As filed with the Securities and Exchange Commission on October 24, 1996
Registration No. 33-80813
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NATIONAL FINANCIAL AUTO FUNDING TRUST
(Originator of the Trusts Described Herein)
(Exact name of registrant as specified in its charter)
DELAWARE 9999
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD
INCORPORATION OR ORGANIZATION) INDUSTRIAL CLASSIFICATION
CODE NUMBER)
One Park Place
621 NW 53rd Street
Boca Raton, FL 33487
(407) 997-2747
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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GARY L. SHAPIRO
Co-Trustee
National Financial Auto Funding Trust
One Park Place
621 NW 53rd Street
Boca Raton, FL 33487
(407) 997-2747
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
THOMAS J. CASSIDY, ESQ.
Thacher Proffitt & Wood
2 World Trade Center
New York, New York 10048
(212) 912-7400
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Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of
this Registration Statement as determined by market conditions.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment pans, please check the following
box. |_|
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box.|X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_| ___________
If this Form is a post-effective amendment filed pursuant to Rule 462(b)
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. |_|
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement includes a base prospectus and two forms of
prospectus supplement, version I relating to an offering of Automobile
Receivables-Backed Certificates evidencing beneficial interests in a trust
consisting of automobile receivables and related assets and version II relating
to an offering of Automobile Receivables-Backed Notes issued by an owner trust
and the concurrent offering of Automobile Receivables-Backed Certificates
evidencing beneficial ownership of such trust, which Certificates are
subordinated to the related Notes. This Post-Effective Amendment No. 1 to the
Registration Statement does not contain revisions to the forms of prospectus
supplement and such forms of prospectus supplement have therefore been omitted
from this filing.
<PAGE>
PROSPECTUS
NATIONAL AUTO AUTOMOBILE RECEIVABLES TRUSTS
AUTOMOBILE RECEIVABLES-BACKED CERTIFICATES
AUTOMOBILE RECEIVABLES-BACKED NOTES
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NATIONAL FINANCIAL AUTO FUNDING TRUST
(Seller)
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The Automobile Receivables-Backed Certificates (the "Certificates") and
the Automobile Receivable-Backed Notes (the "Notes" and, collectively with the
Certificates, the "Securities") described herein may be sold from time to time
in one or more series, in amounts, at prices and on the terms to be determined
at the time of sale and to be set forth in a supplement to this Prospectus (a
"Prospectus Supplement"). Each series of Securities will include either one or
more classes of Certificates or, if Notes are issued as part of a series, one or
more classes of Notes and one or more classes of Certificates, as set forth in
the related Prospectus Supplement.
The Certificates and the Notes, if any, of any series of Securities
will be issued by a trust (a "Trust") to be formed with respect to such series
by National Financial Auto Funding Trust (the "Seller"), a wholly owned
subsidiary of National Auto Finance Company L.P. ("NAFCO"). The assets of each
Trust (the "Trust Property") will include a pool of retail installment sales
contracts (the "Receivables") purchased by NAFCO or Auto Credit Clearinghouse
L.P., a subsidiary of NAFCO (together with NAFCO, the "Originators"), from motor
vehicle dealers and secured by new and used automobiles, light trucks, vans or
minivans, certain monies paid or payable thereunder after the Cutoff Date set
forth in the related Prospectus Supplement (the "Cutoff Date"), an assignment of
the security interests in the vehicles financed thereby, rights to receive
proceeds from claims on certain insurance policies covering the vehicles or the
obligors on the Receivables, rights to enforce certain remedies against the
Originators in the event of a breach of a representation or warranty made by the
Originators regarding the Receivables, and certain other property, as more fully
described herein and in the related Prospectus Supplement. In addition, if so
specified in the related Prospectus Supplement, the Trust Property will include
monies on deposit in one or more trust accounts to be established with the
Trustee or the Indenture Trustee, which may include a Pre-Funding Account and/or
a Revolving Account, each of which would be used to purchase additional
Receivables (the "Subsequent Receivables") from the Seller from time to time
during the Pre-Funding Period or Revolving Period specified in the related
Prospectus Supplement.
Each Trust will be formed pursuant to either (i) a Pooling and
Servicing Agreement (the "Pooling and Servicing Agreement") to be entered into
among the Seller, NAFCO, in its individual capacity and as Servicer, and the
Trustee specified in the related Prospectus Supplement (the " Trustee") or (ii)
a Trust Agreement (the "Trust Agreement") to be entered into among the Seller,
the Trustee and certain other parties as specified in the related Prospectus
Supplement. If the Trust is formed pursuant to a Trust Agreement, a Sale and
Servicing Agreement (the "Sale and Servicing Agreement") will be entered into
among the Seller, NAFCO, in its individual capacity and as Servicer, the Trust
and the Backup Servicer (as defined herein). In either case, the Pooling and
Servicing Agreement or the Trust Agreement and the Sale and Servicing Agreement
are collectively referred to herein as the "Trust Documents." The Notes, if any,
of a series will be issued and secured pursuant to an Indenture (the
"Indenture") between the Trust and the Indenture Trustee specified in the
related Prospectus Supplement (the "Indenture Trustee").
(CONTINUED ON FOLLOWING PAGE)
FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE CONSIDERED
BY PROSPECTIVE PURCHASERS OF THE SECURITIES, SEE "RISK
FACTORS" AT PAGE 20 HEREIN AND AS MAY BE SET FORTH IN THE
RELATED PROSPECTUS SUPPLEMENT.
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THE CERTIFICATES REPRESENT INTERESTS IN AND THE NOTES REPRESENT OBLIGATIONS OF
THE RELATED TRUST AND DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF NAFCO,
THE SELLER OR ANY AFFILIATE OF EITHER.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
Retain this Prospectus for future reference. This Prospectus may not be
used to consummate sales of securities offered hereby unless accompanied by a
Prospectus Supplement.
THE DATE OF THIS PROSPECTUS IS OCTOBER 24, 1996.
<PAGE>
Each class of Securities of any series will represent the right to
receive a specified amount of payments of principal and/or interest on the
related Receivables in the manner described herein and in the related Prospectus
Supplement. The right of each class of Securities to receive payments may be
senior or subordinate to the rights of one or more of the other classes of such
series. A series may include two or more classes of Certificates or Notes which
differ as to the timing and priority of payment, interest rate or amount of
distributions in respect of principal or interest or both. A series may include
one or more classes of Certificates or Notes entitled to distributions in
respect of principal, with disproportionate, nominal or no interest
distributions, or to interest distributions, with disproportionate, nominal or
no distributions in respect of principal. Distributions on Certificates of any
series will be subordinated in priority to payments due on the related Notes, if
any, to the extent described herein and in the related Prospectus Supplement.
The Certificates will represent fractional undivided interests in the related
Trust.
Each class of Securities will represent the right to receive
distributions or payments in the amounts, at the rates, and on the dates set
forth in the related Prospectus Supplement. The rate of distributions in respect
of principal on Certificates and payment in respect of principal on Notes, if
any, of any class will depend on the priority of payment of such class and the
rate and timing of payments (including prepayments, liquidations and repurchases
of Receivables) on the related Receivables.
Unless the related Prospectus Supplement provides for physical delivery
of the Securities, the Certificates and the Notes, if any, of any series
initially will be represented by certificates and notes registered in the name
of Cede & Co., the nominee of The Depository Trust Company (" DTC"). The
interests of beneficial owners of the Securities will be represented by book
entries on the records of the participating members of DTC. Definitive
Securities will be available only under limited circumstances.
Certain capitalized terms used in this Prospectus are defined elsewhere
herein. A listing of the pages on which such terms are defined is found in the
"Index of Defined Terms" herein on page 89.
There currently is no secondary market for the Securities. There can be
no assurance that any such market will develop or, if it does develop, that it
will continue. The Securities will not be listed on any securities exchange.
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<PAGE>
AVAILABLE INFORMATION
The Seller, as originator of each Trust, has filed with the Securities
and Exchange Commission (the "Commission") a Registration Statement (together
with all amendments and exhibits thereto, referred to herein as the
"Registration Statement") under the Securities Act of 1933, as amended, with
respect to the Securities offered pursuant to this Prospectus. For further
information, reference is made to the Registration Statement which is available
for inspection without charge at the office of the Commission at 450 fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission at Seven World Trade Center, Suite 1300, New York, New York 10048 and
at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511, and copies of which may be obtained from the Commission at
prescribed rates.
REPORTS TO SECURITYHOLDERS
Unless and until Definitive Certificates or Definitive Notes are
issued, unaudited monthly and annual reports, containing information concerning
each Trust and prepared by the Servicer, will be sent on behalf of the Trust to
the Trustee for the Certificateholders, the Indenture Trustee for the
Noteholders and Cede & Co., as registered holder of the Certificates and the
Notes and the nominee of DTC. See "Certain Information Regarding the Securities
- -- Statements to Securityholders" and "--Book-Entry Registration."
Certificateholders and Noteholders are collectively referred to herein as the
"Securityholders." Certificate Owners or Note Owners may receive such reports,
upon written request, together with a certification that they are Certificate
Owners or Note Owners and payment of any expenses associated with the
distribution of such reports, from the Trustee, with respect to Certificate
Owners, or the Indenture Trustee, with respect to Note Owners, at the addresses
specified in the related Prospectus Supplement. Such reports will not constitute
financial statements prepared in accordance with generally accepted accounting
principles. Neither the Seller or NAFCO intends to send any of its financial
reports to Securityholders. The Servicer, on behalf of each Trust, will file
with the Commission periodic reports concerning each Trust to the extent
required under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the Commission thereunder. The Servicer,
on behalf of each Trust, will discontinue the filing of such periodic reports
with the Commission upon completion of the reporting period required by Rule
15d-1 of the Exchange Act.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Servicer on behalf of each Trust pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Prospectus and prior to the termination of the offering of the related
Securities shall be deemed to be incorporated by reference into this Prospectus
and the related Prospectus Supplement and to be a part hereof and thereof from
the respective dates of filing of such documents. Any statement contained in a
document all or any portion of which is deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus and the related Prospectus Supplement to the extent that a statement
contained herein or in any other subsequently filed document which also is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus or the
related Prospectus Supplement.
The Servicer will provide without charge to any person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the foregoing documents incorporated herein by reference (other
than certain exhibits to such documents). Requests for such copies should be
directed to Chief Financial Officer, National Auto Finance Company L.P., One
Park Place, Suite 200, 621 N.W. 53rd Street, Boca Raton, Florida 33487
(telephone (407) 997-2747).
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<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS AND BY REFERENCE TO
THE INFORMATION WITH RESPECT TO THE SECURITIES CONTAINED IN THE RELATED
PROSPECTUS SUPPLEMENT TO BE PREPARED AND DELIVERED IN CONNECTION WITH THE
OFFERING OF EACH SERIES OF SECURITIES. CERTAIN CAPITALIZED TERMS IN THIS
PROSPECTUS SUMMARY ARE DEFINED ELSEWHERE IN THIS PROSPECTUS AND IN THE RELATED
PROSPECTUS SUPPLEMENT. A LISTING OF THE PAGES ON WHICH SOME OF SUCH TERMS ARE
DEFINED IS FOUND IN THE "INDEX OF DEFINED TERMS."
Issuer................................. With respect to each series of
Securities, a trust (the "Trust") will
be formed by National Financial Auto
Funding Trust (the "Seller") pursuant
to either a Pooling and Servicing
Agreement among the Seller, National
Auto Finance Company L.P. ("NAFCO"), in
its individual capacity and as Servicer
(in such capacity referred to herein as
the " Servicer"), and the Trustee
specified in the related Prospectus
Supplement, or a Trust Agreement
between the Seller, the Trustee
specified in the related Prospectus
Supplement and certain other parties as
specified in the related Prospectus
Supplement.
Seller................................. National Financial Auto Funding Trust,
a wholly owned subsidiary of NAFCO. See
"The Seller."
Originators............................ NAFCO and Auto Credit Clearinghouse
L.P., a subsidiary of NAFCO.
Servicer............................... National Auto Finance Company, L.P. See
"NAFCO."
Trustee................................ The Trustee specified in the related
Prospectus Supplement (the "Trustee").
See "Description of the Purchase
Agreements and the Trust Documents--
The Trustee."
Backup Servicer........................ NAFCO may be terminated as Servicer
under certain circumstances, at which
time the Backup Servicer specified in
the related Prospectus Supplement (the
"Backup Servicer") will automatically
become the Servicer. See "Description
of the Purchase Agreements and the
Trust Documents--
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<PAGE>
Servicer Termination Events" and "--The
Backup Servicer."
Indenture Trustee...................... With respect to any Series of
Securities including one or more
classes of Notes, the Indenture Trustee
specified in the related Prospectus
Supplement (the " Indenture Trustee").
The Certificates....................... Each series of Securities will include
one or more classes of Certificates
which will be issued pursuant to the
related Trust Documents.
Certificates will be available for
purchase in the denominations specified
in the related Prospectus Supplement
and will be available in book-entry
form only unless otherwise provided in
the related Prospectus Supplement.
Holders of Certificates ("
Certificateholders") will be able to
receive Definitive Certificates only in
the limited circumstances described
herein or in the related Prospectus
Supplement. See "Certain Information
Regarding the Securities-- Book-Entry
Registration."
Other than as provided below with
respect to Strip Certificates, each
class of Certificates will have a
stated Certificate Balance (as defined
in the related Prospectus Supplement)
and will accrue interest on such
Certificate Balance at a specified rate
(with respect to each class of
Certificates, the "Pass-Through Rate").
Each class of Certificates may have a
different Pass- Through Rate, which may
be a fixed, variable or adjustable
Pass-Through Rate, or any combination
of the foregoing. The related
Prospectus Supplement will specify the
Pass-Through Rate for each class of
Certificates, or the initial
Pass-Through Rate and the method for
determining subsequent changes to the
Pass-Through Rate. In addition, a
series may include one or more classes
of Certificates ("Strip Certificates")
entitled to (i) distributions in
respect of principal with
disproportionate, nominal or
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<PAGE>
no interest distributions, or (ii)
interest distributions, with
disproportionate, nominal or no
distributions in respect of principal.
A series may include two or more
classes of Certificates which differ as
to timing of distributions, sequential
order, priority of payment, seniority,
allocation of loss, Pass- Through Rate
or amount of distributions in respect
of principal or interest, or as to
which distributions in respect of
principal or interest on any class may
or may not be made upon the occurrence
of specified events or on the basis of
collections from designated portions of
the Receivables Pool.
With respect to any series of
Securities including one or more
classes of Notes, distributions in
respect of the Certificates may be
subordinated in priority of payment to
payments on the Notes, to the extent
specified in the related Prospectus
Supplement.
If the Seller or Servicer exercises its
option to purchase the Receivables of a
Trust on the terms and conditions
described below under "Description of
the Purchase Agreements and the Trust
Documents--Termination,"
Certificateholders will receive an
amount in respect of the Certificates
as specified in the related Prospectus
Supplement. In addition, if the related
Prospectus Supplement provides that the
property of a Trust will include a
Pre-Funding Account or Revolving
Account , Certificateholders may
receive a distribution in respect of
principal on or immediately following
the end of the Pre-Funding Period or
Revolving Period, as applicable,
specified in the related Prospectus
Supplement in an amount and manner
specified in the related Prospectus
Supplement.
The Notes.............................. With respect to any series of
Securities including one or more
classes of Notes, such Notes will be
issued pursuant to an Indenture.
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<PAGE>
Notes will be available for purchase in
the denominations specified in the
related Prospectus Supplement and will
be available in book-entry form or, if
specified in the related Prospectus
Supplement, in definitive form. If
Notes are issued in book-entry form,
holders of Notes (" Noteholders") will
be able to receive Definitive Notes
only in the limited circumstances
described herein or in the related
Prospectus Supplement. See "Certain
Information Regarding the Securities--
Book-Entry Registration."
Other than as provided below with
respect to Strip Notes, each class of
Notes will have a stated principal
amount and will bear interest at a
specified rate or rates (with respect
to each class of Notes, the "Interest
Rate"). Each class of Notes may have a
different Interest Rate, which may be a
fixed, variable or adjustable Interest
Rate, or any combination of the
foregoing. The related Prospectus
Supplement will specify the Interest
Rate and the method for determining
subsequent changes to the Interest
Rate. In addition, a series may include
one or more classes of Notes ("Strip
Notes") entitled to (i) principal
payments with disproportionate, nominal
or no interest payments or (ii)
interest payments with
disproportionate, nominal or no
principal payments.
A series may include two or more
classes of Notes which differ as to the
timing and priority of payment,
seniority, allocations of loss,
Interest Rate or amount of payments of
principal or interest, or as to which
payments of principal or interest may
or may not be made upon the occurrence
of specified events or on the basis of
collections from designated portions of
the Receivables Pool. If the Seller or
the Servicer exercises its option to
purchase the Receivables of a Trust on
the terms and conditions described
below under "Description of the
Purchase Agreements and the Trust
Documents--Termination," the
outstanding Notes, if any, of such
series will be redeemed as set forth in
the related
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<PAGE>
Prospectus Supplement. In addition, if
the related Prospectus Supplement
provides that the property of a Trust
will include a PreFunding Account or
Revolving Account , the outstanding
Notes, if any, of such series will be
subject to partial redemption on or
immediately following the end of the
PreFunding Period or Revolving Period,
as applicable, in an amount and manner
specified in the related Prospectus
Supplement. In the event of such
partial redemption, the Noteholders may
be entitled to receive a prepayment
premium from the Trust, in the amount
and to the extent provided in the
related Prospectus Supplement.
Trust Property......................... Each Certificate will represent a
fractional undivided interest in, and
each Note, if any, will represent an
obligation of, the related Trust. The
assets of each Trust (the "Trust
Property") will include a pool (the
"Receivables Pool") of retail
installment sales contracts (the
"Receivables") purchased or to be
purchased from motor vehicle dealers
("Dealers") by the Originators and
secured by new and used automobiles,
light trucks, vans or minivans (the "
Financed Vehicles"), certain monies
paid or payable thereunder on or after
the Cutoff Date (as specified in the
related Prospectus Supplement), an
assignment of the security interests in
the Financed Vehicles and of the right
to receive proceeds from claims on
certain insurance policies covering the
Financed Vehicles or the Obligors, the
assignment of certain rights of the
Originators against the Dealers
originating such Receivables, the
Collection Account and certain other
trust accounts as may be established to
provide credit support or liquidity
with respect to the related Trust
assets or Securities, including in the
case of each such account all
investments therein, all income from
the investment of funds therein and all
proceeds thereof, and certain other
rights under the Trust Documents. In
addition, if so specified in the
related
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<PAGE>
Prospectus Supplement, the Trust
Property will include monies on deposit
in a Pre- Funding Account and/or
Revolving Account to be established
with the Indenture Trustee or the
Trustee, which will be used to purchase
Subsequent Receivables (as defined
below) from the Seller from time to
time during the Pre-Funding Period
and/or Revolving Period specified in
the related Prospectus Supplement, as
well as any Subsequent Receivables so
purchased. See "The Trusts."
The Receivables of each Trust will be
purchased by the Seller from the
Originators and/or one or more
special-purpose finance subsidiaries of
NAFCO (each of the Originators and any
such subsidiary, in its capacity as
transferor of Receivables to the
Seller, a "NAFCO Transferor") pursuant
to a purchase agreement (the " Purchase
Agreement") between the Seller and the
applicable NAFCO Transferor on or prior
to the date of issuance of the
Securities. If and to the extent
provided in the related Prospectus
Supplement, the Seller will be
obligated (subject only to the
availability thereof) to purchase from
one or more NAFCO Transferors and to
sell to the related Trust, and the
related Trust will be obligated to
purchase from the Seller (subject to
the satisfaction of certain conditions
described in the applicable Purchase
Agreement), additional Receivables (the
"Subsequent Receivables") from time to
time (as frequently as daily) during
the Pre- Funding Period specified in
the related Prospectus Supplement
having an aggregate principal balance
approximately equal to the amount on
deposit in the Pre-Funding Account (the
" Pre-Funded Amount") on such Closing
Date.
The Trust Property of each Trust will
also include an assignment of the
Seller's rights under the related
Purchase Agreement, including rights
against the applicable Originator upon
the occurrence of certain
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<PAGE>
breaches of representations and
warranties thereunder (a "Repurchase
Event"). See "Description of the
Purchase Agreements and Trust
Documents--Sale and Assignment of the
Receivables" and "--Servicing
Procedures."
Pre-Funding Account.................... If and to the extent specified in the
related Prospectus Supplement, a
portion of the net proceeds from the
offering of the Securities of a series
(such amount, the " Pre-Funded Amount")
may be deposited in a segregated
account (the "Pre-Funding Account")
with the Trustee or Indenture Trustee,
as the case may be, for the benefit of
the Securityholders. During the period
specified in the related Prospectus
Supplement (the " Pre-Funding Period")
the Pre-Funded Amount will be reduced
as it is used to purchase Subsequent
Receivables subject to the satisfaction
of certain conditions specified under
the related Trust Documents. The
maximum length of the Pre-Funding
Period will be specified in the related
Prospectus Supplement and will not
exceed one year. The Pre-Funded Amount
will be specified in the related
Prospectus Supplement and will not
exceed the lesser of (i) 25% of the
gross proceeds of the offering of the
related series of Securities and (ii)
the aggregate principal balance of
Subsequent Receivables that the Seller
anticipates it will be able to acquire
and convey to the Trust during the Pre-
Funding Period. Funds on deposit in the
Pre-Funding Account will be invested in
Eligible Investments pending release of
such funds to the Seller in connection
with the purchase of Subsequent
Receivables.
Prior to the conveyance of any
Subsequent Receivables to the Trust,
the Seller will be required to give
notice of the Subsequent Receivables to
be conveyed to the Trust to the
Trustee(s), the Rating Agencies and any
third-party credit enhancement
provider. Upon the satisfaction of the
conditions set forth in the Trust
Documents, including the receipt by the
Trustee and/or Indenture
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<PAGE>
Trustee, as applicable, of an executed
assignment, the Trustee and/or
Indenture Trustee, as applicable, will
release from the Pre-Funding Account
the necessary funds to purchase the
Subsequent Receivables to be conveyed
to the Trust on such date. In no event
will funds be released from the
PreFunding Account to purchase
Subsequent Receivables unless the
Rating Agencies rating the Securities
of such series confirm that the ratings
on the Securities of such series have
not been withdrawn or reduced as a
result of the conveyance of the
Subsequent Receivables to the Trustee.
Subsequent Receivables purchased with
funds released from the Pre-Funding
Account will have been originated in
accordance with the Originators'
general underwriting guidelines as in
effect from time to time and will not
be selected on the basis of any adverse
selection criteria.
If any Pre-Funded Amount remains on
deposit in the Pre-Funding Account at
the end of the Pre-Funding Period, such
amount, in the amounts and in the
manner specified in the related
Prospectus Supplement, will be used to
prepay some or all classes of the
Securities. In the event of such
prepayment, the Securityholders may be
entitled to receive a prepayment
premium in the amount and to the extent
provided in the related Prospectus
Supplement. Such a prepayment could
result in the Securityholders receiving
principal payments at a time when the
Securityholders are unable to reinvest
such payments in investments having a
yield and rating comparable to the
yield and rating on the Securities. See
"Risk Factors--Yield and Prepayment
Considerations.
Revolving Account...................... If the related Prospectus Supplement so
provides, there may be a period
commencing on the date of issuance of a
class or classes of Notes or
Certificates of a series and ending on
the date set forth in the related
Prospectus Supplement (the "Revolving
Period") during which no principal
payments
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<PAGE>
will be made to one or more classes of
Notes or Certificates of the related
series as are identified in such
Prospectus Supplement. All collections
of principal otherwise allocated to
such classes of Notes or Certificates
may be (i) utilized by the Trust during
the Revolving Period to acquire
additional Receivables that satisfy the
standards described under "Description
of the Purchase Agreements and the
Trust Documents -- Sale and Assignment
of the Receivables" herein and the
criteria set forth in the related
Prospectus Supplement, (ii) held in an
account and invested in Eligible
Investments for later distribution to
Securityholders, (iii) applied to those
Notes or Certificates, if any,
specified in the related Prospectus
Supplement as then are in amortization,
or (iv) otherwise applied as specified
in the related Prospectus Supplement.
An "Amortization Period" is the period
during which an amount of principal is
payable to holders of a series of
Securities that, during the Revolving
Period, were not entitled to such
payments. If so specified in the
related Prospectus Supplement, during
an Amortization Period all or a portion
of principal collections on the
Receivables may be applied as specified
above for a Revolving Period and, to
the extent not so applied, will be
distributed to the classes of Notes or
Certificates specified in the related
Prospectus Supplement as then being
entitled to payments of principal. In
addition, if so specified in the
related Prospectus Supplement, amounts
deposited in certain accounts for the
benefit of one or more classes of Notes
or Certificates may be released from
time to time or on a specified date and
applied as a payment of principal on
such classes of Notes or Certificates.
The related Prospectus Supplement will
set forth the circumstances which will
result in the commencement of an
Amortization Period.
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Each Trust that has a Revolving Period
may also issue to the Seller a
certificate evidencing an undivided
beneficial interest (the "Retained
Interest") in the Trust not represented
by the other Securities issued by such
Trust. As further described in the
related Prospectus Supplement, the
value of such Retained Interest will
fluctuate as the amount of Trust
Property fluctuates and the amount of
Notes and Certificates of the related
series of Securities outstanding is
reduced.
Credit Enhancement..................... If and to the extent specified in the
related Prospectus Supplement, credit
enhancement with respect to a Trust or
any class of Securities may include any
one or more of the following: a
financial guaranty insurance policy (a
"Policy") issued by an insurer
specified in the related Prospectus
Supplement (a "Security Insurer"),
subordination of one or more other
classes of Securities, a reserve
account, overcollateralization, letters
of credit, credit or liquidity
facilities, repurchase obligations,
third party payments or other support,
cash deposits or other arrangements. A
form of credit enhancement may have
certain limitations and exclusions from
coverage thereunder, which will be
described in the related Prospectus
Supplement. "Description of the
Purchase Agreements and the Trust
Documents--Credit Enhancement."
Servicer and OFSA...................... The Servicer will be directly obligated
to the Trustee for the servicing and
administering of the Receivables
pursuant to the Trust Documents. With
respect to each series of Securities,
compensation to the Servicer will
include a monthly fee (the "Servicing
Fee") that will be payable from the
related Trust to the Servicer on each
Distribution Date in an amount equal to
the product of one-twelfth of the per
annum rate specified in the related
Prospectus Supplement multiplied by the
aggregate principal balance of the
Receivables (the "Aggregate Principal
Balance") as of the first day of the
prior
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calendar month, plus any late fees and
other administrative fees and expenses
or similar charges collected with
respect to the Receivables during such
Monthly Period. The Servicer may, to
the extent provided in the Trust
Documents and with the prior written
consent of the Security Insurer, if
any, delegate any of its servicing
duties to one or more subservicers;
PROVIDED, HOWEVER, that notwithstanding
the delegation of its duties pursuant
to a subservicer arrangement, the
Servicer will not be relieved of its
obligations with respect to the
servicing of the Receivables. On or
before the Closing Date specified in
the related Prospectus Supplement, the
Servicer will enter into a Subservicing
Agreement (the "Subservicing
Agreement") with Omni Financial
Services of America, Inc., a wholly
owned subsidiary of World Omni
Financial Corp. ("OFSA"), pursuant to
which OFSA will subservice the
Receivables and maintain possession of
the Receivable Files in a custodial
capacity on behalf of the Trustee. It
is intended that OFSA will directly
service the Receivables and will
collect payments received on the
Receivables, engage in collection
efforts in respect of past due
Receivables and, where appropriate,
repossess and liquidate Financed
Vehicles securing defaulted
Receivables. Unless otherwise specified
in the related Prospectus Supplement,
none of the Servicer, the Security
Insurer or OFSA will have any
obligation to make advances of
delinquent payments of principal and
interest on the Receivables. None of
the Trustee, the Trust, the Indenture
Trustee, the Security Insurer or the
Securityholders will be party to the
Subservicing Agreement and none of them
will have any rights to enforce the
Subservicing Agreement other than as
such rights may be assigned to the
Trustee in the event it acts as Back-Up
Servicer or successor Servicer;
PROVIDED, HOWEVER, the Security
Insurer, if any, will have the right to
terminate any subservicing arrangement
in
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connection with a termination of the
Servicer.
Receivables............................ The Receivables forming part of the
Trust Property of each Trust were or
will have been originated by Dealers
and sold by the Dealers to the
Originators in the ordinary course of
business. The Receivables will
generally be prepayable at any time
without penalty to the purchaser or
co-purchasers of the Financed Vehicle
or other person or persons who are
obligated to make payments thereunder
(each, an "Obligor"). See "The
Receivables." Information with respect
to each Receivables Pool, including the
weighted average annual percentage rate
and the weighted average remaining
maturity, will be set forth in the
related Prospectus Supplement.
Collection Account and
Lockbox Account........................ With respect to each series of
Securities, the Servicer will establish
and maintain one or more separate
accounts (the "Collection Account") in
the name of the Trustee or, in the case
of any series including one or more
classes of Notes, in the name of the
Indenture Trustee for the benefit of
the Certificateholders and the
Noteholders, if any. All payments from
Obligors that are received by the
Servicer or any subservicer on behalf
of each Trust will be deposited in the
related Collection Account not later
than two Business Days after receipt
thereof or, if acceptable to the
applicable Rating Agencies, such other
time period as may be specified in the
related Prospectus Supplement. OFSA has
established and maintains a lockbox
account (the "Lockbox Account")
currently with Mellon Financial
Services, a subsidiary of Mellon Bank
(the "Lockbox Bank") to which payments
in respect of motor vehicle installment
debt obligations and lease obligations
serviced by OFSA are remitted. Obligors
will be notified to remit payments in
respect of the Receivables directly to
the Lockbox Account or, if acceptable
to the applicable Rating Agencies, such
other
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account or accounts as may be specified
in the related Prospectus Supplement.
The Lockbox Account will not be
segregated nor assigned or pledged to
the Trustee or the Indenture Trustee
and payments in respect of the
Receivables deposited to the Lockbox
Account will be commingled with
collections in respect of motor vehicle
installment debt obligations and lease
obligations serviced by OFSA. Neither
the Trustee nor the Servicer will have
any rights to withdraw or otherwise
direct disposition of funds on deposit
in the Lockbox Account. The Servicer
will be permitted to use any
alternative remittance schedule
acceptable to the Rating Agencies (as
defined below) and to the Security
Insurer, if any (unless the Security
Insurer shall be in continuing default
on its obligations under the Policy or
certain bankruptcy events shall have
occurred with respect to the Security
Insurer (an "Insurer Default")). See
"Description of the Purchase Agreements
and the Trust Documents--Collections."
Mandatory Purchases of Certain
Receivables........................... With respect to each series of
Securities, the Originator or
Originators will make certain
representations and warranties to the
Seller regarding the Receivables
conveyed to the Seller in the related
Purchase Agreement. The Seller will in
turn make representations and
warranties to the Trustee corresponding
to those made by the Originator
pursuant to the related Purchase
Agreement and will assign to the
Trustee the right to enforce the
representations and warranties made by
the Originator for the benefit of the
related Trust and the Security Insurer,
if any, and if such series of
Securities includes one or more classes
of Notes, the Trustee will assign its
right to enforce such representations
and warranties to the related Indenture
Trustee as collateral for the Notes.
The Trustee and the Indenture Trustee,
if any, as assignees of the obligations
of the Originator to the Seller under
the Purchase Agreement will be entitled
to require that the Originator
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repurchase any Receivable if the
interests of the Certificateholders,
the Noteholders, if any, the Security
Insurer, if any, or the related Trust
therein are materially and adversely
affected by a breach of any such
representation or warranty and such
breach is not cured within the period
specified in the related Prospectus
Supplement, if any such period is so
specified (a "Repurchase Event"). See
"Description of the Purchase Agreements
and the Trust Documents--Sale and
Assignment of the Receivables." No
assurance can be given that the Seller
or the applicable Originator will at
any time have sufficient funds to
satisfy any such repurchase
requirement. Mandatory repurchase by
the Seller or the Originator of the
Receivables will reduce the average
life of the Securities and could result
in the Securityholders receiving
unexpected principal payments at a time
when such Securityholders are unable to
reinvest such payments in investments
having a yield and rating comparable to
the yield and rating on the Securities.
See "Risk Factors--Yield and Prepayment
Considerations."
Optional Purchase of Receivables....... With respect to each series of
Securities, the Seller or the Servicer
may purchase all the Receivables held
by the related Trust on any
Distribution Date following the first
Monthly Period as of which the
Aggregate Principal Balance has
declined to 10% or less (or such other
percentage as may be specified in the
related Prospectus Supplement) of the
Cutoff Date Principal Balance, subject
to certain provisions in the related
Trust Documents. Such right may be
exercised only with the prior written
consent of the Security Insurer, if
any, if such retransfer would result in
a claim under any Policy or would
result in any amount owing to the
Security Insurer, if any, or the
Securityholders remaining unpaid. See
"Description of the Purchase Agreements
and the Trust Documents--Termination."
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<PAGE>
Tax Status............................. The anticipated federal income tax
consequences of the purchase, ownership
and disposition of Securities issued by
a Trust will be discussed in the
related Prospectus Supplement. See
"Certain Federal Income Tax
Consequences" herein and in the related
Prospectus Supplement.
ERISA Considerations................... Subject to the considerations discussed
under "ERISA Considerations" herein and
in the related Prospectus Supplement,
the Notes may be eligible for purchase
by employee benefit plans. The related
Prospectus Supplement will provide
further information with respect to the
eligibility of a class of Certificates
for purchase by employee benefit plans.
See "ERISA Considerations" herein and
in the related Prospectus Supplement.
Rating................................. As a condition of issuance, the
Securities of each series will be rated
in one of the four highest rating
categories by at least one nationally
recognized rating agency (a "Rating
Agency"). A security rating is not a
recommendation to buy, sell or hold
securities and there is no assurance
that the ratings initially assigned to
such Securities will not be
subsequently lowered or withdrawn by
the Rating Agencies. In the event the
rating initially assigned to any
Securities is subsequently lowered for
any reason, no person or entity will be
obligated to provide any credit
enhancement in addition to the credit
enhancement, if any, specified in the
related Prospectus Supplement. Any
rating assigned to the Securities by a
Rating Agency will reflect its
assessment solely of the likelihood
that holders of the Securities will
receive payment of the principal
thereof and interest thereon. Such
rating will not constitute an
assessment of the likelihood that
principal prepayments on the
Receivables underlying the Securities
will be made by the obligors thereon or
of the degree to which the rate of such
prepayments might differ from that
originally anticipated.
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<PAGE>
Registration of Certificates........... Unless the related Prospectus
Supplement provides for physical
delivery of the Securities, the
Certificates and the Notes, if any, of
each series will be registered in the
name of Cede & Co., as the nominee of
DTC, and will be available for purchase
only in book-entry form on the records
of DTC and participating members
thereof. Certificates and Notes will be
issued in definitive form only under
the limited circumstances described
herein. All references herein to
"Holders" or "Certificateholders" or
"Noteholders" shall reflect the rights
of beneficial owners of Certificates
(the "Certificate Owners") or of Notes
("Note Owners"), as the case may be, as
they may indirectly exercise such
rights through DTC and participating
members thereof, except as otherwise
specified herein or in the related
Prospectus Supplement. See "Description
of the Purchase Agreements and the
Trust Documents--Book-Entry
Registration."
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RISK FACTORS
CERTAIN LEGAL ASPECTS
With respect to each series of Securities, the transfer of the
Receivables to the related Trust will be subject to the requirements of the
Uniform Commercial Code (the "UCC") as in effect in the states of Florida and
Delaware. The Seller will take or cause to be taken such action as is required
to perfect the Trust's rights in the Receivables. OFSA or such other subservicer
as is specified in the related Prospectus Supplement will hold the Receivable
Files on behalf of each Trust under a custodial agreement entered into with
NAFCO and assigned to the Trust or entered into directly with the Trust. If,
however, through inadvertence or otherwise, any of the Receivables were sold to
another party (or a security interest therein were granted to another party)
that purchased (or took such security interest in) any of such Receivables in
the ordinary course of its business and took possession of such Receivables, the
purchaser (or secured party) would acquire an interest in the Receivables
superior to the interest of the related Trust if the purchaser (or secured
party) acquired (or took a security interest in) the Receivables for new value
and without actual knowledge of such Trust's interest.
Due to the administrative burden and expense, the certificates of title
for the Financed Vehicles will not be amended to reflect the assignment of the
security interests in the Financed Vehicles by the Originator to the Seller, or
by the Seller to the Trustee. In the absence of such an amendment, the Trustee
may not have a perfected security interest in the Financed Vehicles. Moreover,
statutory liens for repairs or unpaid taxes may have priority even over
perfected security interests in the Financed Vehicles. See "Description of the
Purchase Agreements and the Trust Documents -- Sale and Assignment of the
Receivables" and "Certain Legal Aspects of the Receivables."
INSOLVENCY RISKS
Each NAFCO Transferor intends that any transfer of Receivables to the
Seller will constitute a sale, rather than a pledge of the Receivables to secure
indebtedness of the NAFCO Transferor. However, if the NAFCO Transferor were to
become a debtor under the federal bankruptcy code or similar applicable state
laws (collectively, "Insolvency Laws"), a creditor or trustee in bankruptcy of
the NAFCO Transferor or the NAFCO Transferor as debtor-inpossession might argue
that such sale of Receivables by the NAFCO Transferor was a pledge of the
Receivables rather than a sale. This position, if presented to or accepted by a
court, could cause, among other things, the related Trust to experience a delay
in or reduction of collections on the Receivables.
In addition, if NAFCO were to become a debtor under any Insolvency Law,
a creditor or trustee in bankruptcy of NAFCO or NAFCO as debtor-in-possession
might argue that the assets and liabilities of the Seller should be consolidated
with the assets and liabilities of NAFCO. The Seller has taken and will take
steps in structuring the transactions contemplated hereby and by the related
Prospectus Supplement that are intended to make it unlikely that any such
attempt to consolidate the Seller and NAFCO would succeed. See "The Seller." In
addition, the Seller intends that any transfer of Receivables to a Trust will
constitute a sale, rather than a pledge of the Receivables to secure
indebtedness of the Seller. No assurance can be given, however, that such a
consolidation will not occur. If a bankruptcy trustee for NAFCO or a creditor of
NAFCO were to take the view that NAFCO and the Seller or the Trust should be
substantively consolidated or if a filing is made by or against the Seller under
any applicable
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<PAGE>
bankruptcy or insolvency laws, then delays in payments on the Securities or
reductions in such payments could result.
A case decided by the United States Court of Appeals for the Tenth
Circuit contains language to the effect that accounts sold by an entity that
subsequently became bankrupt remained property of the debtor's bankruptcy
estate. Although the Receivables constitute chattel paper rather than accounts
under the UCC, sales of chattel paper, like sales of accounts, are governed by
Article 9 of the UCC. If the NAFCO Transferor were to become a debtor under any
Insolvency Law and a court were to follow the reasoning of the Tenth Circuit
Court of Appeals and apply such reasoning to chattel paper, a Trust could
experience a delay in or reduction of collections on the Receivables.
NATURE OF OBLIGORS
The obligors under the Receivables (the "Obligors") generally have
marginal credit and fall into one of two categories: (1) customers with moderate
income, limited assets and other income characteristics which cause difficulty
in borrowing from banks, captive finance companies of auto manufacturers or
other traditional sources of auto loan financing and (2) customers with poor
credit records that may include a history of irregular employment, previous
bankruptcy filings, voluntary repossessions of property or prior defaults in the
repayment of personal debt obligations. Because of the greater credit risk
associated with non-prime motor vehicle retail installment contracts, NAFCO
expects to sustain a higher level of delinquencies and credit losses than that
experienced by auto financing sources that finance motor vehicle purchasers with
lower credit-risk profiles. In addition, the payment experience of Obligors with
marginal credit is likely to be more sensitive to changes in the economic
climate in the areas in which such Obligors reside. In the event of a default
under a Receivable, the only source of payment on such Receivable may be
liquidation proceeds form the related Financed Vehicle.
SUBORDINATION
To the extent specified in the related Prospectus Supplement,
distributions of interest and principal on some or all classes of Certificates
of such series may be subordinated in priority of payment to interest and
principal due on the Notes (if any) of such series and/or to distributions of
interest and principal on other classes of Certificates of such series.
Accordingly, the yield on such subordinated classes of Securities will be more
sensitive to losses on the Receivables than classes of Securities that are prior
in right of distribution to such subordinated classes.
LIMITED ASSETS
No Trust will have any significant assets or sources of funds other
than the Receivables and, to the extent provided in the related Prospectus
Supplement, a Pre-Funding Account, a Revolving Account and any credit
enhancement specified in the related Prospectus Supplement. The Notes, if any,
of any series will represent obligations solely of, and the Certificates of such
series will represent interests solely in, the related Trust, and neither the
Notes nor the Certificates of any such series will be insured or guaranteed by
the Seller, the Servicer, the applicable Trustee, the applicable Indenture
Trustee, if any, or, except as specified in the related Prospectus Supplement,
any other person or entity. Consequently, holders of the Securities of any
series must rely for payment upon payments on the related Receivables and, if
and to the
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extent available, amounts on deposit in the Pre-Funding Account and/or Revolving
Account, if any, and any credit enhancement, if any, as specified in the related
Prospectus Supplement.
YIELD AND PREPAYMENT CONSIDERATIONS
The weighted average life of the Securities will be reduced by full or
partial prepayments on the Receivables. The Receivables will generally be
prepayable at any time without penalty. Prepayments (or, for this purpose,
equivalent payments to the related Trust) may result from payments by Obligors,
liquidations due to default, the receipt of proceeds from physical damage or
credit insurance, repurchases by the Originators as a result of certain uncured
breaches of the warranties made by it with respect to the Receivables ("Warranty
Receivables"), purchases by the Servicer as a result of certain uncured breaches
of the covenants made by it with respect to the Receivables ("Administrative
Receivables") in the related Agreement, or either of the Seller or the Servicer
exercising its option to purchase all of the remaining Receivables.
The amounts paid to Securityholders in respect of principal on any
Distribution Date or Payment Date will generally include all or a portion of the
prepayments on the Receivables during the corresponding Monthly Periods. The
Certificateholders and the Noteholders will bear all reinvestment risk resulting
from the timing of payments of principal on the Securities.
LIMITED LIQUIDITY
There is currently no market for the Securities of any series. There
can be no assurance that any such market will develop or, if it does develop,
that it will provide Securityholders with liquidity of investment or will
continue for the life of the Securities. The Securities will not be listed on
any securities exchange.
Unless otherwise specified in the related Prospectus Supplement, the
Securities will be issued in book-entry, rather than physical, form and, as a
result, in certain circumstances the liquidity of the Securities in the
secondary market and the ability of the Certificate Owners and Note Owners to
pledge them may be adversely affected. See "Plan of Distribution" and "Certain
Information Regarding the Securities -- Book-Entry Registration."
LIMITED OPERATING HISTORY
NAFCO commenced operations in October of 1994 and ACCH commenced
operations in September 1995. Accordingly, their historical delinquency,
repossession and loss experience is limited. No assurance can be given that the
delinquency, repossession and loss experience on the Contracts will be as
favorable as the experience reflected in the applicable Prospectus Supplement,
especially in light of such limited historical experience. In particular, there
can be no assurance that the rate of delinquencies and loan losses may not
increase over time.
FEDERAL AND STATE CONSUMER PROTECTION LAWS
Various federal and state laws impose requirements and restrictions
applicable to the origination and the servicing of the Contracts. Violations of
certain of those laws may give rise to claims and defenses by an Obligor under a
Contract against the Seller, the Servicer or the Trustee. In addition, an
Obligor may be entitled to assert against the Seller, the Servicer or the
Trustee claims and defenses which it has against the Seller of the Financed
Vehicle. In either such case, the Servicer or the Trustee may be unable to
enforce the affected Contract, thereby
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potentially diminishing payments on the Certificates. See "Certain Legal Aspects
of the Receivables."
THE TRUSTS
With respect to each series of Securities, the Seller will establish a
Trust pursuant to the related Trust Documents. Prior to the sale and assignment
of the related Receivables pursuant to the related Trust Documents, the Trust
will have no assets or obligations. The Trust will not engage in any business
activity other than acquiring and holding the Trust Property, issuing the
Certificates and the Notes, if any, of such series and distributing payments
thereon.
Each Certificate will represent a fractional undivided interest in, and
each Note, if any, will represent an obligation of, the related Trust. The Trust
Property of each Trust will include (i) a Receivables Pool; (ii) all monies paid
or payable thereon on or after the Cutoff Date (as specified in the related
Prospectus Supplement); (iii) such amounts as from time to time may be held in
the Collection Account (including all investments in the Collection Account and
all income from the investment of funds therein and all proceeds thereof) and
certain other accounts (including the proceeds thereof); (iv) an assignment of
the security interests of the Originators in the Financed Vehicles securing the
related Receivables; (v) an assignment of the right to receive proceeds from the
exercise of rights against Dealers under agreements between the Originators and
such Dealers (the "Dealer Agreements") and the assignment of rights in respect
of each related Receivable from the applicable Dealer to the applicable
Originator (the "Dealer Assignments"); (vi) an assignment of the right to
receive proceeds from claims on certain insurance policies covering the related
Financed Vehicles or Obligors; (vii) an assignment of the rights of the Seller
under the related Purchase Agreement, and (viii) certain other rights under the
related Trust Documents. See "The Receivables" and "Description of the Purchase
Agreements and the Trust Documents -- Collections." The Trust Property will also
include, if so specified in the related Prospectus Supplement, monies on deposit
in a Pre-Funding Account and/or Revolving Account to be established with the
Indenture Trustee or the Trustee, which will be used to purchase Subsequent
Receivables from the Seller from time to time (and as frequently as daily)
during the Pre-Funding Period and/or Revolving Period specified in the related
Prospectus Supplement. Any Subsequent Receivables so purchased will be included
in the related Receivables Pool forming part of the Trust Property, subject to
the prior rights of the related Indenture Trustee and the Noteholders therein.
In addition, to the extent specified in the related Prospectus Supplement, a
financial guaranty insurance policy or some other form of credit enhancement may
be issued to or held by the Trustee or the Indenture Trustee for the benefit of
holders of one or more classes of Securities.
THE TRUSTEE
The Trustee for each Trust will be specified in the related Prospectus
Supplement. The Trustee's liability in connection with the issuance and sale of
the Securities of such series will be limited solely to the express obligations
of such Trustee set forth in the related Trust Documents. An Trustee may resign
at any time, in which event the Seller will be obligated to appoint a successor
trustee acceptable to the Security Insurer, if any. The Seller, with the consent
of the Security Insurer, if any (prior to an Insurer default), may also remove
the Trustee if the Trustee ceases to be eligible to continue as Trustee under
the related Trust Documents or if the Trustee becomes insolvent. In such
circumstances, the Seller will be obligated to appoint a successor trustee
acceptable to the Security Insurer. Any resignation or removal of an Trustee and
appointment of a successor trustee will be subject to any conditions or
approvals specified
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<PAGE>
in the related Prospectus Supplement and will not become effective until
acceptance of the appointment by the successor trustee.
THE RECEIVABLES
GENERAL
Pursuant to the Purchase Agreements, the Seller will acquire the
Initial Receivables from the Originators and/or one or more special-purpose
finance subsidiaries of NAFCO to which the Originators may have previously
transferred such Receivables (each of the Originators and any such subsidiary,
in its a capacity as transferor of Receivables to the Seller, a "NAFCO
Transferor"). The Originator or Originators will make certain representations
and warranties with respect to each Receivable as of the date of the transfer of
such Receivable to the Seller pursuant to the applicable Purchase Agreement and
the Seller will assign such representations and warranties to the Trustee. In
the case of a series consisting of one or more classes of Notes, the Trustee
will in turn assign such representations and warranties of the Originators to
the Indenture Trustee pursuant to the Indenture. See "Description of the
Purchase Agreements and the Trust Documents."
Each Dealer makes representations and warranties with respect to each
motor vehicle retail installment sale contract submitted for purchase to the
Originators and with respect to the security interests in the motor vehicles
relating thereto pursuant to a Dealer Agreement. Upon breach of any
representation or warranty made by such a Dealer with respect to a retail
installment sale contract, the Originators have the right under the applicable
Dealer Agreement (which rights will be assigned to the Seller by the
Originators, and in turn by the Seller to the Trust) to require such Dealer to
repurchase such retail installment sale contract. Except for the right to
require such repurchases, no Dealer Agreement provides for recourse to the
Dealer for unpaid amounts on a retail installment sale contract. The failure of
a Dealer or a group of affiliated Dealers to repurchase Receivables pursuant to
a Dealer Agreement with the Originators upon a breach of representations or
warranties made therein with respect to such Receivables could adversely impact
the applicable Originator's ability to honor its corresponding obligations, if
any, to repurchase such Receivables under the Purchase Agreement as well as the
Seller's ability to honor its own obligations, if any, to accept retransfers of
such Receivables under the Trust Documents. See "Description of the Purchase
Agreements and Trust Documents--Sale and Assignment of the Receivables" herein
and the related Prospectus Supplement. No representations are made as to the
financial condition of any of the Dealers from whom the Originators have or will
purchase Receivables and there can be no assurance as to the ability of any
Dealer to perform its obligations under any Dealer Agreement.
UNDERWRITING
Each Receivable has been or will be purchased by one of the Originators
after a review in accordance with underwriting procedures intended to assess the
borrower's ability to repay the loan evidenced by such Receivable and the
adequacy of the related Financed Vehicle as collateral.
The Obligors under the Receivables generally have marginal credit and
fall into one of two categories: (1) customers with moderate income, limited
assets and other income characteristics which cause difficulty in borrowing from
banks, captive finance companies of automakers or other traditional sources of
auto loan financing and (2) customers with poor credit
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records which may include a history of irregular employment, previous bankruptcy
filings, voluntary repossessions of property or prior defaults in the repayment
of personal debt obligations. Because of the greater credit risk associated with
non-prime motor vehicle retail installment contracts, the Originators expect to
sustain a higher level of delinquencies and credit losses than that experienced
by auto financing sources that finance motor vehicle purchasers with lower
credit risk profiles. In addition, the payment experience on Receivables of
Obligors with marginal credit is likely to be more sensitive to changes in the
economic climate in the areas in which such Obligors reside. Although the
interest rates charged to such customers is higher than the interest rates
charged to more creditworthy customers, there can be no assurance that the
incremental interest charged to such customers will be sufficient to offset
losses on the Receivables.
Each of the Originators requires each Dealer submitting a Receivable
for purchase to provide certain information , including a completed loan
application listing the applicant's assets, liabilities, income, credit and
employment history and other personal information. Each Originator evaluates an
applicant by considering the relationship of the applicant's monthly income to
monthly expenses, including expenses relating to such motor vehicle loan and
ownership of the motor vehicle. Each Originator also obtains a credit report on
the applicant from an independent credit bureau. The credit report typically
contains information on matters such as previous payment experience, credit
history with merchants and lenders, installment debt payments, defaults and
bankruptcies, if any.
Each loan application and the related credit report are reviewed by a
credit officer. In addition, the credit officer obtains verification of
information in the loan application regarding residence, employment, and income.
The credit officer then calculates certain debt-to-income ratios and
payment-to-income ratios on the basis of the verified information in the loan
application and the anticipated monthly auto loan payment and associated
expenses (including the expense of insuring the vehicle) and compares the
results to the target ratios established in the Originator's general
underwriting guidelines. In addition to evaluating the loan applicant's ability
to make payments on the auto loan and to service its other consumer debt
obligations, the Originators consider the value of the car in relation to the
amount of the loan requested. Although the Originators do not adhere to any
specific loan-to-value ratios, the amount of a motor vehicle loan for a new
motor vehicle generally will not exceed 115% of the price paid by the Dealer for
the motor vehicle, in the case of new vehicles, or 115% of the vehicle's
trade-in value indicated in the National Automobile Dealers Association's Guide
on Retail and Wholesale Values, in the case of used vehicles. In many instances,
the Originator will request additional supporting information or discuss
possible changes to the terms of a Receivable that would allow it to be
purchased in accordance with such Originator's standards. The Originators allow
some flexibility in applying the underwriting guidelines, but a greater level of
management scrutiny is involved in approving loans which deviate from these
guidelines. A substantial majority of each Originator's loans meet all of its
requirements.
If the Originator decides to purchase a Receivable, it reviews the
actual Receivable submitted for purchase and the required supporting
documentation. In addition, the Originator verifies that the Obligor on the
Receivable has obtained a comprehensive and collision insurance policy naming
the Originator as loss payee. Certain Receivables also may be covered by credit
accident and health and credit life insurance policies which provide for
payments on behalf of the insured Obligor in the event of disability or death.
These insurance policies are obtained solely at the election of the Obligor but
are for the benefit of the creditor under the Receivable. No data will be
compiled as to the number of Receivables in the Trust that will be covered by
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such insurance. Accordingly no assurance can be given as to the extent to which
any such Receivables are covered by any such insurance.
SERVICING PROCEDURES
The Servicer will service and administer the Receivables in each Trust
on behalf of the Trustee and will have full power and authority, acting alone
and/or through subservicers, to do any and all things which it may deem
necessary or desirable in connection with such servicing and administration and
which are consistent with the Trust Documents. In the Trust Documents the
Servicer will acknowledge that it is holding any Receivable documents in its
possession and any other property constituting a part of the Trust Property held
by it in trust, for the benefit of the Securityholders and any Securities
Insurer.
Consistent with the terms of the Trust Documents, the Servicer may
waive, modify or vary any term of any Receivable or consent to the postponement
of strict compliance with any such term or in any manner grant indulgence to any
Obligor if, in the Servicer's sole determination, such waiver, modification,
postponement or indulgence is not materially adverse to the Securityholders or
any Security Insurer (without taking into account the coverage available under
any Policy). However, except as otherwise provided herein or in the related
Prospectus Supplement, the Servicer may not permit any modification with respect
to any Receivable that would change its APR or reduce the outstanding principal
balance thereof (except for actual payments of principal).
The Servicer will service and administer the Receivables by employing
such procedures (including collection procedures) and degree of care, in each
case consistent with prudent industry standards, as are customarily employed by
the Servicer in servicing and administering motor vehicle retail installment
sales contracts and notes owned or serviced by the Servicer comparable to the
Receivables.
Servicing activities required to be performed pursuant to the Trust
Documents will include collecting and recording payments, communicating with
Obligors, investigating payment delinquencies, providing billing and tax records
to Obligors and maintaining internal records with respect to each Receivable.
The Servicer will be required to take all actions that are necessary or
desirable to maintain continuous perfection and first priority of security
interests granted by the Obligors in the Financed Vehicles. These actions
include, but are not limited to, using reasonable efforts to obtain the
execution by the Obligors and the recording, registering, filing, re-recording,
reregistering and refiling of all title documents, security agreements,
financing statements, continuation statements or other instruments as are
necessary to maintain the security interests granted by the respective Obligors
under the Receivables. Neither the Servicer nor any subservicer will be
required, however, to expend its own funds to remove any security interest, lien
or other encumbrance on a Financed Vehicle.
The Servicer may perform any of its duties pursuant to the Pooling and
Servicing Agreement, including those delegated to it by the Trustee pursuant to
the Trust Documents, through persons appointed by the Servicer. Such persons may
include affiliates of the Servicer. Notwithstanding any such delegation of a
duty, the Servicer will remain obligated and liable for the performance of such
duty as if the Servicer were performing such duty. The Servicer may delegate
such duties by entering into subservicing agreements (each, a "Subservicing
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Agreement") with one or more subservicers for the servicing and administration
of certain Receivables with the prior written consent of any Security Insurer.
References herein to actions taken or to be taken by the Servicer in servicing
the Receivables include actions taken or to be taken by a subservicer on behalf
of the Servicer. Each Subservicing Agreement may be upon such terms and
conditions as are not inconsistent with the Trust Documents. The Servicer has
initially engaged OFSA to perform substantially all servicing activities related
to servicing of the Receivables.
The Servicer will, to the extent such procedures shall be consistent
with the Trust Documents, follow or cause to be followed such collection
procedures as it follows with respect to motor vehicle retail installment sale
contracts and notes comparable to the Receivables. Consistent with the
foregoing, the Servicer may in its discretion (i) waive any late payment charge
and (ii) extend the then current maturity date of a Receivable by two months
during each calendar year but no more than four months during the life of such
Receivable at the request of the related Obligor on account of the Obligor's
adverse financial circumstances. No such arrangement shall alter or modify the
amortization schedule of such Receivable for purposes of calculating required
distributions on the Securities.
If a Receivable becomes and continues to be a Defaulted Receivable (as
defined below), the Servicer will be required to take all reasonable and lawful
steps necessary for repossession. However, neither the Servicer nor any
subservicer will be obligated to institute any action for repossession through
judicial proceedings unless it determines in its good faith judgment that the
liquidation proceeds that would be realized in connection therewith would be
sufficient for the reimbursement in full of its out-of-pocket expenses in
connection therewith. A Receivable will become a "Defaulted Receivable" upon the
occurrence of certain events of default or payment delinquency specified in the
related Prospectus Supplement, including (i) the determination in good faith by
the Servicer (or applicable subservicer) that all amounts that it expects to
recover under such defaulted Receivable have been received and (ii) the
repossession of the Financed Vehicle that secures the Receivable without
reinstatement of the Receivable and the expiration of any applicable redemption
period.
DELINQUENCY, LOAN LOSS AND REPOSSESSION INFORMATION
Certain information relating to NAFCO's delinquency, loan loss and
repossession experience with respect to all Receivables it has serviced will be
set forth in each Prospectus Supplement. This information will include the
experience with respect to all Receivables in the Originators' portfolio of
Receivables serviced, including Receivables which do not meet the criteria for
selection as a Receivable for any particular Receivables Pool. There can be no
assurance that the delinquency, loan loss and repossession experience on any
Receivables Pool will be comparable to prior experience.
SELECTION CRITERIA AND CERTAIN OTHER CHARACTERISTICS
Information with respect to each Receivables Pool will be set forth in
the related Prospectus Supplement, including, to the extent appropriate, the
criteria used to select the related Receivables and the composition,
distribution by annual percentage rate ("APR"), Dealer and geographic
concentration of such Receivables.
TYPES OF RECEIVABLES
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The Receivables will be selected from the Originators' portfolios of
Receivables by several criteria, including that each Receivable (a) is secured
by a new or used automobile, lightduty truck, van or minivan, (b) is fully
amortizing with level payments over the term of such Receivable, (c) was not
more than 30 days delinquent as of its Cut-off Date and (d) satisfies the other
criteria set forth herein. See "Description of the Purchase Agreements and Trust
Documents--Sale and Assignment of the Receivables."
The Receivables in each Trust will include Receivables that provide for
payments according to one or more of the following payment allocation methods:
(i) the "sum of periodic balances" or "sum of monthly payments" method similar
to the Rule of 78's (" Rule of 78's Receivables"), (ii) the simple interest
method (" Simple Interest Receivables") and (iii) the actuarial method ("
Actuarial Receivables").
RULE OF 78'S RECEIVABLES. Although a Rule of 78's Receivable provides
for amortization over a series of fixed level monthly installments and
allocations between interest and principal on a scheduled basis, it is a
non-level yield instrument. The yield in the initial months of a Rule of 78's
Receivable is somewhat higher than the stated APR (computed on an actuarial
basis) and the yield at the end of the loan is somewhat less than the stated
APR. Each Rule of 78's Receivable provides for the payment by the Obligor
thereon of a specified total amount of payments, payable in equal monthly
installments on each payment due date for such Rule of 78's Receivable. This
total represents the principal amount financed and add-on interest in an amount
calculated on the basis of the APR stated in a Receivable for the term of the
Rule of 78's Receivable. The rate at which such amount of add-on interest is
earned and, correspondingly, the amount of each fixed monthly payment allocated
to earned interest and to reduction of the outstanding principal are calculated
in accordance with the "Rule of 78's."
SIMPLE INTEREST RECEIVABLES. Like Rule of 78's Receivables, a Simple
Interest Receivable initially provides for the payment by the Obligor of a
specified total amount of payments, payable in equal monthly installments on
each payment due date for such Simple Interest Receivable. However, the
allocation of each monthly payment to principal and interest on a Simple
Interest Receivable is made based on the actual date on which a payment is
received, using the simple interest method. Under the simple interest method, as
a payment is received under a Simple Interest Receivable, the payment is applied
first to pay accrued interest to the date of payment and the remaining amount of
the payment is applied to reduce principal. Accordingly, if an Obligor pays the
fixed monthly installment in advance of the payment due date, the portion of the
payment allocable to interest for the period since the preceding payment will be
less than it would be if the payment were made on the payment due date, and the
portion of the payment allocable to reduce the principal balance will be
correspondingly greater. Conversely, if the Obligor pays the fixed monthly
installment after its due date, the portion of the payment allocable to interest
for the period since the last payment will be greater than it would be if the
payment were made on the payment due date, and the portion of the payment
allocable to reduce the principal balance will be correspondingly smaller. When
necessary, an adjustment is made by scheduling additional payments at the
maturity of the Simple Interest Receivable in an amount no greater than the
regularly scheduled payments to reflect the smaller allocations of payments to
repay the principal balance under the Simple Interest Receivable as a result of
late payments. Alternatively, when necessary, an adjustment is made to the
scheduled final payment or to earlier payments to reflect any larger allocation
of payments to principal as a result of early payments.
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Due to the method of allocating the portion of monthly payments on
Simple Interest Receivables between principal and interest, it is possible that
either more or less than one month's interest on a Simple Interest Receivable at
the applicable APR will be collected in a calendar month, depending on when the
monthly payments are received. In addition, in the event that more than one
month's interest at the Pass-Through Rate or the Interest Rate, as applicable on
the outstanding principal balance of a Simple Interest Receivable is collected
in a calendar month, the amount of such excess, to the extent not otherwise
distributed to Securityholders, will be distributed to NAFCO on such
Distribution Date.
ACTUARIAL RECEIVABLES. An Actuarial Receivable is a Receivable that
provides for amortization of the loan over a series of fixed level payment
monthly installments. Payments are allocated between interest and principal on a
scheduled basis, without regard to the time period that has elapsed since the
last payment was made, using the actuarial method. Under the actuarial method,
each monthly installment consists of an amount of interest equal to 1/12 of the
APR of the loan multiplied by the unpaid principal balance of the loan and an
amount of principal equal to the remainder of the monthly payment.
YIELD AND PREPAYMENT CONSIDERATIONS
YIELD AND PREPAYMENT CONSIDERATIONS
The Securities will not be sold at a material discount or premium to
the initial purchasers thereof. Accordingly, except as described in the next
paragraph, prepayments, late payments, delinquencies and defaults on the
underlying Receivables and the rate of the transfer of any Subsequent
Receivables to a Trust will not materially affect the yield on the Securities to
such purchasers because each distribution of principal on such Securities will
be accompanied by all accrued interest thereon at the Pass-Through Rate or
Interest Rate, as applicable, through the Distribution Date.
The average life of the Securities may be reduced by prepayments on the
Receivables, by the early termination of certain of the Trust Documents due to
the sale, liquidation or disposal of the Receivables upon the occurrence of
certain bankruptcy or insolvency events with respect to the Seller as described
herein and by prepayments from unutilized funds in any PreFunding Account or
Revolving Account or as otherwise specified in the related Prospectus
Supplement. In addition, the average life of the Securities may be increased by
the transfer of any Subsequent Receivables to Trust. The Receivables may be
prepaid in full at any time. Prepayments may result from, among other things,
(i) the sale, insured loss or other disposition of the Financed Vehicle securing
any Receivable, (ii) Receivables becoming Defaulted Receivables, (iii) the
retransfer to the Seller of Receivables due to a breach by the Seller of the
warranties made by it with respect thereto in the Trust Documents or (iv) the
Seller's exercise of its right to require the retransfer to it of all of the
Receivables in the Trust after the Aggregate Principal Balance has declined to
less than percentage specified in the related Prospectus Supplement of the
Cut-Off Date Outstanding Principal Balance. The rate of prepayments on the
Receivables could be influenced by a variety of economic, geographic and social
factors. These factors may include unemployment rates, servicing decisions,
seasoning of loans, destruction of vehicles by accident, sale of vehicles and
market interest rates.
If a Receivable contains provisions requiring prepayment in full in the
event of a sale or other disposition of the Financed Vehicle securing the
Receivable, the Servicer will be required
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by the Trust Documents to take reasonable steps under the circumstances to
enforce such provisions.
The Securityholders could receive a principal prepayment on the
Distribution Date following the end of each of any Pre-Funding Period or
Revolving Period if and to the extent that Subsequent Receivables are not
transferred to the Trust in amounts sufficient to fully utilize the amounts on
deposit in the Pre-Funding Account or Revolving Account, respectively.
Prepayments resulting from the application of funds remaining in the
Pre-Funding Account or Revolving Account to prepay the Securities or from the
receipt of prepayments on the Receivables could result in the Securityholders
receiving unexpected principal payments at a time when the Securityholders are
unable to reinvest such payments in investments having a yield and rating
comparable to the yield and rating on the Securities.
No assurances can be given, and no prediction can be made, as to the
actual prepayment experience on the Receivables.
POOL FACTOR
The "Pool Factor" of the Securities will be a seven-digit decimal,
computed as of each Distribution Date, indicating the remaining principal
balance of the Securities as of the close of business on such Distribution Date,
as a fraction of the initial principal amount of such Securities. The Pool
Factor initially will be 1.0000000. Thereafter, the Pool Factor will decline to
reflect reductions in the outstanding principal balance of the Securities. A
Securityholder's portion of the aggregate outstanding principal balance of the
Securities will be the product of (i) the original denomination of the
Securityholder's Securities and (ii) the applicable Pool Factor.
The Holder or Holders of record of the Securities will receive reports
on or about each Distribution Date concerning payments received on the
Receivables, the Aggregate Principal Balance, the Pool Factor and various other
items of information. Securityholders of record during any calendar year also
will be furnished information for tax reporting purposes not later than the
latest date permitted by law. See "Certain Information Regarding the
Securities--Statements to Securityholders."
USE OF PROCEEDS
Unless otherwise specified in the related Prospectus Supplement, the
net proceeds to be received by the Seller from the sale of each series of
Securities will be used to pay to the NAFCO Transferors the purchase price for
the Receivables and to make the deposit of the PreFunded Amount into the
Pre-Funding Account, if any, to repay warehouse lenders and/or to provide for
other forms of credit enhancement specified in the related Prospectus
Supplement. The net proceeds to be received by the NAFCO Transferors will be
used to reduce indebtedness under warehouse loans or other interim financing
sources, and any additional proceeds will be added to the Originators' general
funds and used for its general corporate purposes. See "National Auto Finance
Company L.P."
THE SELLER
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National Financial Auto Funding Trust (the "Seller") is a Delaware
business trust 100% of the beneficial ownership of which is owned by NAFCO or
affiliates of NAFCO. The Seller is organized for the limited purposes of
purchasing motor vehicle retail installment sale contracts, transferring such
contracts to third parties, forming trusts and engaging in related activities.
The principal office of the Seller is located at One Park Place, 621 N.W. 53rd
Street, Boca Raton, Florida, 33487, and its telephone number at such office is
(407) 997-2747.
NATIONAL AUTO FINANCE COMPANY L.P.
NAFCO will act as master servicer (in such capacity, the " Servicer")
of the Receivables in each Trust pursuant to the related Trust Documents.
GENERAL
NAFCO is a limited partnership organized under the laws of the State of
Delaware in November 1994. ACCH is a limited partnership organized under the
laws of the State of Delaware in September 1995. The sole general partner of
each of NAFCO and ACCH, National Auto Finance Corporation, was incorporated in
the State of Delaware in October 1994. NAFCO is the majority limited partner of
ACCH. Unless the context otherwise requires, references in this section of the
Prospectus to NAFCO shall refer to NAFCO and its subsidiary, ACCH, and the
descriptions of the procedures and guidelines set forth below are those both of
NAFCO and ACCH.
The principal business of NAFCO is to acquire from automobile dealers
and service motor vehicle retail installment sale and lease contracts. NAFCO's
principal office is located at One Park Place, 621 N.W. 53rd Street, Suite 200,
Boca Raton, Florida 33487, and its telephone number at such office is (407)
997-2747.
NAFCO is an automotive finance company engaged primarily in the
indirect financing (by the purchase of motor vehicle retail installment sale
contracts from automotive Dealers) of automotive purchases by individuals with
non-prime credit. The non-prime market segment is comprised of individuals who
are deemed to be relatively high credit risks due to various factors, including,
among other things, the manner in which they have handled previous credit, the
limited extent of their prior credit history and/or their limited financial
resources. Because of the greater credit risk associated with non-prime motor
vehicle retail installment contracts, NAFCO expects to sustain a higher level of
delinquencies and credit losses than that experienced by auto financing sources
that finance motor vehicle purchasers with lower credit risk profiles. The
interest rates charged on such contracts are generally higher than those rates
charged on prime motor vehicle retail installment sale contracts. There can be
no assurance, however, that the interest rates on the Receivables will be
sufficient to cover losses on Defaulted Receivables.
NAFCO serves as an alternative source of financing to automotive
dealers by offering them the opportunity for increased sales to customers who
typically do not qualify for financing by the automotive dealers' traditional
financing sources. NAFCO purchases motor vehicle retail installment sale
contracts from such dealers (the "Dealers") pursuant to non-exclusive dealer
agreements (the "Dealer Agreements"). The Dealer Agreements generally provide
for the sale of such retail installment sale contracts to NAFCO without recourse
to the Dealer, and accordingly, the Dealer generally has no liability to NAFCO
if the Obligor defaults on the Receivable. From time to time, NAFCO may
determine to commence business in additional
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jurisdictions or cease doing business in any state in which it presently does
business. In certain cases NAFCO may effect purchases of non-prime motor vehicle
retail installment sale contracts, or may hold and effect ownership of contracts
by means of a wholly-owned subsidiary.
SERVICING PROCEDURES
The Servicer conducts substantially all of its servicing activities
through OFSA pursuant to a servicing contract (the " Servicing Agreement")
between the Servicer and OFSA. OFSA will collect payments received on the
Receivables, engage in collection efforts in respect of past due Receivables
and, where appropriate, repossess and liquidate Financed Vehicles securing
Defaulted Receivables. OFSA utilizes various automated systems to support its
servicing and collections activities. Notwithstanding the delegation by the
Servicer of certain servicing duties to OFSA, the Servicer will remain primarily
liable to the Trust under the related Trust Documents for performance of such
duties.
The Servicer's standard collection practices for the collection of past
due payments include, but are not limited to, automated mailing of delinquency
notices to Obligors and oral communications with Obligors as necessary. The
Servicer also attempts to have telephone communication with each Obligor once
the related Receivable is five days delinquent. Additional telephone
communications are made in an effort to bring the Receivable current. Once it is
determined that a Receivable cannot be brought current, the Servicer generally
will initiate steps to repossess the related Financed Vehicle. The Servicer
handles repossessions through independent contractors.
Occasionally, situations occur in the collection process where an
Obligor has become delinquent and is willing but unable to bring the related
Receivable current. In this situation, at the discretion of the Servicer's
collection department management, and subject to the guidelines described under
"The Receivables-Servicing Procedures," the term of the Receivable may be
extended by two months once during each calendar year but not more than four
months during the life of such Receivable.
If the Servicer receives a notice that an Obligor on a Receivable has
filed for relief under the United States Bankruptcy Code, the Servicer will file
a proof of claim and notify the Trustee, any Indenture Trustee and any Security
Insurer of the bankruptcy filing. In the event that activities outside the scope
of routine bankruptcy filings and follow-up are necessary, the Servicer may hire
the services of a law firm to represent the Trustee and any Indenture Trustee in
the Obligor's bankruptcy.
The Servicer also monitors each Receivable for the required
comprehensive and collision insurance coverage. In this regard, the Servicer
tracks the expiration dates of insurance policies and sends reminder notices to
the Obligors whose insurance policies have expired.
The Servicer will coordinate all servicing of the Receivables at its
office in Boca Raton, Florida.
The Servicer is substantially dependent upon OFSA to perform direct
servicing functions
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with respect to the Seller's portfolio of motor vehicle retail installment sales
contracts. There can be no assurance that there would not be delays in
collections and other servicing interruptions associated with transfer of
servicing to the Servicer or any Back-Up Servicer in the event of OFSA's
resignation or termination or that the Servicer would have sufficient staffing
and resources to service the Receivables to the standards required in the
related Trust Documents.
OMNI FINANCIAL SERVICES OF AMERICA, INC. ("OFSA")
Omni Financial Services of America, Inc., a Delaware corporation
("OFSA"), will act as servicer of the Receivables pursuant to the Servicing
Agreement. OFSA is a wholly-owned subsidiary of World Omni Financial Corp., a
Florida corporation ("World Omni"). The Servicing Agreement was assigned by
World Omni to OFSA effective as of October 23, 1995.
OFSA was incorporated in July 1995 primarily to service subprime retail
motor vehicle contracts, including the Receivables. As of October 1, 1996, OFSA
has over 250 employees operating at a new service center in Memphis, Tennessee.
The Servicer and the OFSA will maintain files relating to the Receivables at the
Memphis service center and will coordinate servicing for the Receivables at such
office. The address of the Memphis service center is 1769 Paragon Avenue,
Memphis, Tennessee 38132, and its telephone number is (901) 344-7200.
World Omni is a wholly-owned subsidiary of JM Family Enterprises, Inc.,
a Delaware corporation ("JMFE"). World Omni provides retail installment contract
and lease contract financing to retail customers of certain automotive dealers,
and wholesale floorplan financing and capital and mortgage loans primarily to
dealers and customers of Southeast Toyota Distributors, Inc., another
wholly-owned subsidiary of JMFE. The principal executive offices of World Omni
are located at 120 NW 12th Avenue, Deerfield Beach, Florida 33442, and its
telephone number is (954) 429-2200.
World Omni originates and services retail and lease contracts primarily
through its service center located in Mobile, Alabama.
THE CERTIFICATES
GENERAL
With respect to each Trust, one or more classes of Certificates of a
given series will be issued pursuant to Trust Documents to be entered into
between the Seller, NAFCO and the Trustee, forms of which 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 is
qualified in its entirety by reference to, all of the material provisions of the
Trust Documents. Where particular provisions of or terms used in the Trust
Documents are referred to, the actual provisions (including definitions of
terms) are incorporated by reference as part of this summary.
Unless the related Prospectus Supplement provides for physical delivery
of the Certificates, each class of Certificates will initially be represented by
a single Certificate
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registered in the name of the nominee of DTC (together with any successor
depository selected by the Seller, the "Depository"). See "Certain Information
Regarding the Securities -- BookEntry Registration." Unless otherwise specified
in the related Prospectus Supplement, the Certificates evidencing interests in a
Trust will be available for purchase in minimum denominations of $20,000 initial
principal amount and integral multiples of $1,000 in excess thereof, except that
one Certificate evidencing an interest in such Trust may be issued in a
denomination that is less than $1,000 initial principal amount. Certificates may
be transferred or exchanged without the payment of any service charge other than
any tax or governmental charge payable in connection with such transfer or
exchange. The Trustee or such other party designated in the related Prospectus
Supplement will initially be designated as the registrar for the Certificates.
DISTRIBUTIONS OF INTEREST AND PRINCIPAL
The timing and priority of distributions, seniority, allocations of
loss, Pass-Through Rate and amount of or method of determining distributions
with respect to principal and interest (or, where applicable, with respect to
principal only or interest only) on the Certificates of any series will be
described in the related Prospectus Supplement. Distributions of interest on the
Certificates will be made on the dates specified in the related Prospectus
Supplement (each, a "Distribution Date") and will be made prior to distributions
with respect to principal. A series may include one or more classes of Strip
Certificates entitled to (i) distributions in respect of principal with
disproportionate, nominal or no interest distribution, or (ii) interest
distributions, with disproportionate, nominal or no distributions in respect of
principal. Each class of Certificates may have a different Pass-Through Rate,
which may be a fixed, variable or adjustable Pass-Through Rate (and which may be
zero for certain classes of Strip Certificates), or any combination of the
foregoing. The related Prospectus Supplement will specify the PassThrough Rate
for each class of Certificate, or the initial Pass-Through Rate and the method
for determining the Pass-Through Rate. Interest on the Certificates will be
calculated on the basis of a 360-day year consisting of twelve 30-day months or
a 365-day year consisting of actual calendar months. Distributions in respect of
the Certificates will be subordinate to payments in respect of the Notes, if
any, as more fully described in the related Prospectus Supplement. Distributions
in respect of principal of any class of Certificates will be made on a pro rata
basis among all of the Certificateholders of such class.
In the case of a series of Certificates which includes two or more
classes of Certificates, the timing, sequential order, priority of payment or
amount of distributions in respect of principal, and any schedule or formula or
other provisions applicable to the determination thereof, of each such class
shall be as set forth in the related Prospectus Supplement.
THE NOTES
GENERAL
A series of Securities may include one or more classes of Notes issued
pursuant to the terms of an Indenture, a form of which has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part. The
following summary does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all of the provisions of the notes
and the Indenture, and the following summary may be supplemented by the related
Prospectus Supplement. Where particular provisions of or terms used in the
Indenture are referred to, the
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actual provisions (including definition of terms) are incorporated by reference
as part of this summary.
Unless the related Prospectus Supplement provides for physical delivery
of the Notes, each class of Notes will initially be represented by a single Note
registered in the name of the nominee of the Depository. See "Certain
Information Regarding the Securities -- Book-Entry Registration." Notes will be
available for purchase in the denominations specified in the related Prospectus
Supplement. Notes may be transferred or exchanged without the payment of any
service charge other than any tax or governmental charge payable in connection
with such transfer or exchange. The Indenture Trustee or such other party
specified in the related Prospectus Supplement will initially be designated as
the registrar for the Notes.
PRINCIPAL AND INTEREST ON THE NOTES
The timing and priority of payment, seniority, allocations of loss,
Interest Rate and amount of or method of determining payments of principal and
interest on the Notes will be described in the related Prospectus Supplement.
The right of holders of any class of Notes to receive payments of principal and
interest may be senior or subordinate to the rights of holders of any class or
classes of Notes of such series, or any class of Certificates, as described in
the related Prospectus Supplement. Payments of interest on the Notes will be
made prior to payments of principal thereon. A series may include one or more
classes of Strip Notes entitled to (i) principal payments with disproportionate,
nominal or no interest payments, or (ii) interest payments with
disproportionate, nominal or no principal payments. Each class of Notes may have
a different Interest Rate, which may be a fixed, variable or adjustable Interest
Rate (and which may be zero for certain classes of Strip Notes), or any
combination of the foregoing. The related Prospectus Supplement will specify the
Interest Rate for each class of Notes, or the initial Interest Rate and the
method for determining the Interest Rate. One or more classes of Notes of a
series may be redeemable under the circumstances specified in the related
Prospectus Supplement.
Unless the related Prospectus Supplement provides for subordination of
payments of interest on certain classes within a series to payments of interest
on certain other classes within such series, payments in respect of interest to
Noteholders of all classes within a series will have the same priority. Under
certain circumstances, the amount available for such payments could be less than
the amount of interest payable on the Notes on any of the dates specified for
payments in the related Prospectus Supplement (each, a "Payment Date"), in which
case each class of 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.
In the case of a series of Securities which includes two or more
classes of Notes, the sequential order and priority of payment in respect of
principal and interest, and any schedule or formula or other provisions
applicable to the determination thereof, of each such class will be set forth in
the related Prospectus Supplement. Payments in respect of principal and interest
of any class of Notes will be made on a pro rata basis among all of the Notes of
such class.
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THE INDENTURE
A form of Indenture has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. The Seller will provide a copy
of the applicable Indenture (without exhibits) upon request to a holder of Notes
issued thereunder. Requests for such copies should be directed to Chief
Financial Officer, National Auto Finance Company L.P., One Park Place, Suite
200, 621 N.W. 53rd Street, Boca Raton, Florida 33487 (telephone (407) 997-2747).
MODIFICATION OF INDENTURE WITHOUT NOTEHOLDER CONSENT. Each Trust and
related Indenture Trustee (on behalf of such Trust) may, with the consent of the
Security Insurer, if any (prior to an Insurer Default), but without consent of
the related Noteholders, enter into one or more supplemental indentures for any
of the following purposes: (i) to correct or amplify the description of the
collateral or add additional collateral; (ii) to provide for the assumption of
the Note and the Indenture obligations by a permitted successor to the Trust;
(iii) to add additional covenants for the benefit of the related Noteholders, or
to surrender any rights or power conferred upon the Trust; (iv) to convey,
transfer, assign, mortgage or pledge any property to or with the Indenture
Trustee; (v) to cure any ambiguity or correct or supplement any provision in the
Indenture or in any supplemental indenture; (vi) to provide for the acceptance
of the appointment of a successor Indenture Trustee or to add to or change any
of the provisions of the Indenture or in any supplemental indenture which may be
inconsistent with any other provision of the Indenture as shall be necessary and
permitted to facilitate the administration by more than one trustee; (vii) to
modify, eliminate or add to the provisions of the Indenture in order to comply
with the Trust Indenture Act of 1939, as amended, and (viii) to add any
provisions to, change in any manner, or eliminate any of the provisions of, the
Indenture or modify in any manner the rights of Noteholders under such
Indenture; provided that any action specified in this clause (viii) shall not,
as evidenced by an opinion of counsel, adversely affect in any material respect
the interests of any related Noteholder unless such Noteholder's consent is
otherwise obtained as described below.
MODIFICATIONS OF INDENTURE WITH NOTEHOLDER CONSENT. With respect to
each Trust, with the consent of the Security Insurer, if any (prior to an
Insurer Default) and the holders representing a majority of the principal
balance of the outstanding related Notes (a "Note Majority"), the Trustee and
the Indenture Trustee may execute a supplemental indenture to add provisions to
change in any manner or eliminate any provisions of, the related Indenture, or
modify in any manner the rights of the related Noteholders.
Without the consent of the Security Insurer, if any (prior to an
Insurer Default), and the holder of each outstanding related Note affected
thereby, however, no supplemental indenture may: (i) change 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 or change the manner of calculating any such payment or any
place of payment where 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 amount of the outstanding Notes the consent of the
holders of which is required for any such supplemental indenture or the consent
of the holders of which is required for any waiver of compliance with certain
provisions of the 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 related
Trust, any other obligor on the Notes, the Seller or an affiliate of any of
them; (v) reduce the percentage of the aggregate outstanding amount of the Notes
the consent of the
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holders of which is required to direct the Indenture Trustee to sell or
liquidate the Receivables if the proceeds of such sale would be insufficient to
pay the principal amount and accrued but unpaid interest on the outstanding
Notes; (vi) decrease the percentage of the aggregate principal amount of the
Notes required to amend the sections of the Indenture which specify the
applicable percentage of aggregate principal amount of the Notes necessary to
amend the Indenture or certain other related agreements; or (vii) permit the
creation of any lien ranking prior to or on a parity with the lien of the
Indenture with respect to any of the collateral for the Notes or, except as
otherwise permitted or contemplated in the Indenture, terminate the lien of the
Indenture on any such collateral or deprive the holder of any Note of the
security afforded by the lien of the Indenture.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT. With respect to each
Trust, unless otherwise specified in the related Prospectus Supplement, "Events
of Default" under the Indenture will consist of: (i) a default for five days or
more in the payment of any interest on any Note; (ii) a default in the payment
of the principal of or any installment of the principal of any Note when the
same becomes due and payable; (iii) a default in the observance or performance
in any material respect of any covenant or agreement of the Trust made in the
Indenture, or any representation or warranty made by the Trust in the Indenture
or in any certificate delivered pursuant thereto or in connection therewith
having been incorrect as of the time made, and the continuation of any such
default or the failure to cure such breach of a representation or warranty for a
period of 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 at least 25% in
principal amount of the Notes then outstanding; or (iv) certain events of
bankruptcy, insolvency, receivership or liquidation of the Trust. However, the
amount of principal due and payable on any class of Notes on any Payment Date
(prior to the Final Scheduled Payment Date, if any, for such class) will
generally be determined by amounts available to be deposited in the Note
Distribution Account for such Payment Date. Therefore, the failure to pay
principal on a class of Notes generally will not result in the occurrence of an
Event of Default unless such class of Notes has a Final Scheduled Payment Date,
and then not until such Final Scheduled Payment Date for such class of Notes. If
an Event of Default should occur and be continuing with respect to the Notes of
any series, the related Indenture Trustee or a Note Majority may declare the
principal of the Notes to be immediately due and payable. Such declaration may,
under certain circumstances, be rescinded by a Note Majority.
If the Notes of any series have been declared due and payable following
an Event of Default with respect thereto, the related Indenture Trustee may
institute proceedings to collect amounts due or foreclose on Trust Property,
exercise remedies as a secured party, sell the related Receivables or elect to
have the Trust maintain possession of such Receivables and continue to apply
collections on such Receivables as if there had been no declaration of
acceleration. The Indenture Trustee, however, will be prohibited from selling
the related Receivables following an Event of Default, unless (i) the holders of
the percentage of the outstanding related Notes specified in the related
Prospectus Supplement consent to such sale; (ii) the proceeds of such sale are
sufficient to pay in full the principal of and the accrued interest on such
outstanding Notes at the date of such sale; or (iii) the Indenture Trustee
determines that the proceeds of the Receivables 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 the holders of 66 2/3% of the aggregate
outstanding amount of the Notes. Following a declaration upon an Event of
Default that the Notes are immediately due and payable, (i) Noteholders will be
entitled to ratable repayment of principal on the basis of their respective
unpaid principal balances and
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(ii) repayment in full of the accrued interest on and unpaid principal balances
of the Notes will be made prior to any further payment of interest or principal
on the Certificates.
Subject to the provisions of the Indenture relating to the duties of
the Indenture Trustee, if an Event of Default occurs and is continuing with
respect to a series of 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 holders of such Notes, 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 the provisions for indemnification and certain limitations
contained in the Indenture, a Note Majority in a series will have the right to
direct the time, method and place of conducting any proceeding or any remedy
available to the Indenture Trustee, and a Note Majority 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 such outstanding Notes.
No holder of a Note of any series will have the right to institute any
proceeding with respect to the related Indenture, unless (i) such holder
previously has given to the Indenture Trustee written notice of a continuing
Event of Default, (ii) the holders of not less than 25% in principal amount of
the outstanding Notes of such series have made written request of the Indenture
Trustee to institute such proceeding in its own name as Indenture Trustee, (iii)
such holder or holders have offered the Indenture Trustee reasonable indemnity,
(iv) the Indenture Trustee has for 60 days failed to institute such proceeding,
(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 in
principal amount of such outstanding Notes, and (vi) in the case of a series of
Securities with respect to which a Policy is issued, an Insurer Default shall
have occurred and be continuing.
If an Event of Default occurs and is continuing and if it is known to
the Indenture Trustee, the Indenture Trustee will mail to each Noteholder notice
of the Event of Default within 90 days after it occurs. Except in the case of a
failure to pay principal of or interest on any Note, the Indenture Trustee may
withhold the notice if and so long as it determines in good faith that
withholding the notice is in the interests of the Noteholders.
In addition, each Indenture Trustee and the related Noteholders, by
accepting the related Notes, will covenant that they will not at any time
institute against the Seller or the related Trust any bankruptcy, reorganization
or other proceeding under any federal or state bankruptcy or similar law.
Neither the Indenture Trustee nor the Trustee in its individual
capacity, nor any holder of a Certificate including, without limitation, the
Seller, nor any of their respective owners, beneficiaries, agents, officers,
directors, employees, affiliates, successors or assigns will, in the absence of
an express agreement to the contrary, be personally liable for the payment of
the related Notes or for any agreement or covenant of the related Trust
contained in the Indenture.
CERTAIN COVENANTS. Each Indenture will provide that the related Trust
may not consolidate with or merge into any other entity, unless (i) the entity
formed by or surviving such consolidation or merger is organized under the laws
of the United States or any state, (ii) such entity expressly assumes the
Trust's obligation to make due and punctual payments upon the Notes and the
performance or observance of every agreement and covenant of the Trust under
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the Indenture, (iii) no Event of Default shall have occurred and be continuing
immediately after such merger or consolidation, (iv) the Trustee has been
advised that the then current rating of the related Notes or Certificates then
in effect would not be reduced or withdrawn by the Rating Agencies as a result
of such merger or consolidation, (v) the Security Insurer, if any (prior to an
Insurer Default), has consented to such merger or consolidation, and (vi) the
Trustee has received an opinion of counsel to the effect that such consolidation
or merger would have no material adverse tax consequence to the Trust or to any
related Noteholder or Certificateholder.
Each Trust will not, among other things, (i) except as expressly
permitted by the Indenture, the Purchase Agreement, the Trust Documents or
certain related documents for such Trust (collectively, the "Related
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
and interest payable in respect of the related Notes (other than amounts
withheld under the Code or applicable state law) or assert any claim against any
present or former holder of such Notes because of the payment of taxes levied or
assessed upon the Trust, (iii) dissolve or liquidate in whole or in part, (iv)
permit the validity or effectiveness of the related Indenture to be impaired or
permit any person to be released from any covenants or obligations with respect
to the related Notes under such Indenture except as may be expressly permitted
thereby, or (v) except as expressly permitted by the related Trust Documents,
permit any lien, charge, excise, claim, security interest, mortgage or other
encumbrance to be created on or extend to or otherwise arise upon or burden the
assets of the Trust or any part thereof, or any interest therein or proceeds
thereof.
No Trust may engage in any activity other than as specified under the
section of the related Prospectus Supplement entitled "The Trust." No Trust will
incur, assume or guarantee any indebtedness other than indebtedness incurred
pursuant to the related Notes and the related Indenture or otherwise in
accordance with the related Trust Documents.
ANNUAL COMPLIANCE STATEMENT. Each Trust will be required to file
annually with the related Indenture Trustee a written statement as to the
fulfillment of its obligations under the Indenture.
INDENTURE TRUSTEE'S ANNUAL REPORT. The Indenture Trustee will be
required to mail each year to all related Noteholders a brief report relating to
its eligibility and qualification to continue as Indenture Trustee under the
related Indenture, any amounts advanced by it under the Indenture, the amount,
interest rate and maturity date of certain indebtedness owing by the Trust to
the Indenture Trustee in its individual capacity, the property and funds
physically held by the Indenture Trustee as such and any action taken by it that
materially affects the Notes and that has not been previously reported.
SATISFACTION AND DISCHARGE OF INDENTURE. The Indenture will be
discharged with respect to the collateral securing the related Notes upon the
delivery to the related Indenture Trustee for cancellation of all such Notes or,
with certain limitations, upon deposit with the Indenture Trustee of funds
sufficient for the payment in full of all such Notes.
THE INDENTURE TRUSTEE
The Indenture Trustee for a series of Notes will be specified in the
related Prospectus Supplement. The Indenture Trustee may resign at any time, in
which event the Seller will be obligated to appoint a successor trustee
acceptable to the Security Insurer, if any (prior to an
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Insurer Default). The Seller may also remove the Indenture Trustee, with the
consent of the Security Insurer, if any (prior to an Insurer Default), if the
Indenture Trustee ceases to be eligible to continue as such under the Indenture
or if the Indenture Trustee becomes insolvent. In such circumstances, the Seller
will be obligated to appoint a successor trustee acceptable to the Security
Insurer, if any (prior to an Insurer Default). Any resignation or removal of the
Indenture Trustee and appointment of a successor trustee will be subject to any
conditions or approvals, if any, specified in the related Prospectus Supplement
and will not become effective until acceptance of the appointment by a successor
trustee.
CERTAIN INFORMATION REGARDING THE SECURITIES
BOOK-ENTRY REGISTRATION
Unless the related Prospectus Supplement provides for physical delivery
of the Securities, the Securities of each series will be registered in the name
of Cede & Co., the nominee of DTC. 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 the
provisions of Section 17A of the Exchange Act. DTC accepts securities for
deposit from its participating organizations ("Participants") and facilitates
the clearance and settlement of securities transactions between Participants in
such securities through electronic book-entry changes in accounts of
Participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks and
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 Participant, either directly or
indirectly ("indirect participants").
Certificate Owners and Note Owners who are not Participants but desire
to purchase, sell or otherwise transfer ownership of Securities may do so only
through Participants (unless and until Definitive Certificates or Definitive
Notes, each as defined below, are issued). In addition, Certificate Owners and
Note Owners will receive all distributions of principal of, and interest on, the
Securities from the Trustee or the Indenture Trustee, as applicable, through DTC
and Participants. Certificate Owners and Note Owners will not receive or be
entitled to receive certificates representing their respective interests in the
Securities, except under the limited circumstances described below and such
other circumstances, if any, as may be specified in the related Prospectus
Supplement.
Unless and until Definitive Securities are issued, it is anticipated
that the only Certificateholder of the Certificates and the only Noteholder of
the Notes, if any, will be Cede & Co., as nominee of DTC. Certificate Owners and
Note Owners will not be recognized by the Trustee as Certificateholders or by
the Indenture Trustee as Noteholders as those terms are used in the related
Trust Documents or Indenture. Certificate Owners and Note Owners will be
permitted to exercise the rights of Certificateholders or Noteholders, as the
case may be, only indirectly through Participants and DTC.
With respect to any series of Securities, while the Securities are
outstanding (except under the circumstances described below), under the rules,
regulations and procedures creating and affecting DTC and its operations (the
"Rules"), DTC is required to make book-entry
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transfers among Participants on whose behalf it acts with respect to the
Securities and is required to receive and transmit distributions of principal
of, and interest on, the Securities. Participants with whom Certificate Owners
or Note Owners have accounts with respect to Securities are similarly required
to make book-entry transfers and receive and transmit such distributions on
behalf of their respective Certificate Owners and Note Owners. Accordingly,
although Certificate Owners and Note Owners will not possess Securities, the
Rules provide a mechanism by which Certificate Owners and Note Owners will
receive distributions and will be able to transfer their interests.
With respect to any series of Securities, Certificates and Notes (if
any) will be issued in registered form to Certificate Owners and Note Owners, or
their nominees, rather than to DTC (such Certificates and Notes being referred
to herein as " Definitive Certificates" and "Definitive Notes," respectively),
only if (i) DTC, the Seller or the Servicer advises the Trustee or the Indenture
Trustee, as the case may be, in writing that DTC is no longer willing or able to
discharge properly its responsibilities as nominee and depository with respect
to the Certificates or the Notes, and the Seller, the Servicer, the Trustee or
the Indenture Trustee, as the case may be, is unable to locate a qualified
successor, (ii) the Seller or the Administrator (if any) at its sole option has
advised the Trustee or the Indenture Trustee, as the case may be, in writing
that it elects to terminate the book-entry system through DTC and (iii) after
the occurrence of a Servicer Termination Event, the holders representing a
majority of the Certificate Balance (a " Certificate Majority") or a Note
Majority advises the Trustee or the Indenture Trustee, as the case may be,
through DTC, that continuation of a book-entry system is no longer in their best
interests. Upon issuance of Definitive Certificates or Definitive Notes to
Certificate Owners or Note Owners, such Certificates or Notes will be
transferable directly (and not exclusively on a book-entry basis) and registered
holders will deal directly with the Trustee or the Indenture Trustee, as the
case may be, with respect to transfers, notices and distributions.
DTC has advised the Seller that, unless and until Definitive
Certificates or Definitive Notes are issued, DTC will take any action permitted
to be taken by a Certificateholder or a Noteholder under the related Trust
Documents or Indenture only at the direction of one or more Participants to
whose DTC accounts the Certificates or Notes are credited. DTC has advised the
Seller that DTC will take such action with respect to any fractional interest of
the Certificates or the Notes only at the direction of and on behalf of such
Participants beneficially owning a corresponding fractional interest of the
Certificates or the Notes. DTC may take actions, at the direction of the related
Participants, with respect to some Certificates or Notes which conflict with
actions taken with respect to other Certificates or Notes.
Issuance of Certificates and Notes in book-entry form rather than as
physical certificates or notes may adversely affect the liquidity of
Certificates or Notes in the secondary market and the ability of the Certificate
Owners or Note Owners to pledge them. In addition, since distributions on the
Certificates and Notes will be made by the Trustee or the Indenture Trustee to
DTC and DTC will credit such distributions to the accounts of its Participants,
with the Participants further crediting such distributions to the accounts of
indirect participants or Certificate Owners or Note Owners, Certificate Owners
and Note Owners may experience delays in the receipt of such distributions.
STATEMENTS TO SECURITYHOLDERS
On or prior to each Distribution Date, the Servicer will prepare and
provide to the Trustee a statement to be delivered to the related
Certificateholders on such Distribution Date.
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On or prior to each Payment Date, the Servicer will prepare and provide to the
Indenture Trustee a statement to be delivered to the related Noteholders on such
Payment Date. Such statements will be based on the information in the related
Servicer's Certificate setting forth certain information required under the
Trust Documents (the "Servicer's Certificate"). Each such statement to be
delivered to Certificateholders will include, where appropriate, the following
information as to the Certificates with respect to such Distribution Date or the
period since the previous Distribution Date, as applicable, and each such
statement to be delivered to Noteholders will include the following information
as to the Notes with respect to such Payment Date or the period since the
previous Payment Date, as applicable:
(i) the amount of the distribution allocable to
interest on or with respect to each class of Securities;
(ii) the amount of the distribution allocable to
principal on or with respect to each class of Securities;
(iii) the Certificate Balance and the Certificate Pool
Factor for each class of Certificates and the aggregate outstanding
principal balance and the Note Pool Factor for each class of Notes,
after giving effect to all payments reported under (ii) above on such
date;
(iv) the amount of the Servicing Fee paid to the
Servicer with respect to the related Monthly Period or Periods, as the
case may be;
(v) the Pass-Through Rate or Interest Rate for the next
period for any class of Certificates or Notes with variable or
adjustable rates;
(vi) the amount, if any, distributed to
Certificateholders and Noteholders applicable to payments under the
related Policy or other form of credit enhancement, if any; and
(vii) such other information as may be specified in the
related Prospectus Supplement.
Each amount set forth pursuant to subclauses (i), (ii), (iv) and (vi)
with respect to Certificates or Notes will be expressed as a dollar amount per
$1,000 of the initial Certificate Balance or the initial principal balance of
the Notes, as applicable.
Unless and until Definitive Certificates or Definitive Notes are
issued, such reports with respect to a series of Securities will be sent on
behalf of the related Trust to the Trustee, the Indenture Trustee and Cede &
Co., as registered holder of the Certificates and the Notes and the nominee of
DTC. Certificate Owners and Note Owners may receive copies of such reports upon
written request, together with a certification that they are Certificate Owners
or Note Owners, as the case may be, and payment of any expenses associated with
the distribution of such reports, from the Trustee or the Indenture Trustee, as
applicable. See "Book-Entry Registration" above.
Within the prescribed period of time for tax reporting purposes after
the end of each calendar year during the term of a Trust, the Trustee and the
Indenture Trustee, as applicable, will mail to each holder of a class of
Securities who at any time during such calendar year has
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been a Securityholder, and received any payment thereon, a statement containing
certain information for the purposes of such Securityholder's preparation of
federal income tax returns. See "Certain Federal Income Tax Consequences."
LISTS OF SECURITYHOLDERS
With respect to each series of Certificates, at such time, if any, as
Definitive Certificates have been issued, the Trustee will, upon written request
by three or more Certificateholders or one or more holders of Certificates
evidencing not less than 25% of the Certificate Balance, within five Business
Days after provision to the Trustee of a statement of the applicants' desire to
communicate with other Certificateholders about their rights under the related
Trust Documents or the Certificates and a copy of the communication that the
applicants propose to transmit, afford such Certificateholders access during
business hours to the current list of Certificateholders for purposes of
communicating with other Certificateholders with respect to their rights under
the related Trust Documents. The related Trust Documents will not provide for
holding any annual or other meetings of Certificateholders.
With respect to each series of Notes, if any, at such time as
Definitive Notes have been issued, the Indenture Trustee will, upon written
request by three or more Noteholders or one or more holders of Notes evidencing
not less than 25% of the aggregate principal balance of the related Notes,
within five Business Days after provision to the Indenture Trustee of a
statement of the applicants' desire to communicate with other Noteholders about
their rights under the related Indenture or the Notes and a copy of the
communication that the applicants propose to transmit, afford such Noteholders
access during business hours to the current list of Noteholders for purposes of
communicating with other Noteholders with respect to their rights under the
Indenture. The related Indenture will not provide for holding any annual or
other meetings of Noteholders.
DESCRIPTION OF THE PURCHASE AGREEMENTS AND THE
TRUST DOCUMENTS
The following summary describes certain terms of the Purchase
Agreements (each a "Purchase Agreement") pursuant to which the Seller will
purchase Receivables from one or more NAFCO Transferors, and certain terms of
either (i) the Pooling and Servicing Agreements or (ii) the Sale and Servicing
Agreements and the Trust Agreements (in either case collectively referred to as
the "Trust Documents") pursuant to which the Seller will sell and assign such
Receivables to a Trust and the Servicer will agree to service such Receivables
on behalf of the Trust, and pursuant to which such Trust will be created and
Certificates will be issued. Forms of the Purchase Agreement and the Trust
Documents have been filed as exhibits to the Registration Statement of which
this Prospectus forms a part. The Seller will provide a copy of such agreements
(without exhibits) upon request to a holder of Securities described therein.
Requests for such copies should be directed to Chief Financial Officer, National
Auto Finance Company L.P., One Park Place, Suite 200, 621 N.W. 53rd Street, Boca
Raton, Florida 33487 (telephone (407) 997-2747). This summary does not purport
to be complete and is subject to, and qualified in its entirety by reference to,
all of the provisions of the Purchase Agreement and the Trust Documents. Where
particular provisions or terms used in the Purchase Agreement and the Trust
Documents are referred to, the actual provisions (including definitions of
terms) are incorporated by reference as part of such summary.
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SALE AND ASSIGNMENT OF THE RECEIVABLES
On or prior to the Closing Date with respect to a series of Securities
specified in the related Prospectus Supplement, each applicable NAFCO Transferor
(and, if such NAFCO Transferor is a special-purpose finance subsidiary of NAFCO,
the Originator or Originators with respect to the Receivables being transferred
thereby) will enter into a Purchase Agreement with the Seller pursuant to which
such NAFCO Transferor will, on or prior to such Closing Date, sell and assign to
the Seller, without recourse, its entire interest in and to the related
Receivables, including its security interest in the Financed Vehicles securing
such Receivables and its rights to receive all payments on, or proceeds with
respect to, such Receivables and the related Financed Vehicles to the extent
paid or payable on or after the applicable Cutoff Date. Pursuant to the Purchase
Agreement, the applicable Originator will agree that, upon the occurrence of a
Repurchase Event under the related Trust Documents with respect to any
Receivable of a Trust, the Trustee on behalf of the Security Insurer (if any)
and the Certificateholders will be entitled to require the Originator of such
Receivable to repurchase such Receivable from the Trust. Such rights of the
Trust under the Purchase Agreement will constitute part of the property of the
Trust and may be enforced directly by the Trustee on behalf of the Security
Insurer (if any) and the Certificateholders. In addition, the Trustee will
pledge such rights to the Indenture Trustee as collateral for the Notes, if any.
On the Closing Date, the Seller will sell and assign to the Trustee,
without recourse, the Seller's entire interest in the related Receivables and
the proceeds thereof, including its security interests in the Financed Vehicles.
Each Receivable transferred by the Seller to the Trust will be identified in a
schedule appearing as an exhibit to the related Trust Documents (the "Schedule
of Receivables"). Concurrently with such sale and assignment, the Trustee will
execute and deliver the related certificates representing the Certificates to or
upon the order of the Seller, and the Trustee will execute and the Indenture
Trustee will authenticate and deliver the Notes, if any, to or upon the order of
the Seller.
In the Purchase Agreement, the Originator or Originators will warrant
to the Seller and the Trustee, and in the Trust Documents, the Seller will
warrant to the Trustee, among other things, that (except as otherwise specified
in the related Prospectus Supplement): (i) each Receivable (A) has created or
will create a valid, binding and enforceable first priority security interest in
favor of the applicable Originator in the Financed Vehicle (and, within 180 days
after the Closing Date, all title documents to the Financed Vehicles will show
the applicable Originator as first lienholder), which security interest has been
validly assigned by such Originator to the Seller and by the Seller to the
Trustee, (B) was originated by a Dealer for the retail sale of a Financed
Vehicle in the ordinary course of such Dealer's business, was fully and properly
executed by the parties thereto, was purchased by the Originator from such
Dealer under an existing Dealer Agreement with such Originator and was validly
assigned by such Dealer to the Originator, (C) contains customary and
enforceable provisions adequate to enable realization against the collateral
security and (D) provides for level monthly payments (other than with respect to
the first and the final payments) which, if made when due, will fully amortize
the amount financed over the original term; (ii) no selection procedures adverse
to the Securityholders or the Security Insurer, if any, were utilized in
selecting the Receivables from those receivables owned by the Originator that
meet the selection criteria contained in the related Trust Documents; (iii) all
requirements of applicable Federal, state and local laws, and regulations
thereunder, in respect of all of the Receivables and each and every sale of the
Financed Vehicles have been complied with in all material respects; (iv) each
Receivable represents the genuine, legal, valid and binding payment obligation
to the Obligor thereon,
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enforceable in accordance with its terms, except as may be limited by laws
affecting creditors' rights generally or as may be modified by the application
of the Solders' and Sailors' Civil Relief Act of 1940, as amended (the "Relief
Act"); (v) (A) immediately before the conveyance of each Receivable to the
Trust, such Receivable will be secured by an enforceable and validly perfected
first priority security interest in the Financed Vehicle in favor of the
Originator and (B) as of the Cutoff Date there were no security interests,
liens, charges, pledges, preferences, equities or encumbrances of any kind,
claims or rights of others or claims for taxes, work, labor or materials
affecting a Financed Vehicle (each, a "Lien") which are or may be Liens prior or
equal to the Lien of the related Receivable (vi) there has been no default,
breach, violation or event permitting acceleration under the terms of any
Receivable (other than payment delinquencies of not more than 30 days), and
there has been no waiver of any of the foregoing; and as of the Cutoff Date, no
Financed Vehicle has been repossessed; (vii) immediately prior to the conveyance
of the Receivables to the Seller, the Originator had good and indefeasible title
thereto and was the sole owner thereof, free of any Lien; immediately prior to
the conveyance of the Receivables to the Trust, the Seller had good and
indefeasible title thereto and was the sole owner thereof, free of any Lien; and
upon conveyance of the Receivables by the Seller to the Trust pursuant to the
Trust Documents, the Trust will have good and indefeasible title to and will be
the sole owner of the Receivables, free of any Lien; (viii) no Dealer has a
participation in or other right to receive proceeds of any Receivable, and
neither the Originator nor the Seller has taken any action to convey any right
to any person that would result in such person having a right to payments
received with respect to any Receivable; (ix) neither the Originator nor the
Seller has done anything to convey any right to any person that would impair the
rights of the Trust, the Certificateholders or the Noteholders in any Receivable
or the proceeds thereof; (x) each Receivable was originated by a Dealer and was
sold by the Dealer to the Originator without any fraud or misrepresentation on
the part of such Dealer; (xi) no Obligor is the United States of America or any
State or any agency, department, subdivision or instrumentality thereof; (xii)
no Receivable is assumable by another person in a manner that would release the
Obligor thereof from such Obligor's obligations to the Originator with respect
to such Receivable; (xiii) no Receivable was originated in, or is subject to the
laws of, any jurisdiction the laws of which would make unlawful, void or
voidable the sale, transfer and assignment of such Receivable under the Purchase
Agreement or the Trust Documents or pursuant to transfers of the Securities;
(xiv) all filings and other actions required to be made, taken or performed by
any person in any jurisdiction to give the Trust a first priority perfected lien
or ownership interest in the Receivables will have been made, taken or
performed; (xv) there exists a Receivable File pertaining to each Receivable,
and such Receivable File contains (A) the fully executed original of the
Receivable, (B) the original lien certificate or application therefor and (C) a
credit application signed by the Obligor, or a copy thereof; each of such
documents required to be signed by the Obligor has been signed by the Obligor in
the appropriate spaces, all blanks have been properly filled in and each form
has otherwise been correctly prepared; and the complete Receivable File for each
Receivable is in the possession of a custodian; (xvi) there is only one original
executed copy of each Receivable; (xvii) the Receivables constitute chattel
paper within the meaning of the UCC as in effect in the States of Florida and
Delaware; (xviii) each Receivable was entered into by an Obligor who at the
Cutoff Date had not been identified on the records of the Originator as being
the subject of a current bankruptcy proceeding; (xix) the computer tape
containing information with respect to the Receivables that was made available
by the Seller to the Trustee on the Closing Date and was used to select the
Receivables (the "Computer Tape") was complete and accurate as of the Cutoff
Date and includes a description of the same Receivables that are described in
the Schedule of Receivables; (xx) by the Closing Date, the portions of the
electronic master record of retail installment sale contracts of the Originator
(the "Electronic Ledger") relating to the Receivables will have been
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clearly and unambiguously marked to show that the Receivables have been
transferred to the Seller; (xxi) as of the Closing Date, each Financed Vehicle
was covered by a comprehensive and collision insurance policy (A) in an amount
at least equal to the lesser of (1) its maximum insurable value or (2) the
principal amount due from the Obligor under the related Receivable, (B) naming
the Originator as loss payee and (C) insuring against loss and damage due to
fire, theft, transportation, collision and other risks generally covered by
comprehensive and collision insurance coverage; and no Financed Vehicle was or
had previously been insured under a policy of force-placed insurance; (xxii) no
Receivable has been satisfied, subordinated or rescinded; the Financed Vehicle
securing each Receivable has not been released from the lien of the related
Receivable in whole or in part; and no provision of a Receivable has been
waived, altered or modified in any respect, except by instruments or documents
contained in the Receivable File; (xxiii) no Receivable is subject to any right
of rescission, set-off, counterclaim or defense; (xxiv) no Receivable was more
than 30 days past due as of the Cutoff Date and (xxv) each Receivable had a
remaining principal balance as of the Cutoff Date equal to or greater than
$500.00.
The warranties of the Originators and the Seller will be made as of the
execution and delivery of each Purchase Agreement and the related Trust
Documents and will survive the sale, transfer and assignment of the related
Receivables and other Trust Property to the Trust but will speak only as of the
date made.
In the event of a breach by the applicable Originator of any
representation or warranty made by it in a Purchase Agreement with respect to a
Receivable that materially and adversely affects the interests of the
Securityholders, the Security Insurer (if any) or the Trust in that Receivable
(any such breach by the Originator being a "Repurchase Event"), the Originator ,
unless it cures the breach within the time period specified in the related
Purchase Agreement following the date on which the Originator becomes aware of
or receives written notice from the Trustee, the Indenture Trustee, the Security
Insurer, if any, or the Servicer of such breach, will be obligated to repurchase
the Receivable from the Trust. Any such repurchase shall be made at a price
equal to the Purchase Amount . The " Purchase Amount" of any Receivable means
the outstanding principal balance of such Receivable plus accrued and unpaid
interest thereon. This repurchase obligation may be enforced by the Security
Insurer (if any), or by the Trustee or the Indenture Trustee on behalf of the
Certificateholders and the Noteholders, respectively, and will constitute the
sole remedy available to the Certificateholders, the Noteholders, the Security
Insurer (if any), the Trustee or the Indenture Trustee against the Originators
or the Seller for any such uncured breach, except that pursuant to the Trust
Documents, the applicable Originator will indemnify the Trustee, the Indenture
Trustee, the Trust, the Backup Servicer, the Collateral Agent, the Security
Insurer (if any), and the Certificateholders and Noteholders against losses,
damages, liabilities and claims which may be asserted against any of them as a
result of third-party claims arising out of the facts giving rise to such
breach.
Upon the purchase by NAFCO of a Warranty Receivable, the Trustee will
convey such Receivable and the related Trust Property to the applicable
Originator.
CUSTODY OF RECEIVABLE FILES
Unless otherwise specified in the related Prospectus Supplement, OFSA
as designee of NAFCO under a Custodial Agreement, on behalf of each Trust, will
hold the original installment sales contract as well as copies of documents and
instruments relating to each Receivable and evidencing the security interest in
the Financed Vehicle securing each Receivable (the "Receivable Files"). In order
to protect the Trust's ownership interest in the Receivables, the
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Originators will file UCC-1 financing statements in Florida and the Seller will
file UCC-1 financing statements in Florida and Delaware to give notice of such
Trust's ownership of the related Receivables and the related Trust Property. If
held by OFSA, the Receivables will not be segregated and will not be stamped or
otherwise marked to indicate that such Receivables have been sold to the related
Trust.
If so specified in the related Prospectus Supplement, NAFCO will be
appointed to act as custodian for the Receivable Files of each Trust. The Trust
and NAFCO or such other institution specified in the related Prospectus
Supplement, as the case may be, may enter into a custodial agreement pursuant to
which NAFCO or such other institution will agree to hold the Receivable Files on
behalf of the related Trust. Any such custodial agreement may be terminated by
the Trust and, if NAFCO is custodian, by the Security Insurer, on 30 days'
notice to NAFCO or such other institution or, in the case of termination by the
Security Insurer of NAFCO as custodian, immediately. If NAFCO resigns or is
terminated as the Servicer, any custodial agreement with NAFCO shall terminate
at the same time.
The Receivable Files, if held by NAFCO as custodian, will be stamped or
otherwise marked to indicate that such Receivables have been sold to the related
Trust. The Receivable Files will also be physically segregated. Despite these
precautions, if, through inadvertence or otherwise, any of the Receivables were
sold to another party (or a security interest therein were granted to another
party) that purchased (or took such security interest in) any of such
Receivables in the ordinary course of its business and took possession of such
Receivables, the purchaser (or secured party) would acquire an interest in the
Receivables superior to the interest of the related Trust if the purchaser (or
secured party) acquired (or took a security interest in) the Receivables for new
value and without actual knowledge of such Trust's interest. See "Certain Legal
Aspects of the Receivables -- Rights in the Receivables."
COLLECTIONS
With respect to each Trust, the Servicer will establish one or more
Collection Accounts in the name of the Trustee or, in the case of any series
including one or more classes of Notes, in the name of the Indenture Trustee for
the benefit of the related Securityholders. If so specified in the related
Prospectus Supplement, the Trustee will establish and maintain for each series
an account, in the name of the Trustee on behalf of the related
Certificateholders, in which amounts released from the Collection Account, any
Pre-Funding Account or any Revolving Account and any amounts received from any
source of credit enhancement for distribution to such Certificateholders will be
deposited and from which all distributions to such Certificateholders will be
made (the "Certificate Distribution Account"). With respect to any series
including one or more classes of Notes, the Indenture Trustee will establish and
maintain for each series an account, in the name of the Indenture Trustee on
behalf of the related Noteholders, in which amounts released from the Collection
Account, any Pre-Funding Account or any Revolving Account and any amounts
received from any source of credit enhancement for payment to such Noteholders
will be deposited and from which all distributions to such Noteholders will be
made (the "Note Distribution Account"). The Collection Account, the Certificate
Distribution Account (if any), and the Note Distribution Account (if any), are
referred to herein collectively as the "Designated Accounts." Any other accounts
to be established with respect to a Trust will be described in the related
Prospectus Supplement.
Each Designated Account will be an Eligible Account maintained with the
Trustee, the Indenture Trustee and/or other depository institutions. An
"Eligible Account" is (i) a segregated
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trust account that is maintained with the corporate trust department of a
depository institution (acceptable to the Security Insurer, if any) or (ii) a
segregated demand deposit account maintained with a depository institution or
trust company organized under the laws of the United States of America, or any
of the states thereof, or the District of Columbia, that has a certificate of
deposit, short-term deposit or commercial paper rating of at least A-1+ by S&P
and P-1 by Moody's (the "Required Deposit Rating"), and that is acceptable to
the Security Insurer if any (prior to an Insurer Default). On the Closing Date
specified in the related Prospectus Supplement, the Servicer will cause to be
deposited in the Collection Account all payments on the Receivables received by
the Servicer after the Cutoff Date and on or prior to the second Business Day
preceding the Closing Date.
All payments from Obligors that are received by the Servicer or any
subservicer on behalf of each Trust will be deposited in the related Collection
Account not later than two Business Days after receipt thereof or within such
other time period as may be acceptable to the Rating Agencies. OFSA has
established and maintains a lockbox account (the "Lockbox Account") with Mellon
Financial Services, a subsidiary of Mellon Bank (the "Lockbox Bank") to which
payments in respect of motor vehicle installment debt obligations and lease
obligations serviced by OFSA are remitted. Unless otherwise specified in the
related Prospectus Supplement, Obligors will be notified to remit payments in
respect of the Receivables directly to the Lockbox Account. Unless otherwise
specified in the related Prospectus Supplement, the Lockbox Account will not be
segregated, assigned or pledged to the Trustee or the Indenture Trustee and
payments in respect of the Receivables deposited to the Lockbox Account will be
commingled with collections in respect of motor vehicle installment debt
obligations and lease obligations serviced by OFSA. Neither the Trustee nor the
Servicer will have any rights to withdraw or otherwise direct disposition of
funds on deposit in the Lockbox Account.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer will deposit all payments on the Receivables held by any Trust received
directly by the Servicer from Obligors and all proceeds of Receivables collected
directly by the Servicer during each Monthly Period into the Collection Account
not later than the Business Day after receipt. Notwithstanding the foregoing and
unless otherwise provided in the related Prospectus Supplement, the Servicer may
utilize an alternative remittance schedule acceptable to the Servicer and the
Security Insurer, if any (prior to an Insurer Default), if the Servicer provides
to the Trustee and the Indenture Trustee written confirmation from each Rating
Agency that such alternative remittance schedule will not result in the
downgrading or withdrawal by such Rating Agency of the rating(s) then assigned
to the Securities. NAFCO and the Servicer will also deposit into the Collection
Account on or before the Deposit Date the Purchase Amount of each Warranty
Receivable or Administrative Receivable to be purchased by it as of the related
Accounting Date.
For any series of Securities, funds in the Designated Accounts and any
other accounts identified in the related Prospectus Supplement will be invested,
as provided in the related Trust Documents, at the direction of the Servicer in
" Eligible Investments," consisting (unless otherwise specified in the related
Prospectus Supplement) of: interest-bearing obligations issued or guaranteed as
to principal and interest by the United States or any agency or instrumentality
of the United States, the obligations of which are backed by the full faith and
credit of the United States; interest-bearing obligations issued or guaranteed
by the Federal National Mortgage Association or the Federal Home Loan Mortgage
Corporation as long as such obligations are assigned the highest credit rating
by S&P and Moody's; demand or time deposits, certificates of deposit of and
certain other obligations of domestic depositary institutions with short-term
unsecured debt obligations assigned the highest credit rating by S&P and
Moody's; certain
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repurchase obligations with respect to the government securities described above
and entered into with a domestic depository institution or trust company, the
deposits of which are rated at least A-1+ by S&P and P-1 by Moody's; certain
corporate debt securities assigned the highest credit rating by S&P and Moody's;
certain commercial paper rated in the highest credit rating category by S&P and
Moody's; and certain other securities meeting the criteria specified in the
related Trust Documents to the extent investment in such securities would not
require registration of the related Trust under the Investment Company Act of
1940. Eligible Investments shall mature no later than the Business Day preceding
the applicable Distribution Date or Payment Date, as the case may be, for the
Monthly Period to which such amounts relate. Investments in Eligible Investments
will be made in the name of the Trustee or the Indenture Trustee, as the case
may be, and such investments will not be sold or disposed of prior to their
maturity.
As an administrative convenience and subject to certain conditions
specified in the Trust Documents, the Servicer will be permitted to make
deposits of amounts actually collected by it in a Monthly Period net of
distributions to be made to it with respect to such Monthly Period, which
amounts may be netted prior to any such remittance for the Monthly Period. The
Servicer will account, however, to the Trustee, the Indenture Trustee, the
Security Insurer, if any, the Certificateholders and the Noteholders as if all
such deposits and distributions were made individually. 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 Monthly Period,
amounts previously deposited in the Collection Account but later determined to
have resulted from mistaken deposits or postings or checks returned for
insufficient funds.
SERVICING PROCEDURES
The Servicer will make reasonable efforts, consistent with the
customary servicing procedures employed by the Servicer with respect to
Receivables owned or serviced by it, to collect all payments due with respect to
the Receivables held by any Trust and, in a manner consistent with the Trust
Documents, will follow its customary collection procedures with respect to motor
vehicle loans that it services for itself and others.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer will covenant in the related Trust Documents that it will not extend
the monthly payments under a Receivable more than a maximum of four months in
the aggregate and that the cumulative extensions with respect to any Receivable
will not cause the term of such Receivable to extend beyond the last day of the
Monthly Period immediately preceding the Final Scheduled Distribution Date
specified in the related Prospectus Supplement. The Servicer may, with the
consent of the Security Insurer, if any (prior to an Insurer Default) and
subject to certain other conditions, agree to modify a Receivable to avoid a
prepayment by the Obligor, provided that such modification may not cause the APR
on such Receivable to be below a rate equal to the highest Interest Rate or
Pass-Through Rate on the related Securities plus the applicable Servicing Rate,
nor may such modification cause the term of the modified Receivable to extend
beyond the last day of the Monthly Period immediately preceding the Final
Scheduled Distribution Date specified in the related Prospectus Supplement.
Under current Proposed Treasury Regulations, depending on the characterization
of the related Trust for federal income tax purposes, no such modification of a
Receivable may change the APR by more than .25%. The Servicer will also covenant
that it will not release a Financed Vehicle from the security interest granted
by the Receivable except when the Receivable has been paid in full or as
otherwise contemplated by the Trust Documents.
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Upon the discovery by any of the Servicer, the Security Insurer, if
any, the Trustee or the Indenture Trustee, or receipt of written notice by the
Servicer of any breach by the Servicer of certain of its covenants that
materially and adversely affects the interests of a Trust, the Security Insurer
(if any) or the related Securityholders in a Receivable, unless such breach
shall have been cured within the applicable cure period provided for in the
Trust Documents and specified in the related Prospectus Supplement, the Servicer
will be required to purchase the related Receivable for the Purchase Amount. The
purchase obligation will constitute the sole remedy available to the Security
Insurer (if any), the Certificateholders, the Trustee on behalf of
Certificateholders, the Noteholders or the Indenture Trustee on behalf of
Noteholders against the Servicer for any such uncured breach, expect with
respect to certain indemnities of the Servicer under the Trust Documents.
Under the Trust Documents, the Servicer will be required to use its
best efforts to repossess or otherwise comparably convert the ownership of any
Financed Vehicle securing a Receivable with respect to which the Servicer has
determined that payments thereunder are not likely to be resumed as soon as
practicable after default on such Receivable, but in no event later than the day
on which any portion of a Scheduled Payment has become 91 days delinquent. The
Servicer is authorized to follow such of its normal collection practices and
procedures as it deems necessary or advisable to realize upon any Receivable.
The Servicer may repossess and 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 Servicer will be
entitled to recover all reasonable expenses incurred by it in connection
therewith. The proceeds of such realization (net of such expenses) will be
deposited in the Collection Account at the time and in the manner described
above under "-- Collections."
Unless otherwise specified in the related Prospectus Supplement,
neither the Servicer nor any Subservicer will have any obligation to make
advances of delinquent payments of principal and interest on the Receivables.
The Trust Documents will provide that the Servicer will indemnify and
defend the Trustee, the Indenture Trustee, the Backup Servicer, the Trust, the
Security Insurer (if any) and the Securityholders against, among other things,
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 (as may occur, for instance, upon
repossession of a Financed Vehicle) or in respect of any action taken or failed
to be taken by the Servicer with respect to any portion of the Trust Property in
violation of the provisions of the Trust Documents. The Servicer's obligations
to indemnify the Trustee, the Indenture Trustee, the Backup Servicer, the Trust,
the Security Insurer (if any) and the Securityholders 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
With respect to each series of Securities, the Servicer will be
entitled to receive the Servicing Fee for each Monthly Period in an amount
generally equal to the product of one-twelfth of the Servicing Rate specified in
the related Prospectus Supplement and the Aggregate Principal Balance as of the
first day of such Monthly Period. The Servicer also will be entitled to collect
and retain any late fees or other administrative fees or similar charges allowed
by the terms of the Receivables or applicable law. The Servicing Fee and any
additional servicing
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compensation will be paid out of collections on or with respect to the
Receivables prior to distributions to Certificateholders and Noteholders. A
"Monthly Period" with respect to any Distribution Date will generally be the
calendar month immediately preceding the month in which the Distribution Date
occurs.
NAFCO, as Servicer, will be required to pay all expenses incurred by it
in connection with its servicing activities (including fees, expenses and
disbursements of the Trustee, the Indenture Trustee, the Lockbox Bank, the
Custodian and independent accountants, taxes imposed on the Servicer and
expenses incurred in connection with distributions and reports to
Certificateholders and Noteholders and the Security Insurer (if any)), except
certain expenses incurred in connection with realizing upon the Receivables.
DISTRIBUTIONS
With respect to each Trust, beginning on the Distribution Date or
Payment Date, as applicable, specified in the related Prospectus Supplement,
distributions of principal and interest (or, where applicable, of principal or
interest only) on each class of Securities entitled thereto will be made by the
Trustee or the Indenture Trustee, as applicable, to the Certificateholders and
the Noteholders. The timing, calculation, allocation, order, source, priorities
of and requirements for all distributions to each class of Certificateholders
and all payments to each class of Noteholders will be set forth in the related
Prospectus Supplement.
CREDIT ENHANCEMENT
The amounts and types of credit enhancement arrangements and the
provider thereof, if applicable, with respect to each class of Securities will
be set forth in the related Prospectus Supplement. If and to the extent provided
in the related Prospectus Supplement, credit enhancement may be in the form of a
financial guaranty insurance policy, subordination of one or more classes of
Securities, reserve accounts, overcollateralization, letters of credit, credit
or liquidity facilities, repurchase obligations, third party payments or other
support, cash deposits or such other arrangements as may be described in the
related Prospectus Supplement or any combination of two or more of the
foregoing. If specified in the applicable Prospectus Supplement, credit
enhancement for a series of Securities may cover one or more other series of
Securities.
The presence of credit enhancement is intended to enhance the
likelihood of receipt by the Certificateholders and the Noteholders of the full
amount of principal and interest due thereon and to decrease the likelihood that
the Certificateholders and the Noteholders will experience losses. The credit
enhancement for a class of Securities will not provide protection against all
risks of loss and will not guarantee repayment of the entire principal and
interest thereon unless so provided in the related Prospectus Supplement. If
losses occur which exceed the amount covered by any credit enhancement or which
are not covered by any credit enhancement, Securityholders will bear their
allocable share of deficiencies. In addition, if a form of credit enhancement
covers more than one series of Securities. Securityholders of any such series
will be subject to the risk that such credit enhancement will be exhausted by
the claims of Securityholders of other series.
EVIDENCE AS TO COMPLIANCE
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The Trust Documents will require the Servicer to cause a firm of
independent certified public accountants to furnish to the Trustee and the
Indenture Trustee, the Security Insurer, if any, and each Rating Agency, on or
before March 31 of each year (or, if the Servicer's fiscal year ends on a date
other than December 31, the date 90 days after the end of the Servicer's fiscal
year), beginning on the first March 31 after the Closing Date, with respect to
the twelve months ended the immediately preceding December 31 or other fiscal
year-end (or such other period as shall have elapsed from the Closing Date to
the date of such certificate), a statement addressed to the Board of Directors
of the Servicer, to the Trustee, the Indenture Trustee, the Backup Servicer and
the Security Insurer, if any, as to compliance by the Servicer during such
period with certain standards relating to the servicing of the Receivables set
forth in the Trust Documents. A copy of such statement may be obtained by any
Certificate Owner or Note Owner upon compliance with the requirements described
above. See "Certain Information Regarding the Securities -- Statements to
Securityholders" above.
The Trust Documents will also provide for delivery to the Trustee, the
Indenture Trustee, the Security Insurer, if any, and each Rating Agency, if any,
and the Backup Servicer, on or before March 31 (or, if the Servicer's fiscal
year ends on a date other than December 31, the date 90 days after the end of
the Servicer's fiscal year) of each year, beginning on the first March 31
following the Closing Date, of an officers' certificate signed by any two of the
president, any vice-president or assistant vice president, or the controller of
the Servicer (each, a "Servicer Responsible Officer"), dated as of December 31
of such year (or such other date on which the Servicer's fiscal year ends),
stating that (i) a review of the activities of the Servicer during the preceding
12-month period (or such other period as shall have elapsed from the Closing
Date to the date of the first such certificate) and of its performance under the
Trust Documents has been made under such officer's supervision, and (ii) to such
officer's knowledge, based on such review, the Servicer has fulfilled all its
obligations under the Trust Documents throughout such period, or, if there has
been a default in the fulfillment of any such obligation, specifying each such
default know to such officer and the nature and status thereof. A copy of such
certificate may be obtained by any Certificate Owner or Note Owner upon
compliance with the requirements described above. See "Certain Information
Regarding the Securities -Statements to Securityholders" above.
CERTAIN MATTERS REGARDING THE SERVICER
If a Policy has been issued with respect to a series of Securities,
NAFCO's appointment as Servicer under the related Trust Documents may be subject
to periodic renewal by the Security Insurer, if any (prior to an Insurer
Default). It is expected that the Security Insurer (if any) will renew NAFCO's
appointment as Servicer until such time, if any, as a Servicer Termination Event
shall have occurred. Unless otherwise provided in the related Prospectus
Supplement, if an Insurer Default occurs or if no Policy is issued with respect
to a series, NAFCO's appointment as Servicer under the related Trust Documents
will continue until such time as it resigns, is terminated as Servicer, or until
such time, if any, as a Servicer Termination Event shall have occurred under the
related Trust Documents. The related Trust Documents will provide that the
Servicer may not resign from its obligations and duties as Servicer thereunder,
except upon a determination (as evidenced by an opinion of independent counsel,
delivered and acceptable to the Trustee, the Indenture Trustee and the Security
Insurer, if any (prior to an Insurer Default)), that by reason of a change in
legal requirements its performance of such duties would cause it to be in
violation of such legal requirements in a manner which would result in a
material adverse effect on the Servicer. No such resignation will become
effective until the
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Backup Servicer or other successor Servicer has assumed the servicing
obligations and duties under the related Trust Documents.
Any corporation or other entity into which the Servicer may be merged
or consolidated, resulting from any merger or consolidation to which the
Servicer is a party, which acquires by conveyance, transfer or lease
substantially all of the assets of the Servicer or succeeding to all or
substantially all the business of the Servicer, where the Servicer is not the
surviving entity, which corporation or other entity assumes every obligation of
the Servicer under each Trust Document, will be the successor to the Servicer
under the related Trust Documents; provided, however, that (i) such entity is an
Eligible Servicer, (ii) immediately after giving effect to such transaction, no
Servicer Termination Event, no event of default under the agreement (if any),
providing for the issuance of the Policy (the "Insurance Agreement") (prior to
an Insurer Default) and no event which, after notice or lapse of time, or both,
would become a Servicer Termination Event or an event of default under the
related Insurance Agreement, if any (prior to an Insurer Default), shall have
occurred and be continuing, (iii) the Servicer shall have delivered to the
Trustee, the Indenture Trustee and the Security Insurer (if any) an officers'
certificate and an opinion of counsel each stating that such consolidation,
merger or succession and such agreement of assumption comply with the related
Trust Documents and that all conditions precedent provided for in the Trust
Documents relating to such transaction have been complied with, and (iv) the
Servicer shall have delivered an opinion of counsel either (A) stating that, in
the opinion of such counsel, all financing statements and continuation
statements and amendments thereto have been executed and filed that are
necessary fully to preserve and protect the interest of the Trustee and the
Indenture Trustee in the Receivables and the other Trust Property and reciting
the details of such filings, or (B) stating that, in the opinion of such
counsel, no such action shall be necessary to preserve and protect such
interest.
INDEMNIFICATION AND LIMITS ON LIABILITY
The Trust Documents will provide that the Servicer will be liable only
to the extent of the obligations specifically undertaken by it under the Trust
Documents and will have no other obligations or liabilities thereunder. The
Trust Documents will further provide that neither the Servicer nor any of its
directors, officers, employees and agents will have any liability to the Trust,
the Certificateholders or the Noteholders or the Security Insurer, if any,
except as provided in the Trust Documents, for any action taken or for
refraining from taking any action pursuant to the Trust Documents, other than
any liability that would otherwise be imposed by reason of the Servicer's breach
of the Trust Documents or willful misfeasance, bad faith or negligence
(including errors in judgment) in the performance of its duties, or by reason of
reckless disregard of obligations and duties under the Trust Documents or any
violation of law.
The Servicer may, with the prior consent of the Security Insurer, if
any (prior to an Insurer Default), the Trustee, the Indenture Trustee, if any,
and the Backup Servicer, delegate duties under the related Trust Documents to
any of its affiliates. In addition, the Servicer may at any time perform the
specific duty of repossessing Financed Vehicles through subcontractors who are
in the business of servicing automotive receivables. The Servicer may also
perform other specific duties through subcontractors, with the prior consent of
the Security Insurer, if any (prior to an Insurer Default); provided, however,
that no such delegation of such duties by the Servicer shall relieve the
Servicer of its responsibility with respect thereto.
SERVICER TERMINATION EVENTS
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"Servicer Termination Events" under the Trust Documents will consist of
(i) any failure by the Servicer to deliver to the Trustee for distribution to
Certificateholders or the Indenture Trustee for distribution to Noteholders any
proceeds or payment required to be so delivered to be so delivered under the
terms of the Certificates, the Trust Documents, the Notes or the Indenture (or,
for so long as NAFCO is the Servicer, the Purchase Agreement) that continues
unremedied for a period of two Business Days after written notice is received by
the Servicer from the Trustee, the Indenture Trustee or the Security Insurer (if
any), or after discovery of such failure by a responsible officer of the
Servicer; (ii) any failure by the Servicer to deliver to the Trustee and the
Indenture Trustee and the Security Insurer, if any (prior to an Insurer
Default), certain reports required by the Trust Documents by the fourth Business
Day prior to the related Distribution Date; (iii) failure on the part of the
Servicer duly to observe or perform in any material respect any other covenants
or agreements of the Servicer set forth in the Certificates, the Trust
Documents, the Notes or the Indenture (or, for so long as NAFCO is the Servicer,
the Purchase Agreement), which failure (A) materially and adversely affects the
rights of Securityholders (determined without regard to the availability of
funds under any Policy) or of the Security Insurer, if any (prior to an Insurer
Default), and (B) continues unremedied for a period of 30 days after the date on
which written notice of such failure, requiring the same to be remedied, shall
have been given to the Servicer by the Trustee, the Indenture Trustee or the
Security Insurer, if any (or, if an Insurer Default shall have occurred and be
continuing, any Securityholder); (iv)(A) the commencement of an involuntary case
under the federal bankruptcy laws, as now or hereinafter in effect, or another
present or future federal or state bankruptcy, insolvency or similar law (the
"Bankruptcy Laws"), and such case is not dismissed within 60 days; or (B) the
entry of a decree or order for relief by a court or regulatory authority having
jurisdiction in respect of the Servicer or the Seller under the Bankruptcy Laws,
or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator
or other similar official of the Servicer or the Seller or of any substantial
part of their respective properties or ordering the winding up or liquidation of
the affairs of the Servicer or the Seller; (v) the commencement by the Servicer
or the Seller of a voluntary case under any Bankruptcy Law, or the consent by
the Servicer or the Seller to the appointment of or taking possession by a
receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Servicer or the Seller or of any substantial part of the
Servicer's or the Seller's property or the making by the Servicer or the Seller
of an assignment for the benefit of creditors or the failure by the Servicer or
the Seller generally to pay its debts as such debts become due or the taking of
corporate action by the Servicer or the Seller in furtherance of any of the
foregoing; (vi) any representation, warranty or statement of the Servicer made
in the Trust Documents or any certificate, report or other writing delivered
pursuant thereto shall prove to be incorrect in any material respect as of the
time when the same shall have been made, and the incorrectness of such
representation, warranty or statement has a material adverse effect (determined
without regard to the availability of funds under any Policy) on the Trust and,
within 30 days after written notice thereof shall have been given to the
Servicer by the Trustee, the Indenture Trustee or the Security Insurer, if any
(or, if an Insurer Default shall have occurred and be continuing, any
Securityholder), the circumstances or condition in respect of which such
representation, warranty or statement was incorrect shall not have been
eliminated or otherwise cured; or (vii) if applicable, unless an Insurer Default
shall have occurred and be continuing, the occurrence of an event of default
under the Insurance Agreement.
If a Servicer Termination Event occurs and is continuing, the Security
Insurer, if any (or, if no Policy was issued with respect to such series or an
Insurer Default shall have occurred and be continuing, the Trustee, the
Indenture Trustee (if any), or a Certificate Majority or a Note Majority), by
notice then given in writing to the Servicer (and to the Trustee and the
Indenture
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Trustee if given by the Security Insurer or the Securityholders) may terminate
all of the rights and obligations of the Servicer under the Trust Documents.
Immediately upon the giving of such notice, and, in the case of a successor
Servicer other than the Backup Servicer, the acceptance by such successor
Servicer of its appointment, all authority of the Servicer will pass to the
Backup Servicer or other successor Servicer. The Trustee, the Indenture Trustee
and the successor Servicer may set off and deduct any amounts owed by the
Servicer from any amounts payable to the outgoing Servicer.
On and after the time the Servicer receives a notice of termination,
the Backup Servicer or other successor Servicer will be the successor in all
respects to the Servicer and will be subject to all the responsibilities,
restrictions, duties and liabilities of the Servicer under the related Trust
Documents; provided, however, that the successor Servicer shall have no
liability with respect to any obligation which was required to be performed by
the prior Servicer prior to the date that the successor Servicer becomes the
Servicer or any claim of a third party (including a Securityholder) based on any
alleged action or inaction of the prior Servicer. If a Policy has been issued
with respect to the series, such Policy may permit the Security Insurer (prior
to an Insurer Default) to exercise at any time its right to appoint as Backup
Servicer or as successor to the Servicer a person other than the Backup Servicer
named in the related Prospectus Supplement. Notwithstanding the above, if the
Backup Servicer shall be legally unable or shall be unwilling to act as
Servicer, and if an Insurer Default shall have occurred or if no Policy was
issued with respect to such series, the Trustee, the Indenture Trustee, a
Certificate Majority or a Note Majority may petition a court of competent
jurisdiction to appoint any Eligible Servicer as the successor to the Servicer.
Pending any such appointment, the Backup Servicer shall act as successor
Servicer unless it is legally unable to do so, in which event the Trustee shall
act as Servicer until a successor has been appointed and accepted such
appointment. "Eligible Servicer" means a person which, at the time of its
appointment as Servicer, (A) is servicing a portfolio of motor vehicle retail
installment sales contracts and/or motor vehicle installment loans, (B) is
legally qualified and has the capacity to service the Receivables and (C) has
demonstrated the ability to service professionally and competently a portfolio
of motor vehicle retail installment sales contracts and/or motor vehicle
installment loans similar to the Receivables in accordance with high standards
of skill and care.
Any successor Servicer shall be entitled to such compensation payable
out of the Collection Account as the outgoing Servicer would have been entitled
to under the Trust Documents if the outgoing Servicer had not resigned or been
terminated.
Upon any termination of, or appointment of a successor to, the
Servicer, the Trustee and the Indenture Trustee (if any) will each give prompt
written notice thereof to Certificateholders and Noteholders, respectively, at
their respective addresses appearing in the Certificate Register or the Note
Register, to the Security Insurer, if any (prior to an Insurer Default) and to
each Rating Agency.
Unless otherwise specified in the related Prospectus Supplement, if a
Policy has been issued with respect to a series, the Security Insurer (or, if an
Insurer Default shall have occurred and be continuing, a Certificate Majority or
Note Majority) may waive any Servicer Termination Event.
AMENDMENT
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The Trust Documents will generally provide for amendment by the Seller,
the Servicer, the Trustee and the Indenture Trustee, if any, with the prior
written consent of the Security Insurer, if any (prior to an Insurer Default),
but without the consent of any of the Securityholders, to cure any ambiguity or
to correct or supplement any provision therein, provided that such action will
not, in the opinion of counsel (which may be internal counsel to the Seller,
NAFCO or the Servicer) reasonably satisfactory to the Trustee and the Indenture
Trustee, materially and adversely affect the interests of the Securityholders.
The Trust Documents may also be amended by the Seller, the Servicer and the
Trustee and the Indenture Trustee (if any), with the prior written consent of
the Security Insurer, if any (prior to an Insurer Default), and a Certificate
Majority and a Note Majority (if applicable), for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Trust Documents or of modifying, in any manner, the rights of the
Certificateholders or the Noteholders. No such amendment may (i) increase or
reduce in any manner the amount of, or accelerate or delay the timing of,
collections of payments on the related Receivables or distributions that are
required to be made on any related Certificate or Note or the related
PassThrough Rate or Interest Rate or (ii) reduce the percentage of the
Certificate Balance evidenced by Certificates or of the aggregate principal
amount of Notes then outstanding required to consent to any such amendment,
without the consent of the holders of all Certificates or all Notes, as the case
may be, then outstanding.
TERMINATION
With respect to each Trust, the Trust and the respective obligations of
the Seller, the Servicer, the Trustee and the Indenture Trustee pursuant to the
related Trust Documents will terminate upon the later of (i) the Distribution
Date or Payment Date, as the case may be, immediately following the maturity or
other liquidation of the last Receivable (including the Seller's or Servicer's
purchase of the Receivables, as described below), or (ii) payment to
Certificateholders and Noteholders of all amounts required to be paid to them
pursuant to the related Trust Documents and the related Indenture and the
payment to the Security Insurer, if any, of all amounts payable or reimbursable
to it pursuant to the related Insurance Agreement, if any, and in either case
there shall be delivered to the Trustee and the Indenture Trustee an opinion of
counsel that all applicable preference periods under federal, state and local
bankruptcy, insolvency and similar laws have expired with respect to the
payments made pursuant to clause (i) or (ii) above.
With respect to each series of Securities, in order to avoid excessive
administrative expense, the Seller and Servicer each will be permitted, at its
option (with the consent of the Security Insurer, if any (prior to an Insurer
Default), if such purchase would result in a claim on the Policy or in an amount
owing to the Security Insurer under the Insurance Agreement remaining unpaid),
to purchase from the Trust, on any Distribution Date immediately following an
Accounting Date as of which the Aggregate Principal Balance is equal to or less
than 10% (or such other percentage as may be specified in the related Prospectus
Supplement) of the Cutoff Date Principal Balance, all remaining Receivables in
the related Trust and the other remaining Trust Property at a price equal to the
aggregate of the Purchase Amounts therefor and the appraised value of any other
remaining Trust Property. The exercise of this right will effect an early
retirement of the related Certificates and Notes.
Unless otherwise specified in the related Prospectus Supplement, the
Trust Agreement will provide that, in the event that the Seller becomes
insolvent, withdraws or is expelled as a Certificateholder or is terminated or
dissolved, the Trust will terminate in 90 days and effect
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redemption of the Notes (if any) and prepayment of the Certificates following
the winding-up of the affairs of the related Trust, unless within such 90 days
holders of 51% of the Certificates of such series agree in writing to the
continuation of the business of the Trust and to the appointment of a successor
to the Seller, and the Trustee is able to obtain an opinion of counsel
satisfactory to the Security Insurer (if any) to the effect that the Trust will
not thereafter be an association (or publicly traded partnership) taxable as a
corporation for federal income tax purposes. Prepayment of the Securities
resulting from the early termination of the related Trust could result in the
Securityholders receiving unexpected principal payments at a time when the
Securityholders are unable to reinvest such payments in investments having a
yield and rating comparable to the yield and rating on the Securities.
With respect to each series of Securities, the Trustee will give
written notice of the final distribution with respect to the Certificates to
each Certificateholder of record and the Indenture Trustee will give written
notice of the final payment with respect to the Notes (if any), to each
Noteholder of record. The final distribution to any Certificateholder and the
final payment to any Noteholder will be made only upon surrender and
cancellation of such holder's Certificate or Note at the office or agency of the
Trustee, with respect to Certificates, or of the Indenture Trustee, with respect
to Notes, specified in the notice of termination. Any funds remaining in the
Trust, after the Trustee or the Indenture Trustee has taken certain measures to
locate a Certificateholder or Noteholder, as the case may be, and such measures
have failed, will be distributed to the Seller, and the Certificateholders and
Noteholders, by acceptance of their Certificates and Notes, will waive any
rights with respect to such funds.
LIMITATIONS ON RIGHTS OF SECURITYHOLDERS
Until such time as an Insurer Default shall have occurred and is
continuing, the Security Insurer will have certain rights to take actions, elect
remedies and instruct the Trustee under the Trust Documents to the exclusion of
the exercise of such rights by the Securityholders, including, among other
things, the right to consent to the engagement of subservicers, the right to
terminate the Servicer in the event of a Servicer Default, and the right to
waive defaults under the Trust Documents.
THE TRUSTEE
The Trustee for each Trust will be specified in the related Prospectus
Supplement. The Trustee, in its individual capacity or otherwise, and any of its
affiliates may hold Certificates or Notes in their own names or as pledgee. In
addition, for the purpose of meeting the legal requirements of certain
jurisdictions, the Trustee, with the consent of the Servicer and the Security
Insurer, if any (so long as an Insurer Default shall not have occurred and be
continuing), shall have the power to appoint co-trustees or separate trustees of
all or any part of the related Trust. In the event of such appointment, all
rights, powers, duties and obligations conferred or imposed upon the Trustee by
the related Trust Documents will be conferred or imposed upon the Trustee and
such separate trustee or co-trustee jointly, or, in any jurisdiction where the
Trustee is incompetent or unqualified to perform certain acts, singly upon such
separate trustee or co-trustee who shall exercise and perform such rights,
powers, duties and obligations solely at the direction of the Trustee.
The Trustee of any trust may resign at any time, in which event the
Seller, or if so specified in the related Prospectus Supplement, the Servicer or
its successor will be obligated to appoint a successor trustee, acceptable to
the Security Insurer, if any (prior to an Insurer
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Default). The Seller, or if so specified in the related Prospectus Supplement,
the Servicer may also remove the Trustee, with the consent of the Security
Insurer, if any (prior to an Insurer Default), if the Trustee ceases to be
eligible to serve, becomes legally unable to act, is adjudged insolvent or is
placed in receivership or similar proceedings. In such circumstances, the
Seller, or if so specified in the related Prospectus Supplement, the Servicer
will be obligated to appoint a successor trustee, acceptable to the Security
Insurer, if any (prior to an Insurer Default). Any resignation or removal of the
Trustee and appointment of a successor trustee will not become effective until
acceptance of the appointment by the successor trustee.
DUTIES OF THE TRUSTEE
The Trustee will make no representation as to the validity or
sufficiency of any Trust Document, the Certificates or the Notes (other than its
execution of the Certificates and the Notes), the Receivables, the Policy, if
any, or any related documents, and will not be accountable for the use or
application by the Servicer of any funds paid to the Servicer in respect of the
Certificates, the Notes or the Receivables prior to deposit in the related
Collection Account.
The Trustee will be required to perform only those duties specifically
required of it under the Trust Documents. Generally, those duties will be
limited to the receipt of the various certificates, reports or other instruments
required to be furnished by the Servicer to the Trustee under the Trust
Documents, in which case it will only be required to examine such certificates,
reports or instruments to determine whether they conform substantially to the
requirements of the Trust Documents.
The Trustee will be under no obligation to exercise any of the rights
or powers vested in it by the Trust Documents or to institute, conduct, or
defend any litigation thereunder or in relation thereto at the request, order or
direction of any of the Certificateholders or Noteholders, unless such
Certificateholders or Noteholders have offered the Trustee reasonable security
or indemnity against the costs, expenses and liabilities which may be incurred
therein or thereby. No Certificateholder nor any Noteholder will have any right
under the Trust Documents to institute any proceeding with respect to such Trust
Documents, unless such holder has given the Trustee written notice of default
and unless the holders of Certificates evidencing not less than 25% of the
Certificate Balance or the holders of Notes evidencing not less than 25% of the
aggregate principal balance of the Notes then outstanding, as the case may be,
have made written request to the Trustee to institute such proceeding in its own
name as Trustee thereunder and have offered to the Trustee reasonable indemnity,
and the Trustee for 30 days after the receipt of such notice, request and offer
to indemnify has neglected or refused to institute any such proceedings.
Certificateholders and Noteholders will not have the right to make a claim
directly under any Policy issued with respect to such series, but in the event
that the Trustee or the Indenture Trustee fails to make such a claim,
Certificateholders and Noteholders may compel the Trustee or the Indenture
Trustee, as applicable, to do so.
THE BACKUP SERVICER
The Backup Servicer for each Trust will be specified in the related
Prospectus Supplement, although the Security Insurer, if any (prior to an
Insurer Default), may exercise its right at any time to appoint another Backup
Servicer. While NAFCO is the Servicer, the Backup Servicer will not be liable or
responsible for any obligation of the Servicer, and the Certificateholders and
Noteholders may look only to NAFCO to perform such obligations. The
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Backup Servicer will be required to verify the monthly Servicer's Certificate
each month, to notify the Certificateholders, Noteholders and the Security
Insurer (if any) of any item that appears substantially out of the ordinary, and
to seek a written explanation thereof from the Servicer; however, neither the
Trustee nor the Backup Servicer will be required to otherwise monitor the
Servicer. Upon the Servicer's receipt of a termination notice after the
occurrence of a Servicer Termination Event, the Backup Servicer will
automatically become the Servicer, unless the Security Insurer, if any (prior to
an Insurer Default), shall have appointed a different Backup Servicer or
successor Servicer. To facilitate the transfer of servicing responsibility, the
Servicer will deliver to the Trustee and the Backup Servicer each month a
computer tape containing information with respect to the Receivables.
ADMINISTRATOR
If an Administrator is specified in the related Prospectus Supplement,
such Administrator will enter into an agreement (the "Administration Agreement")
pursuant to which such Administrator will agree, to the extent provided in such
Administration Agreement, to provide the notices and to perform other
administrative obligations require by the related Indenture and the Trust
Agreement.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
RIGHTS IN THE RECEIVABLES
The Receivables are "chattel paper" as defined in the UCC as in effect
in the States of Florida and Delaware. Pursuant to the UCC, an ownership
interest in chattel paper may be perfected by possession or by filing a UCC-1
financing statement in the state where the seller's principal executive office
is located. Accordingly, financing statements covering the Receivables will be
filed by the Originators in Florida and by the Seller in Florida and Delaware.
In addition, the documents evidencing the Receivables initially will be held by
OFSA or any other Custodian specified in the related Prospectus Supplement on
behalf of the related Trust.
The Servicer will be obligated from time to time to take such actions
as are necessary to continue the perfection of each Trust's interest in the
related Receivables and the proceeds thereof. The Originators will warrant in
each Purchase Agreement with respect to the Receivables held by the related
Trust, and in the related Trust Document the Seller will assign the right to
enforce such warranties to the Trustee on behalf of such Trust and the Trustee
will pledge such right to the Indenture Trustee as collateral for the Notes, if
any, that, as of the Closing Date, such Receivables have not been sold, pledged
or assigned by the Originator or the Seller to any other person, and that it has
good and indefeasible title thereto and is the sole owner thereof free of any
Liens and that, immediately upon the transfer of the Receivables to such Trust
pursuant to the related Trust Document, the Trust will have good and
indefeasible title to and will be the sole owner of the Receivables, free of any
Liens. In the event of an uncured breach of any of such warranties in a Purchase
Agreement that materially and adversely affects the related Trust's,
Certificateholders' or Noteholders' interest in any Receivable (a "Repurchase
Event"), the applicable Originator will be obligated to repurchase such
Receivable.
Unless otherwise specified in the related Prospectus Supplement, OFSA
as designee of NAFCO under a Custodial Agreement, on behalf of each Trust, will
hold the original installment sales contract as well as copies of documents and
instruments relating to each Receivable and evidencing the security interest in
the Financed Vehicle securing each Receivable (the
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"Receivable Files"). In order to protect the Trust's ownership interest in the
Receivables, the Originators will file UCC-1 financing statements in Florida and
the Seller will each file UCC-1 financing statements in Florida and New York to
give notice of such Trust's ownership of the related Receivables and the related
Trust Property. If held by OFSA, the Receivables files will not be segregated
and will not be stamped or otherwise marked to indicate that such Receivables
have been sold to the related Trust.
The Receivable Files, if held by NAFCO as custodian, will be stamped or
otherwise marked to indicate that such Receivables have been sold to the related
Trust. Despite this precaution, if, through inadvertence or otherwise, any of
the Receivables were sold to another party (or a security interest therein were
granted to another party) that purchased (or took such security interest in) any
of such Receivables in the ordinary course of its business and took possession
of such Receivables, the purchaser (or secured party) would acquire an interest
in the Receivables superior to the interest of the related Trust if the
purchaser (or secured party) acquired (or took a security interest in) the
Receivables for new value and without actual knowledge of such Trust's interest.
See "Description of the Purchase Agreements and the Trust Documents - Custody of
Receivable Files"
SECURITY INTERESTS IN THE FINANCED VEHICLES
Security interests in the Financed Vehicles must be perfected by
notation of the secured party's lien on the certificate of title or by such
notation on or actual possession of the certificate of title, depending on the
law of the state wherein the purchaser resides. The practice of NAFCO is to take
such action as is required to perfect its security interest under the laws of
the state in which the Financed Vehicle is registered. In the event of clerical
errors, administrative delays or otherwise, such actions may not have been taken
with respect to a Financed Vehicle and such security interest may be subordinate
to the interests of, among others, subsequent purchasers of the Financed
Vehicles, holders of perfected security interests in the Financed Vehicle, and
the trustee in bankruptcy of the Obligor. However, such failure would give rise
to a Repurchase Event and obligate NAFCO to repurchase the affected Receivable
if the interests of the related Certificateholders, Noteholders or Trust were
materially and adversely affected.
Pursuant to the related Trust Document, the Seller will assign the
security interests in the Financed Vehicles assigned to it by the Originators
under the related Purchase Agreement to the Trustee on behalf of the related
Trust. However, because of the administrative burden and expense that would be
entailed in doing so, none of the Originators, the Seller, the Trustee or the
Servicer will be required, except to the extent provided below, to amend the
certificates of title (or other lien certificates) to identify the Trustee (or
the Seller) as the new secured party and, accordingly, the applicable Originator
will continue to be named as the secured party on the certificates of title (or
other lien certificate) relating to the Financed Vehicles. Further, the Servicer
will be required to note the interest of the related Trust on the certificates
of title for the Financed Vehicles only upon a Servicer Termination Event, or in
an event of default under the Insurance Agreement, if any (prior to an Insurer
Default), or (under certain circumstances and unless an Insurer Default shall
have occurred and be continuing) at the request of the Security Insurer, if any.
In most states, an assignment such as that under the related Trust Documents
should be an effective transfer of a security interest without amendment of any
lien noted on the related certificate of title, and the assignee should succeed
to the assignor's status as the secured party. In the absence of fraud or
forgery by the Obligor or administrative error by state recording officials, the
notation of the lien of the Originator on the certificate of title should be
sufficient to protect the related Trust against the rights of subsequent
purchasers of
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a vehicle or subsequent lenders who take a security interest in the related
Financed Vehicle. However, in the absence of such an amendment, the security
interest of the related Trust in the related Financed Vehicles might be defeated
by, among others, the trustee in bankruptcy of the Originator or the Obligor.
However, such failure would give rise to a Repurchase Event and obligate the
Originator to repurchase the affected Receivable if the interest of the related
Certificateholders, Noteholders or Trust were materially and adversely affected.
In most states, a perfected security interest in a motor vehicle in a
motor vehicle continues for four months after the vehicle is moved to a
different state and thereafter until the owner re-registers the motor vehicle in
the new state, but in no event beyond the surrender of the certificate of title.
A majority of states require surrender of a certificate of title to re-register
a motor vehicle. Accordingly the secured party most surrender possession if it
holds the certificate of title to such vehicle. In the case of motor vehicles
registered in states which provide for notation of a lien but not possession of
the certificate of title by the holder of the security interest in the related
motor vehicle, the secured party should receive notice of surrender if the
security interest in the vehicle is noted on the certificate of title.
Accordingly, the secured party should have the opportunity to re-perfect its
security interest in the vehicle in the state of relocation. In states that do
not require a certificate of title for registration of a motor vehicle,
re-registration could defeat perfection.
In the ordinary course of servicing its receivables portfolio, it is
the practice of NAFCO to effect such re-perfection upon receipt of notice or
information from the Obligor as to relocation. Similarly, when an Obligor sells
a Financed Vehicle, NAFCO must surrender possession of the certificate of title
or receive notice as a result of its lien noted thereon and accordingly should
have an opportunity to require satisfaction of the related Receivable before
release of the lien. Under the related Trust Document, the Servicer will be
obligated to take such steps, at the Servicer's expense, as are necessary to
maintain perfection of security interest in such Financed Vehicle, and the
failure to take such steps would obligate the Servicer to purchase the related
Receivable if such failure materially and adversely affects the interests of the
related Certificateholders, Noteholders and Trust in such Receivables.
Under the laws of most states, liens for repairs performed on a motor
vehicle and liens for unpaid taxes take priority over even a perfected security
interest in a motor vehicle. The Seller in the related Trust Document (and the
Originator in the related Purchase Agreement) will represent that, immediately
prior to the sale, assignment and transfer thereof to the related Trust, each
Receivable held by such Trust was secured by a valid, subsisting and enforceable
first priority perfected security interest in favor of the Seller (or the
Originator), as secured party. However, liens for taxes, judicial liens or liens
arising by operation of law could arise at any time during the term of a
Receivable. In addition, the laws of certain states and federal law permit the
confiscation of motor vehicles by governmental authorities under certain
circumstances if used in unlawful activities, which may result in the loss of a
secured party's perfected security interest in the confiscated motor vehicle. No
notice will be given to the Trustee, Indenture Trustee, Certificateholders or
Noteholders in the event such a lien or confiscation arises, and if such lien
arises or confiscation occurs after the date of issuance of any series of
Certificates and Notes, neither the Originator nor the Servicer will be required
to repurchase or purchase the related Receivable.
REPOSSESSION
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In the event of default by an Obligor, the owner of a retail
installment sales contract or installment loan has all the remedies of a secured
party under the UCC, except where specifically limited by other state laws. The
remedies of a secured party under the UCC include the right to repossession by
self-help means, unless such means would constitute a breach of the peace.
Self-help repossession is the method employed by NAFCO in most cases and is
accomplished simply by taking possession of the motor vehicle. In the event of
default by the Obligor, some jurisdictions require that the Obligor be notified
of the default and be given a time period within which he may cure the default
prior to repossession. In cases where the Obligor objects or raises a defense to
repossession, or if otherwise required by applicable state law, a court order
must be obtained from the appropriate state court, and the vehicle must then be
repossessed in accordance with that order. Other jurisdictions permit
repossession without notice, but only if the repossession can be accomplished
peacefully. If a breach of the peace cannot be avoided, judicial action is
required. A secured party may be held responsible for damages caused by a
wrongful repossession of a vehicle, including, in Florida, a wrongful
repossession conducted by an agent of the secured party. The Servicer will be
required to identify the related Trust for any liability imposed upon such Trust
as a result of a wrongful repossession. In Texas and many other states, a
vehicle may be repossessed without notice to the Obligor, but only if the
repossession can be accomplished without a breach of the peace.
NOTICE OF SALE; REDEMPTION RIGHTS
The UCC and various other state laws require a secured party who has
repossessed the collateral securing an obligation 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 has the
right to redeem the collateral prior to actual sale by paying the secured party
the entire unpaid time balance of the obligation (less any unaccrued finance
charges) plus accrued default charges, reasonable expenses for repossessing,
holding and preparing the collateral for disposition and arranging for its sale,
plus, to the extent provided in the financing documents, reasonable attorneys'
fees, or in some states, by payment of delinquent installments or the unpaid
principal balance of the related obligation.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of resale of Financed Vehicles generally will be applied
first to the expense of repossession and resale and then to the satisfaction of
the related Receivables. 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 other states
that do not prohibit or limit such judgments, subject to satisfaction of
statutory procedural requirements by the holder of the obligation. However, any
deficiency judgment would be a personal judgment against the Obligor for the
shortfall, and a defaulting Obligor can be expected to have very little capital
or sources of income available following repossession. Therefore, in many cases,
it may not be useful to seek a deficiency judgment or, if one is obtained, it
may be settled at significant discount or not paid at all. NAFCO generally seeks
to recover any deficiency existing after repossession and sale of a Financed
Vehicle.
Occasionally, after resale of a repossessed motor vehicle, and payment
of all expenses and indebtedness, there is a surplus of funds. In that case, the
law of most states requires the secured party to remit the surplus to any holder
of another lien with respect to the vehicle, if proper notification of demand
for proceeds is received prior to distribution, or, if no such lienholder
exists, to remit the surplus to the former owner of the motor vehicle.
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SOLDIERS' AND SAILORS' CIVIL RELIEF ACT
The Relief Act imposes certain limitations upon the actions of
creditors with respect to persons serving in the Armed Forces of the United
States and, to a more limited extent, their dependents and guarantors and
sureties of debt incurred by such persons. An obligation incurred by a person
prior to entering military service cannot bear interest at a rate in excess of
6% during the person's term of military service, unless the obligee petitions a
court which determines that the person's military service does not impair his or
her ability to pay interest at a higher rate. Further, a secured party may not
repossess during a person's military service a motor vehicle subject to an
installment sales contract entered into prior to the person's entering military
service, for a loan default which occurred prior to or during such service,
without court action. The Relief Act imposes penalties for knowingly
repossessing property in contravention of its provisions. Additionally,
dependents of military personnel are entitled to the protection of the Relief
Act, upon application to a court, if such court determines the obligation of
such dependent has been materially impaired by reason of the military service.
To the extent an obligation is unenforceable against the person in military
service or a dependent, any guarantor or surety of such obligation will not be
liable for performance.
CONSUMER PROTECTION LAWS
Numerous Federal and state consumer protection laws and related
regulations impose substantive and disclosure requirements upon lenders and
servicers involved in consumer finance. Some of the Federal laws and regulations
include the Truth-in-Lending Act, the Equal Credit Opportunity Act, the Federal
Trade Commission Act, the Fair Credit Reporting Act, the Fair Debt Collection
Practices Act, the Motor Vehicle Information and Cost Savings Act (the "Odometer
Act"), the Magnuson-Moss Warranty Act, and the Federal Reserve Board's
Regulations B and Z.
In addition to Federal law, state consumer protection statutes
regulate, among other things, the terms and conditions of the motor vehicle
retail installment contracts pursuant to which purchasers finance the
acquisition of motor vehicles. These laws place finance charge ceilings on the
amount that a creditor may charge in connection with financing the purchase of
an automobile. These laws also impose 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. In some cases, this liability could affect the
ability of an assignee, such as the Trustee, to enforce consumer finance
contracts such as the Receivables. The "Credit Practices" Rule of the Federal
Trade Commission (the "FTC") imposes additional restrictions on contract
provisions and credit practices.
The FTC's so-called holder-in-due-course rule has the effect of
subjecting persons that finance consumer credit transactions (and certain
related lenders and their assignees) to all claims and defenses which the
purchaser could assert against the seller of the goods and services. An
assignee's affirmative liability to pay money to such aggrieved purchaser in the
event of a successful claim is limited to amounts paid by the purchaser under
the consumer credit contract. However, the assignee's ability to collect any
balance remaining due thereunder is subject to these claims and defenses.
Accordingly, each Trust, as assignee of the related Receivables, will be subject
to claims or defenses, if any, that the purchaser of the related Financed
Vehicle may assert against the seller of such vehicle. Under the motor vehicle
dealer licensing laws of most states, sellers of motor vehicles are required to
be licensed to sell motor vehicles at retail.
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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 regulations promulgated under the Odometer Act require that
all sellers of used vehicles furnish a written statement signed by the seller
certifying the accuracy of the odometer readings. If a seller is not properly
licensed or if either a Buyer's Guide or odometer disclosure statement was not
provided to the purchaser of a Financed Vehicle, the purchaser may be able to
assert a defense as to a retail installment sales contract against the seller of
the motor vehicle.
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.
The Seller will warrant in the related Trust Document (and the
Originator will warrant in the related Purchase Agreement) that as of the date
of origination each Receivable held by the related Trust complied with all
requirements of applicable law in all material respects. Accordingly, if such
Trust's interest in a Receivable were materially and adversely affected by a
violation of any such law, such violation would constitute a Repurchase Event
and would obligate the Originator to repurchase the Receivable unless the breach
were cured. Under each Purchase Agreement, the Originator will be required to
indemnify the related Trust for any liability resulting from the failure of a
Receivable to be in compliance with all requirements of law. See "Description of
the Purchase Agreements and the Trust Documents--Sale and Assignment of the
Receivables."
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including Federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a lender to
realize upon collateral or enforce a deficiency judgment. For example, in a
proceeding under Chapter 13 of the U.S. Bankruptcy Code of 1978, as amended, a
court may prevent a lender from repossessing a motor vehicle, and as part of the
rehabilitation plan, reduce the amount of the secured indebtedness to the market
value of the motor 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, change the rate of interest and time of
repayment of the indebtedness or substitute collateral securing such
indebtedness.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following general discussion of the anticipated material federal
income tax consequences of the purchase, ownership and disposition of the Notes
and the Certificates of any series thereof, to the extent it relates to matters
of law or legal conclusions with respect thereto, represents the opinion of
Thacher Proffitt & Wood, special federal tax counsel for the Seller ("Federal
Tax Counsel") subject to the qualifications set forth herein. This summary is
directed solely to prospective investors that hold Notes or Certificates as
capital assets within the meaning of Section 1221 of the Internal Revenue Code
of 1986 (the "Code") and does not purport to discuss all federal income tax
consequences that may be applicable to particular categories of investors, some
of which (such as banks, insurance companies and foreign investors) may be
subject to special rules. Further, the authorities on which this discussion, and
the opinion
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referred to below, are based are subject to change or differing interpretations,
which could apply retroactively. Taxpayers and preparers of tax returns should
be aware that under applicable Treasury regulations a provider of advice on
specific issues of law is not considered an income tax return preparer unless
the advice (i) is given with respect to events that have occurred at the time
the advice is rendered and is not given with respect to the consequences of
contemplated actions, and (ii) is directly relevant to the determination of an
entry on a tax return. Accordingly, taxpayers should consult their own tax
advisors and tax return preparers regarding the preparation of any item on a tax
return, even where the anticipated tax treatment has been discussed herein.
Prospective investors should note that no rulings have been or will be
sought from the Internal Revenue Service (the "IRS") with respect to any of the
federal income tax consequences discussed below, and no assurance can be given
the IRS will not take contrary positions. Moreover, there are no cases or IRS
rulings on similar transactions involving both debt and equity interests issued
by a trust with terms similar to those of the Notes and the Certificates. As a
result, the IRS may disagree with all or part of the discussion below. The
Placement Agent, NAFCO and the Seller make no representations regarding the tax
consequences of purchase, ownership or disposition of the Notes or Certificates
under the tax laws of any state, locality or foreign jurisdiction. Investors
considering an investment in the Notes or Certificates should consult their own
tax advisors regarding such tax consequences .
The following summary is based upon current provisions of the Code ,
the Treasury regulations promulgated thereunder and judicial or ruling
authority, all of which are subject to change, which change may be retroactive.
The opinion of Federal Tax Counsel, however, is not binding on the IRS or the
courts. No ruling on any of the issues discussed below will be sought from the
IRS. For purposes of the following summary, references to the Trust, the Notes,
the Certificates and related terms, parties and documents shall be deemed to
refer, unless otherwise specified herein, to each Trust and the Notes,
Certificates and related terms, parties and documents applicable to such Trust.
In addition, for purposes of this tax discussion, references to a
"Certificateholder" or a "holder" are to the beneficial owner of a Certificate.
Certain Certificates ("Debt Certificates") may be issued hereunder that
are intended to be treated as indebtedness for federal income tax purposes. In
that event, the applicable Prospectus Supplement will disclose that intended
treatment. For purposes of this summary, references to Notes and Noteholders are
intended in all respects to refer to Debt Certificates and holders thereof,
including references to opinions as to federal income tax matters that will be
delivered in connection with issuance of Notes. Conversely, references in this
summary to Certificates and Certificateholders are not intended to refer to Debt
Certificates and holders thereof.
The following discussion is based in part upon the rules governing
original issue discount that are set forth in Sections 1271-1273 and 1275 of the
Code and in the Treasury regulations issued thereunder (the "OID Regulations").
The OID Regulations do not adequately address certain issues relevant to, and in
some instances provide that they are not applicable to, securities such as the
Certificates.
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The federal income tax consequences to Certificateholders will vary
depending on whether the Trust will be treated as a partnership or as a grantor
trust under the Code. The Prospectus Supplement for each series of
Certificateholders will specify whether the Trust will be treated as a
partnership or a grantor trust for federal income tax purposes.
TRUSTS CLASSIFIED AS PARTNERSHIPS
CLASSIFICATION OF PARTNERSHIP TRUST FUNDS
With respect to each series in which the related Trust is intended to
be classified as a partnership , Federal Tax Counsel will give its opinion that,
assuming compliance with all provisions of the related Trust Agreement and
related documents, the related Trust will be classified as a partnership and
will not be classified as an association or publicly traded partnership taxable
as a corporation for federal income tax purposes. The following general
discussion of the anticipated federal income tax consequences of the purchase,
ownership and disposition of Notes and Certificates, to the extent it relates to
matters of law or legal conclusions with respect thereto, represents the opinion
of Federal Tax Counsel, subject to any qualifications set forth herein. In
addition, Special Tax Counsel have prepared or reviewed the statements in this
Prospectus under the heading "Certain Federal Income Tax Consequences," and are
of the opinion that such statements are correct in all material respects. Such
statements are intended as an explanatory discussion of the possible effects of
the characterization of the Notes as indebtedness and the classification of each
Trust as a partnership for federal income tax purposes on investors generally
and of related tax matters affecting investors generally, but do not purport to
furnish information in the level of detail or with the attention to an
investor's specific tax circumstances that would be provided by an investor's
own tax advisor. Accordingly, each investor is advised to consult its own tax
advisors with regard to the tax consequences to it of investing in Notes or
Certificates. This opinion will be based on the assumption that the terms of the
related Trust Agreement and related documents will be complied with, and on
counsel's conclusions that the (1) Trust will not have certain characteristics
necessary for a business trust to be classified as an association taxable as a
corporation or as a publicly traded partnership taxable as a corporation or (2)
if Certificates (other than Debt Certificates) are publicly traded, the nature
of the income of the Trust will exempt it from the rule that certain publicly
traded partnerships are taxable as corporation.
If the Trust were taxable as a corporation for federal income tax
purposes, the Trust would be subject to corporate income tax on its taxable
income. The Trust's taxable income would include all its income on the
Receivables, possibly reduced by its interest expense on the Notes. Any such
corporate income tax could materially reduce cash available to make payments on
the Notes and distributions on the partnership Certificates, and Noteholders or
Certificateholders could be liable for any such tax that is unpaid by the Trust.
In addition, if contrary to the opinion of Federal Tax Counsel, the IRS
successfully asserted that one or more of the Notes did not represent debt for
federal income tax purposes, the Notes might be treated as equity interest in
the Trust. If so treated, the Trust might be an association or a publicly traded
partnership taxable as a corporation with the adverse consequences described
above (and the taxable corporation would not be able to reduce its taxable
income by deductions for interest expense on Notes recharacterized as equity).
See "Tax Characteristics of the Trust as a Partnership". Alternatively, the
Trust might be treated as a publicly traded partnership that would not be
taxable as a corporation if it met certain qualifying income tests. Nonetheless,
treatment of the Notes as equity interests in such a publicly traded partnership
could have adverse tax consequences to certain holders. For example, income to
certain tax-exempt entities
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(including pension funds) would be "unrelated business taxable income," income
to foreign holders generally would be subject to U.S. tax and U.S. tax return
filing and withholding requirements, and individual holders might be subject to
certain limitations on their ability to deduct their share of Trust expenses.
TAXATION OF NOTEHOLDERS
TREATMENT OF THE NOTES AND DEBT CERTIFICATES AS INDEBTEDNESS
NAFCO, the Seller and the Noteholders will agree by their purchase of
Notes, to treat the Notes (which term includes, for purposes of the discussion,
Debt Certificates) as debt for federal income tax purposes. No regulations,
published rulings, or judicial decisions exist that discuss the characterization
for federal income tax purposes of securities with terms substantially the same
as the Notes. However, with respect to each series of Notes, Federal Tax Counsel
will, except as otherwise provided in the related Prospectus Supplement, deliver
its opinion that the Notes will be classified as indebtedness for federal income
tax purposes. The discussion below assumes this characterization of the Notes is
correct.
If, contrary to the opinion of Federal Tax Counsel, the IRS
successfully asserted that the Notes were not debt for federal income tax
purposes, the Notes might be treated as equity interests in the Partnership
Trust. If so, the Partnership Trust Fund might be taxable as a corporation with
the adverse consequences described above (and the taxable corporation would not
be able to deduct interest on the Notes).
OID, INDEXED SECURITIES, ETC. The discussion below assumes that all
payments on the Notes are denominated in U.S. dollars, and that the Notes are
not Indexed Securities or Strip Notes. Moreover, the discussion assumes that the
interest formula for the Notes meets the requirements for "qualified stated
interest" under the OID Regulations relating to original issue discount, and
that any original issue discount on the Notes (I.E., any excess of the principal
amount of the Notes over their issue price) does not exceed a DE MINIMIS amount
(I.E., 1/4% of their principal amount multiplied by the number of full years
included in their term), all within the meaning of the OID Regulations. If these
conditions are not satisfied with respect to any given series of Notes,
additional tax considerations with respect to such Notes will be disclosed in
the applicable Prospectus Supplement.
INTEREST INCOME ON THE NOTES. Based on the above assumptions, except as
discussed in the following paragraph, the Notes will not be considered issued
with OID. The stated interest thereon will be taxable to a Noteholder as
ordinary interest income when received or accrued in accordance with such
Noteholder's method of tax accounting. Under the OID regulations, a holder of a
Note issued with a de minimis amount of OID must include such OID in income, on
a pro rata basis, as principal payments are made on the Note. Although not
entirely clear, it appears that any prepayment premium paid as a result of a
mandatory redemption will be taxable as contingent interest when it becomes
fixed and unconditionally payable. A purchaser who buys a Note for more or less
than its principal amount will generally be subject, respectively, to the
premium amortization or market discount rules of the Code.
A holder of a Note that has a fixed maturity date of not more than one
year from the issue date of such Note (a "Short-Term Note") may be subject to
special rules. An accrual basis holder of a Short-Term Note (and certain cash
method holders, including regulated investment companies, as set forth in
Section 1281 of the Code) generally would be required to report
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interest income as interest accrues on a straight-line basis over the term of
each interest period. Other cash basis holders of a Short-Term Note would, in
general, be required to report interest income as interest is paid (or, if
earlier, upon the taxable disposition of the Short-Term Note until the taxable
disposition of the Short-Term Note). However, a cash basis holder of a ShortTerm
Note reporting interest income as it is paid may be required to defer a portion
of any interest expense otherwise deductible on indebtedness incurred to
purchase or carry the ShortTerm Note until the taxable disposition of the
Short-Term Note. A cash basis taxpayer may elect under Section 1281 of the Code
to accrue interest income on all nongovernment debt obligations with a term of
one year or less, in which case the taxpayer would include interest on the
Short-Term Note in income as it accrues, but would not be subject to the
interest expense deferral rule referred to in the preceding sentence. Certain
special rules apply if a Short-Term Note is purchased for more or less than its
principal amount.
SALE OR OTHER DISPOSITION. If a Noteholder sells a Note, the holder
will recognize gain or loss in an amount equal to the difference between the
amount realized on the sale and the holder's adjusted tax basis in the Note. The
adjusted tax basis of a Note to a particular Noteholder will equal the holder's
cost for the Note, increased by any market discount, acquisition cap, discount,
OID, if any, and gain previously included by such Noteholder in income with
respect to the Note and decreased by the amount of bond premium (if any)
previously amortized and by the amount of principal payments previously received
by such Noteholder with respect to such Note. Any such gain or loss will be
capital gain or loss if the Note was held as a capital asset, except for gain
representing accrued interest and accrued market discount not previously
included in income. The Code as of the date of this Prospectus provides for a
top marginal tax rate of 39.6% for individuals and a maximum marginal rate for
long-term capital gains of individuals of 28%. No such rate differential exists
for corporations. In addition, the distinction between a capital gain or loss
and ordinary income or loss remains relevant for other purposes.
FOREIGN HOLDERS. Interest payments made (or accrued) to a Noteholder
who is a nonresident alien, foreign corporation or other non-United States
person (a "foreign person") generally will be considered "portfolio interest",
and generally will not be subject to United States federal income tax and
withholding tax, if the interest is not effectively connected with the conduct
of a trade or business within the United States by the foreign person and the
foreign person (i) is not actually or constructively a "10 percent shareholder"
of the Trust or the Seller (including a holder of 10% of the outstanding
Certificates) or a "controlled foreign corporation" with respect to which the
Trust or the Seller is a "related person" within the meaning of the Code and
(ii) provides the Owner Trustee or other person who is otherwise required to
withhold U.S. tax with respect to the Notes with an appropriate statement (on
Form W-8 or a similar form), signed under penalties of perjury, certifying that
the beneficial owner of the Note is a foreign person and providing the foreign
person's name and address. If a Note is held through a securities clearing
organization or certain other financial institutions, the organization or
institution may provide the relevant signed statement to the withholding agent;
in that case, however, the signed statement must be accompanied by a Form W-8 or
substitute form provided by the foreign person that owns the Note. If such
interest is not portfolio interest, then it will be subject to United States
federal income and withholding tax at a rate of 30 percent, unless reduced or
eliminated pursuant to an applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States federal income and withholding tax, provided that (i) such gain is not
effectively connected with the conduct of a trade or
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business in the United States by the foreign person and (ii) in the case of an
individual foreign person, the foreign person is not present in the United
States for 183 days or more in the taxable year.
BACKUP WITHHOLDING. Each holder of a Note (other than an exempt holder
such as a corporation, tax-exempt organization, qualified pension and
profit-sharing trust, individual retirement account or nonresident alien who
provides certification as to status as a nonresident) will be required to
provide, under penalties of perjury, a certificate containing the holder's name,
address, correct federal taxpayer identification number and a statement that the
holder is not subject to backup withholding. Should a nonexempt Noteholder fail
to provide the required certification, the Trust will be required to withhold 31
percent of the amount otherwise payable to the holder, and remit the withheld
amount to the IRS as a credit against the holder's federal income tax liability.
POSSIBLE ALTERNATIVE TREATMENTS OF THE NOTES. If, contrary to the
opinion of Federal Tax Counsel, the IRS successfully asserted that one or more
of the Notes did not represent debt for federal income tax purposes, the Notes
might be treated as equity interest in the Trust. If so treated, the Trust might
be an association or a publicly traded partnership taxable as a corporation with
the adverse consequences described above (and the taxable corporation would not
be able to reduce its taxable income by deductions for interest expense on Notes
recharacterized as equity). See "Tax Characteristics of the Trust as a
Partnership". Alternatively, the Trust might be treated as a publicly traded
partnership that would not be taxable as a corporation if it met certain
qualifying income tests. Nonetheless, treatment of the Notes as equity interests
in such a publicly traded partnership could have adverse tax consequences to
certain holders. For example, income to certain tax-exempt entities (including
pension funds) would be "unrelated business taxable income," income to foreign
holders generally would be subject to U.S. tax and U.S. tax return filing and
withholding requirements, and individual holders might be subject to certain
limitations on their ability to deduct their share of Trust expenses.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES
Certificates generally will be subject to the same rules of taxation as
Notes issued by a Trust, as described above. See "TAXATION OF
NOTEHOLDERS--TREATMENT OF THE NOTES AND DEBT CERTIFICATES AS INDEBTEDNESS".
TAXATION OF OWNERS OF PARTNERSHIP
TREATMENT OF THE TRUST AS A PARTNERSHIP. If so specified in the related
Prospectus Supplement, the Seller and NAFCO will agree, and the
Certificateholders will agree by their purchase of Certificates, to treat the
Trust as a partnership for purposes of federal and state income tax, franchise
tax and any other tax measured in whole or in part by income, with the assets of
the partnership being the assets held by the Trust, the partners of the
partnership being the Certificateholders (including the Seller), and the Notes
being debt of the partnership. However, the proper characterizations of the
arrangement involving the Trust, the Certificates, the Notes, the Seller and
NAFCO is not clear because there is no authority on transactions closely
comparable to that contemplated herein.
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A variety of alternative characterizations are possible. For example,
because the Certificates may have certain features characteristic of debt, the
Certificates might be considered debt of the Seller or the Trust. Any such
characterization would not result in materially adverse tax consequences to
Certificateholders as compared to the consequences from treatment of the
Certificates as equity in a partnership, described below. The following
discussion assumes that the Certificates represent equity interests in a
partnership and not in an association or publicly traded partnership taxable as
a corporation. See "Tax Characteristics of the Trust as a Partnership" and "Tax
Consequences to Holders of the Notes Possible Alternative Treatments of the
Notes".
INDEXED SECURITIES, ETC. The following discussion assumes that all
payments on the Certificates are denominated in U.S. dollars, none of the
Certificates are Indexed Securities or Strip Certificates, and that a series of
Securities includes a single class of Certificates. If these conditions are not
satisfied with respect to any given series of Certificates, additional tax
considerations with respect to such Certificates will be disclosed in the
applicable Prospectus Supplement.
PARTNERSHIP TAXATION. As a partnership, the Trust will not be subject
to federal income tax. Rather, each Certificateholder will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the Trust. In certain instances, however, the
Trust could have an obligation to make payments of withholding tax on behalf of
a Certificateholder. See "TAX CONSEQUENCES TO FOREIGN CERTIFICATEHOLDERS" and
"BACKUP WITHHOLDING" below. The Trust's income will consist primarily of
interest and finance charges earned on the Receivables (including appropriate
adjustments for market discount, original issue discount and bond premium) and
any gain upon collection or disposition of Receivables. The Trust's deductions
will consist primarily of interest accruing with respect to the Notes, servicing
and other fees, and losses or deductions upon collection or disposition of
Receivables.
The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury regulations and the partnership agreement
(here, the Trust Documents). Unless otherwise disclosed in the applicable
Prospectus Supplement, the Trust Agreement will provide, in general, that the
Certificateholders will be allocated taxable income of the Trust for each month
equal to the sum of (i) the interest that accrues on the Certificates in
accordance with their terms for such month, including interest accruing at the
Pass Through Rate for such month and interest on amounts previously due on the
Certificates but not yet distributed; (ii) any Trust income attributable to
discount on the Receivables that corresponds to the economic accrual of any
discount on the Certificates, if the initial principal amount of the Certificate
exceed their initial price; (iii) prepayment premium payable to the
Certificateholders for such month; and (iv) any other amounts of income payable
to the Certificateholders for such month. Such allocation will be reduced by the
economic amortization of premium on certificates that corresponds to any excess
of the initial price of Certificates over their initial principal amount. All
remaining taxable income of the Trust will be allocated to the Seller. Based on
the economic arrangement of the parties, this approach for allocating Trust
income should be permissible under applicable Treasury regulations, although no
assurance can be given that the IRS would not require a greater amount of income
to be allocated to Certificateholders. Moreover, even under the foregoing method
of allocation, Certificateholders may be allocated income equal to the entire
Pass Through Rate plus the other items described above even though the Trust
might not have sufficient cash to make current cash distributions of such
amount. Thus, cash basis holders will in effect be required to report income
from the Certificates on the accrual basis, and
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Certificateholders may be liable for taxes on Trust income even if they have not
received cash from the Trust to pay such taxes. In addition, because tax
allocations and tax reporting will be done on a uniform basis for all
Certificateholders but Certificateholders may be purchasing Certificates at
different times and at different prices, Certificateholders may be required to
report on their tax returns taxable income that is greater or less than the
amount reported to them by the Trust.
All of the taxable income allocated to a Certificateholder that is a
pension, profit sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) will constitute "unrelated business
taxable income" generally taxable to such a holder under the Code.
An individual taxpayer's share of expenses of the Trust (including fees
to the Servicer but not interest expense) would be miscellaneous itemized
deductions. With respect to Certificates the holders of which receive an
allocation of fees and expenses in accordance with the preceding discussion, if
any holder thereof is an individual, estate or trust, or a "pass-through entity"
beneficially owned by one or more individuals, estates or trusts, (i) an amount
equal to such individual's, estate's or trust's share of such fees and expenses
will be added to the gross income of such holder and (ii) such individual's,
estate's or trust's share of such fees and expenses will be treated as a
miscellaneous itemized deduction allowable subject to the limitation of Section
67 of the Code, which permits such deductions only to the extent they exceed in
the aggregate two percent of a taxpayer's adjusted gross income. In addition,
Section 68 of the Code provides that the amount of itemized deductions otherwise
allowable for an individual whose adjusted gross income exceeds a specified
amount will be reduced by the lesser of (i) 3% of the excess of the individual's
adjusted gross income over such amount or (ii) 80% of the amount of itemized
deductions otherwise allowable for the taxable year. The amount of additional
taxable income reportable by Certificateholders that are subject to the
limitations of either Section 67 or Section 68 of the Code may be substantial.
Furthermore, in determining the alternative minimum taxable income of such a
holder of a Certificate that is an individual, estate or trust, or a
"pass-through entity" beneficially owned by one or more individuals, estates or
trusts, no deduction will be allowed for such holder' allocable portion of
servicing fees and other miscellaneous itemized deductions of the Trust, even
though an amount equal to the amount of such fees and other deductions will be
included in such holder's gross income. Accordingly, such Certificates may not
be appropriate investments for individuals, estates, or trusts, or pass-through
entities beneficially owned by one or more individuals, estates or trusts. Such
prospective investors should consult with their tax advisors prior to making an
investment in such Certificates.
The Trust intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Receivable, the Trust
might be required to incur additional expense but it is believed that there
would not be a material adverse effect on Certificateholders.
DISCOUNT AND PREMIUM. It is believed that the Receivables will not be
issued with original issue discount, and, therefore, the Trust should not have
original issue discount income. However, the purchase price paid by the Trust
for the Receivables may be greater or less than the remaining principal balance
of the Receivables at the time of purchase. If so, the Receivables will have
been acquired at a premium or discount, as the case may be. (As indicated above,
the Trust will make this calculation on an aggregate basis, but might be
required to recompute it on a Receivable-by-Receivable basis.)
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If the Trust acquires the Receivables at a market discount or premium,
the Trust will elect to include any such discount in income currently as it
accrues over the life of the Receivables or to offset any such premium against
interest income on the Receivables. As indicated above, a portion of such market
discount income or premium deduction may be allocated to Certificateholders.
SECTION 708 TERMINATION. Under Section 708 of the Code, the Trust will
be deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust are sold or exchanged within a
12-month period. If such a termination occurs, the Trust will be considered to
distribute its assets to the partners, who would then be treated as
recontributing those assets to the Trust, as a new partnership. The Trust will
not comply with certain technical requirements that might apply when such a
constructive termination occurs. As a result, the Trust may be subject to
certain tax penalties and may incur additional expenses if it is required to
comply with those requirements. Furthermore, the Trust might not be able to
comply due to lack of data. Under proposed Treasury regulations, the foregoing
treatment would be replaced by a new regime under which a 50% or greater
transfer, as described above, would cause a deemed contribution of the assets of
a partnership (the "old partnership") to a new partnership (the "new
partnership") in exchange for interests in the new partnership. Such interests
would be deemed distributed to the partners of the old partnership in
liquidation thereof, which would not constitute a sale or exchange. It is not
known when or whether such proposed Treasury regulations will be adopted in
final (or temporary) form.
POSSIBLE TAX-RELATED RESTRICTIONS ON TRANSFERS OF CERTIFICATES. In some
circumstances, transfers of Certificates may be restricted in order to avoid
having the Trust classified as a publicly traded partnership taxable as a
corporation or to avoid the administrative complexities that would be associated
with a deemed or constructive termination of the Trust. SEE "TAX CHARACTERISTICS
OF THE TRUST AS A PARTNERSHIP" and "TAX CONSEQUENCES TO THE HOLDERS OF
CERTIFICATES -- SECTION 708 TERMINATION". In that event, the nature of such
restrictions will be disclosed in the applicable Prospectus Supplement.
DISPOSITION OF CERTIFICATES. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
A Certificateholder's tax basis in a Certificate will generally equal the
holder's cost increased by the holder's share of Trust income (includible in
income) and decreased by any distributions received with respect to such
Certificate. In addition, both the tax basis in the Certificates and the amount
realized on a sale of a Certificate would include the holder's share of the
Notes and other liabilities of the Trust. A holder acquiring Certificates at
different prices may be required to maintain a single aggregate adjusted tax
basis in such Certificates, and, upon sale or other disposition of some of the
Certificates, allocate a portion of such aggregate tax basis to the Certificates
sold (rather than maintaining a separate tax basis in each Certificate for
purposes of computing gain or loss on a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the holder's
share of unrecognized accrued market discount on the Receivables would generally
be treated as ordinary income to the holder and would give rise to special tax
reporting requirements. The Trust does not expect to have any other assets that
would give rise to such special reporting requirements. Thus, to avoid those
special reporting requirements, the Trust will elect to include market discount
in income as it accrues.
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If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise to
a capital loss upon the retirement of the Certificates.
ALLOCATIONS BETWEEN TRANSFERORS AND TRANSFEREES. In general, the
Trust's taxable income and losses will be determined monthly and the tax items
for a particular calendar month will be apportioned among the Certificateholders
in proportion to the principal amount of Certificates owned by them as of the
close of the last day of such month. As a result, a holder purchasing
Certificates may be allocated tax items (which will affect its tax liability and
tax basis) attributable to periods before the actual transaction.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Trust might be reallocated among the Certificateholders. The Seller is
authorized to revise the Trust's method of allocation between transferors and
transferees to conform to a method permitted by future regulations.
SECTION 731 DISTRIBUTIONS. In the case of any distribution to a
Certificateholder, no gain will be recognized to that Certificateholder to the
extent that the amount of any money distributed with respect to such Certificate
does not exceed the adjusted basis of such Certificateholder's interest in the
Certificate. To the extent that the amount of money distributed exceeds such
Certificateholder's adjusted basis, gain will be currently recognized. In the
case of any distribution to a Certificateholder, no loss will be recognized
except upon a distribution in liquidation of a Certificateholder's interest. Any
gain or loss recognized by a Certificateholder will be capital gain or loss.
SECTION 754 ELECTION. In the event that a Certificateholder sells its
Certificates at a profit (or loss), the purchasing Certificateholder will have a
higher (or lower) basis in the Certificates than the selling Certificateholder
had. The tax basis of the Trust's assets will not be adjusted to reflect that
higher (or lower) basis unless the Trust were to file an election under Section
754 of the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the Trust will not make such election. As a
result, Certificateholders might be allocated a greater or lesser amount of
Trust income than would be appropriate based on their own purchase price for
Certificates.
ADMINISTRATIVE MATTERS. The Owner Trustee is required to keep or have
kept complete and accurate books of the Trust. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year of
the Trust will be the calendar year. The Trustee will file a partnership
information return (IRS Form 1065) with the IRS for each taxable year of the
Trust and will report each expense to holders and the IRS on Schedule K-1. The
Trust will provide the Schedule K-1 information to nominees that fail to provide
the Trust with the information statement described below and such nominees will
be required to forward such information to the beneficial owners of the
Certificates. Generally, holders must file tax returns that are consistent with
the information return filed by the Trust or be subject to penalties unless the
holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust with
a statement containing certain
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information on the nominee, the beneficial owners and the Certificates so held.
Such information includes (i) the name, address and taxpayer identification
number of the nominee and (ii) as to each beneficial owner (x) the name, address
and identification number of such person, (y) whether such person is a United
States person, a tax-exempt entity or a foreign government, an international
organization, or any wholly owned agency or instrumentality of either of the
foregoing, and (z) certain information on Certificates that were held, bought or
sold on behalf of such person throughout the year. In addition, brokers and
financial institutions that hold Certificates through a nominee are required to
furnish directly to the Trust information as to themselves and their ownership
of Certificates. A clearing agency registered under Section 17A of the Exchange
Act is not required to furnish any such information statement to the Trust. The
information referred to above for any calendar year must be furnished to the
Trust on or before the following January 31. Nominees, brokers and financial
institutions that fail to provide the Trust with the information described above
may be subject to penalties.
The Seller will be designated as the tax matters partner in the related
Trust Agreement and, as such, will be responsible for representing the
Certificateholders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the Trust by the appropriate taxing authorities could
result in an adjustment of the returns of the Certificateholders, and, under
certain circumstances, a Certificateholder may be precluded from separately
litigating a proposed adjustment to the items of the Trust. An adjustment could
also result in an audit of a Certificateholder's returns and adjustments of
items not related to the income and losses of the Trust.
TAX CONSEQUENCES TO FOREIGN CERTIFICATEHOLDERS. As discussed below, an
investment in a Certificate may not be suitable for any non-U.S. person.
Accordingly, no interest in a Certificate should be acquired by or on behalf of
any such non-U.S. persona without first considering the United States tax
consequences of holding a Certificate. No regulations, published rulings or
judicial decisions exist that would discuss the characterization for Federal
withholding tax purposes with respect to non-U.S. persons of a partnership with
activities substantially the same as the Trust. It is not clear whether the
Trust would be considered to be engaged in a trade or business in the United
States for purposes of federal withholding taxes with respect to non-U.S.
persons because there is not clear authority dealing with that issue under facts
substantially similar to those described herein. Although it is not expected
that the Trust would be engaged in a trade or business in the United States for
such purposes, the Trust will withhold as if it were so engaged in order to
protect the Trust from possible adverse consequences of a failure to withhold.
The Trust expects to withhold on the portion of its taxable income that is
allocable to foreign Certificateholders pursuant to Section 1446 of the Code, as
if such income were effectively connected to a U.S. trade or business, at a rate
of approximately 35% for foreign holders that are taxable as corporations and
39.6% for all other foreign holders. Amounts withheld will be deemed distributed
to the foreign Certificateholders. Subsequent adoption of Treasury regulations
or the issuance of other administrative pronouncements may require the Trust to
change its withholding procedures. In determining a holder's withholding status,
the Trust may rely on IRS Form W-8, IRS Form W-9 or the holder's certification
of nonforeign status signed under penalties of perjury.
Each foreign holder might be required to file a U.S. individual or
corporate income tax return (including, in the case of a corporation, the branch
profits tax) on its share of the Trust's
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income. Each foreign holder must obtain a taxpayer identification number from
the IRS and submit that number to the Trust on Form W-8 in order to assure
appropriate crediting of the taxes withheld. A foreign holder generally would be
entitled to file with the IRS a claim for refund with respect to taxes withheld
by the Trust, taking the position that no taxes were due because the Trust was
not engaged in a U.S. trade or business. However, interest payment made (or
accrued) to a Certificateholder who is a foreign person generally will be
considered guaranteed payments to the extent such payments are determined
without regard to the income of the Trust. If these interest payments are
properly characterized as guaranteed payments, then the interest will not be
considered "portfolio interest." As a result, Certificateholders who are foreign
persons will be subject to United States federal income tax and withholding tax
at a rate of 30 percent, unless reduced or eliminated pursuant to an applicable
treaty. In such case, a foreign holder would only be entitled to claim a refund
for that portion of the taxes in excess of the taxes that should be withheld
with respect to the guaranteed payments.
BACKUP WITHHOLDING. Distributions made on the Certificates and proceeds
from the sale of the Certificates will be subject to a "backup" withholding tax
of 31% if, in general, the Certificateholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code.
TRUSTS TREATED AS GRANTOR TRUSTS
CLASSIFICATION OF THE TRUST AS A GRANTOR TRUST
CLASSIFICATION OF GRANTOR TRUST FUNDS. With respect to each series of
Grantor Trust Certificates, in the opinion of Federal Tax Counsel for such
series, assuming compliance with all provisions of the related Trust Servicing
Agreement, the related Grantor Trust Fund will be classified as a grantor trust
under subpart E, part I of subchapter J of the Code and not as a partnership or
an association taxable as a corporation, and each holder of a Grantor Trust
Certificate generally will be treated as the owner of an interest in the Trust
assets included in the Grantor Trust Fund. The following general discussion of
the anticipated federal income tax consequences of the purchase, ownership and
disposition of Grantor Trust Certificates, to the extent it relates to matters
of law or legal conclusions with respect thereto, represents the opinion of
Special Tax Counsel, subject to any qualifications set forth herein. In
addition, Special Tax Counsel have prepared or reviewed the statements in this
Prospectus under the heading "Certain Federal Income Tax Consequences Grantor
Trust Funds." and are of the opinion that such statements are correct in all
material respects. Such statements are intended as an explanatory discussion of
the possible effects of the classification of the Grantor Trust Fund as a
grantor trust for federal income tax purposes on investors generally and of
related tax matters affecting investors generally, but do not purport to furnish
information in the level of detail or with the attention to an investor's
specific tax circumstances that would be provided by an investor's own tax
advisor. Accordingly, each investor is advised to consult its own tax advisors
with regard to the tax consequences to it of investing in Grantor Trust
Certificates.
TAXATION OF OWNERS OF GRANTOR TRUST CERTIFICATES
GENERAL. Holders of a particular series of Grantor Trust Certificates
generally will be required to report on their federal income tax returns their
shares of the entire income from the Receivables (including amounts used to pay
reasonable servicing fees and other expenses) and will be entitled to deduct
their shares of any such reasonable servicing fees and other expenses.
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Because of stripped interests, market or original issue discount, or premium,
the amount includible in income on account of a Grantor Trust Certificate may
differ significantly from the amount distributable thereon representing interest
on the Receivables. Under Section 67 of the Code, an individual, estate or trust
holding a Grantor Trust Certificate directly or through certain pass-through
entities will be allowed a deduction for such reasonable servicing fees and
expenses only to the extent that the aggregate of such holder's miscellaneous
itemized deductions exceeds two percent of such holder's adjusted gross income.
In addition, Section 68 of the Code provides that the amount of itemized
deductions otherwise allowable for an individual whose adjusted gross income
exceeds a specified amount will be reduced by the lesser of (i) 3% of the excess
of the individual's adjusted gross income over such amount or (ii) 80% of the
amount of itemized deductions otherwise allowable for the taxable year. The
amount of additional taxable income reportable by holders of Grantor Trust
Certificates who are subject to the limitations of either Section 67 or Section
68 of the Code may be substantial. Further, Certificateholders (other than
corporations) subject to the alternative minimum tax may not deduct
miscellaneous itemized deductions in determining such holder's alternative
minimum taxable income. Although it is not entirely clear, it appears that in
transactions in which multiple classes of Grantor Trust Certificates (including
Grantor Trust Certificates constituting stripped coupons) are issued, such fees
and expenses should be allocated among the classes of Grantor Trust Certificates
using a method that recognizes that each such class benefits from the related
services. In the absence of statutory or administrative clarification as to the
method to be used, it currently is intended to base information returns or
reports to the IRS and Certificateholders on a method that allocates such
expenses among classes of Grantor Trust Certificates with respect to each period
based on the distributions made to each such class during that period.
The federal income tax treatment of Grantor Trust Certificates of any
series will depend on whether they are subject to the "stripped bond" rules of
Section 1286 of the Code. Grantor Trust Certificates may be subject to those
rules if (i) a class of Grantor Trust Certificates constituting stripped coupons
is issued as part of the same series of Certificates or (ii) the Seller or any
of its affiliates retains (for its own account or for purposes of resale) a
right to receive a specified portion of the interest payable on a Receivable.
Further, an unreasonably high servicing fee retained by a seller or servicer may
be treated as a retained ownership interest that constitutes a stripped coupon.
IF STRIPPED BOND RULES APPLY. If the stripped bond rules apply, each
Grantor Trust Certificate will be treated as having been issued with "original
issue discount" within the meaning of Section 1273(a) of the Code, subject,
however, to the discussion below regarding the treatment of certain stripped
bonds as market discount bonds and the discussion regarding DE MINIMIS market
discount. See "--TAXATION OF GRANTOR TRUST CERTIFICATES--MARKET DISCOUNT". Under
the stripped bond rules, the holder of a Grantor Trust Certificate (whether a
cash or accrual method taxpayer) will be required to report interest income from
its Grantor Trust Certificate for each month in an amount equal to the income
that accrues on such Certificate in that month calculated under a constant yield
method, in accordance with the rules of the Code relating to original issue
discount.
The original issue discount on a Grantor Trust Certificate will be the
excess of such Certificate's stated redemption price over its issue price. The
issue price of a Grantor Trust Certificate as to any purchaser will be equal to
the price paid by such purchaser for the Grantor Trust Certificate. The stated
redemption price of a Grantor Trust Certificate will be the sum of all payments
to be made on such Certificate, other than "qualified stated interest", if any,
as well as such Certificate's share of reasonable servicing fees and other
expenses. See "--TAXATION OF
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GRANTOR TRUST CERTIFICATES--IF STRIPPED BOND RULES DO NOT APPLY" for a
definition of "qualified stated interest". In general, the amount of such income
that accrues in any month would equal the product of such holder's adjusted
basis in such Grantor Trust Certificate at the beginning of such month (see
"--Sales of Grantor Trust Certificates") and the yield of such Grantor Trust
Certificate to such holder. Such yield would be computed at the rate (compounded
based on the regular interval between payment dates) that, if used to discount
the holder's share of future payments on the Receivables, would cause the
present value of those future payments to equal the price at which the holder
purchased such Certificate. In computing yield under the stripped bond rules, a
Certificateholder's share of future payments on the Receivables will not include
any payments made in respect of any spread or any other ownership interest in
the Receivables retained by the Seller, a Servicer, or its respective
affiliates, but will include such Certificateholder's share of any reasonable
servicing fees and other expenses.
Section 1272(a)(6) of the Code requires (i) the use of a reasonable
prepayment assumption in accruing original issue discount and (ii) adjustments
in the accrual of original issue discount when prepayments do not conform to the
prepayment assumption, with respect to certain categories of debt instruments,
and regulations could be adopted applying those provisions to the Grantor Trust
Certificates. It is unclear whether those provisions would be applicable to the
Grantor Trust Certificates or whether use of a reasonable prepayment assumption
may be required or permitted without reliance on these rules. It is also
uncertain, if a prepayment assumption is used, whether the assumed prepayment
rate would be determined based on conditions at the time of the first sale of
the Grantor Trust Certificate or, with respect to any holder, at the time of
purchase of the Grantor Trust Certificate by that holder. Certificateholders are
advised to consult their own tax advisors concerning reporting original issue
discount in general and, in particular, whether a prepayment assumption should
be used in reporting original issue discount with respect to Grantor Trust
Certificates.
In the case of a Grantor Trust Certificate acquired at a price equal to
the principal amount of the Receivables allocable to such Certificate, the use
of a prepayment assumption generally would not have any significant effect on
the yield used in calculating accruals of interest income. In the case, however,
of a Grantor Trust Certificate acquired at a discount or premium (that is, at a
price less than or greater than such principal amount, respectively), the use of
a reasonable prepayment assumption would increase or decrease such yield, and
thus accelerate or decelerate, respectively, the reporting of income.
If a prepayment assumption is not used, then when a Receivable prepays
in full, the holder of a Grantor Trust Certificate acquired at a discount or a
premium generally will recognize ordinary income or loss equal to the difference
between the portion of the prepaid principal amount of the Receivable that is
allocable to such Certificate and the portion of the adjusted basis of such
Certificate that is allocable to such Certificateholder's interest in the
Receivable. If a prepayment assumption is used, it appears that no separate item
of income or loss should be recognized upon a prepayment. Instead, a prepayment
should be treated as a partial payment of the stated redemption price of the
Grantor Trust Certificate and accounted for under a method consistent with
Section 1272(a)(6) of the Code. It is unclear whether any other adjustments
would be required to reflect differences between an assumed prepayment rate and
the actual rate of prepayments.
In the absence of statutory or administrative clarification, it is
currently intended to base information reports or returns to the IRS and
Certificateholders in transactions subject to the stripped bond rules on a
prepayment assumption (the "Prepayment Assumption") that will be
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disclosed in the related Prospectus Supplement and on a constant yield computed
using a representative initial offering price for each class of Certificates.
However, neither the Seller nor any other person will make any representation
that the Receivables will in fact prepay at a rate conforming to such Prepayment
Assumption or any other rate and Certificateholders should bear in mind that the
use of a representative initial offering price will mean that such information
returns or reports, even if otherwise accepted as accurate by the IRS, will in
any event be accurate only as to the initial Certificateholders of each series
who bought at that price.
IF STRIPPED BOND RULES DO NOT APPLY. Subject to the discussion below on
original issue discount, if the stripped bond rules do not apply to a Grantor
Trust Certificate, the Certificateholder will be required to report its share of
the interest income on the Receivables in accordance with such
Certificateholder's normal method of accounting. The original issue discount
rules will apply to a Grantor Trust Certificate to the extent it evidences an
interest in Receivables issued with original issue discount.
The original issue discount, if any, on the Receivables will equal the
difference between the stated redemption price of such Receivables and their
issue price. Under the OID Regulations, the stated redemption price is equal to
the total of all payments to be made on such Receivable other than "qualified
stated interest". "Qualified stated interest" includes interest that is
unconditionally payable at least annually at a single fixed rate, at a
"qualified floating rate", or at an "objective rate", a combination of a single
fixed rate and one or more "qualified floating rates" or one "qualified inverse
floating rate", or a combination of "qualified floating rates" that does not
operate in a manner that accelerates or defers interest payments on such
Receivable. In general, the issue price of a Receivable will be the amount
received by the borrower from the lender and the stated redemption price of a
Receivable will equal its principal amount.
In the case of Receivables bearing adjustable or variable interest
rates, the related Prospectus Supplement will describe the manner in which such
rules will be applied with respect to those Receivables by the Trustee in
preparing information returns to the Certificateholders and the IRS.
Notwithstanding the general definition of original issue discount,
original issue discount will be considered to be DE MINIMIS if such original
issue discount is less than 0.25% of the stated redemption price multiplied by
the weighted average maturity of the Receivable. For this purpose, the weighted
average maturity of the Receivable will be computed as the sum of the amounts
determined, as to each payment included in the stated redemption price of such
Receivable, by multiplying (i) the number of complete years (rounding down for
partial years) from the issue date until such payment is expected to be made by
(ii) a fraction, the numerator of which is the amount of the payment and the
denominator of which is the stated redemption price of the Receivable. Under the
OID Regulations, original issue discount of only a DE MINIMIS amount (other than
DE MINIMIS original issue discount attributable to a so-called "teaser" rate or
initial interest holiday) will be included in income as each payment of stated
principal price is made, based on the product of the total amount of such DE
MINIMIS original issue discount and a fraction, the numerator of which is the
amount of each such payment and the denominator of which is the outstanding
stated principal amount of the Receivable. The OID Regulations also permit a
Certificateholder to elect to accrue DE MINIMIS original issue discount into
income currently based on a constant yield method. See "--TAXATION OF OWNERS OF
GRANTOR TRUST CERTIFICATES--MARKET DISCOUNT" below.
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If original issue discount is in excess of a DE MINIMIS amount, all
original issue discount with respect to a Receivable will be required to be
accrued and reported in income each month, based on a constant yield. The OID
Regulations suggest that no prepayment assumption is appropriate in computing
the yield on prepayable obligations issued with original issue discount. In the
absence of statutory or administrative clarification, it currently is not
intended to base information reports or returns to the IRS and
Certificateholders on the use of a prepayment assumption in transactions not
subject to the stripped bond rules. However, Section 1272(a)(6) of the Code may
require that a prepayment assumption be made in computing yield with respect to
all asset-backed securities. Certificateholders are advised to consult their own
tax advisors concerning whether a prepayment assumption should be used in
reporting original issue discount with respect to Grantor Trust Certificates.
Certificateholders should refer to the related Prospectus Supplement with
respect to each series to determine whether and in what manner the original
issue discount rules will apply to Receivables in such series.
A purchaser of a Grantor Trust Certificate (other than a Certificate
subject to the stripped bond rules) that purchases such Grantor Trust
Certificate at a cost less than such Certificate's allocable portion of the
aggregate remaining stated redemption price of the Receivables held in the
related Trust Fund will also be required to include in gross income such
Certificate's daily portions of any original issue discount with respect to such
Receivables. However, each such daily portion will be reduced, if the cost of
such Grantor Trust Certificate to such purchaser is in excess of such
Certificate's allocable portion of the aggregate "adjusted issue prices" of the
Receivables held in the related Trust Fund, approximately in proportion to the
ratio such excess bears to such Certificate's allocable portion of the aggregate
original issue discount remaining to be accrued on such Receivables. The
adjusted issue price of a Receivable on any given day equals the sum of (i) the
adjusted issue price (or, in the case of the first accrual period, the issue
price) of such Receivable at the beginning of the accrual period that includes
such day and (ii) the daily portions of original issue discount for all days
during such accrual period prior to such day. The adjusted issue price of a
Receivable at the beginning of any accrual period will equal the issue price of
such Receivable, increased by the aggregate amount of original issue discount
with respect to such Receivable that accrued in prior accrual periods, and
reduced by the amount of any payments made on such Receivable in prior accrual
periods of amounts included in its stated redemption price.
Unless otherwise provided in the related Prospectus Supplement, the
Trustee or the Servicer as applicable, in addition to its regular reports will
provide to any holder of a Grantor Trust Certificate such information as such
holder may reasonably request from time to time with respect to original issue
discount accruing on Grantor Trust Certificates. See "--GRANTOR TRUST REPORTING"
below.
MARKET DISCOUNT. If the stripped bond rules do not apply to a Grantor
Trust Certificate, a Certificateholder may be subject to the market discount
rules of Sections 1276 through 1278 of the Code to the extent an interest in a
Receivable is considered to have been purchased at a "market discount", that is,
in the case of a Receivable issued without original issue discount, at a
purchase price less than its remaining stated redemption price or in the case of
a Receivable issued with original issue discount, at a purchase price less than
its adjusted issue price (as defined above). If market discount is in excess of
a DE MINIMIS amount (as described below), the holder generally will be required
to include in income in each month the amount of such discount that has accrued
(under the rules described in the next paragraph) through such month that has
not previously been included in income, but limited, in the case of the portion
of such discount that is allocable to any Receivable, to the payment of stated
redemption price on such
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Receivable that is received by (or, in the case of accrual basis
Certificateholders, due to) the Trust Fund in that month. A Certificateholder
may elect to include market discount in income currently as it accrues (under a
constant yield method based on the yield of the Certificate to such holder)
rather than including it on a deferred basis in accordance with the foregoing.
If made, such election will apply to all market discount bonds acquired by such
Certificateholder during or after the first taxable year to which such election
applies. In addition, the OID Regulations would permit a Certificateholder to
elect to accrue all interest, discount (including DE MINIMIS market or original
issue discount) and premium in income as interest, based on a constant yield
method. If such an election were made with respect to a Receivable with market
discount, the Certificateholder would be deemed to have made an election to
include currently market discount in income with respect to all other debt
instruments having market discount that such Certificateholder acquires during
the taxable year of the election and thereafter, and possibly previously
acquired instruments. Similarly, a Certificateholder that made this election for
a Certificate acquired at a premium would be deemed to have made an election to
amortize bond premium with respect to all debt instruments having amortizable
bond premium that such Certificateholder owns or acquires. Each of these
elections to accrue interest, discount and premium with respect to a Certificate
on a constant yield method or as interest is irrevocable.
Section 1276(b)(3) of the Code authorized the Treasury Department to
issue regulations providing for the method for accruing market discount on debt
instruments, the principal of which is payable in more than one installment.
Until such time as regulations are issued by the Treasury Department, certain
rules described in the legislative history to Section 1276 of the Code apply.
Under those rules, in each accrual period market discount on the Receivables
should accrue, at the Certificateholder's option: (i) on the basis of a constant
yield method, (ii) in the case of a Receivable issued without original issue
discount, in an amount that bears the same ratio to the total remaining market
discount as the stated interest paid in the accrual period bears to the total
stated interest remaining to be paid on the Receivable as of the beginning of
the accrual period, or (iii) in the case of a Receivable issued with original
issue discount, in an amount that bears the same ratio to the total remaining
market discount as the original issue discount accrued in the accrual period
bears to the total original issue discount remaining at the beginning of the
accrual period. The prepayment assumption, if any, used in calculating the
accrual of original issue discount is to be used in calculating the accrual of
market discount. The effect of using a prepayment assumption could be to
accelerate the reporting of such discount income. Because the regulations
referred to in this paragraph have not been issued, it is not possible to
predict what effect such regulations might have on the tax treatment of a
Receivable purchased at a discount in the secondary market.
Because the Receivables will provide for periodic payments of stated
redemption price, such discount may be required to be included in income at a
rate that is not significantly slower than the rate at which such discount would
be included in income if it were original issue discount.
Market discount with respect to Receivables generally will be
considered to be DE MINIMIS if it is less than 0.25% of the stated redemption
price of the Receivables multiplied by the number of complete years to maturity
remaining after the date of its purchase. In interpreting a similar rule with
respect to original issue discount on obligations payable in installments, the
OID Regulations refer to the weighted average maturity of obligations, and it is
likely that the same rule will be applied with respect to market discount,
presumably taking into account the prepayment assumption used, if any. The
effect of using a prepayment assumption could be to accelerate the reporting of
such discount income. If market discount is treated as DE MINIMIS
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under the foregoing rule, it appears that actual discount would be treated in a
manner similar to original issue discount of a DE MINIMIS amount. See
"--TAXATION OF OWNERS OF GRANTOR TRUST CERTIFICATES--IF STRIPPED BOND RULES DO
NOT APPLY".
Further, under the rules described above any discount that is not
original issue discount and exceeds a DE MINIMIS amount may require the deferral
of interest expense deductions attributable to accrued market discount not yet
includible in income, unless an election has been made to report market discount
currently as it accrues. This rule applies without regard to the origination
dates of the Receivables.
PREMIUM. If a Certificateholder is treated as acquiring the underlying
Receivables at a premium, that is, at a price in excess of their remaining
stated redemption price, such Certificateholder may elect under Section 171 of
the Code to amortize using a constant yield method the portion of such premium
allocable to Receivables originated after September 27, 1985. Amortizable
premium is treated as an offset to interest income on the related debt
instrument, rather than as a separate interest deduction. However, premium
allocable to Receivables originated before September 28, 1985 or to Receivables
for which an amortization election is not made, should be allocated among the
payments of stated redemption price on the Receivable and be allowed as a
deduction as such payments are made (or, for a Certificateholder using the
accrual method of accounting, when such payments of stated redemption price are
due).
It is unclear whether a prepayment assumption should be used in
computing amortization of premium allowable under Section 171 of the Code. If
premium is not subject to amortization using a prepayment assumption and a
Receivable prepays in full, the holder of a Grantor Trust Certificate acquired
at a premium should recognize a loss, equal to the difference between the
portion of the prepaid principal amount of the Receivable that is allocable to
the Certificate and the portion of the adjusted basis of the Certificate that is
allocable to the Receivable. If a prepayment assumption is used to amortize such
premium, it appears that such a loss would be unavailable. Instead, if a
prepayment assumption is used, a prepayment should be treated as a partial
payment of the stated redemption price of the Grantor Trust Certificate and
accounted for under a method similar to that described for taking account of
original issue discount on the Notes See "--NOTES --TAXATION OF OWNERS OF
NOTES-ORIGINAL ISSUE DISCOUNT". It is unclear whether any other adjustments
would be required to reflect differences between the prepayment assumption used,
if any, and the actual rate of prepayments.
POSSIBLE APPLICATION OF PROPOSED CONTINGENT PAYMENT RULES. The coupon
stripping rules' general treatment of stripped coupons is to regard them as
newly issued debt instruments in the hands of each purchaser. To the extent that
payments on the Certificates subject to the stripped bond rules would cease if
the Receivables were prepaid in full, the Certificates subject to the stripped
bond rules could be considered to be debt instruments providing for contingent
payments. Under the OID Regulations, debt instruments providing for contingent
payments are not subject to the same rules as debt instruments providing for
noncontingent payments, but no final regulations have been promulgated with
respect to contingent payment debt instruments. Proposed regulations were
promulgated on December 16, 1994 regarding contingent payment debt instruments
but it appears that Certificates subject to the stripped bond rules, due to
their similarity to other mortgage-backed securities (such as REMIC regular
interests) that are expressly excepted from the application of such proposed
regulations, may be excepted from such proposed regulations. Like the OID
Regulations, such proposed regulations do not
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specifically address securities, such as the Certificates subject to the
stripped bond rules, that are subject to the stripped bond rules of Section 1286
of the Code.
If the contingent payment rules under the proposed regulations were to
apply, the holder of a Grantor Trust Strip Certificate would be required to
apply the "noncontingent bond method". Under the "noncontingent bond method",
the issuer of a Grantor Trust Strip Certificate determines a projected payment
schedule on which interest will accrue. Holders of Certificates subject to the
stripped bond rules are bound by the issuer's projected payment schedule. The
projected payment schedule consists of all noncontingent payments and a
projected amount for each contingent payment based on the projected yield (as
described below) of the Grantor Trust Strip Certificate.
The projected amount of each payment is determined so that the
projected payment schedule reflects the projected yield. The projected amount of
each payment must reasonably reflect the relative expected values of the
payments to be received by the holders of a Grantor Trust Strip Certificate. The
projected yield referred to above is a reasonable rate, not less than the
"applicable Federal rate" that, as of the issue date, reflects general market
conditions, the credit quality of the issuer, and the terms and conditions of
the Receivables. The holder of a Grantor Trust Strip Certificate would be
required to include as interest income in each month the adjusted issue price of
the Grantor Trust Strip Certificate at the beginning of the period multiplied by
the projected yield.
Assuming that a prepayment assumption were used, if the proposed
regulations or their principles were applied to Certificates subject to the
stripped bond rules, the amount of income reported with respect thereto would be
substantially similar to that described under "TAXATION OF OWNERS OF GRANTOR
TRUST CERTIFICATES--IF STRIPPED BOND RULES APPLY". Certificateholders should
consult their tax advisors concerning the possible application of the contingent
payment rules to the Certificates subject to the stripped bond rules.
SALES OF GRANTOR TRUST CERTIFICATES. Any gain or loss, equal to the
difference between the amount realized on the sale or exchange of a Grantor
Trust Certificate and its adjusted basis, recognized on such sale or exchange of
a Grantor Trust Certificate by an investor who holds such Grantor Trust
Certificate as a capital asset, will be capital gain or loss, except to the
extent of accrued and unrecognized market discount, which will be treated as
ordinary income, and (in the case of banks and other financial institutions)
except as provided under Section 582(c) of the Code. The adjusted basis of a
Grantor Trust Certificate generally will equal its cost, increased by any income
reported by the seller (including original issue discount and market discount
income) and reduced (but not below zero) by any previously reported losses, any
amortized premium and by any distributions with respect to such Grantor Trust
Certificate. The Code as of the date of this Prospectus provides a top marginal
tax rate of 39.6% for individuals and a maximum marginal rate for long-term
capital gains of individuals of 28%. No such rate differential exists for
corporations. In addition, the distinction between a capital gain or loss and
ordinary income or loss remains relevant for other purposes.
Gain or loss from the sale of a Grantor Trust Certificate may be
partially or wholly ordinary and not capital in certain circumstances. Gain
attributable to accrued and unrecognized market discount will be treated as
ordinary income, as will gain or loss recognized by banks and other financial
institutions subject to Section 582(c) of the Code. Furthermore, a portion of
any gain that might otherwise be capital gain may be treated as ordinary income
to the extent that
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the Grantor Trust Certificate is held as part of a "conversion transaction"
within the meaning of Section 1258 of the Code. A conversion transaction
generally is one in which the taxpayer has taken two or more positions in the
same or similar property that reduce or eliminate market risk, if substantially
all of the taxpayer's return is attributable to the time value of the taxpayer's
net investment in such transaction. The amount of gain realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's net investment
at 120% of the appropriate "applicable Federal rate" (which rate is computed and
published monthly by the IRS) at the time the taxpayer enters into the
conversion transaction, subject to appropriate reduction for prior inclusion of
interest and other ordinary income items from the transaction. Finally, a
taxpayer may elect to have net capital gain taxed at ordinary income rates
rather than capital gains rates in order to include such net capital gain in
total net investment income for that taxable year, for purposes of the rule that
limits the deduction of interest on indebtedness incurred to purchase or carry
property held for investment to a taxpayer's net investment income.
GRANTOR TRUST REPORTING. Unless otherwise provided in the related
Prospectus Supplement, as applicable, the Trustee or the Servicer will furnish
to each holder of a Grantor Trust Certificate with each distribution a statement
setting forth the amount of such distribution allocable to principal on the
underlying Receivables and to interest thereon at the related PassThrough Rate.
In addition, within a reasonable time after the end of each calendar year, the
Trustee or Servicer, as applicable, will furnish to each Certificateholder
during such year such customary factual information as the Depositor or the
reporting party deems necessary or desirable to enable holders of Grantor Trust
Certificates to prepare their tax returns and will furnish comparable
information to the IRS as and when required by law to do so. Because the rules
for accruing discount and amortizing premium with respect to the Grantor Trust
Certificates are uncertain in various respects, there is no assurance the IRS
will agree with the Trustee's or Servicer's, as the case may be, information
reports of such items of income and expense. Moreover, such information reports,
even if otherwise accepted as accurate by the IRS, will in any event be accurate
only as to the initial Certificateholders that bought their Certificates at the
representative initial offering price used in preparing such reports.
BACKUP WITHHOLDING. In general, the rules described in "--Notes--Backup
Withholding with Respect to Notes" will also apply to Grantor Trust
Certificates.
FOREIGN INVESTORS. In general, the discussion with respect to Notes
applies to Grantor Trust Certificates except that Grantor Trust Certificates
will, unless otherwise disclosed in the related Prospectus Supplement, be
eligible for exemption from United States withholding tax, subject to the
conditions described in such discussion, only to the extent the related
Receivables were originated after July 18, 1984.
To the extent that interest on a Grantor Trust Certificate would be
exempt under Sections 871(h)(1) and 881(c) of the Code from United States
withholding tax, and the Grantor Trust Certificate is not held in connection
with a Certificateholder's trade or business in the United States, such Grantor
Trust Certificate will not be subject to United States estate taxes in the
estate of a non-resident alien individual.
THE FEDERAL TAX DISCUSSIONS SET FORTH ABOVE ARE INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A CERTIFICATEHOLDER'S
PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR TAX
ADVISORS WITH RESPECT TO THE
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TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF
CERTIFICATES, DEBT CERTIFICATES AND NOTES, INCLUDING THE TAX CONSEQUENCES UNDER
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN
FEDERAL OR OTHER TAX LAWS.
STATE AND OTHER TAX CONSEQUENCES
In addition to the federal income tax consequences described in
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES", potential investors should consider
the state and local tax consequences of the acquisition, ownership, and
disposition of the Certificates offered hereunder. State tax law may differ
substantially from the corresponding federal tax law, and the discussion above
does not purport to describe any aspect of the tax laws of any state or other
jurisdiction. Therefore, prospective investors should consult their own tax
advisors with respect to the various tax consequences of investments in the
certificates offered hereunder.
ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the Code impose certain requirements on employee benefit plans,
and on certain other retirement plans and arrangements, including individual
retirement accounts and annuities, Keogh plans and collective investment funds
and separate accounts (and as applicable, insurance company general accounts) in
which such plans, accounts or arrangements are invested that are subject to the
fiduciary responsibility provisions of ERISA and Section 4975 of the Code
("Plans"), and on persons who are fiduciaries with respect to such Plans, in
connection with the investment of Plan assets. Certain employee benefit plans,
such as governmental plans (as defined in ERISA Section 3(32)), and, if no
election has been made under Section 410(d) of the Code, church plans (as
defined in Section 3(33) of ERISA) are not subject to ERISA requirements.
Accordingly, assets of such plans may be invested in Securities without regard
to the ERISA considerations described below, subject to the provisions of other
applicable federal , state and local law. Any such plan which is qualified and
exempt from taxation under Sections 401(a) and 501(a) of the Code, however, is
subject to the prohibited transaction rules set forth in Section 503 of the
Code.
ERISA generally imposes on Plan fiduciaries certain general fiduciary
requirements, including those of investment prudence and diversification and the
requirement that a Plan's investments be made in accordance with the documents
governing the Plan. In addition, Section 406 of ERISA and Section 4975 of the
Code prohibit a broad range of transactions involving assets of a Plan and
persons ("parties in interest" within the meaning of ERISA and "disqualified
persons" within the meaning of the Code; collectively, "Parties in Interest")
who have certain specified relationships to the Plan, unless a statutory or
administrative exemption is available. Certain Parties in Interest that
participate in a prohibited transaction may be subject to an excise tax imposed
pursuant to Section 4975 of the Code or a penalty imposed pursuant to Section
502(i) of ERISA, unless a statutory or administrative exemption is available.
These prohibited transactions generally are set forth in Section 406 of ERISA
and Section 4975 of the Code.
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PLAN ASSET REGULATIONS
A Plan's investment in Securities may cause the underlying Receivables
and other assets included in a related Trust to be deemed assets of such Plan.
Section 2510.3-101 of the regulations (the "Plan Asset Regulations") of the
United States Department of Labor (the "DOL") provides that when a Plan acquires
an equity interest in an entity, the Plan's assets include both such equity
interest and an undivided interest in each of the underlying assets of the
entity, unless certain exceptions not applicable here apply, or unless the
equity participation in the entity by "benefit plan investors" (I.E., Plans and
certain employee benefit plans not subject to ERISA) is not "significant," both
as defined therein. For this purpose, in general, equity participation by
benefit plan investors will be "significant" on any date if 25% or more of the
value of any class of equity interests in the entity is held by benefit plan
investors. Equity participation in a Trust will be significant on any date if
immediately after the most recent acquisition of any Security, 25% or more of
any class of Securities is held by benefit plan investors.
Any person who has discretionary authority or control respecting the
management or disposition of Plan assets, and any person who provides investment
advice with respect to such assets for a fee, is a fiduciary of the investing
Plan. If the Receivables and other assets included in a Trust constitute Plan
assets, then any party exercising management or discretionary control regarding
those assets, such as the Servicer, any Backup Servicer, any subservicer, the
Trustee, the obligor under any credit enhancement mechanism, or certain
affiliates thereof, may be deemed to be a Plan "fiduciary" and thus subject to
the fiduciary responsibility provisions and prohibited transaction provisions of
ERISA and the Code with respect to the investing Plan. In addition, if the
Receivables and other assets included in a Trust constitute Plan assets, the
purchase of Securities by a Plan, as well as the operation of the Trust, may
constitute or involve a prohibited transaction under ERISA or the Code.
The Plan Asset Regulations provide that the term "equity interest"
means any interest in an entity other than an instrument that is treated as
indebtedness under applicable local law and which has no substantial equity
features. Accordingly, if the Notes issued by a Trust are treated as debt under
applicable law and do not have substantial equity features, the Receivables
included in such Trust would not be treated as assets of Plans investors.
PROHIBITED TRANSACTION EXEMPTIONS
In considering an investment in the Securities, a Plan fiduciary should
consider the availability of prohibited transaction exemptions promulgated by
the DOL including, among others, Prohibited Transaction Class Exemption ("PTCE")
75-1, which exempts certain transactions involving Plans and certain
broker-dealers, reporting dealers and banks; PTCE 90-1, which exempts certain
transactions between insurance company separate accounts and Parties in
Interest; PTCE 91-38, which exempts certain transactions between bank collective
investment funds and Parties in Interest; PTCE 84-14, which exempts certain
transactions effected on behalf of a Plan by a "qualified professional asset
manager"; PTCE 95-60, which exempts certain transactions between insurance
company general accounts and Parties in Interest; and PTCE 96- 23, regarding
transactions effected by an "in-house asset manager".
In addition to any exemption that may be available under PTCE 95-60 for
the purchase and holding of the Securities by an insurance company general
account, the Small Business Job Protection Act of 1996 added a new Section
401(c) to ERISA, which provides certain exemptive
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relief from the provisions of Part 4 of Title I of ERISA and Section 4975 of the
Code, including the prohibited transaction restrictions imposed by ERISA and the
related excise taxes imposed by the Code, for transactions involving an
insurance company general account. Pursuant to Section 401(c) of ERISA, the DOL
is required to issue final regulations ("401(c) Regulations") no later than
December 31, 1997 which are to provide guidance for the purpose of determining,
in cases where insurance policies supported by an insurer's general account are
issued to or for the benefit of a Plan on or before December 31, 1998, which
general account assets constitute Plan assets. Section 401(c) of ERISA generally
provides that, until the date which is 18 months after the 401(c) Regulations
become final, no person shall be subject to liability under Part 4 of Title I of
ERISA and Section 4975 of the Code on the basis of a claim that the assets of an
insurance company general account constitute Plan assets, unless (i) as
otherwise provided by the Secretary of Labor in the 401(c) Regulations to
prevent avoidance of the regulations or (ii) an action is brought by the
Secretary of Labor for certain breaches of fiduciary duty which would also
constitute a violation of federal or state criminal law. Any assets of an
insurance company general account which support insurance policies issued to a
Plan after December 31, 1998 or issued to Plans on or before December 31, 1998
for which the insurance company does not comply with the 401(c) Regulations may
be treated as Plan assets. In addition, because Section 401(c) does not relate
to insurance company separate accounts, separate account assets are still
treated as Plan assets of any Plan invested in such separate account. Insurance
companies contemplating the investment of general account assets in the
Securities should consult with their legal counsel with respect to the
applicability of Section 401(c) of ERISA, including the general account's
ability to continue to hold the Securities after the date which is 18 months
after the date the 401(c) Regulations become final.
If Certificates are being issued by the Trust, Plan fiduciaries should
consider whether an individual prohibited transaction exemption has been issued
to the underwriter of the Certificates being offered to such Plan. There can be
no assurance that any of these exemptions will apply with respect to any
particular Plan investment in the Securities or, even if it were deemed to
apply, that any exemption would apply to all prohibited transactions that may
occur in connection with such investment. The Prospectus Supplement with respect
to a series of Securities may contain additional information regarding the
availability of these or other exemptions with respect to the Securities offered
thereby.
CONSULTATION WITH COUNSEL
Any Plan fiduciary which proposes to purchase Securities on behalf of
or with assets of a Plan should consider its general fiduciary obligations under
ERISA and should consult with its counsel with respect to the potential
applicability of ERISA and the Code to such investment and the availability of
any prohibited transaction exemption in connection therewith.
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PLAN OF DISTRIBUTION
On the terms and conditions set forth in an underwriting agreement (the
"Underwriting Agreement") with respect to each Trust, the Seller will agree to
sell to each of the underwriters named therein and in the related Prospectus
Supplement, and each of such underwriters will severally agree to purchase from
the Seller, the principal amount of each class of Securities of the related
series set forth therein and in the related Prospectus Supplement.
In each Underwriting Agreement, the several underwriters will agree,
subject to the terms and conditions set forth therein, to purchase all the
Securities described therein which are offered hereby and by the related
Prospectus Supplement if any of such Securities are purchased. In the event of a
default by any such underwriter, each Underwriting Agreement will provide that,
in certain circumstances, purchase commitments of the nondefaulting underwriters
may be increased, or the Underwriting Agreement may be terminated.
First Union Capital Markets Corp. may be designated as an underwriter
in the related Prospectus Supplement. IronBrand Capital, LLC, an affiliate of
the Underwriter (the "First Union Partner"), is a 15% limited partner of NAFCO.
As part of a referral program, First Union National Bank of North Carolina, an
affiliate of First Union Capital Markets Corp., is entitled to receive fees for
referrals of credit applications to the extent the related motor vehicle retail
installment contracts are acquired by NAFCO. First Union National Bank and NAFCO
are considering an expansion of the referral program. Based upon several
factors, including the overall performance of the referral program and the total
market value of NAFCO over a specified time period, the First Union Partner may
increase its limited partnership interest in NAFCO to approximately 49%.
In the ordinary course of their respective businesses, First Union
Capital Markets Corp. and its affiliates have engaged and may engage in
investment banking and/or commercial banking transactions with NAFCO and its
affiliates.
The Prospectus and the related Prospectus Supplements may be used by
First Union Capital Markets Corp. in connection with offers and sales related to
market making transactions in any series of the Securities. First Union Capital
Markets Corp. may act as principal or agent in such transactions. Such sales
will be made at prices related to prevailing market prices at the time of the
sale or otherwise.
Each Prospectus Supplement will either (i) set forth the price at which
each class of Securities being offered thereby will be offered to the public and
any concessions that may be offered to certain dealers participating in the
offering of such Securities or (ii) specify that the related Securities are to
be resold by the underwriters in negotiated transactions at varying prices to be
determined at the time of such sale. After the initial public offering of any
Securities, the public offering price and such concessions may be changed.
Each Underwriting Agreement will provide that NAFCO and the Seller will
indemnify the underwriters against certain liabilities, including liabilities
under the Securities Act.
The Indenture Trustee, if any, may, from time to time, invest the funds
in the Designated Accounts in Eligible Investments acquired from the
underwriters.
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Under each Underwriting Agreement, the closing of the sale of any class
of Securities subject thereto will be conditioned on the closing of the sale of
all other such classes.
The place and time of delivery for the Securities in respect of which
this Prospectus is delivered will be set forth in the related Prospectus
Supplement.
LEGAL MATTERS
Certain matters with respect to the validity of the Certificates and
the Notes will be passed upon for the Seller by Thacher Proffitt & Wood, New
York, New York.
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INDEX OF DEFINED TERMS
Actuarial Contracts....................................................28
Administration Agreement...............................................59
Administrative Receivables.............................................22
Aggregate Principal Balance............................................13
APR....................................................................27
Backup Servicer.........................................................4
Bankruptcy Laws........................................................54
Certificate Distribution Account.......................................47
Certificate Majority...................................................41
Certificate Owners.....................................................19
Certificateholders......................................................5
Certificates............................................................1
Collection Account.....................................................15
Commission..............................................................3
Computer Tape..........................................................45
Cutoff Date.............................................................1
Dealer Agreements .................................................23, 31
Dealer Assignments.....................................................23
Dealers.............................................................8, 31
Definitive Certificates................................................41
Definitive Notes.......................................................41
Depository.............................................................34
Designated Accounts....................................................47
Distribution Date .....................................................34
DOL....................................................................85
DTC.....................................................................2
Electronic Ledger......................................................45
Eligible Account.......................................................47
Eligible Investments...................................................48
Eligible Servicer......................................................55
ERISA..................................................................84
Events of Default.....................................................37
Exchange Act............................................................3
Financed Vehicles.......................................................8
FTC....................................................................63
Indenture...............................................................1
Indenture Trustee....................................................1, 5
Indirect participants..................................................40
Insolvency Laws........................................................20
Insurance Agreement....................................................53
Insurer Default........................................................16
Interest Rate...........................................................7
JMFE...................................................................33
Lien...................................................................45
Lockbox Account....................................................15, 48
Lockbox Bank.......................................................15, 48
Monthly Period........................................... ............51
NAFCO...................................................................1
Note Distribution Account..............................................47
Note Majority..........................................................36
Note Owners............................................................19
Noteholders.............................................................7
Notes...................................................................1
Obligor................................................................15
Odometer Act...........................................................63
OFSA...................................................................14
OID Regulations........................................................65
Owner Trustee........................................................1, 4
Participants...........................................................40
Parties in Interest....................................... ...........84
Pass-Through Rate.......................................................5
Payment Date...........................................................35
Plan Asset Regulations.................................................85
Plans..................................................................84
Policy.................................................................13
Pooling and Servicing Agreement.........................................1
Pre-Funded Amount...................................................9, 10
Pre-Funding Account....................................................10
Pre-Funding Period............................................ ........10
Prepayment Assumption..................................................77
Prospectus Supplement...................................................1
PTCE...................................................................85
Purchase Agreement..................................................9, 43
Purchase Amount........................................................46
Rating Agency..........................................................18
Receivable Files........................................... .. ....46, 60
Receivables..........................................................1, 8
Receivables Pool........................................................8
Registration Statement..................................................3
Related Documents......................................................39
Relief Act................................................. ...........45
Repurchase Event...........................................10, 17, 46, 59
Required Deposit Rating................................................48
Rule of 78's Contracts.................................................28
Rules..................................................................40
Sale and Servicing Agreement............................................1
Schedule of Receivables................................................44
Securities..............................................................1
Security Insurer.......................................................13
Securityholders.........................................................3
Seller..................................................................1
Servicer.................................................. .........4, 31
Servicer Responsible Officer...........................................52
Servicer Termination Events................................ ...........54
Servicer's Certificate.................................................42
Servicing Agreement....................................................32
Servicing Fee..........................................................13
Simple Interest Contracts..............................................28
Strip Certificates......................................................5
Strip Notes.............................................................7
Subsequent Receivables...............................................1, 9
Subservicing Agreement.................................................26
Transferor.............................................................31
Trust................................................................1, 4
Trust Agreement.........................................................1
Trust Documents.....................................................1, 43
Trust Property.......................................................1, 8
UCC....................................................................20
Underwriting Agreement.................................................87
Warranty Receivables...................................................22
World Omni.............................................................33
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses to be incurred in
connection with the offering of the Automobile Receivables-Backed Certificates
and the Automobile Receivables-Backed Notes, other than underwriting discounts
and commissions, described in this Registration Statement:
Securities and Exchange Commission Registration Fee............$ 34,482
Printing and Engraving...........................................70,000
Legal Fees and Expenses.........................................300,000
Blue Sky Filing and Counsel Fees.................................50,000
Accounting Fees and Expenses....................................100,000
Trustee Fees and Expenses........................................40,000
Rating Agencies' Fees...........................................200,000
Miscellaneous Expenses.......................................... 20,000
Total..........................................................$814,482
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* All fees and expenses, other than the Securities and Exchange
Commission Registration Fee, are estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
National Financial Auto Funding Trust ("Funding Trust") is a business
trust formed under the laws of the State of Delaware. Section 3817 of Chapter 38
of Title 12 of the Delaware Code provides that a Delaware business trust may
indemnify any persons, including trustees and beneficial owners, from and
against any and all claims and demands whatsoever. The First Amended and
Restated Trust Agreement of the Seller (the "Trust Agreement") provides that the
Trust and National Auto Finance Company L.P., as depositor to Funding Trust (in
such capacity, the "Depositor"), will indemnify The Chase Manhattan Bank (USA),
as Trustee, and any of its officers, directors, employees or agents against any
and all losses and liabilities, obligations, damages, penalties, claims,
actions, suits or out-of-pocket expenses or costs of any kind and nature
whatsoever incurred or arising out of or in connection with the administration
of Funding Trust.
The Trust Agreement provides that the Depositor will indemnify any
person who was or is a party or is threatened to be made a party to, or
testifies in, any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative in nature, by reason of
the fact that such person is or was a Co-Trustee, against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding to the full extent permitted by law.
ITEM 16. EXHIBITS.
The Exhibits filed as part of this Registration Statement are:
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<PAGE>
1.1* -- Form of Underwriting Agreement
3.1* -- First Amended and Restated Trust Agreement of the
Seller, together with Amendment thereto.
4.1* -- Form of Pooling and Servicing Agreement between the
Seller, the Servicer and the Trustee.
4.2* -- Form of Sale and Servicing Agreement relating to Trusts
including Pre- Funding Accounts or issuing Notes.
4.3* -- Form of Trust Agreement relating to Trusts including
Pre-Funding Accounts or issuing Notes.
4.4* -- Form of Indenture between the Trust and the Indenture
Trustee, including form of Note.
5.1* -- Opinion and consent of Thacher Proffitt & Wood with
respect to legality.
8.1* -- Opinion and consent of Thacher Proffitt & Wood with
respect to tax matters (to be filed by amendment).
10.1* -- Form of Purchase Agreement between the Seller and NAFCO.
23.1* -- Consent of Thacher Proffitt & Wood (included as part of
Exhibit 5.1).
23.2* -- Consent of Thacher Proffitt & Wood (included as part of
Exhibit 8.1). ---------------------- * Previously filed.
ITEM 17. UNDERTAKINGS.
The undersigned registrant on behalf of the Trust hereby undertakes
that, for purposes of determining any liability under the Securities Act of
1933, each filing of the Owner Trust's annual report pursuant to section 13(a)
or section 15(d) of the Securities Exchange Act of 1934 that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
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.
The undersigned registrant hereby undertakes:
(1) 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 shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
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<PAGE>
(2) 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.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change to such information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement.
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the registration statement or any material change in the
information set forth in the registration statement;
Provided, however, that paragraphs (1)(i) and (1)(ii) do not
apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to section
13 or section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the registration
statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
The undersigned registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of section 310 of the Trust Indenture Act in accordance with the
rules and regulations prescribed by the Commission under section 305(b)(2) of
the Trust Indenture Act.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused Post-Effective
Amendment No. 1 to 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 the 23rd day of October, 1996.
NATIONAL FINANCIAL AUTO FUNDING
TRUST
By /s/ Keith Stein
----------------------------------
Keith Stein
Attorney-in-Fact
Pursuant to the requirements of the Securities Act, Post-Effective
Amendment No. 1 has been signed by the following persons in the capacities
indicated on October 23, 1996.
SIGNATURE TITLE
* Co-Trustee, Principal Executive Officer, Principal
- -----------------------
Gary L. Shapiro Financial Officer and Principal Accounting
Officer, National Financial Auto Funding Trust
* Co-Trustee, National Financial Auto Funding Trust
- -----------------------
Edgar Otto
* Co-Trustee, National Financial Auto Funding Trust
- -----------------------
Andrew Stidd
* Signed on behalf of each of the above-named persons:
By: /s/ Keith Stein
--------------------------------
Keith Stein
Attorney-in-Fact, pursuant to powers of attorney previously filed as
part of this registration statement.
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