TERM (MONTHS) TERM (MONTHS) (1)
- -------------- ----------- ----------- -------------- ------------- ----------------
1 to 36 $ %
37 to 48 $ %
49 to 60 $ %
61 to 72 $ %
73 to 80 $ %
All Balloon $ %
Receivables ========== ====% ====== ======= ========
- ---------------
(1) Amortization term of receivable used to determine monthly payment
amount (excluding balloon payment).
Based on the Initial Pool Balance, approximately [ ]% of the total
number of Receivables, and approximately [ ]% of the Pool Balance, relate
to new Vehicles. Approximately [ ]% of the total number of Receivables, and
approximately [ ]% of the Pool Balance as of the Cutoff Date, relate to
used Vehicles. Additionally, approximately [___]% of the total number of
Receivables included in the Trust, and approximately [___]% by principal
balance of the Receivables included in the Trust, relate to Balloon
Receivables.
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.
Many of the Receivables generally also provide that, in the event of
a Prepaid Receivable, if the amount owing by the Obligor determined by the
"Rule of 78's" would be more favorable to the Obligor, the amount owing may
be determined in accordance with such Rule.
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.
"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.
The Receivables are prepayable by the Obligors at any time without
penalty. 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 Sale and Servicing 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 Sale and Servicing 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 CONSIDERATIONS
Prepayments in full on Receivables will have the effect of reducing
the weighted average life of the Notes, 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 Notes 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 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.
Noteholders will bear all reinvestment risk resulting from the rate of
prepayment of the Receivables.
It is generally recognized by the consumer automobile and commercial
vehicle finance industry that the average actual maturity of a vehicle loan
portfolio tends to be less than the average stated contractual maturity.
The 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 Noteholders will be borne entirely by the Noteholders. In
addition, early retirement of the Notes 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 "Description of the Notes-Optional
Redemption."
Prepayments on motor vehicle receivables can be measured relative to
a prepayment standard or model. The model used in this Prospectus, the
Absolute Prepayment Model ("ABS"), represents an assumed rate of prepayment
each month relative to the original number of receivables in a pool of
receivables. ABS further assumes that all the receivables are the same size
and amortize at the same rate and that each receivable in each month of its
life will either be paid as scheduled or be prepaid in full. For example,
in a pool of receivables originally containing 10,000 receivables, a 1% ABS
rate means that 100 receivables prepay each month. ABS does not purport to
be an historical description of prepayment experience or a prediction of
the anticipated rate of prepayment of any pool of receivables, including
the Receivables.
The tables captioned "Percent of Initial Note Principal Balance at
Various ABS Percentages" (each, an "ABS Table") have been prepared based on
the following assumptions: (a) the Receivables prepay in full at the
specified constant percentage of ABS monthly, with no defaults, losses or
repurchases, (b) each scheduled monthly payment on the Receivables is made
on the last day of each month and each month has 30 days, (c) payments on
the Notes are made on each Payment Date (and each such date is assumed to
be the 20th day of each applicable month), (d) the balance in the Class A
Reserve Account on each Payment Date is equal to the Specified Class A
Reserve Account Balance, and (e) the Servicer does not exercise its option
to purchase the Receivables. The pool of Receivables has an assumed cutoff
date of the Cutoff Date. The ABS Tables indicate the projected weighted
average life of each class of Notes and set forth the percent of the
initial principal amount of each class of Notes that is projected to be
outstanding after each of the Payment Dates shown at various constant ABS
percentages.
The ABS Tables also assume that (i) the Fully Amortizing Receivables
have been aggregated into hypothetical pools with all of the Fully
Amortizing Receivables within each such pool having the following
characteristics and (ii) the level scheduled monthly payment for each such
pool (which is based on its principal balance, weighted average Interest
Rate, weighted average original term to maturity and weighted average
remaining term to maturity as of the Cutoff Date) will be such that each
pool will be fully amortized by the end of its remaining term to maturity.
RANGE OF WEIGHTED WEIGHTED
REMAINING WEIGHTED AVERAGE AVERAGE
LEVEL TERM TO AGGREGATE AVERAGE ORIGINAL TERM REMAINING TERM
PAYMENT MATURITY PRINCIPAL INTEREST TO MATURITY TO MATURITY
POOL (IN MONTHS) BALANCE RATE (IN MONTHS) (IN MONTHS)
- -------------- ----------- ----------- -------------- ------------- ----------------
1 $ %
2 $ %
3 $ %
4 $ %
5 $________ %
$
The ABS Tables also assume that the principal amounts of the Balloon
Receivables have been aggregated into hypothetical balloon pools with all
of the Balloon Receivables within each pool having the following
characteristics and that the principal amount is due at the maturity of the
pool.
WEIGHTED
WEIGHTED AVERAGE
RANGE OF WEIGHTED AVERAGE ORIGINAL
REMAINING WEIGHTED AVERAGE REMAINING AMORTIZATION
TERM TO AGGREGATE AVERAGE ORIGINAL TERM TERM TO TERM
BALLOON MATURITY PRINCIPAL INTEREST TO MATURITY MATURITY (IN
POOL (IN MONTHS) BALANCE RATE (IN MONTHS) (IN MONTHS) MONTHS)(1)
- -------- ----------- ---------- --------- ------------- ------------ -------------
1 $ %
2 $ %
3 $ %
4 $ %
5 $________ %
$
- ---------------
(1) Weighted average original amortization term is the amortization term
of the receivable used to determine monthly payment amount (excluding
balloon payment).
The information included in the following tables represents
forward-looking statements and involves risks and uncertainties that could
cause actual results to differ materially from those in the forward-looking
statements. The actual characteristics and performance of the Receivables
will differ from the assumptions used in constructing each ABS Table. The
assumptions used are hypothetical and have been provided only to give a
general sense of how the principal cash flows might behave under varying
prepayment scenarios. For example, it is very unlikely that the Receivables
will prepay at a constant level of ABS until maturity or that all of the
Receivables will prepay at the same level of ABS. Moreover, the diverse
terms of Receivables within each of the five hypothetical pools could
produce slower or faster principal distributions than indicated in each ABS
Table at the various constant percentages of ABS specified, even if the
original and remaining terms to maturity of the Receivables are as assumed.
Any difference between such assumptions and the actual characteristics and
performance of the Receivables, or actual prepayment experience, will
affect the percentages of initial balances outstanding over time and the
weighted average lives of each class of the Notes.
PERCENT OF INITIAL NOTE PRINCIPAL BALANCE AT VARIOUS ABS PERCENTAGES
CLASS A-1 NOTES CLASS A-2 NOTES
----------------------------- -------------------------------
ASSUMED ABS PERCENTAGE(2) ASSUMED ABS PERCENTAGE(2)
----------------------------- -------------------------------
PAYMENT DATES % % % % % % % %
- ------------- ----- ----- ----- ----- ----- ----- ----- -----
Closing Date.............
October 20, 1998.........
November 20, 1998........
December 20, 1998........
January 20, 1999.........
February 20, 1999........
March 20, 1999...........
April 20, 1999...........
May 20, 1999.............
June 20, 1999............
July 20, 1999............
August 20, 1999..........
September 20, 1999.......
October 20, 1999.........
November 20, 1999........
December 20, 1999........
January 20, 2000.........
February 20, 2000........
March 20, 2000...........
April 20, 2000...........
May 20, 2000.............
June 20, 2000............
July 20, 2000............
August 20, 2000..........
September 20, 2000.......
October 20, 2000.........
November 20, 2000........
December 20, 2000........
January 20, 2001.........
February 20, 2001........
March 20, 2001...........
April 20, 2001...........
May 20, 2001.............
June 20, 2001............
July 20, 2001............
Weighted Average Life
(years)(1)...............
- -----------------
(1) The weighted average life of a Note is determined by (i) multiplying
the amount of each principal payment of such Note by the number of
years from the date of the issuance of such Note to the Payment Date
on which such principal payment is made, (ii) adding the results and
(iii) dividing the sum by the initial principal balance of such Note.
(2) An asterisk "*" means a percent of initial Note principal balance of
more than zero and less than 0.50%.
THE ABS TABLES HAVE BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED
ABOVE (INCLUDING THE ASSUMPTIONS REGARDING THE CHARACTERISTICS AND
PERFORMANCE OF THE RECEIVABLES WHICH WILL DIFFER FROM THE ACTUAL
CHARACTERISTICS AND PERFORMANCE THEREOF) AND SHOULD BE READ IN CONJUNCTION
THEREWITH.
PERCENT OF INITIAL NOTE PRINCIPAL BALANCE AT VARIOUS ABS PERCENTAGES
CLASS A-3 NOTES
-----------------------------
ASSUMED ABS PERCENTAGE(2)
-----------------------------
PAYMENT DATES % % % %
- ------------- ----- ----- ----- -----
Closing Date.............
October 20, 1998.........
November 20, 1998........
December 20, 1998........
January 20, 1999.........
February 20, 1999........
March 20, 1999...........
April 20, 1999...........
May 20, 1999.............
June 20, 1999............
July 20, 1999............
August 20, 1999..........
September 20, 1999.......
October 20, 1999.........
November 20, 1999........
December 20, 1999........
January 20, 2000.........
February 20, 2000........
March 20, 2000...........
April 20, 2000...........
May 20, 2000.............
June 20, 2000............
July 20, 2000............
August 20, 2000..........
September 20, 2000.......
October 20, 2000.........
November 20, 2000........
December 20, 2000........
January 20, 2001.........
February 20, 2001........
March 20, 2001...........
April 20, 2001...........
May 20, 2001.............
June 20, 2001............
July 20, 2001............
August 20, 2001..........
September 20, 2001.......
October 20, 2001.........
November 20, 2001........
December 20, 2001........
January 20, 2002.........
February 20, 2002........
March 20, 2002...........
Weighted Average Life
(years)(1)...............
- -----------------
(1) The weighted average life of a Note is determined by (i) multiplying
the amount of each principal payment of such Note by the number of
years from the date of the issuance of such Note to the Payment Date
on which such principal payment is made, (ii) adding the results and
(iii) dividing the sum by the initial principal balance of such Note.
(2) An asterisk "*" means a percent of initial Note principal balance of
more than zero and less than 0.50%.
THE ABS TABLES HAVE BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED
ABOVE (INCLUDING THE ASSUMPTIONS REGARDING THE CHARACTERISTICS AND
PERFORMANCE OF THE RECEIVABLES WHICH WILL DIFFER FROM THE ACTUAL
CHARACTERISTICS AND PERFORMANCE THEREOF) AND SHOULD BE READ IN CONJUNCTION
THEREWITH.
POOL FACTORS AND OTHER INFORMATION
The "Note Pool Factor" for each class of Notes will be a seven-digit
decimal which the Servicer will compute each month indicating the remaining
outstanding principal amount of the Notes of each class as of the close of
business on the Payment Date in that month, as a fraction of the initial
outstanding principal amount of the Notes of such class. The Note Pool
Factor for each class of Notes will be 1.0000000 as of the Closing Date,
and thereafter will decline to reflect reductions in the outstanding
principal amount of the Notes. A Noteholder's portion of the aggregate
outstanding principal amount of the Notes of a class will be the product of
(i) the original denomination of the Noteholder's Note and (ii) the Note
Pool Factor for such class.
Pursuant to the Sale and Servicing Agreement, the Noteholders will
receive monthly reports concerning the payments received on the
Receivables, the Pool Balance, the Note Pool Factor and various other items
of information. Noteholders of record during any calendar year will be
furnished information for tax reporting purposes not later than the latest
date permitted by law. See "Description of the Notes-Statements to
Noteholders."
USE OF PROCEEDS
The net proceeds to be received by the Seller from the sale of the
Notes will be applied to the purchase of the Receivables from MBCC.
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 and maintenance 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, in the event that the
Seller did not follow these procedures 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 Notes 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 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 Tenth 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
reasoning, Noteholders might experience delays in payment or possibly
losses on their investment in the Notes. 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 other
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 Daimler-Benz North America Corporation
("DBNA"). DBNA, based in New York City, was established as a holding
company in 1982 to achieve synergies and 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. The Company 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 both Daimler-Benz and other manufacturers' 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 the financial clearing entity for its subsidiaries and
provides capital funding through outside finance sources and resources
generated within the group of companies. DBNA has more than 30
subsidiaries, including Mercedes-Benz North America, Mercedes-Benz U.S.
International, Freightliner, and MBCC. DBNA's key goals are to provide
secure long-term liquidity, which serves as a basis for the expansion of
the Daimler-Benz group's North American activities, and to increase the
efficiency of the financial operations of the DBNA group.
Daimler-Benz AG, headquartered in Stuttgart, Germany, and its
consolidated subsidiaries (collectively, "Daimler-Benz") is the largest
industrial group in Germany and a leading provider of technologically
advanced transportation products, systems and services worldwide.
Daimler-Benz is focused on the development and manufacture of Mercedes-Benz
passenger cars and commercial vehicles, Freightliner and Sterling trucks,
rail systems (Adtranz), diesel engines (MTU), and automotive electronics
(TEMIC). Daimler-Benz Aerospace builds aircraft and space systems and
Daimler-Benz InterServices (debis) provides services in areas such as
leasing and sales financing, mobile communications and information
technology. For the six months ended June 30, 1998, Daimler-Benz reported
consolidated revenues of DM 67,714 million, net income of DM 2,010 million
and stockholders' equity of DM 33,767 million. If such amounts were
converted to U.S. dollars at a rate of DM 1.8075 per U.S. dollar (the
conversion rate in effect on of June 30, 1998), Daimler-Benz would have
reported consolidated revenues of $37,463 million, net income of $1,112
million and stockholders' equity of $18,682 million.
On May 7, 1998, Daimler-Benz AG entered into a Business Combination
Agreement (as amended and restated, the "Combination Agreement") with
Chrysler Corporation, a Delaware corporation ("Chrysler"), and
DaimlerChrysler AG, a stock corporation (Aktiengesellschaft) organized and
existing under the laws of the Federal Republic of Germany
("DaimlerChrysler AG") providing for the exchange of shares in Daimler-Benz
AG and shares of Chrysler for shares in DaimlerChrysler AG. The transaction
will have the effect of combining the respective businesses, stockholder
groups, managements and other constituencies of Chrysler and Daimler-Benz
AG in a "merger-of-equals" transaction. As a result of the transaction,
Daimler-Benz AG will be merged with and into DaimlerChrysler AG, with
DaimlerChrysler AG remaining as the surviving entity, and Chrysler will
become a wholly-owned subsidiary of DaimlerChrysler AG. The former
stockholders of Chrysler and Daimler-Benz AG will own all the issued and
outstanding DaimlerChrysler AG ordinary shares. As a result of the
transaction, by operation of applicable law, DaimlerChrysler AG will be
substituted for, and will succeed to the rights and obligations of,
Daimler-Benz AG.
Consummation of the transaction is subject to various conditions, and
it is currently expected that the transaction will be completed by year-end
1998, but delays could result if all conditions to the transaction are not
satisfied. The Combination Agreement may be terminated by either party if
the transaction is not consummated by January 31, 1999. Additionally, the
Combination Agreement may be terminated at any time prior to the effective
time of the transaction by the mutual consent of Chrysler and Daimler-Benz
AG and by either of them individually under certain specified
circumstances.
DESCRIPTION OF THE NOTES
GENERAL
The Notes will be issued pursuant to the Indenture. The Certificates
will be issued pursuant to the Trust Agreement. [Forms of each of the
Indenture and the Trust Agreement have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part.] The
following summary does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the Notes, the Indenture, the
Trust Agreement and the Sale and Servicing Agreement.
The Notes of each class will be offered for purchase in denominations
of $1,000 and integral multiples thereof and will be represented initially
by physical notes registered in the name of Cede as nominee of DTC. No Note
Owner will be entitled to receive a definitive note representing such
person's beneficial ownership interest in the applicable class of Notes
except in the event that Definitive Notes are issued under the limited
circumstances described herein. Unless and until Definitive Notes are
issued, all references to actions by Noteholders shall refer to actions
taken by DTC upon instructions from its Direct Participants (as defined
below) and all references to payments, notices, reports and statements to
Noteholders shall refer to payments, notices, reports and statements to DTC
or Cede, as the registered holder of the Notes, for payment or distribution
to Note Owners in accordance with DTC's procedures with respect thereto.
See "-Book Entry Registration" and "-Definitive Notes."
BOOK ENTRY REGISTRATION
Beneficial owners of Notes may hold their Notes through DTC (in the
United States) or Cedel or Euroclear (in Europe) if they are participants
of such systems, or indirectly through organizations that are participants
in such systems.
DTC is a limited purpose trust company organized under the laws of
the State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code,
and a "clearing agency" registered pursuant to 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 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" and, together with
Direct Participants, "DTC Participants").
To facilitate subsequent transfers, all Notes deposited with DTC will
be registered in the name of DTC's nominee, Cede. The deposit of Notes with
DTC and their registration in the name of Cede will effect no change in
beneficial ownership. DTC has no knowledge of the actual Note Owners of the
Notes; DTC's records reflect only the identity of the Direct Participants
to whose accounts such Notes are credited, which may or may not be the Note
Owners. The DTC Participants will remain responsible for keeping account of
their holdings on behalf of their customers.
No Noteholder will be entitled to receive a certificate representing
such person's interest in a class of Notes. Unless and until Definitive
Notes are issued under the limited circumstances described below, all
references herein to actions by Noteholders shall refer to actions taken by
DTC upon instructions from DTC Participants, and all references herein to
distributions, notices, reports and statements to Noteholders shall refer
to distributions, notices, reports and statements to Cede, as the
registered holder of the Notes, for distribution to Noteholders in
accordance with DTC procedures.
Note Owners will receive all payments of principal and interest on
the Notes through Direct Participants or Indirect Participants. DTC will
forward such payments to its Direct Participants which thereafter will
forward them to Indirect Participants or Note Owners. Under a book-entry
format, Note Owners may experience some delay in their receipt of payments,
since such payments will be forwarded to Cede as nominee of DTC. Note
Owners will not be recognized by the Indenture Trustee as Noteholders, as
such term is used in the Indenture. Note Owners will be permitted to
exercise the rights of Noteholders only indirectly through DTC and its
Direct Participants and Indirect Participants. Because DTC can act only 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 Note Owner to pledge the Notes to
persons or entities that do not participate in the DTC system, or to
otherwise act with respect to such Notes, may be limited due to the absence
of physical notes for such Notes.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants and by Direct
Participants and Indirect Participants to Note Owners will be governed by
arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payments by DTC
Participants to Note Owners will be governed by standing instructions and
customary practices, as is the case with securities held for the accounts
of customers in bearer form or registered in "street name" and will be the
responsibility of such DTC Participant and not of DTC, the Indenture
Trustee, the Owner Trustee, the Seller or the Servicer, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of principal and interest to DTC is the responsibility of the
Indenture Trustee, disbursement of such payments to Direct Participants
shall be the responsibility of DTC and disbursement of such payments to
Note Owners shall be the responsibility of Direct Participants and Indirect
Participants.
Purchases of Notes under the DTC system must be made by or through
Direct Participants, which will receive a credit for the Notes on DTC's
records. The ownership interest of each actual Note Owner is in turn to be
recorded on the Direct Participants' and Indirect Participants' records.
Note Owners will not receive written confirmation from DTC of their
purchase, but Note Owners are expected to receive written confirmations
providing details of the transaction, as well as periodic statements of
their holdings, from the Direct Participant or Indirect Participant through
which the Note Owner entered into the transaction. Transfers of ownership
interests in the Notes are to be accomplished by entries made on the books
of DTC Participants acting on behalf of Note Owners. Note Owners will not
receive physical notes representing their ownership interest in Notes,
except in the event that use of the book-entry system for the Notes is
discontinued.
Neither DTC nor Cede will comment or vote with respect to the Notes.
DTC has advised the Seller that it will take any action permitted to be
taken by a Noteholder under the Indenture only at the direction of one or
more Direct Participants to whose accounts with DTC the Notes are credited.
Additionally, DTC has advised the Seller that to the extent that the
Indenture requires that any action may be taken only by holders of Notes
representing a specified percentage of the aggregate outstanding principal
amount 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 percentage. Under its usual procedures, DTC
will mail an "Omnibus Proxy" to the Indenture Trustee as soon as possible
after any applicable record date with respect to a consent or vote. The
Omnibus Proxy will assign Cede's consenting or voting rights to those
Direct Participants to whose accounts the Notes will be credited on that
record date (identified on a listing attached to the Omnibus Proxy).
DTC may discontinue providing its services as securities depository
with respect to the Notes at any time by giving reasonable notice to the
Indenture Trustee. Under such circumstances, in the event that a successor
securities depository is not obtained, Definitive Notes are required to be
printed and delivered. The Administrator may decide to discontinue use of
the system of book-entry transfers through DTC (or a successor securities
depository). In that event, Definitive Notes will be delivered to
Noteholders. See "-Definitive Notes."
Cedel and Euroclear will hold omnibus positions on behalf of the
Cedel Participants and the Euroclear Participants, respectively, through
customers' securities accounts in Cedel's and Euroclear's names on the
books of their respective depositaries (each, a "Depositary" and
collectively, the "Depositaries") which in turn will hold such positions in
customers' securities accounts in the Depositaries' names on the books of
DTC.
Transfers between Direct Participants will occur in accordance with
DTC rules. Transfers between Cedel Participants and Euroclear Participants
will occur in the ordinary way in accordance with their applicable rules
and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
Participants or Euroclear Participants, on the other, will be effected in
DTC in accordance with DTC rules on behalf of the relevant European
international clearing system by its Depositary; however, such cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in
accordance with its rules and procedures and within its established
deadlines (European time). The relevant European international clearing
system will, if the transaction meets its settlement requirements, deliver
instructions to its Depositary to take action to effect final settlement on
its behalf by delivering or receiving securities in DTC, and making or
receiving payment in accordance with normal procedures for same-day funds
settlement applicable to DTC. Cedel Participants and Euroclear Participants
may not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities in Cedel or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing day, dated the
Business Day following the DTC settlement date, and such credits or any
transactions in such securities settled during such processing day will be
reported to the relevant Cedel Participant or Euroclear Participant on such
Business Day. Cash received in Cedel or Euroclear as a result of sales of
securities by or through a Cedel Participant or a Euroclear Participant to
a DTC Participant will be received with value on the DTC settlement date
but will be available in the relevant Cedel or Euroclear cash account only
as of the Business Day following settlement in DTC.
The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that the Seller believes to be
reliable, but the Seller takes no responsibility for the accuracy thereof.
Cedel Bank, societe anonyme ("Cedel") is incorporated under the laws
of Luxembourg as a professional depository. Cedel holds securities for its
participating organizations ("Cedel Participants") and facilitates the
clearance and settlement of securities transactions between Cedel
Participants through electronic book-entry changes in accounts of Cedel
Participants, thereby eliminating the need for physical movement of
certificates. Transactions may be settled in Cedel in any of 36 currencies,
including United States dollars. Cedel provides to its Cedel Participants,
among other things, services for safekeeping, administration, clearance and
settlement of internationally traded securities and securities lending and
borrowing. Cedel interfaces with domestic markets in several countries. As
a professional depository, Cedel is subject to regulation by the Luxembourg
Monetary Institute. Cedel Participants are recognized financial
institutions around the world, including underwriters, securities brokers
and dealers, banks, trust companies, clearing corporations and certain
other organizations and may include the Underwriters of the Notes. Indirect
access to Cedel is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Cedel Participant, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for
participants of the Euroclear System ("Euroclear Participants") and to
clear and settle transactions between Euroclear Participants through
simultaneous electronic book-entry delivery against payment, thereby
eliminating the need for physical movement of certificates and any risk
from lack of simultaneous transfers of securities and cash. Transactions
may now be settled in any of 34 currencies, including United States
dollars. The Euroclear System includes various other services, including
securities lending and borrowing and interfaces with domestic markets in
several countries generally similar to the arrangements for cross-market
transfers with DTC described above. The Euroclear System is operated by
Morgan Guaranty Trust Company of New York, Brussels, Belgium office (the
"Euroclear Operator" or "Euroclear"), under contract with Euroclear
Clearance System, S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and
all Euroclear securities clearance accounts and Euroclear cash accounts are
accounts with the Euroclear Operator, not the Cooperative. The Cooperative
establishes policy for the Euroclear System on behalf of Euroclear
Participants. Euroclear Participants include banks (including central
banks), securities brokers and dealers and other professional financial
intermediaries and may include the underwriters of the Notes. Indirect
access to the Euroclear System is also available to other firms that clear
through or maintain a custodial relationship with a Euroclear Participant,
either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such,
it is regulated and examined by the Board of Governors of the Federal
Reserve System and the New York State Banking Department, as well as the
Belgian Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of
Euroclear and the related Operating Procedures of the Euroclear System and
applicable Belgian law (collectively, the "Terms and Conditions"). The
Terms and Conditions govern transfers of securities and cash within the
Euroclear System, withdrawal of securities and cash from the Euroclear
System, and receipts of payments with respect to securities in the
Euroclear System. All securities in the Euroclear System are held on a
fungible basis without attribution of specific securities to specific
securities clearance accounts. The Euroclear Operator acts under the Terms
and Conditions only on behalf of Euroclear Participants and has no record
of or relationship with persons holding through Euroclear Participants.
Payments on Notes held through Cedel or Euroclear will be credited to
the cash accounts of Cedel Participants or Euroclear Participants in
accordance with the relevant system's rules and procedures, to the extent
received by its Depositary. Such payments will be subject to tax reporting
in accordance with relevant United States tax laws and regulations. See
"Certain Federal Income Tax Consequences" and Annex A. Cedel or the
Euroclear Operator, as the case may be, will take any other action
permitted to be taken by a Noteholder under the related agreement on behalf
of a Cedel Participant or Euroclear Participant only in accordance with its
relevant rules and procedures and subject to its Depositary's ability to
effect such actions on its behalf through DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Notes among participants of
DTC, Cedel and Euroclear, they are under no obligation to perform or
continue to perform such procedures and such procedures may be discontinued
at any time.
DEFINITIVE NOTES
The Notes of each class will be issued in fully registered,
certificated form ("Definitive Notes") to Noteholders or their nominees,
rather than to DTC or its nominee, only if (i) the Trust, the Administrator
or the Servicer advises the Indenture Trustee in writing that DTC or a
successor clearing agency is no longer willing or able to discharge
properly its responsibilities as depository with respect to the Notes and
the Indenture Trustee or the Administrator is unable to locate a qualified
successor, (ii) the Administrator, at its option, elects to terminate the
book-entry system through DTC, or (iii) after the occurrence of an Event of
Default or an Event of Servicing Termination, Note Owners representing in
the aggregate not less than 51% of the aggregate outstanding principal
amount of the Notes advise the Indenture Trustee and DTC in writing that
the continuation of a book-entry system through DTC (or a successor
thereto) is no longer in the best interest of Note Owners.
Upon the occurrence of any event described in the immediately
preceding paragraph, DTC is required to notify all Direct Participants and
the Indenture Trustee of the availability through DTC of Definitive Notes.
Upon surrender by DTC of the definitive notes representing the Notes and
receipt by the Indenture Trustee of instructions for re-registration, the
Indenture Trustee will reissue the Notes as Definitive Notes, and
thereafter the Indenture Trustee will recognize the holders of such
Definitive Notes as Noteholders.
Payments of principal of, and interest on, the Definitive Notes will
be made by the Indenture Trustee directly to Noteholders in accordance with
the procedures set forth herein and in the Indenture. Payments of principal
and interest on each Payment Date will be made to Noteholders in whose
names the Definitive Notes were registered at the close of business on the
preceding Record Date. Such payments will be made by check mailed to the
address of such Noteholder as it appears on the register maintained by the
Indenture Trustee. The final payment on any Definitive Note, however, will
be made only upon presentation and surrender of such Definitive Note at the
office or agency specified in the notice of final payment mailed to
Noteholders.
Definitive Notes will be transferable and exchangeable at the offices
of the Indenture Trustee. No service charge will be imposed for any
registration of transfer or exchange, but the Indenture Trustee may require
payment of a sum sufficient to cover any tax or other governmental charge
imposed in connection therewith.
INTEREST
Interest on the outstanding principal amount of each class of the
Notes and on the Certificates will accrue at the applicable Interest Rate
and will be payable to the applicable Noteholders and Certificateholders
monthly on each Payment Date, commencing [ ]. Interest will accrue (i) with
respect to the Class A-1 Notes, from and including the Closing Date (in the
case of the first Payment Date) or from and including the most recent
Payment Date on which interest has been paid, to but excluding the
following Payment Date and (ii) with respect to the Class A-2 Notes, the
Class A-3 Notes and the Class B Certificates, from and including the
Closing Date (in the case of the first Payment Date) or from and including
the 20th day of the calendar month preceding each Payment Date to but
excluding the 20th day of the following calendar month (each such period,
an "Interest Period"). Interest will be calculated in the case of the Class
A-1 Notes on the basis of the actual number of days elapsed and a 360-day
year, and in the case of the Class A-2 Notes, the Class A-3 Notes and the
Class B Certificates on the basis of a 360-day year of twelve 30-day
months. Interest payable on a Payment Date will be calculated on the basis
of the outstanding principal amount of the Notes of each class and of the
Certificates as of the preceding Payment Date, after giving effect to any
payments of principal of the Notes and of the Certificates on such
preceding Payment Date (or, in the case of the first Payment Date, on the
basis of the initial outstanding principal amount of the Notes of such
class and of the Certificates). Interest accrued as of any Payment Date but
not paid on such Payment Date will be due on the next Payment Date,
together with interest on such amount at the applicable Interest Rate (to
the extent permitted by law). Interest payments on the Notes and on the
Certificates will generally be derived from the Available Funds remaining
after the payment of the Total Servicing Fee for the related Collection
Period and, to the extent the Available Funds (as defined herein) remaining
are insufficient, from amounts on deposit in the Reserve Accounts. See
"-The Indenture Cash Flows" and "-Subordination of the Class B
Certificates; Reserve Accounts."
Interest payments to all classes of the Notes will have the same
priority of payment, and interest payments to the Class B Certificates will
be subordinated to interest payments on the Class A Notes. Under certain
circumstances, the amount available for interest payments could be less
than the amount of interest payable on the Notes on any Payment Date, in
which case Class A Noteholders will be paid interest in full prior to
payments of interest on the Class B Certificates and, if the amount
available for interest payments is less than the amount of interest payable
on the Class A Notes, each class of Class A Noteholders will receive their
ratable share (based upon the aggregate amount of interest due to such
class of Noteholders) of the aggregate amount available to be distributed
in respect of interest on the Notes. An Event of Default will occur if the
full amount of interest due to all classes of Noteholders is not paid
within five days.
PRINCIPAL
Principal payments will be made to the Noteholders on each Payment
Date in an aggregate amount equal to the Principal Distribution Amount in
respect of such Payment Date, subject to certain limitations.
Certificateholders will not be entitled to receive payments of principal
until the principal of all classes of Notes have been paid in full.
Following the occurrence and during the continuation of an Event of Default
resulting in an acceleration of the Notes, the principal amounts of the
Notes will be paid in full to all classes of the Notes on a pro rata basis
before any distributions of principal may be made on the Certificates. See
"-The Indenture Cash Flows" and "-Subordination of the Class B
Certificates; Reserve Accounts."
Principal on the Notes will be payable on each Payment Date in an
amount equal to the Principal Distribution Amount for such Payment Date (to
the extent of funds available therefor as described herein) and will be
paid to the holders of the various classes of Notes sequentially in order
until the principal amount of each successive class of Notes is paid in
full. Accordingly, on each Payment Date, an amount equal to the Principal
Distribution Amount will be paid to the Class A-1 Noteholders until the
Class A-1 Notes are paid in full; then, to the Class A-2 Noteholders until
the Class A-2 Notes are paid in full; then, to the Class A-3 Noteholders
until the Class A-3 Notes are paid in full; and finally, to the Class B
Certificateholders until the Class B Certificates are paid in full.
The actual date on which the aggregate outstanding principal amount
of any class of Notes is paid may be earlier or later than the respective
Final Payment Dates based on a variety of factors, including those
described under "Risk Factors-Maturity and Prepayment Considerations" and
"The Receivables-Maturity and Prepayment Considerations."
OPTIONAL REDEMPTION
The Notes and the Certificates will be redeemed in whole, but not in
part, on any Payment Date on which the Servicer exercises its option to
purchase the Receivables. The Servicer may purchase the Receivables on any
Payment Date with respect to which the Pool Balance as of the end of the
related Collection Period is 10% or less of the Initial Pool Balance. The
redemption price will be equal to the unpaid principal amount of the Notes
and the Certificates, in each case plus accrued and unpaid interest
thereon.
THE INDENTURE TRUSTEE
[ ], a [ ] corporation, will be the Indenture
Trustee. The Indenture Trustee's Corporate Trust Office is located at
[ ]. The Seller, the Servicer, and their respective affiliates
may have other banking relationships with the Indenture Trustee and its
affiliates in the ordinary course of their businesses.
THE ACCOUNTS
The Servicer will establish a Collection Account, in the name of the
Indenture Trustee on behalf of the Noteholders and the Certificateholders,
into which payments made on or with respect to the Receivables and Advances
made by the Servicer will be deposited and into which amounts on deposit in
the Reserve Accounts may be transferred from time to time, other than
certain amounts payable to the Servicer under the Sale and Servicing
Agreement that are not required to be so deposited or transferred. The
Servicer will also establish and maintain (i) an account, in the name of
the Indenture Trustee on behalf of the Noteholders and the
Certificateholders, in which amounts released from the Collection Account
for distribution to Noteholders and to Certificateholders will be deposited
and from which all payments to Noteholders and to Certificateholders will
be made (the "Distribution Account"), and (ii) an account, in the name of
the Indenture Trustee on behalf of the Noteholders and the
Certificateholders, in which early payments with respect to Receivables by
or on behalf of the Obligors which constitute neither current scheduled
payments nor full prepayments ("Payaheads") will be deposited until such
time as the payment falls due or until such funds are applied to shortfalls
in the scheduled payments with respect to Receivables (the "Payahead
Account", and together with the Collection Account and the Distribution
Account, the "Trust Accounts"). Amounts in the Payahead Account will be
permitted to be held by the Servicer if either (a) each Monthly Remittance
Condition is satisfied or (b) a Monthly Remittance Condition is not
satisfied but such failure will not affect the rating of any class of the
Notes by the Rating Agencies. Until such time as payments are transferred
from the Payahead Account to the Distribution Account, they will not
constitute collected interest or collected principal, and will not be
available for distribution to the Noteholders or the Certificateholders.
Investment earnings (net of losses and investment expenses) on amounts on
deposit in the Payahead Account will be payable to the Servicer as
additional servicing compensation.
The Trustee will also establish the Class A Reserve Account, on
behalf of the Trust and the Class A Noteholders, and will establish the
Class B Reserve Account, on behalf of the Trust and the Class B
Certificateholders. The Collection Account, the Distribution Account, the
Reserve Accounts and the Payahead Account are collectively referred to as
the "Accounts."
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 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 Indenture 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, 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 A
from S&P with respect to long-term unsecured debt obligations.
Funds in the Accounts will be invested in Permitted Investments as
provided in the Sale and Servicing Agreement. "Permitted Investments"
generally will be limited to investments acceptable to each Rating Agency
as being consistent with the ratings of the Notes. Permitted Investments
will be limited to obligations or securities that mature not later than the
Business Day immediately preceding the next Payment Date (or the payment
due date, in the case of a Payahead). Any earnings (net of losses and
investment expenses) on amounts on deposit in the Collection Account will
be paid to the Noteholders. Any earnings (net of losses and investment
expenses) on amounts on deposit in the Payahead Account will be paid to the
Servicer as additional servicing compensation and will not be available to
Noteholders, and any earnings (net of losses and investment expenses) on,
and any amounts released from, the Class A Reserve Account and the Class B
Reserve Account will be distributed to the Seller; provided that earnings
on amounts on deposit in the Class A Reserve Account and in the Class B
Reserve Account will be distributed to the Seller only to the extent that
(i) the amounts on deposit in the Class A Reserve Account exceed the
Specified Class A Reserve Balance and (ii) the amounts on deposit in the
Class B Reserve Account exceed the Specified Class B Reserve Balance.
THE INDENTURE CASH FLOWS
Deposits to the Collection Account. On or before the earlier of (a)
the sixteenth calendar day of each month and (b) the third Business Day
preceding the Payment Date in each month (the "Determination Date"), of the
month in which a Payment Date occurs, the Servicer will calculate the
Available Funds, the Total Servicing Fee, the Accrued Interest on each
class of Notes and on the Certificates and the Principal Distribution
Amount with respect to each class of Notes and the Certificates, if any, in
each case with respect to such Payment Date.
On or before each Payment Date, the Servicer will cause the Available
Funds for such Payment Date to be deposited into the Collection Account. On
each Payment Date, the Servicer will notify the Indenture Trustee to
withdraw from the Class B Reserve Account and deposit in the Collection
Account an amount equal to the lesser of (i) the amount of cash or other
immediately available funds in the Class B Reserve Account on such Payment
Date (prior to giving effect to any deposits thereto or withdrawals
therefrom relating to such Payment Date), and (ii) the amount, if any, by
which (x) the aggregate amount of Advances that are due and payable to the
Servicer on such Payment Date exceeds (y) the amount paid to the Servicer
with respect to such Advances out of the Collection Account on such Payment
Date.
Further, on each Payment Date, the Servicer will notify the Indenture
Trustee to withdraw from the Class A Reserve Account and deposit in the
Collection Account an amount equal to the lesser of (a) the amount of cash
or other immediately available funds in the Class A Reserve Account on such
Payment Date (prior to giving effect to any deposits thereto or withdrawals
therefrom relating to such Payment Date), and (b) the amount, if any, by
which (1) the aggregate amount of Advances that are due and payable to the
Servicer on such Payment Date exceeds (2) the sum of (A) the amount paid to
the Servicer with respect to such Advances out of the Collection Account on
such Payment Date and (B) the amount withdrawn from the Class B Reserve
Account on such Payment Date pursuant to the preceding paragraph.
On or before each Payment Date, the Servicer will also notify the
Indenture Trustee to withdraw from the Class B Reserve Account for payment
to the Servicer an amount equal to the lesser of (i) the amount of cash or
other immediately available funds in the Class B Reserve Account on such
Payment Date (after giving effect to any withdrawals therefrom relating to
such Payment Date to pay all or part of the Advances that are due and
payable to the Servicer on such Payment Date but prior to giving effect to
any deposits thereto or any other withdrawals therefrom relating to such
Payment Date), and (ii) the amount, if any, by which (x) the Total
Servicing Fee, Accrued Interest on the Certificates and the Principal
Distribution Amount with respect to the Certificates for such Payment Date
exceeds (y) an amount equal to the Available Funds which can be used for
the payments pursuant to the preceding clause (x) for such Payment Date.
In addition, on or before each Payment Date, the Servicer will notify
the Indenture Trustee to withdraw from the Class A Reserve Account for
payment to the Servicer an amount equal to the lesser of (a) the amount of
cash or other immediately available funds in the Class A Reserve Account on
such Payment Date (after giving effect to any withdrawals therefrom
relating to such Payment Date to pay all or part of the Advances that are
due and payable to the Servicer on such Payment Date but prior to giving
effect to any deposits thereto or any other withdrawals therefrom relating
to such Payment Date), and (b) the amount, if any, by which (1) the Total
Servicing Fee (after giving effect to any withdrawal from the Class B
Reserve Account relating to such Payment Date pursuant to the preceding
paragraph), Accrued Interest on the Notes and the Principal Distribution
Amount with respect to the Notes for such Payment Date exceeds (2) an
amount equal to the Available Funds which can be used for the payments
pursuant to the preceding clause (2) for such Payment Date.
The "Available Funds" for a Payment Date to be deposited into the
Collection Account shall equal the sum of the following amounts with
respect to the related Collection Period: (i) all collections on the
Receivables including Payaheads withdrawn from the Payahead Account but
excluding Payaheads deposited into the Payahead Account; (ii) all proceeds
of the liquidation of Receivables which became Defaulted Receivables during
the related 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 such Defaulted Receivable ("Liquidation
Proceeds"); (iii) 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"); (iv) all Advances made by the Servicer of
principal or interest due on the Receivables; (v) all proceeds from claims
on physical damage, credit life and disability insurance policies covering
the Financed Vehicles or the Obligors and (vi) the Purchase Amount of each
Receivable that was repurchased by the Seller or purchased by the Servicer
under an obligation which arose during or prior to the related Collection
Period (net of applicable expenses) (each such receivable, a "Purchased
Receivable").
The Available Funds on any Payment 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 with respect to a particular
Receivable to the extent of any unreimbursed Advances;
(iii) late fees and charges on the Receivables ; and
(iv) investment earnings and interest earned on the Payahead
Account and the Reserve Accounts.
A "Defaulted Receivable" is a Receivable which by its terms is in
default and as to which (a) a scheduled payment is ___ or more days past
due, (b) the Servicer has determined, in accordance with its customary
servicing procedures, that eventual payment in full is unlikely and the
outstanding balance of the Receivable has been charged-off or (c) the
Servicer has repossessed and disposed of the related Financed Vehicle.
Monthly Withdrawals from Collection Account. Pursuant to the Sale and
Servicing Agreement, the Servicer will have the power, which may be revoked
by the Indenture Trustee or by the Owner Trustee with the consent of the
Indenture Trustee, to instruct the Indenture Trustee to withdraw funds on
deposit in the Collection Account for the related Collection Period
(including funds, if any, deposited therein from the Reserve Accounts and
the Payahead Account) following the withdrawal therefrom of the amount
necessary to reimburse the Servicer for Advances previously made by the
Servicer to the extent due and payable to the Servicer on such Payment
Date. After giving effect to the foregoing, the Indenture Trustee shall
make the following payments and withdrawals from the sources specified and
in the following order of priority:
(i) to the Servicer, the Total Servicing Fee, such amount to be paid
first, from Available Funds, second, from the Class B Reserve Account, and
third, from the Class A Reserve Account;
(ii) to the Distribution Account, the Accrued Interest on each class
of Notes, such amount to be paid, first, from Available Funds, and second,
from the Class A Reserve Account;
(iii) to the Distribution Account, the Accrued Interest on the
Certificates, such amount to be paid first, from Available Funds, and
second, from the Class B Reserve Account;
(iv) to the Distribution Account, the Principal Distribution Amount
with respect to each class of Notes, such amount to be paid, first, from
Available Funds, and second, from the Class A Reserve Account;
(v) to the Distribution Account, the Principal Distribution Amount
with respect to the Certificates, such amount to be paid first, from
Available Funds, and second, from the Class B Reserve Account;
(vi) to the Class A Reserve Account, from Available Funds, the amount
required to bring the amount in the Class A Reserve Account up to the Class
A Specified Reserve Balance;
(vii) to the Class B Reserve Account, from Available Funds, the
amount required to bring the amount in the Class B Reserve Account up to
the Class B Specified Reserve Balance; and
(viii) to the Seller, any remaining Available Funds.
Notwithstanding the foregoing, following the occurrence and during
the continuation of an Event of Default which has resulted in an
acceleration of the Notes, the Available Funds remaining after the
application of clauses (i), (ii) and (iii) above will be deposited in the
Distribution Account to the extent necessary to reduce the principal amount
of the Notes to zero. In such event, the amount available to make payments
of principal of the Notes and of the Certificates will be paid in the
following order of priority: (i) to the Class A-1 Noteholders, the Class
A-2 Noteholders and the Class A-3 Noteholders pro rata in proportion to the
respective principal balances of the Class A-1 Notes, the Class A-2 Notes
and the Class A-3 Notes until all of such classes have been paid in full
and (ii) then to the Class B Certificateholders until the Class B
Certificates have been paid in full.
For purposes hereof, the following terms have the following meanings:
"Accrued Interest" means, with respect to any Payment Date and each
class of Notes and the Class B Certificates, the sum of the Monthly Accrued
Interest and the Interest Carryover Shortfall for such class of Notes or
for the Certificates for such Payment Date.
"Certificate Balance" equals, initially, $[ ] and, thereafter, equals
the initial Certificate Balance minus all amounts paid as principal on the
Class B Certificates.
"Interest Carryover Shortfall" means, with respect to any Payment
Date and any class of Notes or the Certificates, as applicable, the excess
of the sum of the Monthly Accrued Interest for the preceding Payment Date
and any outstanding Interest Carryover Shortfall from the close of business
on such preceding Payment Date, over the amount in respect of interest that
is actually deposited in the Distribution Account on such preceding Payment
Date with respect to such class or the Certificates, plus interest on such
excess, to the extent permitted by law, at the applicable Interest Rate for
the related Interest Period.
"Interest Rates" means in the case of (i) the Class A-1 Notes, [ ]%
per annum, (ii) the Class A-2 Notes, [ ]% per annum, (iii) the Class A-3
Notes, [ ]% per annum and (iv) the Class B Certificates, [ ]% per annum.
Interest on the Class A-1 Notes will be calculated on the basis of the
actual number of days elapsed and a 360-day year, and interest on the Class
A-2 Notes, the Class A-3 Notes and the Class B Certificates will be
calculated on the basis of a 360-day year consisting of twelve 30-day
months.
"Monthly Accrued Interest" means, with respect to any Payment Date
and (i) any class of Notes or the Certificates, as applicable, interest
accrued for the related Interest Period at the applicable Interest Rate on
the aggregate principal balance of the Notes of such class or of the
Certificates as of the immediately preceding Payment Date, after giving
effect to all payments of principal to Noteholders or to Certificateholders
on or prior to such preceding Payment Date (or, in the case of the first
Payment Date, the initial principal amount of the Notes and of the
Certificates); and (ii) with respect to the Notes collectively, the sum of
Monthly Accrued Interest for each class.
"Principal Carryover Shortfall" means, as of the close of business on
any Payment Date, with respect to any class of Notes or the Certificates,
as applicable, the excess of the Principal Distribution Amount and any
outstanding Principal Carryover Shortfall from the preceding Payment Date
over the amount in respect of principal that is actually deposited in the
Distribution Account on such Payment Date.
"Principal Distribution Amount" means, with respect to any Payment
Date, and with respect to any class of Notes or the Certificates, as
applicable, the sum of (i) the Scheduled Principal for such Payment Date
plus (ii) any outstanding Principal Carryover Shortfall as of the close of
business on the preceding Payment Date; provided, however, that the
Principal Distribution Amount shall not exceed the outstanding aggregate
principal balance of the Notes and the Certificates; and provided, further,
that, on the Final Payment Date for each class of Notes or for the
Certificates, the principal required to be deposited in the Distribution
Account will include the amount necessary (after giving effect to the other
amounts to be deposited in the Distribution Account on such Payment Date
and allocable to principal) to reduce the outstanding principal amount of
such class of Notes or of the Certificates to zero.
"Scheduled Principal" shall mean, with respect to any Payment Date,
the sum of (a) the principal portion of each scheduled payment due on any
Receivable during the related Collection Period, (b) (without duplication
of amounts taken into account under (a)) the outstanding principal balance
of (i) Receivables prepaid in full during the related Collection Period,
and (ii) Receivables which became Defaulted Receivables during the related
Collection Period, (c) the Purchase Amount of each Receivable that was
repurchased by the Seller or purchased by the Servicer during such
Collection Period, to the extent attributable to principal, and (d) the
proceeds of any other sale of a Receivable to the extent allocable to
principal; provided, however, that in calculating the Scheduled Principal,
all payments and proceeds (including Liquidation Proceeds) of any purchased
Receivables the Purchase Amount of which has been included in Scheduled
Principal in a prior Collection Period (which shall be paid to the Seller
or Servicer, as applicable) will be excluded.
"Total Required Payment" means, on any Payment Date, the Total
Servicing Fee, the Accrued Interest with respect to the Notes and the
Principal Distribution Amount with respect to the Notes.
On each Payment Date, unless the maturity dates of the Notes have
been accelerated following the occurrence of an Event of Default, all
amounts on deposit in the Distribution Account will be paid in the
following order of priority:
(a) to the Class A Noteholders, Monthly Accrued Interest on the
applicable class of Class A Notes;
(b) following payment in full of the Monthly Accrued Interest payable
to the Class A Noteholders, Monthly Accrued Interest on the Class B
Certificates;
(c) following payment in full of the Monthly Accrued Interest payable
to the Class A Noteholders and Class B Certificateholders, the Principal
Distribution Amount until the Class A-1 Notes have been paid in full;
(d) following payment in full of the Class A-1 Notes, to the Class
A-2 Noteholders, the remaining Principal Distribution Amount until the
Class A-2 Notes have been paid in full;
(e) following payment in full of the Class A-2 Notes, to the Class
A-3 Noteholders, the remaining Principal Distribution Amount until the
Class A-3 Notes have been paid in full; and
(f) following payment in full of the Notes, the remaining Principal
Distribution Amount until the Class B Certificates have been paid in full.
On each Payment Date occurring on or after the acceleration of the
maturity dates of the Notes following the occurrence of an Event of
Default, all amounts on deposit in the Distribution Account will be paid:
(a) to the Indenture Trustee, certain expenses and other amounts payable to
the Indenture Trustee; (b) to the Servicer, the amounts due and unpaid in
respect of the Total Servicing Fee; (c) to the Class A Noteholders, Monthly
Accrued Interest on the applicable class of Class A Notes; (d) to the Class
B Certificateholders, Monthly Accrued Interest on the Class B Certificates;
(e) to the Class A Noteholders, the Principal Distribution Amount pro rata
in proportion to the respective principal balances of the Class A-1 Notes,
the Class A-2 Notes and the Class A-3 Notes until each of such classes has
been paid in full; and (f) to the Class B Certificateholders, the Principal
Distribution Amount until the Class B Certificates have been paid in full.
SUBORDINATION OF THE CLASS B CERTIFICATES; RESERVE ACCOUNTS
The rights of the Class B Certificateholders to receive distributions
with respect to the Receivables will be subordinated, to the extent
described above and in the Indenture, to the rights of the Class A
Noteholders in the event of defaults and delinquencies on the Receivables.
Thus, the Class B Certificateholders generally will not receive
distributions of interest on a Payment Date (other than from the Class B
Reserve Account) unless the Class A Noteholders receive the full amount of
interest due to them on such Payment Date (including from amounts on
deposit in the Class A Reserve Account), and the Class B Certificateholders
will not receive distributions of principal on a Payment Date (other than
from the Class B Reserve Account) unless the Class A Noteholders shall have
received payment of the full amount of principal of the Notes (including
from amounts on deposit in the Class A Reserve Account).
In addition, the rights of the Seller to receive amounts in excess of
the Total Required Payments, interest and principal due to the Class B
Certificateholders and amounts necessary to replenish the Reserve Accounts
will be subordinate to the rights of the Class A Noteholders and Class B
Certificateholders to receive amounts due to each of them. Accordingly, the
Seller will not receive distributions on any Payment Date unless all
interest and principal due to the Class A Noteholders and Class B
Certificateholders have been paid and amounts have been deposited in each
Reserve Account at least equal the Class A Specified Reserve Balance or the
Class B Specified Reserve Balance, as the case may be.
In the event of losses and delinquencies on the Receivables, the
protection afforded to the Class A Noteholders will be effected by the
application of Available Funds for each Payment Date in the priority
specified under "-The Indenture Cash Flows." In addition, the Class A
Noteholders will have the benefit of the Class A Reserve Account.
The Class A Reserve Account will be an Eligible Deposit Account
initially held by the Indenture Trustee. On each Payment Date, if the
amounts on deposit in the Class A Reserve Account are less than the
Specified Class A Reserve Balance, the Indenture Trustee will, after
payment of amounts required to be distributed to the Class A Noteholders
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 Account the amount
remaining in the Collection Account that would otherwise be distributed to
the Seller, or such lesser portion thereof as is sufficient to restore the
amount in the Class A Reserve Account to such Specified Class A Reserve
Balance. If the amount on deposit in the Class A Reserve Account on such
Payment Date (after giving effect to all deposits or withdrawals therefrom
on such Payment Date) is greater than the Specified Class A Reserve Balance
for such Payment Date, the Indenture Trustee will release such excess
amount from the Class A Reserve Account and (i) deposit such excess amount
in the Class B Reserve Account 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 such
amounts in the Class B Reserve Account or distribution to the Seller, the
Class A Noteholders will have no rights in, or claims to, such amounts.
Amounts held from time to time in the Class A Reserve Account will
continue to be held solely for the benefit of the Class A Noteholders and
amounts held in the Class B Reserve Account will be held solely for the
benefit of the Class B Certificateholders. Amounts held in the Class B
Reserve Account will not be available to cover shortfalls in amounts due to
the Class A Noteholders. Amounts on deposit from time to time in the Class
A Reserve Account and Class B Reserve Account will be invested, as provided
in the Indenture, in Permitted Investments maturing on or prior to the next
succeeding Payment Date; provided, however, that to the extent permitted by
the Rating Agencies, amounts on deposit in the Class A Reserve Account and
the Class B Reserve Account may be invested in Permitted Investments that
mature later than the next Payment Date. The Seller will be entitled to
receive all investment earnings on amounts in the Reserve Accounts.
Investment earnings on amounts in the Reserve Accounts will not be
available for distribution to the Noteholders or Certificateholders or
otherwise subject to any claims or rights of the Class A Noteholders or the
Class B Certificateholders.
The ability of the Class A Reserve Account to maintain 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 Account are intended to enhance the likelihood of receipt
by Class A Noteholders of the full amount of principal and interest on the
Receivables due to them and to decrease the likelihood that the Class A
Noteholders will experience losses. However, in certain circumstances, the
Class A Reserve Account could be depleted and shortfalls could result.
The Class A Reserve Account will be funded by the Seller with cash or
Permitted Investments maturing on or prior to the initial Payment Date and
having, on the Closing Date, a value of approximately $_______ (the "Class
A Reserve Initial Deposit"). The Class A Reserve Initial Deposit will be
augmented on each Payment Date by the deposit in the Class A Reserve
Account of Available Funds to the extent necessary to maintain the amount
in the Class A Reserve Account at an amount equal to the Specified Class A
Reserve Balance. Amounts in the Class A Reserve Account on any Payment Date
(reduced by the amount of all distributions made on such Payment Date) in
excess of the Specified Class A Reserve Balance for such Payment Date
generally will be released for (i) deposit into the Class B Reserve Account
or (ii) to the extent the amount on deposit therein is equal to the
Specified Class B Reserve Balance, payment to the Seller.
The "Specified Class A Reserve Balance" with respect to any Payment
Date will equal $________, except where on any Payment Date (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 ____% 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 ____%, then the
Specified Class A Reserve Balance for such Payment Date will equal
$________. See "The Notes-Subordination of the Class B Certificates;
Reserve Accounts." The Seller may reduce the Specified Class A Reserve
Balance provided that both Rating Agencies confirm in writing to the
Indenture Trustee 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 Notes.
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, as the Seller determines to sell 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.
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, the Servicer will make an Advance of the remaining
amount (each, an "Advance") on the related Payment Date. The amount of an
Advance will be equal to that portion of the scheduled payment of such
Receivable that was not timely made by the Obligor. On or before the
applicable Payment 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, Liquidation Proceeds or Recoveries with respect to such
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.
If MBCC is replaced in its capacity as Servicer, the successor
Servicer will not be required to make Advances. In the absence of Advances
by the Servicer, Noteholders must rely for payment of the Notes upon
payments on the Receivables (including sales proceeds of Financed Vehicles
returned to the Servicer for sale) and, to the extent available, amounts on
deposit in the Class A Reserve Account. See "-The Indenture Cash Flows" and
"-Subordination of the Class B Certificates; Reserve Accounts."
COLLECTIONS ON THE RECEIVABLES
The Servicer will deposit all payments on Receivables, including
Liquidation Proceeds, but excluding certain amounts payable to the Servicer
under the Sale and Servicing 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 Sale and Servicing
Agreement on each Payment 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 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 any class Notes as confirmed in writing by
the Rating Agencies,
in which case such amounts will be paid into the Collection Account on the
Payment Date.
The Seller or the Servicer will also deposit into the Collection
Account on the Payment 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 Collection 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, unless the Servicer is required to
remit collections within two Business Days of receipt thereof, the Servicer
will be permitted to make the deposit of collections and Purchase Amounts
for or with respect to the Collection Period net of distributions to be
made to the Servicer with respect to the Collection Period. The Servicer,
however, will account to the Indenture Trustee and the Noteholders as if
all deposits, distributions and transfers were made individually.
STATEMENTS TO NOTEHOLDERS
On or prior to each Payment Date, the Servicer will prepare and
provide to the Indenture Trustee a statement to be delivered to the
Noteholders. Each such statement to be delivered to Noteholders will
include the following information as to the Notes with respect to such
Payment Date and the related Collection Period:
(i) the amount of the payment allocable to principal of each
class of Notes;
(ii) the amount of the payment allocable to interest on or
with respect to each class of Notes;
(iii) the amount of the Total Servicing Fee with respect
to such Collection Period;
(iv) the aggregate outstanding principal amount of each
class of the Notes and the applicable Note Pool Factor, after giving effect
to payments allocated to principal reported under clause (i) above;
(v) the Pool Balance (calculated as of the close of business
on the last day of the related Collection Period);
(vi) the amounts of the Interest Carryover Shortfall and the
Principal Carryover Shortfall, if any, for such Payment Date and the
portion thereof attributable to each class of Notes;
(vii) the balance of Class A Reserve Account on such Payment
Date, after giving effect to changes therein on such Payment Date; and
(viii) the aggregate Purchase Amount of Receivables
repurchased by the Seller or purchased by the Servicer during such
Collection Period.
Each amount set forth pursuant to clauses (i), (ii), (iii), (v) and
(vii) above will be expressed in the aggregate and as a dollar amount per
$1,000 of original denomination of the Notes or class of Notes, as
applicable. Copies of such statements may be obtained by Note Owners by a
request in writing addressed to the Indenture Trustee.
Within a reasonable period of time after the end of each calendar
year, but not later than the latest date permitted by law, the Indenture
Trustee will furnish to each person who at any time during such calendar
year was a Noteholder a statement containing the sum of the amounts
described in clauses (i), (ii), (iii), (iv) and (vii) above for the
purposes of such Noteholder's preparation of Federal income tax returns.
See "Certain Federal Income Tax Consequences" and "-Book Entry
Registration."
INDENTURE
Events of Default. The "Events of Default" in the Indenture consist
of (i) a default for five days or more in the payment of interest on any
Note when the same becomes due and payable; (ii) a default in the payment
of principal of, or any installment of principal of, any Note when the same
becomes due and payable; (iii) a default in the observance or performance
of any material covenant or agreement of the Trust made in the Indenture,
or any representation or warranty of the Trust made in the Indenture or in
any certificate or writing delivered pursuant thereto proves to have been
incorrect in any material respect as of the time when made, and the
continuation of such default for a period of 60 days or in the case of a
materially incorrect representation or warranty, 30 days, after notice
thereof is given to the Trust by the Indenture Trustee or the Trust and the
Indenture Trustee by the holders of not less than 25% of the aggregate
principal amount of the Notes of all classes; or (iv) certain events of
bankruptcy, insolvency, receivership or liquidation of the Trust.
(Indenture, Section 5.1).
Noteholders holding not less than a majority of the aggregate
principal amount of the Notes outstanding, voting as a group, may waive any
past default or Event of Default prior to the declaration of the
acceleration of the maturity of the Notes, except a default (i) in payment
of principal of or interest on any of the Notes or (ii) in respect of any
covenant or provision in the Indenture which cannot be modified or amended
without unanimous consent of the Noteholders. (Indenture, Section 5.12).
Any such waiver could be treated, for Federal income tax purposes, as a
constructive exchange of the Notes by the Noteholders for deemed new Notes
upon which gain or loss would be recognized.
Remedies. If an Event of Default should occur and be continuing, the
Indenture Trustee or the holders of a majority of the aggregate outstanding
principal amount of the Notes of all classes, voting as a group, may
declare the principal of the Notes to be immediately due and payable. Such
declaration may be rescinded by the holders of a majority of the aggregate
principal amount of the Notes before a judgment or decree for payment of
the amount due has been obtained by the Indenture Trustee if (i) the Trust
has deposited with the Indenture Trustee an amount sufficient to pay (x)
all interest on and principal of the Notes as if the Event of Default
giving rise to such declaration had not occurred and (y) all amounts
advanced by the Indenture Trustee and its costs and expenses and (ii) all
Events of Default (other than the nonpayment of principal of the Notes that
has become due solely by such acceleration) have been cured or waived.
(Indenture, Section 5.2). Any such rescission could be treated, for Federal
income tax purposes, as a constructive exchange of the Notes by the
Noteholders for deemed new Notes upon which gain or loss would be
recognized.
If the Notes have been declared due and payable following an Event of
Default, the Indenture Trustee may institute proceedings to collect amounts
due, exercise remedies as a secured party, including foreclosure or sale of
the Trust Property, or elect to maintain the Trust Property and continue to
apply proceeds from the Trust Property as if there had been no declaration
of acceleration. The Indenture Trustee may not, however, sell the Trust
Property following an Event of Default, other than a default in the payment
of any principal or a default for five days or more in the payment of any
interest on the Notes, unless (i) 100% of the Noteholders consent thereto,
(ii) the proceeds of such sale are sufficient to pay in full the principal
of and the accrued interest on the then outstanding Notes or (iii) the
Indenture Trustee determines that the Trust Property would not be
sufficient on an ongoing basis to make all payments on the Notes as such
payments would have become due if such obligations had not been declared
due and payable, and the Indenture Trustee obtains the consent of holders
of 662/3% of the aggregate principal amount of the outstanding Notes,
voting as a group, to such sale. The Indenture Trustee may, but need not,
obtain and rely upon an opinion of an independent accountant or investment
banking firm as to the sufficiency of the Trust Property to pay interest on
and principal of the Notes on an ongoing basis. (Indenture, Sections 5.4
and 5.5).
In the event of a sale of the Trust Property following the occurrence
of an Event of Default under the circumstances described in the preceding
paragraph pursuant to the direction of the Indenture Trustee or the
Noteholders, the proceeds of such sale will be distributed first to the
Indenture Trustee for amounts due as compensation or indemnity payments
pursuant to the terms of the Indenture; second to the Servicer for amounts
due in respect of unpaid Total Servicing Fees; third to the Noteholders for
interest which is due and unpaid; and fourth to the Noteholders for
principal which is due and unpaid. Any remaining amounts will be
distributed to the Certificateholders for amounts due and unpaid in
accordance with the terms of the Trust Agreement and the Sale and Servicing
Agreement. (Indenture, Section 5.4).
Subject to the provisions of the Indenture relating to the duties of
the Indenture Trustee, in case an Event of Default occurs and is continuing
with respect to the Notes, the Indenture Trustee will be under no
obligation to exercise any of the rights or powers under the Indenture at
the request or direction of any of the Noteholders, if the Indenture
Trustee reasonably believes it will not be adequately indemnified against
the costs, expenses and liabilities which might be incurred by it in
complying with such request. Subject to such provisions for indemnification
and certain limitations contained in the Indenture, the holders of not less
than a majority of the aggregate principal amount of the outstanding Notes,
voting as a group, will have the right to direct the time, method and place
of conducting any proceeding or any remedy available to the Indenture
Trustee with respect to the Notes or exercising any trust power conferred
on the Indenture Trustee, subject to certain limitations, and the holders
of not less than a majority of the aggregate principal amount of the
outstanding Notes, voting as a group, may, in certain cases, waive any
default with respect thereto, except a default in the payment of principal
or interest or a default in respect of a covenant or provision of the
Indenture that cannot be modified without the waiver or consent of all of
the holders of the outstanding Notes. (Indenture, Sections 5.11 and 5.12).
Until such time, if any, as Definitive Notes have been issued, the
Indenture Trustee will act only in accordance with the instructions of
Cede, as nominee for DTC. However, under the rules, DTC will act only in
accordance with the instructions of the DTC Participants to whom Notes are
credited, which will in turn act in accordance with the instructions of
persons holding beneficial interests in such Notes through such DTC
Participants. Accordingly, although only Cede will be entitled to vote
under the Indenture, Note Owners will be entitled to instruct DTC as to the
manner in which to vote.
No Noteholder will have the right to institute any proceeding with
respect to the Indenture, unless (i) such Noteholder previously has given
to the Indenture Trustee written notice of a continuing Event of Default,
(ii) the holders of not less than 25% of the aggregate principal amount of
the Notes outstanding have made written request of the Indenture Trustee to
institute such proceeding in its own name as Indenture Trustee, (iii) such
Noteholder or Noteholders have offered the Indenture Trustee reasonable
indemnity, (iv) the Indenture Trustee has for 60 days failed to institute
such proceeding and (v) no direction inconsistent with such written request
has been given to the Indenture Trustee during such 60-day period by the
holders of a majority of the aggregate principal amount of the Notes
outstanding. (Indenture, Section 5.6).
Neither the Indenture Trustee nor the Owner Trustee in their
respective individual capacities, nor any holder of a Certificate, nor any
of their respective owners, beneficiaries, agents, officers, directors,
employees, successors or assigns will, in the absence of an express
agreement to the contrary, be personally liable for the payment of interest
on or principal of the Notes or for the agreements of the Trust and the
Owner Trustee, in its capacity as trustee, contained in the Indenture.
Certain Covenants. The Trust will not, among other things, (i) except
as expressly permitted by the Indenture, the Transfer and Servicing
Agreements or certain related documents (collectively, the "Basic
Documents") sell, transfer, exchange or otherwise dispose of any of the
assets of the Trust, (ii) claim any credit on or make any deduction from
the principal or interest payable in respect of the Notes (other than
amounts withheld under the Code or applicable state law) or assert any
claim against any present or former holder of Notes because of the payment
of taxes levied or assessed upon the Trust, (iii) dissolve or liquidate in
whole or in part or (iv) permit (w) the validity or effectiveness of the
Indenture to be impaired, (x) any person to be released from any covenants
or obligations with respect to the Notes under the Indenture except as may
be expressly permitted thereby, (y) any lien, charge, excise, claim,
security interest, mortgage or other encumbrance to be created on or extend
to or otherwise arise upon or burden the assets of the Trust or any part
thereof, or any interest therein or the proceeds therefrom or (z) permit
the lien of the Indenture not to constitute a valid, first priority (other
than with respect to any such tax, mechanics or other lien) security
interest in the Trust Property. (Indenture, Section 3.8).
The Trust may not engage in any activities other than financing,
acquiring, owning, pledging and managing the Receivables as contemplated by
the Basic Documents and activities incidental thereto. (Indenture, Section
3.12).
The Trust will not incur, assume or guarantee any indebtedness other
than indebtedness incurred pursuant to the Notes, or otherwise in
accordance with the Basic Documents. (Indenture, Section 3.13).
The Trust will not make any payments to Certificateholders in respect
of their Certificates for any Collection Period unless the Accrued
Interest, the Principal Distribution Amount, the Total Servicing Fee and
the deposit, if any, required to be made to the Reserve Accounts has been
provided for.
The Trust will or will cause the Servicer to deliver to the Indenture
Trustee on or prior to each Payment Date the disbursement and payment
instructions as required pursuant to the Indenture. (Sale and Servicing
Agreement, Section 4.9).
Replacement of Indenture Trustee. Noteholders holding not less than a
majority of the aggregate principal amount of the outstanding Notes, voting
as a group, may remove the Indenture Trustee without cause by so notifying
the Indenture Trustee and the Trust, and following such removal may appoint
a successor Indenture Trustee. Any successor Indenture Trustee must at all
times satisfy the requirements of Section 310(a) of the Trust Indenture Act
of 1939, as amended, and must have a combined capital and surplus of at
least $50,000,000 and a long-term debt rating of investment grade by each
Rating Agency or otherwise acceptable to each Rating Agency. (Indenture,
Sections 6.8 and 6.11).
The Indenture Trustee may resign at any time by so notifying the
Trust and the Noteholders. The Trust will be required to remove the
Indenture Trustee if the Indenture Trustee (i) ceases to be eligible to
continue as the Indenture Trustee, (ii) is adjudged to be bankrupt or
insolvent, (iii) comes under the charge of a receiver or other public
officer, or (iv) otherwise becomes incapable of acting. Upon the
resignation or required removal of the Indenture Trustee, or the failure of
the Noteholders to appoint a successor Indenture Trustee following the
removal without cause of the Indenture Trustee, the Trust will be required
promptly to appoint a successor Indenture Trustee. (Indenture, Section
6.8).
Duties of Indenture Trustee. Except during the continuance of an
Event of Default, the Indenture Trustee (i) will perform such duties and
only such duties as are specifically set forth in the Indenture, (ii) may
in the absence of bad faith, rely, as to the truth of the statements and
the correctness of the opinions expressed therein, on certificates or
opinions furnished to the Indenture Trustee which conform to the
requirements of the Indenture, and (iii) will examine any such certificates
and opinions which are specifically required to be furnished to the
Indenture Trustee by the Indenture to determine whether or not they conform
to the requirements of the Indenture. Upon the continuance of an Event of
Default, the Indenture Trustee will be required to exercise the rights and
powers vested in it by the Indenture and use the same degree of care and
skill in the exercise thereof as a prudent person would exercise or use
under the circumstances in the conduct of such person's own affairs.
(Indenture, Section 6.1).
Compensation and Indemnity. The Trust will (i) pay to the Indenture
Trustee from time to time reasonable compensation for its services, (ii)
reimburse the Indenture Trustee for all expenses, advances and
disbursements reasonably incurred and (iii) indemnify the Indenture Trustee
for, and hold it harmless against, any and all losses, liability or expense
(including attorneys' fees) incurred by it in connection with the
performance of its duties. The Indenture Trustee will not be indemnified
against any loss, liability or expense incurred by it through its own
willful misconduct, negligence or bad faith, except that the Indenture
Trustee will not be liable (i) for any error of judgment made by it in good
faith unless it is proved that the Indenture Trustee was negligent in
ascertaining the pertinent facts, (ii) with respect to any action it takes
or omits to take in good faith in accordance with a direction received by
it from Noteholders in accordance with the terms of the Indenture, and
(iii) for interest on any money received by it except as the Indenture
Trustee and the Trust may agree in writing. The Indenture Trustee will not
be deemed to have knowledge of any Event of Default unless an officer of
the Indenture Trustee has actual knowledge thereof or has received written
notice thereof in accordance with the provisions of the Indenture.
(Indenture, Sections 6.1 and 6.7).
Access to Noteholder Lists. If Definitive Notes are issued in the
limited circumstances described herein and the Indenture Trustee is not the
registrar for the Notes, the Trust will furnish or cause to be furnished to
the Indenture Trustee a list of the names and addresses of the Noteholders
(i) as of each Record Date, within five days thereafter and (ii) as of not
more than 10 days prior to the time such list is furnished, within 30 days
after receipt by the Trust of a written request therefor. (Indenture,
Section 7.1).
Annual Compliance Statement. The Trust will be required to file
annually with the Indenture Trustee a written statement as to the
fulfillment of its obligations under the Indenture. (Indenture, Section
3.9).
Satisfaction and Discharge of Indenture. The Indenture will be
discharged with respect to the collateral securing the Notes upon the
delivery to the Indenture Trustee for cancellation of all the Notes or,
with certain limitations, including receipt of certain opinions with
respect to tax matters, upon deposit with the Indenture Trustee of funds
sufficient for the payment in full of all of the Notes (including interest
and any fees due and payable to the Owner Trustee or the Indenture
Trustee). (Indenture, Section 4.1).
Modification of Indenture. Without the consent of the Noteholders,
the Owner Trustee, on behalf of the Trust, and the Indenture Trustee, upon
request by the Trust, may execute a supplemental indenture for the purpose
of, among other things, adding to the covenants of the Trust, curing any
ambiguity, correcting or supplementing any provision which may be
inconsistent with any other provision or making any other provision with
respect to matters or questions arising under the Indenture which will not
be inconsistent with other provisions of the Indenture; provided that (x)
such action will not, (i) as evidenced by an opinion of counsel (which may
be internal counsel to the Seller or the Servicer (an "Opinion of
Counsel")), materially adversely affect the interests of any Noteholder and
(ii) as confirmed by each Rating Agency rating any class of Notes, cause
the then-current rating assigned to any class of Notes to be withdrawn,
reduced or qualified and (y) an Opinion of Counsel as to certain tax
matters is delivered. (Indenture, Section 9.1).
The Owner Trustee, on behalf of the Trust, and the Indenture Trustee,
upon request by the Trust, may also enter into supplemental indentures,
with the consent of not less than a majority of the aggregate principal
amount of the outstanding Notes, voting as a group, and with prior written
notice to each Rating Agency, for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of the
Indenture or of modifying in any manner the rights of Noteholders;
provided, that (x) such action will not, (i) as evidenced by an Opinion of
Counsel, materially adversely affect the interests of any Noteholder and
(ii) as confirmed by each Rating Agency rating any class of Notes, cause
the then-current rating assigned to any such class of Notes to be
withdrawn, reduced or qualified and (y) an Opinion of Counsel as to certain
tax matters is delivered. (Indenture, Section 9.1).
Without the consent of the holder of each outstanding Note affected
thereby, however, no supplemental indenture may (i) change the Final
Payment Date for any class of Notes or the due date of any installment of
principal of or interest on any Note or reduce the principal amount
thereof, the interest rate specified thereon or the redemption price with
respect thereto, change the provisions of the Indenture relating to the
application of collections on, or the proceeds of the sale of, the Trust
Property to payment of principal of or interest on the Notes, or change any
place of payment where, or the coin or currency in which, any Note or any
interest thereon is payable, (ii) impair the right to institute suit for
the enforcement of certain provisions of the Indenture regarding payment,
(iii) reduce the percentage of the aggregate outstanding principal amount
of the Notes the consent of the holders of which is required for any such
supplemental indenture or for any waiver of compliance with certain
provisions of the Indenture or of certain defaults thereunder and their
consequences as provided for in the Indenture, (iv) modify or alter the
provisions of the Indenture regarding the voting of Notes held by the
Trust, the Seller, the Servicer, an affiliate of any of them or any obligor
on the Notes, (v) reduce the percentage of the aggregate outstanding
principal amount of the Notes the consent of the holders of which is
required to direct the Indenture Trustee to sell or liquidate the Trust
Property if the proceeds of such sale would be insufficient to pay the
principal amount and accrued but unpaid interest on the Notes and the
Certificates, (vi) modify any provision of the Indenture specifying a
percentage of the aggregate principal amount of the Notes necessary to
amend the Indenture or the other Basic Documents except to increase any
percentage specified in the Indenture or to provide that certain additional
provisions of the Indenture or the Basic Documents cannot be modified or
waived without the consent of the holder of each outstanding Note affected
thereby, (vii) modify any provisions of the Indenture in such manner as to
affect the calculation of the amount of any payment of interest or
principal due on any Note on any Payment Date or to affect the rights of
the holders of Notes to the benefit of any provisions for the mandatory
redemption of the Notes contained in the Indenture or (viii) permit the
creation of any lien ranking prior to or on a parity with the lien of the
Indenture with respect to any of the Trust Property or, except as otherwise
permitted or contemplated in the Indenture, terminate the lien of the
Indenture on any such collateral or deprive the holder of any Note of the
security afforded by the lien of the Indenture. (Indenture, Section 9.2).
The Trust Agreement will require the Owner Trustee to give the
Certificateholders 30 days' written notice of any proposed supplemental
indenture if it materially adversely affects the Certificateholders or if
any Noteholders' consent is required and provides that the Owner Trustee
will not enter into such amendment unless Certificateholders holding a
majority of the Certificate Balance including, for this purpose,
Certificates held by the Seller or any affiliate of the Seller, consent in
writing. (Trust Agreement, Section 4.1).
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The Trust will purchase the Receivables, and the Servicer will
undertake to service the Receivables pursuant to the Sale and Servicing
Agreement. The Trust will be created and the Certificates will be issued
pursuant to the Trust Agreement. MBCC will undertake certain administrative
duties with respect to the Trust pursuant to the Administration Agreement
(together with the Sale and Servicing Agreement and the Trust Agreement,
the "Transfer and Servicing Agreements"). Forms of the Transfer and
Servicing Agreements have been filed as exhibits to the Registration
Statement of which this Prospectus forms a part. The following summary does
not purport to be complete and is subject to, and qualified in its entirety
by reference to, the provisions of the Transfer and Servicing Agreements.
SALE AND ASSIGNMENT OF THE RECEIVABLES
Prior to the time of issuance of the Notes, pursuant to the Purchase
Agreement MBCC will sell and assign to the Seller, without recourse, its
entire right, title and interest in, to and under the Receivables,
including its security interests in the Financed Vehicles. At the time of
issuance of the Notes, 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
attached to the Sale and Servicing Agreement. The Owner Trustee will,
concurrently with such sale and assignment, execute, authenticate and
deliver the Certificates. The net proceeds received from the sale of the
Notes will be applied to the purchase of the Receivables.
In the Purchase Agreement, MBCC will represent and warrant to the
Seller, and in the Sale and Servicing Agreement the Seller will represent
and warrant to the Owner Trustee, among other things, that (i) the
information provided in the schedule of Receivables is correct in all
material respects; (ii) MBCC shall have determined whether or not the
Obligor on each Receivable has obtained physical damage insurance (which
shall not be force-placed insurance) covering the Financed Vehicle in
accordance with its normal requirements; (iii) at the Closing Date, 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 threatened; (iv) at the Closing Date, each of the
Receivables is or will be secured by a perfected first priority 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
Notes, 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 Noteholders, the Trust, the Indenture Trustee,
the Certificateholders or the Owner Trustee will have against MBCC and the
Seller for breach of any of the foregoing representations and warranties
with respect to a Receivable will be to require MBCC and the Seller to
repurchase the Receivable. See "-Mandatory Repurchase of Receivables." The
Owner Trustee, the Indenture Trustee, the Trust and the Servicer will
covenant in the Sale and Servicing Agreement not to institute or join in
the institution of any bankruptcy, reorganization, arrangement, insolvency
or liquidation proceeding, or other similar proceeding against the Seller
for a period of one year and a day after any securities rated by a Rating
Agency were issued by the Seller or by a trust for which the Seller was the
depositor.
To assure uniform quality in servicing the Receivables and to reduce
administrative costs, the Trust will appoint the Servicer as initial
custodian of the Receivables. The Servicer, in its capacity as custodian,
will hold the Receivables and all documents and instruments relating
thereto (each, a "Receivable File"), either directly or through
subservicers, on behalf of the Trust. 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 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 Trust will be filed, and the Servicer's accounting records
and computer systems will be marked to reflect such sale and assignment.
See "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 interest of the Trust 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 Owner Trustee
or the Servicer of, such breach or failure, will be required to repurchase
the Receivable from the Trust, and MBCC will be required to repurchase such
Receivable from the Seller, for the Purchase Amount. The Purchase Amount
will be payable on the Payment Date immediately following such Collection
Period. The obligation of the Seller to repurchase a Receivable will not be
conditioned on performance by MBCC of its obligation to repurchase a
Receivable. The repurchase obligation will constitute the sole remedy
available to the Noteholders, the Trust, the Indenture Trustee, the
Certificateholders or the Owner Trustee against the Seller and MBCC for any
such uncured breach or failure.
The "Purchase Amount" means, with respect to a Payment Date and a
Receivable to be purchased or repurchased on such Payment Date by the
Seller or the Servicer, an amount equal to the sum of (a) the outstanding
principal balance of such Receivable as of the first day of the related
Collection Period and (b) an amount equal to the amount of accrued and
unpaid 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 such Receivable in the related Collection Period and in the case of
clauses (a) and (b), after giving effect to the receipt of monies collected
on such Receivable in such Collection Period.
SERVICING PROCEDURES
The Servicer will make reasonable efforts to collect all payments due
with respect to the Receivables in a manner consistent with the Sale and
Servicing Agreement and will exercise the degree of skill and care that the
Servicer exercises with respect to comparable motor vehicle and commercial
vehicle receivables owned and/or serviced by the Servicer for itself or
others.
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
substantially identical to those contained in the Sale and Servicing
Agreement and may contain such other provisions as are not inconsistent
with the terms of the Sale and Servicing 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 Trust and the Owner
Trustee for servicing and administering the Receivables in accordance with
the Sale and Servicing 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 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 motor vehicle and
commercial vehicle retail installment sale contracts and/or motor vehicle
and commercial vehicle loans, (iii) is legally qualified, and has the
capacity, to service the Receivables, (iv) has demonstrated the ability to
service a portfolio of motor vehicle and commercial vehicle retail
installment sale contracts and/or motor vehicle and 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 Sale and Servicing 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 Sale and
Servicing Agreement or the related subservicing agreement.
The Servicer will covenant in the Sale and Servicing Agreement that:
(i) 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 Sale and Servicing Agreement; (ii) the Servicer will
not (nor will it permit any subservicer to) impair in any material respect
the rights of the Trust, the Indenture Trustee, the Noteholders, the Owner
Trustee or the Certificateholders in the Receivables, or, subject to clause
(iii) below, otherwise amend or alter the terms thereof if, as a result of
such amendment or alteration, the interests of the Trust, the Noteholders,
the Indenture Trustee, the Owner Trustee, or the Certificateholders under
the Sale and Servicing Agreement would be materially adversely affected;
and (iii) the Servicer will not increase or decrease the number or amount
of scheduled 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 comparable
motor vehicle or commercial vehicle receivables that it services for itself
or others in accordance with its customary standards if the cumulative
extensions with respect to any Receivable shall not cause the term of any
such Receivable to extend beyond the Final Scheduled Maturity Date.
In the event of a breach by the Servicer of any covenant described
above that materially and adversely affects the interests of the Trust in a
Receivable, the Servicer, 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, will be required to purchase the Receivable from the Trust for the
Purchase Amount on the Payment Date immediately following such Collection
Period; provided, however, that with respect to a breach of the covenant
described in clause (iii) of the preceding paragraph, the Servicer will be
required to purchase the related Receivable from the Trust at the end of
the Collection Period in which such breach occurs. The purchase obligation
will constitute the sole remedy available to the Noteholders, the Trust,
the Indenture Trustee, the Owner Trustee, or the Certificateholders against
the Servicer for any such uncured breach, except with respect to certain
indemnities of the Servicer under the Sale and Servicing Agreement related
thereto.
The Sale and Servicing Agreement will also generally require the
Servicer to charge-off a Receivable in conformity with its normal practice
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 Sale and Servicing Agreement, to realize upon any
Receivable. Currently, MBCC charges off a Contract at the time that the
related Financed Vehicle has been repossessed and sold, and the proceeds of
sale of the Financed Vehicle are applied against the amount owing on the
Contract, or at such time as MBCC determines that it will not recover the
Financed Vehicle. The Servicer may sell the 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 sale will be deposited in the Collection Account at the
time and in the manner described above.
The Sale and Servicing Agreement will also require the Servicer to
make Advances for which the Servicer will be reimbursed in the manner
described under "Description of the Notes-Advances."
The Sale and Servicing Agreement will provide that the Servicer will
defend and indemnify the Trust, the Indenture Trustee, the Owner Trustee,
the Noteholders, the Certificateholders and the Seller 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
negligence, willful misfeasance or bad faith of the Servicer in the
performance of its duties (other than errors in judgment) or by reason of
reckless disregard of its obligations and duties, under any Basic Document
to which it is a party. The Servicer's obligations to indemnify the Trust,
the Indenture Trustee, the Owner Trustee, the Noteholders, the Seller 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.
SERVICING COMPENSATION
The Servicer will be entitled to receive the Servicing Fee for each
Collection Period, in an amount equal to the product of one-twelfth of the
Servicing Rate and the Pool Balance as of the first day of such Collection
Period. The "Servicing Rate" will equal [ ]% per annum. The Servicer will
also be entitled to receive, as additional servicing compensation, earnings
(net of losses and investment expenses) on amounts on deposit in the
Payahead Account and late payment fees and charges paid with respect to the
Receivables, which will be deposited in the Collection Account. The
Servicing Fee, together with any portion of the Servicing Fee that remains
unpaid from prior Payment Dates (the "Total Servicing Fee"), will be paid
out of Available Funds prior to distributions to Noteholders and
Certificateholders.
The Servicing Fee and the additional servicing compensation will
compensate the Servicer for performing the functions of a third party
servicer of Contracts and for administering the Receivables on behalf of
the Noteholders and the Certificateholders, including collecting payments,
accounting for collections, furnishing monthly and annual statements to the
Indenture Trustee and the Owner 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 further compensate the Servicer for certain taxes, accounting fees,
outside auditor fees, data processing costs, and other costs incurred by
the Servicer under the Sale and Servicing Agreement in connection with
administering and servicing the Receivables.
EVIDENCE AS TO COMPLIANCE
The Sale and Servicing Agreement will provide that a firm of
independent certified public accountants, who may provide audit and other
services to the Servicer, the Seller or MBCC, will furnish to the Indenture
Trustee and the Owner Trustee, on or before March 31 of each year,
beginning March 31, 2000, a report of examination as to compliance by the
Servicer during the 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 Sale and Servicing Agreement will also provide for delivery to
the Indenture Trustee and the Owner Trustee, on or before March 31 of each
year, beginning March 31, 1999, of a certificate signed by an officer of
the Servicer stating that to the best of such officer's knowledge the
Servicer has fulfilled its obligations under the Sale and Servicing
Agreement throughout the 12 months (or shorter 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.
Note Owners may obtain copies of such statements and certificates by
written request addressed to the Indenture Trustee.
CERTAIN MATTERS REGARDING THE SERVICER
The Sale and Servicing 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 duties is no
longer permissible under applicable law. No such resignation will become
effective until the Indenture Trustee or a successor servicer has assumed
the Servicer's servicing obligations and duties under the Sale and
Servicing Agreement and becomes the Administrator under the Administration
Agreement.
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 or other entity is an Eligible Servicer and
assumes the obligations of the Servicer under the Sale and Servicing
Agreement, will be the successor to the Servicer under the Sale and
Servicing Agreement.
INDEMNIFICATION AND LIMITS ON LIABILITY
The Sale and Servicing Agreement will provide that the Servicer will
be liable only to the extent of the obligations specifically undertaken by
it under the Sale and Servicing Agreement and will have no other
obligations or liabilities thereunder.
The Sale and Servicing 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 Sale and Servicing 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 Sale and Servicing Agreement and the rights and
duties of the parties thereto and the interests of the Noteholders and the
Certificateholders thereunder.
EVENTS OF SERVICING TERMINATION
The following events will constitute "Events of Servicing
Termination" under the Sale and Servicing Agreement: (i) any failure by the
Servicer to deliver to the Owner Trustee or the Indenture Trustee the
monthly certificate pursuant to the Sale and Servicing Agreement detailing
the collections and distributions for any 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 related Payment
Date), (ii) any failure by the Servicer to deliver to the Collection
Account or any other account, any required payment or deposit under the
Sale and Servicing Agreement, which failure continues unremedied for five
business days following the due date, (iii) any failure by the Servicer
duly to observe or perform in any material respect any other covenant or
agreement in the Notes, the Certificates or the Sale and Servicing
Agreement, which failure materially and adversely affects the rights of
Noteholders or Certificateholders and which continues unremedied for 30
days after written notice of such failure is given to the Servicer by the
Indenture Trustee or the Owner Trustee, as applicable, or to the Seller,
the Servicer, the Owner Trustee and the Indenture Trustee by the holders of
Notes evidencing not less than 25% in aggregate principal amount of the
outstanding Notes (voting as a group) or, if the Notes have been paid in
full, by the holders of Certificates evidencing not less than 25% of the
Certificate Balance, (iv) certain events of bankruptcy, receivership,
insolvency, readjustment of debt, marshalling of assets and liabilities, or
similar proceedings with respect to the Seller or the Servicer and certain
actions by the Seller or 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 holders of Notes evidencing not less than 51% of
the aggregate principal amount of the outstanding Notes (voting as a group)
(or, if all of the Notes have been paid in full and the Indenture has been
discharged in accordance with its terms, the holders of Certificates
evidencing not less than a majority of the Certificate Balance) may, on
behalf of all Noteholders and Certificateholders, waive any Event of
Servicing Termination except an event resulting from the failure to make
any required deposit to or payment from any account. No such waiver will
impair the rights of the Noteholders of the Certificateholders with respect
to subsequent defaults. For purposes of the foregoing, Notes or
Certificates owned by the Seller, the Servicer, or any affiliate of either
shall not be considered to be "outstanding."
The Indenture Trustee will have no obligation to notify Noteholders
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
Indenture Trustee or the holders of Notes evidencing not less than a
majority of the aggregate principal amount of the outstanding Notes (or, if
the Notes have been paid in full, the holders of Certificates evidencing
not less than a majority of the Certificate Balance) may terminate the
Servicer's rights and obligations under the Sale and Servicing Agreement,
whereupon the Indenture Trustee or a servicer appointed by the Indenture
Trustee will succeed to all the responsibilities, duties, and liabilities
of the Servicer under the Sale and Servicing Agreement. Thereafter, the
successor Servicer will be entitled to the compensation otherwise payable
to the Servicer and will be entitled to similar compensation arrangements.
In the event that the Indenture Trustee is unwilling or legally unable so
to act, the Indenture 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 Sale and Servicing 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
Sale and Servicing 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 Sale and Servicing Agreement.
AMENDMENT
The Transfer and Servicing Agreements may be amended by the parties
thereto without the consent of the Noteholders or the Certificateholders,
to cure any ambiguity, to correct or supplement any provision therein which
may be inconsistent with any other provision therein, and to add, change or
eliminate any other provision of the applicable Transfer and Servicing
Agreement which are not inconsistent with the provisions of such Transfer
and Servicing Agreement; provided that such action will not, as evidenced
by an Opinion of Counsel to the Indenture Trustee and the Owner Trustee,
materially and adversely affect the interest of any Noteholder or
Certificateholder or, with respect to the Trust Agreement, have certain
adverse tax consequences.
The Transfer and Servicing Agreements may also be amended by the
parties thereto (with, in the case of the Sale and Servicing Agreement,
consent of the Indenture Trustee and with, in the case of the
Administration Agreement, the Seller) with the consent of the holders of
Notes evidencing not less than 51% of the aggregate principal amount of
then outstanding Notes, voting as a group, and the holders of Certificates
evidencing not less than 51% of the Certificate Balance, for the purpose of
adding any provisions to or changing in any manner or eliminating any of
the provisions of the Transfer and Servicing Agreements or of modifying the
rights of Noteholders or 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 Note or Certificate, or change any Interest Rate or the Specified Class
A Reserve Balance or Specified Class B Reserve Balance, without the consent
of all adversely affected Noteholders or Certificateholders, (ii) reduce
the aforesaid percentage of the Notes and the Certificates which is
required to consent to any such amendment, without the consent of all
Noteholders or Certificateholders affected thereby, or (iii) adversely
affect the ratings of any class of Notes by the Rating Agencies without the
consent, respectively, of holders of Notes evidencing not less than 662/3%
of the aggregate principal amount of the then outstanding Notes of such
class. Additionally, with respect to an amendment of the Trust Agreement,
an Opinion of Counsel to the effect that such amendment will not have
certain adverse tax consequences shall be furnished to the Indenture
Trustee and the Owner Trustee. See "Description of the Notes-Book Entry
Registration."
TERMINATION
The obligations of the Seller, the Servicer, the Owner Trustee and
the Indenture Trustee pursuant to the Indenture and the Transfer and
Servicing Agreements will, except with respect to certain reporting
requirements, terminate upon the earliest of (i) the Payment Date next
succeeding the Servicer's purchase of the Receivables, as described below,
(ii) payment to Noteholders and Certificateholders of all amounts required
to be paid to them pursuant to the Transfer and Servicing Agreements and
(iii) the Payment Date next succeeding the month which is one year 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 Transfer and Servicing Agreements.
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
close of business on the last day of a Collection Period has declined to
10% or less of the Initial Pool Balance, to purchase from the Trust, on any
Payment Date occurring in a subsequent Collection Period, all remaining
Receivables in the Trust at a purchase price equal to the outstanding
principal amount of the Notes and the Certificates, in each case plus
accrued and unpaid interest thereon. The exercise of this right will effect
early retirement of the Notes and the Certificates.
The Indenture Trustee will give written notice of termination of the
Trust to each Noteholder of record. The final distribution to any
Noteholder will be made only upon surrender and cancellation of such
holder's Note (whether a Definitive Note or the one or more physical notes
representing the Notes) at the office or agency of the Indenture Trustee
specified in the notice of termination. Any funds remaining in the Trust,
after the Indenture Trustee has taken certain measures to locate a
Noteholder and such measures have failed, will be distributed to the Seller
or as otherwise provided in the Transfer and Servicing Agreements.
ADMINISTRATION AGREEMENT
MBCC, in its capacity as administrator (the "Administrator"), will
enter into an Administration Agreement (as amended and supplemented from
time to time, the "Administration Agreement") with the Trust and the
Indenture Trustee pursuant to which the Administrator will agree, to the
extent provided in the Administration Agreement, to provide the notices and
to perform other administrative obligations required by the Indenture. As
compensation for the performance of the Administrator's obligations under
the Administration Agreement and as reimbursement for its expenses relating
thereto, the Administrator will be entitled to a monthly administration
fee, which fee will be paid by the Servicer.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
RIGHTS IN THE RECEIVABLES
The Receivables are "chattel paper" as defined in the UCC. 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.
Pursuant to the Sale and Servicing Agreement, the Servicer will hold
the Receivables, either directly or through subservicers, as custodian for
the Indenture Trustee and the Trust 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 Indenture Trustee and the Trust 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 Sale and Servicing 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 sale contracts and retail loans such as
the Receivables evidence the credit sale of automobiles 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 security interests
in Vehicles 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 the Vehicle is
perfected by notation of the secured party's lien on the 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 Vehicle under the laws of the
jurisdiction in which the 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 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 will
warrant in the Purchase Agreement and the Sale and Servicing Agreement,
respectively, that, to the best of their knowledge, an enforceable first
priority perfected security interest exists for the benefit of the Seller
and the Trust, respectively, with respect to each Financed Vehicle and will
be required to repurchase the related Receivable in the event of an uncured
breach or failure to be true of such representation or warranty if the
interest 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
Indenture Trustee and the Noteholders 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 Sale and Servicing
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 or ownership
relating to the Financed Vehicles, either directly or through subservicers,
as custodian for the Indenture Trustee and the Trust following such sale
and assignment. The certificates of title or ownership 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.
See "Risk Factors-Certain Legal Aspects-The Receivables."
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 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 and may not be perfected in every
state. 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 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 Sale and Servicing 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 on
the Closing Date, such Receivables were secured by a valid, subsisting, and
enforceable first priority perfected security interest in the related
Financed Vehicle in favor of MBCC (subject to any statutory or other lien
arising by operation of law after the Closing Date which is prior to such
security interest) and, at such time as enforcement of such security
interest is sought, there shall exist a valid, subsisting, and enforceable
first priority perfected security interest in the Financed Vehicle for the
benefit of the Seller and the Trust, respectively (subject to any statutory
or other lien arising by operation of law after the Closing Date or any
rights of third parties arising after the Closing Date as a result of the
fraud or forgery of the 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 Sale
and Servicing 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, the Noteholders 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 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
Vehicle continues for four months after the Vehicle is moved to a new state
from the one in which it was initially registered and thereafter until the
Vehicle owner re-registers the Vehicle in the new state, but in any event
not beyond the surrender of the certificate. A majority of states require
surrender of a certificate of title to re-register a Vehicle and require
that notice of such surrender be given to each secured party noted on the
certificate of title. In those states, such as California, 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, such as Texas and
Florida, 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
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 Vehicle, re-registration could defeat perfection. In the
ordinary course of servicing retail installment sale contracts and retail
loans, MBCC takes steps to effect reperfection 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
Vehicle and liens for unpaid taxes take priority over a perfected security
interest in the Vehicle. The Code also grants priority to certain Federal
tax liens over the liens of a secured party. The laws of certain states and
Federal law permit the confiscation of Vehicles under certain circumstances
if used in unlawful activities, which may result in the loss of the secured
party's perfected security interest in the confiscated Vehicle. MBCC and
the Seller will warrant in the Purchase Agreement and the Sale and
Servicing Agreement, respectively, that, as of the Closing Date, to the
best of its knowledge, no such liens or rights of confiscation are pending.
In the event of a breach or failure to be true of such representation or
warranty which has a material and adverse effect on the interest of the
Trust in a Receivable, MBCC and the Seller, pursuant to the terms of the
Purchase Agreement and the Sale and Servicing 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, the Noteholders 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
sale contract, 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 Financed 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
Financed 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 or after 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 amount of the
obligation, accrued and unpaid interest, plus, in most cases, reasonable
expenses for repossessing, holding, and preparing the collateral for
disposition and arranging for its sale plus, in some 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 amount and cure any other defaults. 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 proceeds of resale 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 few 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 Vehicle.
Occasionally, after resale of a repossessed Vehicle and payment of
all expenses and indebtedness, there is a surplus of funds. In that case,
the UCC requires the secured party to remit the surplus to any other holder
of a lien with respect to the Vehicle or, if no such lienholder exists or
funds remain after paying such other lienholder, to the former owner of the
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 Act, the Fair Credit Reporting Act, the Fair Debt
Collection Practices Act, the Magnuson-Moss Warranty Act, the Federal
Reserve Board's Regulations AA, B, M and Z, and other similar acts, state
adaptations of the National Consumer Act and of the Uniform Consumer Credit
Code and state motor vehicle retail installment sale acts, retail
installment sales acts and other similar laws. Also, state laws impose
finance charge ceilings and other restrictions on consumer transactions and
require contract disclosures in addition to those required under Federal
law. These requirements impose specific statutory liabilities upon
creditors who fail to comply with their provisions. In some cases, this
liability could affect the ability of an assignee, such as the Trust, to
enforce consumer and commercial finance contracts such as the 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 holder of an obligation created in a consumer credit
transaction 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 Indenture Trustee and
the Trust, as holders of the Receivables, may 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 vehicle dealer licensing laws of most states, sellers of
vehicles are required to be licensed to sell such vehicles at retail sale
and to originate certain installment sales contracts or loans in connection
with such sales. In addition, with respect to used vehicles, the FTC's Rule
on Sale of Used Vehicles requires that all sellers of used vehicles
prepare, complete and display a "Buyer's Guide" which explains the warranty
coverage for such vehicles. Federal Odometer Regulations promulgated under
the Motor Vehicle Information and Cost Savings Act require that all sellers
of 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 sales contract against the
seller of such Vehicle or of a subsequent holder of the retail installment
sale 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 warrant in the Purchase Agreement and the
Sale and Servicing 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 Sale and
Servicing Agreement, respectively, to repurchase the Receivable unless the
breach were cured. This repurchase obligation will constitute the sole
remedy of the Trust, the Noteholders, and the Certificateholders, against
the Seller in respect of any such uncured breach. See "Description of the
Transfer and Servicing Agreements-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 Vehicle
and, as part of the rehabilitation plan, reduce the amount of the secured
indebtedness to the market value of such vehicle at the time of bankruptcy
(as determined by the court), leaving the party providing financing as a
general unsecured creditor for the remainder of the indebtedness. A
bankruptcy court may also reduce the monthly payments due under a contract
or change the rate of interest and time of repayment of the indebtedness.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain United States Federal income
tax considerations that apply to the acquisition, ownership and disposition
of Notes by a Note Owner that is an individual citizen or resident of the
United States, a corporation created or organized in or under the laws of
the United States or any political subdivision thereof or an estate or
trust the income of which is subject to United States Federal income
taxation regardless of its source (a "United States Holder") or by a Note
Owner that is, for United States Federal income tax purposes, a nonresident
alien individual, a foreign corporation or a nonresident alien fiduciary of
a foreign estate or trust (a "United States Alien Holder"). Although the
following summary does not purport to describe all of the tax
considerations that may be relevant to a prospective purchaser of Notes, in
the opinion of Morgan, Lewis & Bockius LLP ("Special Tax Counsel"), such
summary describes the material United States Federal income tax
consequences to a United States Holder or, as the case may be, a United
States Alien Holder. Opinions of tax counsel have no binding effect or
official status of any kind; no assurance can be given that the conclusions
set out below would be sustained by a court if challenged by the Internal
Revenue Service ("IRS"). This summary deals only with Notes that are held
as capital assets by United States Holders, or, as the case may be, United
States Alien Holders, and does not address tax considerations applicable to
(i) United States Holders that may be subject to special tax rules, such as
dealers or traders in securities or currencies, financial institutions,
life insurance companies, tax-exempt entities, United States Holders that
hold Notes as a hedge or that are hedged against currency risks or that
hold Notes as a part of a straddle, conversion transaction or other
arrangement involving more than one position or United States Holders whose
functional currency is not the United States dollar and (ii) United States
Alien Holders that may be subject to special tax rules, such as nonresident
alien individuals who have lost United States citizenship or who have
ceased to be treated as resident aliens, corporations that are treated as
foreign or domestic personal holding companies, controlled foreign
corporations or passive foreign investment companies or certain other
United States Alien Holders that are owned or controlled by persons subject
to United States Federal income tax.
The discussion below is based upon the provisions of the United
States Internal Revenue Code of 1986, as amended (the "Code"), and
regulations, rulings and judicial decisions thereunder as of the date
hereof; any such authority may be repealed, revoked or modified, perhaps
with retroactive effect, so as to result in Federal income tax consequences
different from those discussed below.
THE DISCUSSION SET OUT BELOW IS INTENDED ONLY AS A SUMMARY OF CERTAIN
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF AN INVESTMENT IN THE
NOTES. PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS
TO THE TAX CONSEQUENCES OF AN INVESTMENT IN THE NOTES, INCLUDING THE
APPLICATION TO THEIR PARTICULAR SITUATION OF THE TAX CONSIDERATIONS
DISCUSSED BELOW, AS WELL AS THE APPLICATION OF STATE, LOCAL OR FOREIGN TAX
LAWS. THE STATEMENTS OF UNITED STATES TAX LAW SET OUT BELOW ARE BASED ON
THE LAWS IN FORCE AND INTERPRETATIONS THEREOF AS OF THE DATE OF THIS
OFFERING MEMORANDUM, AND ARE SUBJECT TO ANY CHANGES OCCURRING AFTER THAT
DATE.
GENERAL
Tax Status of the Notes and the Trust. No definitive judicial or
administrative authority relating to the characterization of an instrument
as debt addresses instruments such as the Notes, and courts at times have
held that obligations purporting to be debt constituted equity of the
issuer for tax purposes. However, on the Closing Date, Special Tax Counsel
will deliver its opinion that for Federal income tax purposes under
existing law, and subject to customary assumptions and qualifications set
forth therein: (i) the Notes will be treated as debt, and (ii) the Trust
will not be classified as an association (or publicly traded partnership)
taxable as a corporation. The Seller, the Owner Trustee and the Indenture
Trustee have agreed, and the Note Owners will agree by their purchase of
Notes, to treat the Notes for Federal, state and local income and franchise
tax purposes as indebtedness of the Trust. If, contrary to the opinion of
Special Tax Counsel, the Trust were treated as a partnership and the Note
Owners were treated as owning equity interests therein, Note Owners would
generally be taxed on their pro-rata share of the Trust's income as
partners in a partnership. If the Trust were treated as an association
taxable as a corporation, (i) the Trust would be subject to tax on its
income at corporate tax rates and (ii) if the Note Owners were treated as
owning equity interests, the Note Owners would be taxed on distributions
from the trust as dividends to the extent of their share of the Trust's
earnings and profits and the Trust would not be entitled to an interest
deduction in determining its taxable income. Any corporate income tax would
reduce cash available to pay the Notes. The balance of the discussion
herein assumes that the Notes will properly be treated as debt for U.S.
Federal income tax purposes.
Stated Interest. Stated interest on the Notes will be taxable as
ordinary income for Federal income tax purposes when received or accrued in
accordance with a Note Owner's method of tax accounting.
Original Issue Discount. A Note will be treated as issued with
Original Issue Discount ("OID") if the excess of the Note's "stated
redemption price at maturity" over the issue price equals or exceeds a de
minimis amount equal to 1/4 of 1 percent of the Note's stated redemption
price at maturity multiplied by the number of complete years (based on the
anticipated weighted average life of a Note) to its maturity.
In general, OID, if any, will equal the difference between the stated
redemption price at maturity of a Note and its issue price. A holder of a
Note must include such OID in gross income as ordinary interest income as
it accrues under a method taking into account an economic accrual of the
discount. In general, OID must be included in income in advance of the
receipt of the cash representing that income. The amount of OID on a Note
will be considered to be zero if it is less than a de minimis amount
determined as described above.
The issue price of a Note will generally be the initial offering
price at which a substantial amount of the Notes are sold. The Trust
intends to treat the issue price as including, in addition, the amount paid
by the Note Owner for accrued interest that relates to a period prior to
the Closing Date. Under applicable Treasury regulations governing the
accrual of OID (the "OID Regulations"), the stated redemption price at
maturity is the sum of all payments on the Note other than any "qualified
stated interest" payments. Qualified stated interest is defined as any one
of a series of payments equal to the product of the outstanding principal
balance of the Note and a single fixed rate, or certain variable rates of
interest, that is unconditionally payable at least annually.
The holder of a Note issued with OID must include in gross income,
for all days during its taxable year on which it holds such Note, the sum
of the "daily portions" of such OID. Such daily portions are computed by
allocating to each day during a taxable year a pro rata portion of the OID
that accrued during the relevant accrual period. In the case of an
obligation the principal on which is subject to prepayment as a result of
prepayments on the underlying collateral (a "Prepayable Obligation"), such
as the Notes, OID is computed by taking into account the anticipated rate
of prepayments assumed in pricing the debt instrument (the "Prepayment
Assumption"). The Prepayment Assumption that will be used in determining
the rate of accrual of OID, premium and market discount, if any, is [ ]%
ABS. The amount of OID that will accrue during an accrual period (generally
the period between interest payments or compounding dates) is the excess
(if any) of the sum of (a) the present value of all payments remaining to
be made on the Note as of the close of the accrual period and (b) the
payments during the accrual period of amounts included in the stated
redemption price of the Note, over the "adjusted issue price" of the Note
at the beginning of the accrual period. An "accrual period" is the period
over which OID accrues, and may be of any length, provided that each
accrual period is no longer than one year and each scheduled payment of
interest or principal occurs on either the last day or the first day of an
accrual period. The Issuer intends to report OID on the basis of an accrual
period that corresponds to the interval between payment dates. The adjusted
issue price of a Note is the sum of its issue price plus prior accruals of
OID, reduced by the total payments made with respect to such Note in all
prior periods, other than qualified stated interest payments. The present
value of the remaining payments is determined on the basis of three
factors: (i) the original yield to maturity of the Note (determined on the
basis of compounding at the end of each accrual period and properly
adjusted for the length of the accrual period), (ii) events which have
occurred before the end of the accrual period and (iii) the assumption that
the remaining payments will be made in accordance with the original
Prepayment Assumption.
The effect of this method is to increase the portions of OID required
to be included in income by a Note Owner to take into account prepayments
on the Receivables at a rate that exceeds the Prepayment Assumption, and
to decrease (but not below zero for any period) the portions of OID
required to be included in income by a Note Owner to take into account
prepayments with respect to the Receivables at a rate that is slower than
the Prepayment Assumption. Although OID will be reported to Note Owners
based on the Prepayment Assumption, no representation is made to Note
Owners that Receivables will be prepaid at that rate or at any other rate.
A holder of a Note that acquires the Note for an amount that exceeds
its stated redemption price will not include any OID in gross income. A
subsequent holder of a Note which acquires the Notes for an amount that is
less than its stated redemption price will be required to include OID in
gross income, but such a holder who purchases such Note for an amount that
exceeds its adjusted issue price will be entitled (as will an initial
holder who pays more than a Note's issue price) to reduce the amount of OID
included in income in each period by the amount of OID multiplied by a
fraction, the numerator of which is the excess of (w) the purchaser's
adjusted basis in the Note immediately after purchase thereof over (x) the
adjusted issue price of the Note, and the denominator of which is the
excess of (y) all amounts remaining to be paid on the Note after the
purchase date, other than qualified stated interest, over (z) the adjusted
issue price of the Note.
Total Accrual Election. As an alternative to separately accruing
stated interest, OID, de minimis OID, market discount, de minimis market
discount, unstated interest, premium, and acquisition premium, a holder of
a Note may elect to include all income that accrues on the Note using the
constant yield method. If a Note Owner makes this election, income on a
Note will be calculated as though (i) the issue price of the Note were
equal to the Note Owner's adjusted basis in the Note immediately after its
acquisition by the Note Owner; (ii) the Note were issued on the Note
Owner's acquisition date; and (iii) none of the interest payments on the
Note were "qualified stated interest." A Note Owner may make such an
election for a Note that has premium or market discount, respectively, only
if the Note Owner makes, or has previously made, an election to amortize
bond premium or to include market discount in income currently. See
"-Market Discount" and "-Amortizable Bond Premium."
Market Discount. The Notes, whether or not issued with OID, will be
subject to the "market discount rules" of section 1276 of the Code. In
general, these rules provide that if the Note Owner purchases a Note at a
market discount (that is, a discount from its stated redemption price at
maturity or, if the Notes were issued with OID, its original issue price
plus any accrued OID that exceeds a de minimis amount specified in the
Code) and thereafter (a) recognizes gain upon a disposition, or (b)
receives payments of principal, the lesser of (i) such gain or principal
payment or (ii) the accrued market discount will be taxed as ordinary
interest income. Generally, the accrued market discount will be the total
market discount on the Note multiplied by a fraction, the numerator of
which is the number of days the Note Owner held the Note and the
denominator of which is the number of days from the date the Note Owner
acquired the Note until its maturity date. The Note Owner may elect,
however, to determine accrued market discount under the constant yield
method.
Limitations imposed by the Code which are intended to match
deductions with the taxation of income may defer deductions for interest on
indebtedness incurred or continued, or short-sale expenses incurred, to
purchase or carry a Note with accrued market discount. A Note Owner may
elect to include market discount in gross income as it accrues and, if the
Note Owner makes such an election, is exempt from this rule. Any such
election will 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. The adjusted basis of a Note subject to such election will be
increased to reflect market discount included in gross income, thereby
reducing any gain or increasing any loss on a sale or other taxable
disposition.
Amortizable Bond Premium. In general, if a Note Owner purchases a
Note at a premium (that is, an amount in excess of the amount payable upon
the maturity thereof), such Note Owner will be considered to have purchased
such Note with "amortizable bond premium" equal to the amount of such
excess. Such Note Owner may elect to amortize such bond premium as an
offset to interest income and not as a separate deduction item as it
accrues under a constant yield method over the remaining term of the Note.
Such Note Owner's tax basis in the Note will be reduced by the amount of
the amortized bond premium. Any such election shall apply to all debt
instruments (other than instruments the interest on which is excludible
from gross income) held by the Note Owner at the beginning of the first
taxable year for which the election applies or thereafter acquired and is
irrevocable without the consent of the IRS. Bond premium on a Note held by
a Note Owner who does not elect to amortize the premium will decrease the
gain or increase the loss otherwise recognized on the disposition of the
Note.
Disposition of Notes. A Note Owner's adjusted tax basis in a Note
will be its cost, increased by the amount of any OID, market discount and
gain previously included in income with respect to the Note, and reduced by
the amount of any payment on the Note that is not qualified stated interest
and the amount of bond premium previously amortized with respect to the
Note. A Note Owner will generally recognize gain or loss on the sale or
retirement of a Note equal to the difference between the amount realized on
the sale or retirement and the tax basis of the Note. Such gain or loss
will be capital gain or loss (except to the extent attributable to OID not
previously accrued, accrued but unpaid interest, or as described above
under "-Market Discount") and will be long-term capital gain or loss if the
Note was held for more than one year. In addition, if the Prepayable
Obligation rules apply, any OID that has not accrued at the time of the
payment in full of a Note will be treated as ordinary income.
WAIVERS AND AMENDMENTS
The Indenture permits the Note Owners to waive an Event of Default or
rescind an acceleration of the Notes in some circumstances upon a vote of
the requisite percentage of Note Owners. Any such waiver or rescission, or
any amendment of the terms of the Notes, could be treated for Federal
income tax purposes as a constructive exchange by a Note Owner of the Notes
for new Notes, upon which gain or loss would be recognized.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Indenture Trustee will be required to report annually to the IRS,
and to each Note Owner, the amount of interest paid on the Notes (and the
amount withheld for Federal income taxes, if any) for each calendar year,
except as to exempt recipients (generally, corporations, tax-exempt
organizations, qualified pension and profit-sharing trusts, individual
retirement accounts, or nonresident aliens who provide certification as to
their status). Each Note Owner (other than Note Owners who are not subject
to the reporting requirements) will be required to provide, under penalties
of perjury, a certificate containing the Note Owner's name, address,
correct Federal taxpayer identification number (which includes a social
security number) and a statement that the Note Owner is not subject to
backup withholding. Should a non-exempt Note Owner fail to provide the
required certification or should the IRS notify the Indenture Trustee or
the Issuer that the Note Owner has provided an incorrect Federal taxpayer
identification number or is otherwise subject to backup withholding, the
Indenture Trustee will be required to withhold (or cause to be withheld)
31% of the interest otherwise payable to the Note Owner, and remit the
withheld amounts to the IRS as a credit against the Note Owner's Federal
income tax liability.
TAX CONSEQUENCES TO FOREIGN INVESTORS
The following discussion assumes that income or gain with respect to
the Notes is not effectively connected with the conduct by the United
States Alien Holder of a trade or business in the United States.
WITHHOLDING TAX
Under present United States Federal income tax law and subject to the
discussion of backup withholding tax below:
(i) payments of principal, premium (if any) and interest (including
original issue discount) by the Trust or any of its paying agents (in its
capacity as such) to a United States Alien Holder will be exempt from
withholding of United States Federal income tax (such exemption, the
"Portfolio Interest Exemption"), provided that (i) such United States Alien
Holder does not own, actually or constructively, a "10 percent shareholder"
of the Trust or the Seller, is not a controlled foreign corporation related
to the Trust or the Seller through stock ownership and is not a bank
receiving interest described in Section 881(c)(3)(A) of the Code and (ii)
the statement described below has been provided by or with respect to the
beneficial owner; and
(ii) a United States Alien Holder of a Note will not be subject to
withholding of United States Federal income tax on any gain realized on the
sale or exchange of a Note.
Sections 871(h) and 881(c) of the Code require that, in order to
obtain the Portfolio Interest Exemption with respect to a Note, either the
beneficial owner of the Note, or a securities clearing organization, bank
or other financial institution that holds customers' securities in the
ordinary course of its trade or business ( a "financial institution") and
that holds the Note on behalf of such beneficial owner, file a statement
with the withholding agent to the effect that the beneficial owner of the
Note is not a United States person (within the meaning of Section
7701(a)(30) of the Code). Under current United States Treasury regulations,
which generally apply to payments on a Note on or before December 31, 1999,
the statement requirement of Sections 871(h) and 881(c) will be satisfied
if (i) the beneficial owner of a Note certifies on IRS Form W-8, under
penalties of perjury, that it is not a United States person and provides
its name and address and (ii) any financial institution holding the Note on
behalf of the beneficial owner files a statement with the withholding agent
to the effect that it has received such a statement from the beneficial
owner (and furnishes the withholding agent with a copy thereof). The Final
Regulations, which generally apply to payments on a Note after December 31,
1999, provide alternative methods for satisfying the certification
requirement described above.
ESTATE TAX
Under Section 2105(b) of the Code, a Note held by an individual who
is not a citizen or resident of the United States at the time of his death
will not be subject to United States Federal estate tax as a result of such
individual's death, provided that (i) the individual is not a "10 percent
shareholder" of the Trust or the Seller and (ii) at the time of such
individual's death, income with respect to such Note would not have been
effectively connected to the conduct by such individual of a trade or
business in the United States.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
Backup withholding tax will not apply to payments made by the Company
or a paying agent (in its capacity as such) on a Note if the certifications
required by Sections 871(h) and 881(c) are received, provided in each case
that the Company or such paying agent, as the case may be, does not have
actual knowledge (and, with respect to payments made after December 31,
1999, does not have reason to know) that the payee is a United States
person.
Payments of proceeds from the sale or exchange of a Note generally
will not be subject to information reporting or backup withholding tax if
they are made to or through a foreign office of a broker. However, if such
broker is a United States person, a controlled foreign corporation for
United States tax purposes, a foreign person 50 percent or more of whose
gross income is effectively connected with a United States trade or
business for a specified three-year period or, in the case of payments made
after December 31, 1999, a foreign partnership at least 50 percent of the
capital or profits interests in which are owned by United States persons or
that is engaged in the conduct of a United States trade or business,
information reporting will be required unless the broker has in its records
documentary evidence that the beneficial owner is not a United States
person and certain other conditions are met or the beneficial owner
otherwise establishes an exemption. Payments to or through the United
States office of a broker will be subject to backup withholding tax and
information reporting unless the holder certifies, under penalties of
perjury, that it is not a United States person or otherwise establishes an
exemption.
United States Alien Holders of Notes should consult their tax
advisors regarding the application of information reporting and backup
withholding tax in their particular situations, the availability of an
exemption therefrom, and the procedure for obtaining such an exemption, if
available. Any amounts withheld from a payment to a United States Alien
Holder under the backup withholding tax rules will be allowed as a credit
against such United States Alien Holder's United States Federal income tax
liability and may entitle such United States Alien Holder to a refund,
provided that the required information is furnished to the IRS.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the Code impose certain restrictions on (a) employee benefit
plans (as defined in Section 3(3) of ERISA), (b) plans described in Section
4975(e)(1) of the Code, including individual retirement accounts or Keogh
Plans, (c) any entities whose underlying assets include plan assets by
reason of a plan's investment in such entities (each of (a), (b) and (c) a
"Benefit Plan") and (d) persons who have certain specified relationships to
a Benefit Plan ("Parties-in-Interest" under ERISA and "Disqualified
Persons" under the Code). Moreover, 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), the general account of an insurance company
may be deemed to include assets of Benefit Plans investing in its general
account (e.g., through the purchase of an annuity contract), and the
insurance company might be treated as a Party-in-Interest with respect to a
Benefit Plan by virtue of such an investment. ERISA also imposes certain
duties on persons who are fiduciaries of Benefit Plans subject to ERISA and
prohibits certain transactions between a Benefit Plan and
Parties-in-Interest or Disqualified Persons with respect to such Benefit
Plan.
PLAN ASSET CONSIDERATIONS
Certain transactions involving the Trust might be deemed to
constitute prohibited transactions under ERISA and the Code if assets of
the Trust were deemed to be assets of a Benefit Plan. Under a regulation
issued by the United States Department of Labor (the "Plan Assets
Regulation"), the assets of the Trust would be treated as plan assets of a
Benefit Plan for purposes of ERISA and the Code only if the Benefit Plan
acquires an "Equity Interest" in the Trust and none of the exceptions
contained in the Plan Assets Regulation is applicable. An Equity Interest
is defined under the Plan Assets Regulation as an interest other than an
instrument which is treated as indebtedness under applicable local law and
which has no substantial equity features. The Seller believes that the
Notes should be treated as indebtedness without substantial equity features
for purposes of the Plan Assets Regulation. [In addition, it is intended
that the Trust be operated in such a manner that the Trust will not be
deemed, under the Plan Asset Regulation, to hold the assets of any Benefit
Plan that has an interest in a Certificate.]
However, without regard to whether the assets of the Trust were
deemed to be assets of any Benefit Plan, the acquisition or holding of
Notes could be viewed as an indirect extension of credit to holders of
Equity Interests, possibly giving rise to a prohibited transaction. In such
case, certain exemptions from the prohibited transaction rules could be
applicable depending on the type and circumstances of the Benefit Plan
fiduciary making the decision to acquire a Note. Included among these
exemptions are: Prohibited Transaction Class Exemption ("PTCE") 90-1,
regarding investments by insurance company pooled separate accounts; PTCE
91-38, regarding investments by bank collective investment funds; PTCE
84-14, regarding transactions effected by "qualified professional asset
managers"; PTCE 95-60, regarding investments by insurance company general
accounts; and PTCE 96-23, regarding investments effected by in-house asset
managers. A violation of the prohibited transaction rules may result in the
imposition of an excise tax and other liabilities under ERISA and the Code,
unless one or more statutory or administrative exemptions is available.
SPECIAL CONSIDERATIONS APPLICABLE TO INSURANCE COMPANY GENERAL ACCOUNTS
It should be noted that the Small Business Job Protection Act of 1996
added new Section 401(c) of ERISA relating to the status of the assets of
insurance company general accounts under ERISA and Section 4975 of the
Code. Pursuant to Section 401(c), the Department of Labor is required to
issue final regulations (the "General Account Regulations") with respect to
insurance policies issued on or before December 31, 1998 that are supported
by an insurer's general account. The General Account Regulations are to
provide guidance on which assets held by the insurer constitute "plan
assets" for purposes of the fiduciary responsibility provisions of ERISA
and Section 4975 of the Code. Section 401(c) also provides that, except in
the case of avoidance of the General Account Regulation and actions brought
by the Secretary of Labor relating to certain breaches of fiduciary duties
that also constitute breaches of state or Federal criminal law, until the
date that is 18 months after the General Account Regulations become final,
no person shall be subject to liability under the fiduciary responsibility
and prohibited transaction provisions of ERISA and Section 4975 of the Code
on the basis of a claim that the assets of the general account of an
insurance company constitute the assets of any plan. The plan asset status
of insurance company separate accounts is unaffected by new Section 401(c)
of ERISA, and separate account assets continue to be treated as the assets
of any plan invested in the separate account. Insurance companies should
consult with their counsel regarding the potential impact of Section 401(c)
on their purchase of Notes.
As of the date hereof, the Department of Labor has issued proposed
regulations under Section 401(c). It should be noted that if the General
Account Regulations are adopted substantially in the form in which
proposed, the General Account Regulations may not exempt the assets of
insurance company general accounts from treatment as "plan assets" of plans
holding policies issued after December 31, 1998. The proposed regulations
should not, however, adversely affect the applicability of PTCE 95-60 to
purchases of Notes.
GENERAL INVESTMENT CONSIDERATIONS
Prior to making an investment in the Notes, prospective Benefit Plan
investors should consult with their legal advisors concerning the impact of
ERISA and the Code and the potential consequences of such investment with
respect to their specific circumstances. Moreover, each Benefit Plan
fiduciary should take into account, among other considerations, whether the
fiduciary has the authority to make the investment; the composition of the
Benefit Plan's portfolio with respect to diversification by type of asset;
the Benefit Plan's funding objectives; the tax effects of the investment;
and whether under the general fiduciary standards of investment prudence
and diversification an investment in the Notes is appropriate for the
Benefit Plan, taking into account the overall investment policy of the
Benefit Plan and the composition of the Benefit Plan's investment
portfolio.
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 (collectively, the "Underwriters"),
and each of the Underwriters has severally agreed to purchase from the
Seller, the principal amount of the Notes set forth opposite its name
below:
Principal Amount Principal Amount Principal Amount
of Class A-1 of Class A-2 of Class A-3
UNDERWRITERS Notes Notes Notes
------------ ----- ----- -----
...................... $ $ $
......................
......................
......................
----------- ------------ ------------
Total............... $ $ $
=========== ============ ============
In the Underwriting Agreement, the Underwriters have agreed, subject
to the terms and conditions set forth therein, to purchase all the Notes
offered hereby if any of the Notes are purchased. In the event of a default
by any Underwriter, the Underwriting Agreement provides that, in certain
circumstances, purchase commitments of the non-defaulting Underwriters may
be increased or the Underwriting Agreement may be terminated.
The Seller has been advised that the Underwriters propose initially
to offer the Notes to the public at the public offering prices set forth on
the cover page hereof, and to certain dealers at such prices less a
concession not in excess of [ ]% of the principal amount of the Class A-1
Notes, [ ]% of the principal amount of the Class A-2 Notes and [ ]% of the
principal amount of the Class A-3 Notes. The Underwriters may allow and
such dealers may reallow a discount not in excess of [ ]% of the principal
amount of the Class A-1 Notes, [ ]% of the principal amount of the Class
A-2 Notes and [ ]% of the principal amount of the Class A-3 Notes on sales
to certain other dealers. After the initial public offering, the respective
public offering prices, concessions and discounts may be changed.
The Underwriters may engage in over-allotment transactions,
stabilizing transactions, syndicate covering transactions and penalty bids
with respect to the Notes in accordance with Regulation M under the
Exchange Act. Over-allotment transactions involve syndicate sales in excess
of the offering size creating a syndicate short position. Stabilizing
transactions permit bids to purchase the Notes so long as the stabilizing
bids do not exceed a specified maximum. Syndicate covering transactions
involve purchases of the Notes in the open market after the distribution
has been completed in order to cover syndicate short positions. Penalty
bids permit the Underwriters to reclaim a selling concession from a
syndicate member when the Notes originally sold by such syndicate member
are purchased in a syndicate covering transaction. Such over-allotment
transactions, stabilizing transactions, syndicate covering transactions and
penalty bids may cause prices of the Notes to be higher than they would
otherwise be in the absence of such transactions. Neither the Trust nor any
of the Underwriters represent that the Underwriters will engage in any such
transactions nor that such transactions, once commenced, will not be
discontinued without notice.
The closing of the sale of the Notes is conditioned on the issuance
of the Certificates.
The Indenture Trustee may, from time to time, invest the funds in the
Trust Accounts and the Reserve Accounts in Permitted Investments acquired
from the Underwriters.
In the ordinary course of business, the Underwriters and their
affiliates have engaged and may engage in investment banking and commercial
banking transactions with the Servicer and its affiliates.
MBCC and the Seller have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act or to
contribute to payments the Underwriters may be required to make in respect
thereof.
Upon receipt of a request by an investor who has received an
electronic Prospectus from an Underwriter, or a request by such investor's
representative, within the period during which there is an obligation to
deliver a Prospectus, the Seller or the Underwriters will promptly deliver,
or cause to be delivered, without charge, a paper copy of the Prospectus.
LEGAL OPINIONS
The validity of the Notes and certain Federal income tax matters will
be passed upon for the Seller by Morgan, Lewis & Bockius LLP, New York, New
York. The validity of the Notes 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.
INDEX OF PRINCIPAL TERMS
PAGE
ABS ........................................................................28
ABS Table...................................................................28
Accounts....................................................................42
Accrued Interest............................................................45
Administration Agreement....................................................60
Administrator...............................................................60
Advance.................................................................10, 48
Amount Financed.............................................................27
APR ........................................................................23
Available Funds.............................................................43
Balloon Receivables.........................................................24
Bankruptcy Code.............................................................13
Basic Documents.............................................................52
Benefit Plan................................................................70
Business Day.................................................................6
Cede.........................................................................5
Cedel....................................................................1, 39
Cedel Participants..........................................................39
Certificate Balance.........................................................45
Certificateholders........................................................6, 7
Certificates...........................................................1, 2, 4
Chrysler................................................................12, 36
Class A Noteholders..........................................................6
Class A Notes................................................................4
Class A Reserve Account......................................................8
Class A Reserve Initial Deposit..........................................8, 48
Class A-1 Final Payment Date.................................................7
Class A-1 Noteholders........................................................7
Class A-1 Notes...........................................................1, 4
Class A-1 Rate...............................................................6
Class A-2 Final Payment Date.................................................7
Class A-2 Noteholders........................................................7
Class A-2 Notes...........................................................1, 4
Class A-2 Rate...............................................................6
Class A-3 Final Payment Date.................................................7
Class A-3 Noteholders........................................................7
Class A-3 Notes...........................................................1, 4
Class A-3 Rate...............................................................6
Class B Certificateholders................................................6, 7
Class B Certificates......................................................1, 4
Class B Final Payment Date...................................................7
Class B Reserve Account......................................................8
Closing Date.................................................................5
Code........................................................................65
Collection Account...........................................................9
Collection Period............................................................5
Combination Agreement...................................................12, 36
Commercial Vehicle Contracts................................................17
Commercial Vehicle Dealers..................................................17
Commercial Vehicles.........................................................18
Commission...................................................................2
Contracts...................................................................17
Cooperative.................................................................39
Cutoff Date...............................................................2, 5
Daimler-Benz................................................................35
DaimlerChrysler AG......................................................12, 36
DBNA.....................................................................4, 35
Dealer Agreement............................................................17
Dealers.....................................................................17
Defaulted Receivable........................................................44
Definitive Notes............................................................40
Depositaries................................................................38
Depositary..................................................................38
Determination Date..........................................................43
Direct Participants.........................................................37
Disqualified Persons........................................................70
Distribution Account........................................................42
DTC .........................................................................2
DTC Participants............................................................37
Due Date....................................................................19
Eligible Bank...............................................................42
Eligible Deposit Account....................................................42
Eligible Servicer...........................................................56
Equity Interest.............................................................70
ERISA.......................................................................70
Euroclear...................................................................39
Euroclear Operator..........................................................39
Euroclear Participants...................................................1, 39
Events of Default...........................................................50
Events of Servicing Termination.............................................58
Exchange Act.................................................................2
Final Payment Dates..........................................................7
Final Scheduled Maturity Date................................................5
Financed Vehicles............................................................5
Freightliner.............................................................2, 18
FTC ........................................................................64
FTC Rule....................................................................64
Fully Amortizing Receivables................................................24
General Account Regulations.................................................70
Indenture....................................................................4
Indenture Trustee............................................................4
Indirect Participants.......................................................37
Initial Pool Balance.........................................................5
Insolvency Laws.............................................................13
Interest Carryover Shortfall................................................45
Interest Period.............................................................40
Interest Rates...........................................................6, 45
Issuer.......................................................................4
Liquidation Proceeds........................................................43
MBCC.........................................................................4
Mercedes-Benz Dealers.......................................................17
Monthly Accrued Interest....................................................45
Monthly Remittance Condition................................................49
Moody's.....................................................................11
Motor Vehicle Contracts.....................................................17
Motor Vehicles..............................................................17
NCO ........................................................................18
Note Owner...................................................................6
Note Pool Factor............................................................34
Noteholders..................................................................6
Notes........................................................................1
NTO ........................................................................18
Obligors.....................................................................5
OID ........................................................................66
OID Regulations.............................................................66
Opinion of Counsel..........................................................53
Owner Trustee................................................................4
Parties-in-Interest.........................................................70
Payahead Account............................................................42
Payaheads...................................................................42
Payment Date..............................................................2, 6
Permitted Investments.......................................................42
Plan Assets Regulation......................................................70
Pool Balance.............................................................5, 27
Portfolio Interest Exemption................................................68
Prepaid Receivable...........................................................7
Prepayable Obligation.......................................................66
Prepayment Assumption.......................................................66
Principal Balance...........................................................27
Principal Carryover Shortfall...............................................45
Principal Distribution Amount............................................7, 45
PTCE........................................................................70
Purchase Agreement...........................................................5
Purchase Amount.............................................................55
Purchased Receivable........................................................44
qualified stated interest...................................................66
Rating Agency...............................................................11
Receivable File.............................................................55
Receivables..................................................................2
Record Date..................................................................6
Recoveries..................................................................44
Reserve Accounts.............................................................8
Sale and Servicing Agreement.................................................5
Scheduled Principal.........................................................46
Securities Act...............................................................2
Seller.......................................................................1
Servicing Fee................................................................9
Servicing Guaranty Agreement................................................49
Servicing Rate...........................................................9, 57
Special Counsel.............................................................34
Special Tax Counsel.........................................................65
Specified Class A Reserve Balance........................................8, 48
Specified Class B Reserve Balance........................................8, 48
Terms and Conditions........................................................39
Total Required Payment......................................................46
Total Servicing Fee.........................................................57
Transfer and Servicing Agreements...........................................54
Trust.....................................................................1, 4
Trust Accounts..............................................................42
Trust Agreement..............................................................4
Trust Property...............................................................4
U.S. Person................................................................A-3
UCC .....................................................................5, 60
Underwriters................................................................71
Underwriting.................................................................2
Underwriting Agreement......................................................71
Vehicles....................................................................18
- -----------
ANNEX A
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered
Daimler-Benz Vehicle Owner Trust 1998-A Asset Backed Notes will be
available only in book-entry form. Investors in the Notes may hold such
Notes through any of DTC, Cedel, or Euroclear. The Notes will be tradeable
as home market instruments in both the European and U.S. domestic markets.
Initial settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Notes through
Cedel and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Notes directly
through DTC will be conducted according to the rules and procedures
applicable to U.S. corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Notes will be effected on a delivery-against-payment
basis through the respective Depositaries of Cedel and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Notes will be subject to
U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
Initial Settlement
All Notes will be held in book-entry form by DTC in the name of Cede
& Co. as nominee of DTC. Investors' interests in the Notes will be
represented through financial institutions acting on their behalf as direct
and indirect participants in DTC. As a result, Cedel and Euroclear will
hold positions on behalf of their participants through their respective
Depositaries, which in turn will hold such positions in accounts as DTC
Participants.
Investors electing to hold their Notes through DTC will follow the
settlement practices applicable to U.S. corporate debt obligations.
Investor securities custody accounts will be credited with their holdings
against payment in same-day funds on the settlement date.
Investors electing to hold their Notes through Cedel or Euroclear
accounts will follow the settlement procedures applicable to conventional
eurobonds, except that there will be no temporary global security and no
"lock-up" or restricted period. Notes will be credited to the securities
custody accounts on the settlement date against payment in the same-day
funds.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and
seller's accounts are located to ensure that settlement can be made on the
desired value date.
Trading between DTC Participants. Secondary market trading between
DTC Participants will be settled using the procedures applicable to U.S.
corporate debt obligations in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be
settled using the procedures applicable to conventional eurobonds in
same-day funds.
Trading between DTC seller and Cedel or Euroclear purchaser. When
Notes are to be transferred from the account of a DTC Participant to the
accounts of a Cedel Participant or a Euroclear Participant, the purchaser
will send instructions to Cedel or Euroclear through a Cedel Participant or
Euroclear Participant at least one business day prior to settlement. Cedel
or Euroclear, as the case may be, will instruct the respective Depositary
to receive the Notes against payment. Payment will include interest accrued
on the Notes from and including the last coupon payment date to and
excluding the settlement date, on the basis of a 360-day year consisting of
twelve 30-day months. Payment will then be made by the Depositary to the
DTC Participant's account against delivery of the Notes. After settlement
has been completed, the Notes will be credited to the respective clearing
system and by the clearing system, in accordance with its usual procedures,
to the Cedel Participant's or Euroclear Participant's account. The Notes
credit will appear the next day (European time) and the cash debit will be
back-valued to, and the interest on the Notes will accrue from, the value
date (which would be the preceding day when settlement occurred in New
York). If settlement is not completed on the intended value date (i.e., the
trade fails), the Cedel or Euroclear cash debit will be valued instead as
of the actual settlement date.
Cedel Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to
pre-position funds for settlement, either from cash on hand or existing
lines of credit, as they would for any settlement occurring within Cedel or
Euroclear. Under this approach, they may take on credit exposure to Cedel
or Euroclear until the Notes are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of
credit to them, Cedel Participants or Euroclear Participants can elect not
to pre-position funds and allow that credit line to be drawn upon the
finance settlement. Under this procedure, Cedel Participants or Euroclear
Participants purchasing Notes would incur overdraft charges for one day,
assuming they cleared the overdraft when the Notes were credited to their
accounts. However, interest on the Notes would accrue from the value date.
Therefore, in many cases the investment income on the Notes earned during
that one-day period may substantially reduce or offset the amount of such
overdraft charges, although this result will depend on each Cedel
Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours,
DTC Participants can employ their usual procedures for sending Notes to the
respective Depositary for the benefit of Cedel Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participants a cross-market transaction
will settle no differently than a trade between two DTC Participants.
Trading between Cedel or Euroclear seller and DTC purchaser. Due to
time zone differences in their favor, Cedel Participants and Euroclear
Participants may employ their customary procedures for transactions in
which Notes are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC Participant. The seller will
send instructions to Cedel or Euroclear through a Cedel Participant or
Euroclear Participant at least one business day prior to settlement. In
these cases, Cedel or Euroclear will instruct the respective Depositary, as
appropriate, to deliver the bonds to the DTC Participant's account against
payment. Payment will include interest accrued on the Notes from and
including the last coupon payment date to and excluding the settlement date
on the basis of a 360-day year consisting of twelve 30-day months. The
payment will then be reflected in the account of the Cedel Participant or
Euroclear Participant the following day, and receipt of the cash proceeds
in the Cedel Participant's or Euroclear Participant's account would be
back-valued to the value date (which would be the preceding day, when
settlement occurred in New York). Should the Cedel Participant or Euroclear
Participant have a line of credit with its respective clearing system and
elect to be in debt in anticipation of receipt of the sale proceeds in its
account, the back-valuation will extinguish any overdraft charges incurred
over that one-day period. If settlement is not completed on the intended
value date (i.e., the trade fails), receipt of the cash proceeds in the
Cedel Participant's or Euroclear Participant's account would instead be
valued as of the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase
Notes from DTC Participants for delivery to Cedel Participants or Euroclear
Participants should note that these trades would automatically fail on the
sale side unless affirmative action were taken. At least three techniques
should be readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedel or
Euroclear accounts) in accordance with the clearing system's
customary procedures;
(b) borrowing the Notes in the U.S. from a DTC Participant no later
than one day prior to settlement, which would give the Notes
sufficient time to be reflected in their Cedel or Euroclear account
in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the
trade so that the value date for the purchase from the DTC
Participant is at least one day prior to the value date for the sale
to the Cedel Participant or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Notes holding securities through Cedel or
Euroclear (or through DTC if the holder has an address outside the U.S.)
will be subject to the 30% U.S. withholding tax that generally applies to
payments of interest (including original issue discount) on registered debt
issued by U.S. Persons, unless (i) each clearing system, bank, or other
financial institution that holds customers' securities in the ordinary
course of its trade or business in the chain of intermediaries between such
beneficial owner and the U.S. entity required to withhold tax complies with
applicable certification requirements and (ii) such beneficial owner takes
one of the following steps to obtain an exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of Notes
that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign
Status). If the information shown on Form W-8 changes, a new Form W-8 must
be filed within 30 days of such change.
Exemption for non-U.S. Persons with effectively connected income
(Form 4224). A non-U.S. Person, including a non-U.S. corporation or bank
with a U.S. branch, for which the interest income is effectively connected
with its conduct of a trade or business in the United States, can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a
Trade or Business in the United States).
Exemption or reduced rate for non-U.S. persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are Note Owners residing in a
country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate (depending on the treaty terms) by filing
Form 1001 (Ownership, Exemption or Reduced Rate Certificate). If the treaty
provides only for a reduced rate, withholding tax will be imposed at that
rate unless the filer alternatively files Form W-8. Form 1001 may be filed
by the Note Owner or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's
Request for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Note Owner or, in
the case of a Form 1001 or a Form 4224 filer, his agent, files by
submitting the appropriate form to the person through whom it holds (the
clearing agency, in the case of persons holding directly on the books of
the clearing agency). Form W-8 and Form 1001 are effective for three
calendar years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership (including an entity treated as a
corporation or partnership) organized in or under the laws of the United
States or any state thereof or the District of Columbia (unless, in the
case of a partnership, Treasury regulations provide otherwise), (iii) an
estate the income of which is includible in gross income for United States
tax purposes, regardless of its source, or (iv) a trust if a U.S. court is
able to exercise primary supervision over the administration of such trust
and one or more U.S. persons has the authority to control all substantial
decisions of the trust. This summary does not deal with all aspects of U.S.
Federal income tax withholding that may be relevant to foreign holders of
the Notes. Investors are advised to consult their own tax advisors for
specific tax advice concerning their holding and disposing of the Notes.
Recent Treasury regulations could affect the procedures to be
followed by a non-U.S. Person in complying with the United States Federal
withholding, backup withholding, and information reporting rules. The
regulations are not currently effective but, if finalized in their current
form, would be effective for payments made after December 31, 1998.
Prospective investors are advised to consult their own tax advisors
regarding the effect, if any, of the regulations on the purchase, ownership
and disposition of the Notes.
========================================= ==================================
NO DEALER, SALESPERSON OR OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT $[ ]
BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE SELLER, THE SERVICER
OR ANY UNDERWRITER. THIS PROSPECTUS DAIMLER-BENZ
DOES NOT CONSTITUTE AN OFFER OR A Vehicle Owner Trust
SOLICITATION BY ANYONE IN ANY STATE IN 1998-A
WHICH SUCH OFFER OR SOLICITATION IS
NOT AUTHORIZED OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS $[ ]
NOT QUALIFIED TO DO SO OR TO ANYONE TO CLASS A-1
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER [ }% Asset Backed Notes
OR SOLICITATION. NEITHER THE DELIVERY $[ ]
OF THIS PROSPECTUS, NOR ANY SALE MADE CLASS A-2
HEREUNDER, SHALL, UNDER ANY [ }% Asset Backed Notes
CIRCUMSTANCES, CREATE ANY IMPLICATION $[ ]
THAT THERE HAS BEEN NO CHANGE IN THE CLASS A-3
AFFAIRS OF THE SELLER OR THE SERVICER [ }% Asset Backed Notes
SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED OR INCORPORATED
BY REFERENCE HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE. Daimler-Benz
Vehicle Receivables
----------- Corporation
Seller
TABLE OF CONTENTS
Page Mercedes-Benz
AVAILABLE INFORMATION............ 2 Credit Corporation
REPORTS TO NOTEHOLDERS........... 2 Servicer
PROSPECTUS SUMMARY............... 4
RECENT DEVELOPMENTS.............. 12
RISK FACTORS..................... 12
THE TRUST........................ 15 ------------------
THE TRUST PROPERTY............... 16
MBCC'S VEHICLE CONTRACT PORTFOLIO 17 PROSPECTUS
THE RECEIVABLES.................. 23 ------------------
POOL FACTORS AND OTHER
INFORMATION.................... 34
USE OF PROCEEDS.................. 34 $[ ]
THE SELLER....................... 34 MBCC
THE SERVICER..................... 35
DESCRIPTION OF THE NOTES......... 36 [ ] 1998
DESCRIPTION OF THE TRANSFER AND
SERVICING AGREEMENTS.......... 54
CERTAIN LEGAL ASPECTS OF THE
RECEIVABLES.................... 60
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES................... 65
ERISA CONSIDERATIONS............. 70
UNDERWRITING..................... 71
LEGAL OPINIONS................... 72
INDEX OF PRINCIPAL TERMS......... 73
ANNEX A.......................... A-1
-----------
UNTIL [ ] (90 DAYS AFTER THE DATE
OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE NOTES,
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.
UPON RECEIPT OF A REQUEST BY AN
INVESTOR, OR SUCH INVESTOR'S
REPRESENTATIVE, WITHIN THE PERIOD
DURING WHICH THERE IS A PROSPECTUS
DELIVERY OBLIGATION, THE SELLER OR THE
UNDERWRITERS WILL TRANSMIT OR CAUSE TO
BE TRANSMITTED PROMPTLY, WITHOUT
CHARGE AND IN ADDITION TO ANY SUCH
DELIVERY REQUIREMENTS, A PAPER COPY OF
THE PROSPECTUS OR A PROSPECTUS ENCODED
IN AN ELECTRONIC FORMAT.
======================================== ==================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Registration Fee ............................................. *
Printing and Engraving ....................................... *
Trustee's Fee................................................. *
Legal Fees and Expenses....................................... *
Blue Sky Fees and Expenses ................................... *
Accountant's Fees and Expenses ............................... *
Rating Agency Fees ........................................... *
Miscellaneous Fees and Expenses............................... *
-----------
Total Expenses ............................................. *
===========
- -----------------
* To be provided by amendment.
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 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 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,
and 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.
(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 -Certificate of Incorporation of the Seller
3.2 -Bylaws of the Seller
4.1 -Form of Amended and Restated Trust Agreement of the Trust between
the Seller and the Owner Trustee
4.2 -Form of Sale and Servicing Agreement among the Seller, the Servicer
and the Trust
4.3 -Form of Indenture between the Trust and the Indenture Trustee
4.4 -Form of Administration Agreement among the Trust, the Administrator
and the Indenture Trustee 4.5-Form of Note (contained in Exhibit 4.3)
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 MBCC and the Seller 23.1-Consent
of Morgan, Lewis & Bockius LLP (contained in Exhibit 5.1) 23.2-Consent
of Morgan, Lewis & Bockius LLP (contained in Exhibit 8.1)
24 -Powers of Attorney
24.1 -Board Resolutions of the Seller
25 -Form T-1 of Indenture Trustee
- -----------
* Incorporated by reference to Exhibit 3.1 of Registration Statement No.
[ ].
** Incorporated by reference to Exhibit 3.2 of Registration Statement No.
[ ].
*** Previously filed.
(b) Financial Statement Schedules
Not applicable.
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
Act and will be governed by the final adjudication of such issue.
(c) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this Registration Statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the
Registrant pursuant to Rule 424(b) (1) or (4) or 497(h) under the
Securities Act of 1933 shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(d) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on September 29, 1998.
DAIMLER-BENZ VEHICLE RECEIVABLES CORPORATION
By: /s/ Harvey S. Traison
__________________________
Harvey S. Traison
President
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints Harvey S. Traison and Timotheus
Pohl, and each of them, his true and lawful attorneys-in-fact and agents
with full power of substitution, for him and in his name, place and stead,
in any and all capacities, to sign any and all amendments, including
post-effective amendments to this Registration Statement and to file the
same, with all exhibits thereto, and all documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
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
Harvey S. Traison (principal executive September 29, 1998
officer)
/s/ David A. Klanica
---------------------- Director and Secretary September 29, 1998
David A. Klanica and Treasurer (principal
financial officer and
principal accounting
officer)
/s/ Klaus Jacobs
-------------------- Director September 29, 1998
Klaus Jacobs
/s/ Charles B. McKenna Director September 29, 1998
------------------------
Charles B. McKenna
INDEX TO EXHIBITS