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Registration No. ___________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 of organization) (Primary Standard Industrial
Classification Code Number)
One Park Place
621 N.W. 53rd Street
Boca Raton, FL 33487
(800) 999-7535
(Address and telephone number of Registrant's principal executive offices)
Gary L. Shapiro
Co-Trustee
National Financial Auto Funding Trust
One Park Place
621 N.W. 53rd Street
Boca Raton, FL 33487
(800) 999-7535
(Name, address and telephone number of agent for service)
----------------------
Copies to:
Thomas J. Cassidy, Esq.
Morrison & Foerster
1290 Avenue of the Americas
New York, New York 10104-0050
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Approximate date of commencement of proposed sale to the public: From time
to time on or after the effective date of this Registration Statement, as
determined by market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. /_/
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. /_ /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. /_ /
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION FEE
TITLE OF SECURITIES BEING REGISTERED REGISTERED (1) PER UNIT (2) OFFERING PRIce (2) (1)
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Automobile Receivables-Backed
Certificates and Automobile
<S> <C> <C> <C> <C>
Receivables-Backed Notes, issued in series $100,000,000 100% $100,000,000 $30,303.03
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</TABLE>
(1) $37,902,000 aggregate principal amount of Automobile Receivables-Backed
Certificates and Automobile Receivables-Backed Notes registered by the
Registrant under Registration Statement No. 33-80813 referred to below and not
previously sold are consolidated in this Registration Statement pursuant to
Rule 429. All registration fees in connection with such unsold amount of
Automobile
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Recievables-Backed Certificates and Automobile Receivables-Backed Notes have
been previously paid by the Registrant under the foregoing Registration
Statement. Accordingly, the total amount registered under the Registration
Statement as so consolidated as of the date of this filing is $137,902,000.00.
(2) Estimated solely for the purpose of calculating the registration fee.
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until 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.
Pursuant to Rule 429 of the Securities Act of 1933, the prospectus which
is part of this Registration Statement is a combined prospectus and includes
all the information currently required in a prospectus relating to the
securities covered by Registration Statement No. 33-80813 previously filed by
the Registrant. This Registration Statement constitutes Post-Effective
Amendment No. 2 to Registration Statement No. 33-80813.
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.
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PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 1997) VERSION I
----------------
$
NATIONAL AUTO FINANCE 1997-__ TRUST, 1997-
___% AUTOMOBILE RECEIVABLES-BACKED CERTIFICATES
NATIONAL FINANCIAL AUTO FUNDING TRUST
(SELLER)
NATIONAL AUTO FINANCE COMPANY, INC.
(SERVICER)
FULL AND TIMELY PAYMENT OF THE INTEREST PAYMENT AND
THE PRINCIPAL PAYMENT ON EACH DISTRIBUTION DATE IS
UNCONDITIONALLY AND IRREVOCABLY GUARANTEED PURSUANT
TO AN INSURANCE POLICY ISSUED BY
[LOGO]
Principal, together with interest at one-twelfth of the Pass-Through
Rate of ___% per annum, will be distributed to the Certificateholders on the
15th day of each month (or, if the 15th day is not a Business Day, the next
following Business Day), beginning 15, 1997 (each, a "Distribution Date"). The
Final Scheduled Distribution Date is . In general, it is intended that
Certificateholders receive on each Distribution Date (a) an Interest Payment
equal to interest at one-twelfth of the Pass-Through Rate on the Certificate
Balance as of the last day of the prior calendar month (or as of the Closing
Date, in the case of the first Distribution Date) and (b) a Principal Payment
equal to the sum of the following amounts with respect to the preceding
calendar month (a "Monthly Period"): (i) that portion of all collections on
Receivables allocable to principal, including full and partial principal
prepayments received during such Monthly Period, (ii) the principal balance of
each Receivable that became a Liquidated Receivable during such Monthly Period
and (iii) the principal balance of each Receivable that was repurchased by [the
Seller] or the Servicer as of the last day of such Monthly Period. The
Principal Payment on the Final Scheduled Distribution Date will equal the
Certificate Balance on such Distribution Date. It is a condition of issuance
that the Certificates be rated by Standard & Poor's Corporation and by Moody's
Investors Service, Inc. on the basis of the issuance by of a financial guaranty
insurance policy (the "Policy"). A listing of the pages on which certain
capitalized terms are defined is set forth under the caption "Index of Defined
Terms" on pg. hereof and the "Index of Defined Terms" set forth in the
Prospectus dated , 1997, attached hereto (the "Prospectus").
Each Certificate offered hereby will represent a fractional undivided
interest in the National Auto Finance 1997-__ Trust (the "Trust") to be formed
by National Financial Auto Funding Trust (the "Seller"), a wholly owned
subsidiary of National Auto Finance Company, Inc. ("NAFI"). The Trust Property
will include a pool of retail installment sales contracts (the "Receivables")
purchased by NAFI from motor vehicle dealers and secured by new and used
automobiles and light trucks, certain monies paid or payable thereunder after,
1997 (the "Cutoff Date"), an assignment of NAFI's security interests in the
vehicles financed thereby, the Policy and certain other property, as more fully
described herein. The aggregate principal balance of the Receivables on the
Cutoff Date was $___________.
The Certificates initially will be represented by certificates
registered in the name of Cede & Co., the nominee of The Depository Trust
Company ("DTC"). The interest of beneficial owners of the Certificates will be
represented by book entries on the records of the participating members of DTC.
Definitive Certificates will be available only under the limited circumstances
described herein.
There currently is no secondary market for the Certificates. The
Underwriters expect, but are not obligated, to make a market in the
Certificates. There is no assurance that any such market will develop or
continue.
FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE CERTIFICATES, SEE "RISK FACTORS" ON PAGE S-9
HEREIN AND ON PAGE 21 OF THE ACCOMPANYING PROSPECTUS.
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST AND DO NOT
REPRESENT INTERESTS IN OR OBLIGATIONS OF NAFI
THE SELLER OR ANY AFFILIATE OF EITHER.
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 SUPPLEMENT OR THE
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
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Price to Underwriting Proceeds to the
Public (1) Discount Seller (1)(2)
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<S> <C> <C> <C>
Per Certificate
Total
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</TABLE>
(1) Plus accrued interest, if any, from and including , 1997.
(2) Before deducting estimated expenses of $ payable by the Seller.
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The Certificates are offered hereby by the Underwriters named below,
subject to receipt and acceptance by the Underwriters and their right to reject
any order in whole or in part. It is expected that delivery of the Certificates
will be made on or about , 1997.
[Underwriters]
The date of this Prospectus Supplement is , 1997.
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THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT
THE OFFERING OF THE CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED IN THE
PROSPECTUS AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE CERTIFICATES MAY NOT BE
CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
CERTIFICATES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
THE INSURANCE POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE
SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates are issued, unaudited monthly
and annual reports, containing information concerning the Trust and prepared by
the Servicer, will be sent on behalf of the Trust to the Owner Trustee and Cede
& Co., as registered holder of the Certificates and the Notes and the nominee
of DTC. See "Certain Information Regarding the Securities-Book-Entry
Registration and "-Reports to Security holders" in the accompanying
Prospectus. Certificate Owners may receive such reports, upon written request,
together with a certification that they are Certificate Owners and payment of
any expenses associated with the distribution of such reports, from the Owner
Trustee at the address specified in the related Prospectus Supplement. Such
reports will not constitute financial statements prepared in accordance with
generally accepted accounting principles. Neither the Seller, NAFI nor the
Certificate Insurer intends to send any of its financial reports to
Certificateholders. The Servicer, on behalf of the Trust, will file with the
Commission periodic reports concerning the 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.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Seller will provide without charge to any person to whom this
Prospectus Supplement is delivered, upon the oral or written request of such
person, a copy of any or all of the following reports and financial statements
incorporated herein by reference: [list of specific filings incorporated by
reference]. Requests for such copies should be directed to National Financial
Auto Funding Trust, ______________, Attention: Chief Financial Officer,
National Auto Finance Company, Inc., One Park Place, Suite 200, 621 N.W. 53rd
Street, Boca Raton, Florida 33487 (telephone (800) 999-7535).
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SUMMARY OF THE TERMS OF THE CERTIFICATES
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Capitalized terms used herein and not otherwise
defined herein shall have the respective meanings ascribed to such terms
elsewhere in the this Prospectus Supplement or the accompanying Prospectus. A
listing of the pages on which some of such terms are defined is contained in
the Prospectus under the caption "Index of Defined Terms."
Issuer .................... National Auto Finance 1997-_________ Trust
(the "Trust"), to be formed on or about , 1997
(the "Closing Date"), by National Financial
Auto Funding Trust (the "Seller") pursuant to
a Pooling and Servicing Agreement, dated as of
, 1997 (the "Agreement"), among the Seller,
NAFI, in its individual capacity and as
Servicer (in such capacity referred to herein
as the "Servicer") and , as Owner Trustee.
Seller..................... National Financial Auto Funding Trust, a
wholly owned subsidiary of NAFI. See "The
Seller" in the accompanying Prospectus.
Servicer................... National Auto Finance Company, Inc. See
"National Auto Finance Company, Inc." in the
accompanying Prospectus.
Owner Trustee and Backup
Servicer.................. (the "Owner Trustee"). NAFI may be terminated
as Servicer under certain circumstances, at
which time the Owner Trustee will
automatically become the Servicer. See
"Description of the Purchase Agreements and
the Pooling and Servicing Agreements-
Servicer Termination Events" and "- The Owner
Trustee and Backup Servicer" in the
accompanying Prospectus.
Securities Offered........ ____________% Automobile Receivables-Backed
Certificates (the "Certificates") representing
fractional undivided interests in the Trust.
The Certificates will be offered for purchase
in minimum denominations of 20,000 initial
principal amount and integral multiples of
$1,000 in excess thereof (except that one
Certificate will include the remainder of the
Cutoff Date Principal Balance (as hereinafter
defined)). See "Certain Information Regarding
the Securities - Book-Entry Registration" in
the accompanying Prospectus.
The Trust Property........ The Trust's assets (the "Trust Property") will
include, among other things, a pool (the
"Receivables Pool") of retail installment
sales contracts (the "Receivables") purchased
from motor vehicle dealers ("Dealers") by NAFI
and secured by new and used automobiles and
light trucks (the "Financed Vehicles"),
certain monies paid or payable thereunder
after , 1997 (the "Cutoff Date"), an
assignment of NAFI's 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, a financial guaranty insurance
policy (the "Policy") issued by
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(the "Certificate Insurer"), the assignment of
certain rights of NAFI against the Dealers
originating such Receivables, the Collection
Account, including all investments therein,
all income from the investment of funds
therein and all proceeds thereof, and certain
other rights under the Agreement. The
Receivables will be purchased by the Seller
from NAFI pursuant to a purchase agreement
(the "Purchase Agreement") between the Seller
and NAFI on or prior to the date of issuance
of the Certificates. The Trust Property will
also include an assignment of the Seller's
rights under the Purchase Agreement, including
rights against NAFI upon the occurrence of
certain branches of representations and
warranties thereunder (a "Repurchase Event").
See "The Trust" herein.
Initial Certificate
Balance ................. The Certificates will be issued in an initial
principal amount equal to $ (the "Cutoff Date
Principal Balance"), which is equal to the
aggregate principal balance of the Receivables
(the "Aggregate Principal Balance") as of the
Cutoff Date. The "Certificate Balance" as of
any date will be equal to the Cutoff Date
Principal Balance less all principal
distributed to holders of Certificates
("Certificateholders") prior to such date.
Pass-Through Rate ....... ___% per annum (the "Pass-Through Rate"),
payable monthly at one-twelfth of the annual
rate, calculated on the basis of a 360-day
year consisting of twelve 30-day months.
Distribution Date ....... The 15th day of each month (or if the 15th day
is not a Business Day, the next succeeding
Business Day) commencing 15, 1997 (each, a
"Distribution Date"). A "Business Day" is a
day other than a Saturday, Sunday or other day
on which commercial banks located in New York,
New York are authorized or obligated to be
closed.
Final Scheduled
Distribution Date ....... (the "Final Scheduled Distribution Date").
Interest................. On each Distribution Date, interest at
one-twelfth of the Pass-Through Rate on the
Certificate Balance as of the last day of the
preceding calendar month plus any unpaid
portion of such amount in respect of a prior
Distribution Date and interest thereon at
one-twelfth of the Pass-Through Rate from the
Distribution Date on which such interest was
payable to the Distribution Date on which it
is paid (the "Interest Payment") will be
distributed by the Owner Trustee on a pro rata
basis to the Certificateholders of record on
the last day of the preceding calendar month
(the "Record Date"). See "The Certificates -
Distributions on Certificates" herein.
Principal ............... On each Distribution Date, principal on or
with respect to the Receivables will be passed
through to Certificateholders in the amount of
the Principal Payment for such Distribution
Date. Distributions in respect of principal
will be made on a pro rata basis to
Certificateholders of record on the preceding
Record Date. The "Principal Payment," with
respect to any Distribution Date, will be
amount equal to the sum of the following
amounts with respect to the related Monthly
Period, in each case computed in accordance
with the simple interest
4
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method: (i) that portion of all collections on
Receivables (other than Liquidated Receivables
and Purchased Receivables) allocable to
principal, including full and partial
principal prepayments, received during such
Monthly Period, (ii) the principal balance of
each Receivable that became a Liquidated
Receivable during such Monthly Period, (iii)
the principal balance of each Receivable that
was repurchased by NAFI or the Servicer as of
the last day of such Monthly Period and, at
the option of the Security Insurer, if any,
the principal balance of each Receivable that
was required to be, but was not, so
repurchased, (iv) the aggregate amount of any
reduction of the principal balance of a
Receivable as a result of a court order in an
insolvency proceeding, and (v) any unpaid
portion of the amounts included in (i), (ii),
(iii) and (iv) above with respect to a prior
Distribution Date. The Principal Payment on
the Final Scheduled Distribution Date will
equal the Certificate Balance on the Final
Scheduled Distribution Date. A "Monthly
Period" with respect to a Distribution Date is
the calendar month immediately preceding the
month in which the Distribution Date occurs.
See "The Certificates -- Distributions on
Certificates" herein.
The Policy .............. On the Closing Date, the Certificate Insurer
will issue the Policy to the Owner Trustee
pursuant to an Insurance and Indemnity
Agreement, dated as of , 1997, among the
Certificate Insurer, NAFI and the Seller (the
"Insurance Agreement"). Pursuant to the
Policy, the Certificate Insurer will
unconditionally and irrevocably guarantee to
the Certificateholders payment of the Interest
Payment and the Principal Payment for each
Distribution Date. See "The Policy" and "The
Certificates-- Distributions on Certificates"
herein.
Receivables ............. The Receivables were originated by Dealers and
sold by the Dealers to NAFI in the ordinary
course of business. As of the Cutoff Date, the
Receivables Pool had a weighted average annual
percentage rate of % and a weighted average
remaining maturity of months. As of the Cutoff
Date, no Receivable had a scheduled maturity
prior to and no Receivable was more than 30
days past due. The final scheduled payment
date on the Receivable with the latest
maturity occurs in. A substantial portion of
the Receivables are 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 Pool" herein and "The
Receivables" in the accompanying Prospectus.
Optional Purchase of
Receivables.............. The Seller or the Servicer may purchase all
the Receivables on any Distribution Date
following the first Monthly Period as of which
the Aggregate Principal Balance has declined
to 10% or less of the Cutoff Date Principal
Balance, subject to certain provisions in the
Agreement. See "Description of the Purchase
Agreements and the Pooling and Servicing
Agreements -- Termination" in the accompanying
Prospectus.
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Tax Status .............. In the opinion of counsel to NAFI, the Trust
will be classified as a grantor trust for
federal income tax purposes and not as an
association which is taxable as a corporation.
Each Certificateholder will be treated for
such purposes as the owner of an undivided
interest in the Receivables. Accordingly, each
Certificateholder must report on its federal
income tax return its share of the income from
the Receivables and, subject to limitations on
deductions by individuals, estates and trusts,
may deduct its share of the reasonable fees
paid by the Trust, determined in accordance
with such Certificateholder's tax accounting
method. See "Certain Federal Income Tax
Consequences" herein and in the accompanying
Prospectus.
ERISA Considerations .... As described herein, provided that certain
conditions have been complied with, the
Certificates may be purchased by employee
benefit plans that are subject to the Employee
Retirement Income Security Act of 1974, as
amended. Any employee benefit plan fiduciary
considering the purchase of Certificates
should, among other things, consult with its
counsel in determining whether all required
conditions have been satisfied. See "ERISA
Considerations" herein and in the accompanying
Prospectus.
Rating ................... As a condition of issuance, the Certificates
will be rated by Standard & Poor's Corporation
("S&P") and by Moody's Investors Service, Inc.
("Moody's" and, together with S&P, the "Rating
Agencies") on the basis of the issuance of the
Policy by the Certificate Insurer. There is no
assurance that the ratings initially assigned
to the Certificates will not subsequently be
lowered or withdrawn by the Rating Agencies.
Such ratings will not constitute an assessment
of the likelihood that principal prepayments
on the Receivables underlying the Certificates
will be made by the Obligors thereon or of the
degree to which the rate of such prepayments
might differ from that originally anticipated.
See "Special Considerations - Ratings on
Certificates" herein.
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RISK FACTORS
Prospective Certificateholders should consider, in addition to the
factors described under "Risk Factors" in the Prospectus, the following factors
in connection with the purchase of the Certificates:
GEOGRAPHIC CONCENTRATION OF RECEIVABLES
As of the Cutoff Date, Obligors with respect to substantially all of
the Receivables (based on principal balance and mailing addresses) were located
in [list states]. See "The Receivables - Certain Other Characteristics."
Accordingly, adverse economic conditions or other factors particularly
affecting any of these states could adversely affect the delinquency, loan loss
or repossession experience of the Trust with respect to the Receivables.
DELINQUENCY, LOAN LOSS AND REPOSSESSION EXPERIENCE
NAFI commenced operations in ___, 199__. Although NAFI has calculated
and presented herein its net loss experience with respect to its servicing
portfolio, there can be no assurance that the information presented will
reflect actual experience with respect to the Receivables. In addition, there
can be no assurance that the future delinquency, loan loss or repossession
experience of the Trust with respect to the Receivables will be better or worse
than that set forth herein with respect to NAFI's servicing portfolio. See "The
Receivables Pool - Delinquency, Repossession and Loss Information" herein.
RATINGS ON CERTIFICATES
It is a condition to the issuance of the Certificates that they be
rated ____ by S&P and ____ by Moody's on the basis of the issuance of the
Policy by the Certificate Insurer. A rating is not a recommendation to
purchase, hold or sell Certificates. There is no assurance that a rating will
remain in effect for any given period of time or that a rating will not be
lowered or withdrawn entirely by a Rating Agency if in its judgment
circumstances in the future so warrant. In the event that the rating initially
assigned to the Certificates is subsequently lowered or withdrawn for any
reason, including by reason of a downgrading of The Certificate Insurer's
credit ratings, no person or entity will be obligated to provide any additional
credit enhancement with respect to the Certificates. Any reduction or
withdrawal of a rating may have an adverse effect on the liquidity and market
price of the Certificates.
THE TRUST
The following information supplements the information contained in the
accompanying Prospectus. Prospective Certificateholders should consider, in
addition to the information below, the information under "The Trusts" in the
accompanying Prospectus.
The Seller will establish the Trust pursuant to the Agreement, by
selling and assigning the Receivables and the other Trust Property (other than
the Policy to the Owner Trustee in exchange for the Certificates. Prior to such
sale and assignment, 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 distributing payments thereon.
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Each Certificate will represent a fractional undivided interest in the
Trust. The Trust Property will include (i) the Receivables Pool; (ii) all
monies paid thereon after the Cutoff Date (excluding certain insurance
premiums, late fees and other servicing charges); (iii) the Policy; (iv) such
amounts as from time to time may be held in the Lockbox Account (as defined in
the accompanying Prospectus]; and the Collection Account (including all
investments in the Collection Account and all income from the investment of
funds therein and all proceeds thereof); (v) an assignment of the security
interests of NAFI in the Financed Vehicles; (vi) an assignment of the right to
receive proceeds from the exercise of rights against Dealers under agreement
between NAFI and such Dealers (the "Dealer Agreements") and the assignment of
rights in respect of each Receivable from the applicable Dealers to NAFI (the
"Dealer Assignments"); (vii) an assignment of the right to receive proceeds
from claims on certain insurance policies covering the Financed Vehicles or the
Obligors; (viii) the rights of the Seller under the Purchase Agreement; and
(iv) certain other rights under the Agreement in respect of representations and
warranties made by the Seller regarding the Receivables. See "The Receivables"
and "Description of the Purchase Agreements and the Pooling and Servicing
Agreements - Collections" in the accompanying Prospectus.
Initially, [OFSA], as custodian on behalf of the Trust (the
"Custodian"), 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"). The Owner Trustee may in the future, with the consent of
the Certificate Insurer (prior to an Insurer Default), appoint NAFI as
custodian. In order to protect the Trust's ownership interest in the
Receivables, NAFI and the Seller will each file UCC-1 financing statements in
Florida and Delaware to give notice of the Trust's ownership of the Receivables
and the related Trust Property.
THE OWNER TRUSTEE
_______________________________ is the Owner Trustee under the
Agreement. ________________________ is a national banking association the
principal offices of which are located at ___________________________________.
THE RECEIVABLES POOL
GENERAL. The Seller will acquire the Initial Receivables from NAFI on
the Closing Date. Thereafter, Subsequent Receivables will be purchased from
NAFI on the Subsequent Transfer Dates. The Initial Receivables represent, as of
the Initial Cutoff Date, and the Subsequent Receivables will represent, as of
the related Subsequent Cutoff Date, a substantial portion of NAFI's retail
motor vehicle installment sale contracts which (a) are secured by a new or used
automobile, light-duty truck, van or minivan, (b) have a remaining maturity,
original maturity and an APR at origination within the ranges set forth in this
paragraph, (c) are fully amortizing with level payments over their terms, (d)
are dated on or after (e) were not more than 30 days delinquent as of the
Initial Cutoff Date or the Subsequent Cutoff Date, as the case may be, and (f)
satisfy the representations and warranties required to be made with respect
thereto under the Trust Documents. As of the Initial Cutoff Date, Initial
Receivables representing approximately __% of the Original Pool Balance [of the
Initial Receivables] were secured by Financed Vehicles that were used at the
time of origination of the Initial Receivables and the remainder were secured
by Financed Vehicles that were new at such time. All Initial Receivables have
an APR at origination of at least ___ % and not more than ___% and the
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weighted average APR of the Initial Receivables is approximately ___%. The
Initial Receivables had remaining scheduled maturities as of the Initial Cutoff
Date of at least [2] months but not more than [60] months and original
maturities of at least [12] months but not more than [60] months. The final
scheduled payment date on the Initial Receivable with the latest maturity is
___________. The weighted average remaining scheduled maturity of the Initial
Receivables as of the Initial Cutoff Date was approximately ___ months. The
average outstanding principal balance per Initial Receivable as of the Initial
Cutoff Date was approximately $__________, and the outstanding principal
balances of the Initial Receivables as of the Initial Cutoff Date ranged from
$___________ to $________. Initial Receivables providing for payment
according to the simple interest, the Rule of 78's and the actuarial method
represent approximately ____%, ____% and ____%, respectively of the Original
Pool Balance [of the Initial Receivables] as of the Initial Cutoff Date. Based
upon the Master Servicer's billing records, the Obligors on the Initial
Receivables were domiciled in states [and the District of Columbia] as of the
Initial Cutoff Date.
COMPOSITION OF INITIAL RECEIVABLES AS OF THE INITIAL CUTOFF DATE
<TABLE>
<CAPTION>
WEIGHTED ORIGINAL POOL NUMBER OF AVERAGE WEIGHTED WEIGHTED
AVERAGE BALANCE RECEIVABLES ORIGINAL BALANCE AVERAGE ORIGINAL AVERAGE
ANNUAL IN POOL TERM TO MATURITY REMAINING TERM
PERCENTAGE (RANGE)(1) TO MATURITY
RATE OF (RANGE)(1)
RECEIVABLES
(RANGE)(1)
<S> <C> <C> <C> <C> <C>
_____% $___________ ______ $_________ _____ Mo. _____ Mo.
(____-____%) (__-__ Mo.) (__-__ Mo.)
</TABLE>
- ----------------------------------------------------
(1) Based on Original Pool Balance.
9
<PAGE> 13
The following table sets forth information, as of the Initial Cutoff Date,
regarding the number, outstanding principal balances and percentages of the
Pool Outstanding Principal Balance of the Initial Receivables originated by
Dealers in each state.
<TABLE>
<CAPTION>
STATE NUMBER OUTSTANDING PERCENTAGE WEIGHTED WEIGHTED AVERAGE WEIGHTED FINAL SCHEDULED PAYMENT
OF PRINCIPAL OF POOL AVERAGE AVERAGE OUTSTANDING AVERAGE DATE OF RECEIVABLE WITH
LOANS BALANCE OUTSTANDING ORIGINAL REMAINING PRINCIPAL APR LATEST MATURITY
PRINCIPAL TERM TO MATURITY OF BALANCE OF
BALANCE MATURITY RECEIVABLES IN RECEIVABLES
IN MONTHS MONTHS
<S> <C> <C> <C> <C> <C> <C> <C>
$ ___ % ___ ___ $ ____ $
[Etc.]
Total $ ___ % ___ $ ___ $
</TABLE>
10
<PAGE> 14
DISTRIBUTION OF THE INITIAL RECEIVABLES BY APR AS OF THE INITIAL CUTOFF DATE
<TABLE>
<CAPTION>
APR NUMBER OUTSTANDING PERCENTAGE OF WEIGHTED WEIGHTED AVERAGE FINAL SCHEDULED
OF PRINCIPAL POOL AVERAGE AVERAGE OUTSTANDING PAYMENT DATE
RECEIVABLES BALANCE OUTSTANDING ORIGINAL REMAINING PRINCIPAL OF RECEIVABLE
PRINCIPAL TERM TO MATURITY OF BALANCE OF WITH
BALANCE MATURITY RECEIVABLES RECEIVABLES LATEST MATURITY
IN MONTHS IN MONTHS
<S> <C> <C> <C> <C> <C> <C>
$ ___ % $
[Etc.]
_____% $ ___ % $
</TABLE>
11
<PAGE> 15
DEALER CONCENTRATION. [Two] groups of affiliated Dealers (each, an
"Affiliated Group") originated approximately __ % and __%, respectively, of the
Original Pool Balance of the Initial Receivables as of the Initial Cutoff Date.
No other Dealer or its affiliates originated more than __ % of the Original Pool
Balance of the Initial Receivables. The failure of any one or more of the
Dealers in the Affiliated Groups to repurchase Receivables under a Dealer
Agreement with NAFI upon breaches of representations or warranties made with
respect thereto could materially and adversely impact NAFI's ability to honor
any corresponding repurchase obligation under the Trust Documents and
consequently the Seller's ability to honor any corresponding retransfer
obligation under the Trust Documents. Although NAFI historically has not had
any material problems with Dealers failing to honor their repurchase
obligations under their Dealer Agreements with NAFI, no representations are
made as to the financial condition of any Dealer and no assurance can be given
that any Dealer from whom NAFI purchased Receivables will have the financial
ability to perform its repurchase obligations, if any, under its Dealer
agreement with NAFI. In the event that full payment of a Receivable required to
be retransferred to the Seller is not received, the Seller defaults in its
obligation to accept a retransfer of such Receivable, the obligor under such
Receivable defaults thereon and the Certificate Insurer fails to pay any claim
under the Policy, Certificateholders may sustain a loss of principal and
interest on their Certificates.
AVERAGE LIFE OF THE RECEIVABLES. As of the Initial Cutoff Date, the
weighted average remaining scheduled maturity of the Initial Receivables was
approximately ___ months, based on the following assumptions: (i) the Initial
Receivables have the characteristics described herein, (ii) all scheduled
payments on the Initial Receivables will be made on the last day of each month,
and (iii) no principal prepayments in full (including prepayments resulting
from defaults, from repurchases of Initial Receivables by the Seller or the
Servicer and from the application of insurance proceeds) will be made on the
Initial Receivables.
As described in the related Prospectus under the caption "The
Receivables - Types of Receivables - Simple Interest Receivables," additional
payments may be scheduled at the maturity dates of certain Receivables as a
result of late payments thereon, which could have the effect of extending the
weighted average remaining scheduled maturity of the Receivables at any given
time. In addition, the maturity dates of the Receivables may be extended under
the circumstances described herein under the caption "Description of the
Purchase Agreements and the Trust Documents--Collection and -- Servicing
Procedures."
The Seller does not believe that the timing of principal payments on
the Receivables will have a material impact on the yield to the initial
purchasers of the Certificates, unless the Certificates initially are purchased
at a premium or a discount. No assurance can be given, and no prediction can be
made, as to the actual prepayment experience on the Receivables.
CHARACTERISTICS OF SUBSEQUENT RECEIVABLES. After the transfer of
Subsequent Receivables to the Trust during the Pre-Funding Period, the weighted
average APR of the Receivables may be as low as ___%, the weighted average
remaining term of the Receivables may be as high as months, the percentage of
the aggregate outstanding principal balance of the Receivables represented by
Receivables relating to loans for the purchase of used Financed Vehicles may be
as high as ___% and the final scheduled payment date on the Receivable with the
latest maturity date may be as late as _____________.
DELINQUENCY, REPOSSESSION AND LOSS INFORMATION. The following table
sets forth delinquency, repossession and loss information since the month
following NAFI's commencement of operations in October 1994 to with respect to
NAFI's entire portfolio of motor vehicle retail installment sale contracts
(including those previously sold by NAFI to or held by the Seller).
12
<PAGE> 16
DELINQUENCY, REPOSSESSION AND LOSS INFORMATION
<TABLE>
<CAPTION>
199_ 199_ 199_ 199_ 199_ 199_ 199_ 199_
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding
Principal
Balance $ $ $ $ $ $ $ $
Number of
Outstanding
Receivables
Outstanding
Principal
Balance of
Delinquent
Receivables
(over 30 days)
as a Percentage
of
Outstanding
Principal
Balance(1) % % % % % % % %
Number of
Financed
Vehicles
Repossessed
as a Percentage
of
Outstanding
Receivables % % % % % % % %
Gross Losses(2) $ $ $ $ $
Gross Losses as a
percentage of
Outstanding
Principal
Amount(2) % % % % % % % %
Estimated Net
Losses(3) % % $ $ $ $ $
Estimated Net
Losses
as a percentage of
Outstanding
Principal
Amount(3) % % % % % % % %
</TABLE>
(1) Delinquent figures reported exclude contracts as to which the
cumulative amount of payments over 30 days delinquent is less than or
equal to $40.
13
<PAGE> 17
(2) A "Gross Loss" with respect to a contract charged-off during a period
equals the outstanding principal balance thereof, together with earned interest
thereon to the date of default.
(3) "Estimated Net Losses,, include actual recoveries on liquidated
contracts and estimated recoveries on vehicles held in inventory. A
Net Loss with respect to a contract charged-off during a period is
determined by subtracting liquidation proceeds, insurance proceeds and
other recoveries with respect thereto from the outstanding principal
amount thereof, together with earned interest thereon through the date
of default and repossession expenses. The Seller estimates a __% net
loss on vehicles held in inventory. As of _________, 199__, vehicles
held in inventory securing contracts with an outstanding principal
balance of approximately $_________ had been repossessed but not yet
liquidated.
NAFI commenced operations in October of 1994. Accordingly, its
historical delinquency, repossession and loss experience is limited. No
assurance can be given that the delinquency, repossession and loss experience
on the Receivables will be as favorable as the experience indicated in the
foregoing tables, especially in light of such limited historical experience.
The delinquency and loan loss experience described above should be considered
in light of the average maturity of the Receivables. In particular, there can
be no assurance that the rate of delinquencies and loan losses may not increase
over time.
THE CERTIFICATE INSURER
The following information has been obtained from the Certificate
Insurer and has not been verified by the Seller, NAFI or the Underwriters.
[DESCRIPTION OF THE CERTIFICATE INSURER TO BE ADDED HERE.]
THE CERTIFICATES
The following information supplements the information
contained in the accompanying Prospectus. Prospective Certificateholders should
consider, in addition to the information below, the information in the
accompanying Prospectus under "The Certificates," "Certain Information
Regarding the Securities," and "Description of the Purchase Agreements and the
Pooling and Servicing Agreements."
The Certificates offered hereby will be issued pursuant to
the Agreement, a form of which has been filed as an exhibit in the Registration
Statement of which this Prospectus Supplement forms a part. The following
summary of the Certificates and the Agreement 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 Certificates, the Agreement and the Prospectus. Where
particular provisions of or terms used in the Agreement are referred to, the
actual provisions (including definitions of terms) are incorporated by
reference as part of such summary.
On or before the tenth day of each month (or, if such day is
not a Business Day, the next succeeding Business Day) (each such date, a
"Determination Date"), the Servicer will deliver to the Owner Trustee, the
Certificate Insurer and each Rating Agency a certificate (the "Servicer's
Certificate") setting forth, among other things, the following amounts with
respect to the preceding Monthly Period and the related Distribution Date: (i)
the amount of funds in the Collection Account allocable to collections on the
Receivables in the preceding
14
<PAGE> 18
Monthly Period (excluding any Purchase Amounts) (the "Collected Funds"); (ii)
the Purchase Amount of all Receivables repurchased by NAFI or the Servicer on
the related Deposit Date; and (iii) the Interest Payment and the Principal
Payment and (v) the Servicing Fee. (Sections 3.9 and 4.6.)
On each Distribution Date, the Owner Trustee will distribute
the Collected Funds, any Purchase Amounts and all earnings from investment of
funds in the Collection Account (the "Available Funds") in the following
priority:
1. To the Servicer, [any amount(s) the Servicer is entitled
to be reimbursed and] the Servicing Fee for the related Monthly
Period.
2. To the Owner Trustee, any accrued and unpaid Owner
Trustee's fees and certain other administrative fees and expenses [and
any accrued and unpaid fees of the separate Lockbox Bank,] Custodian,
Backup Servicer or Collateral Agent (in each case, to the extent such
fees, expenses and disbursements have not been previously reimbursed
by the Servicer or NAFI).
3. To the Certificateholders, the Interest Payment.
4. To the Certificateholders, the Principal Payment.
5. To the Certificate Insurer, any amounts owing to the
Certificate Insurer under the Insurance Agreement and not paid.
6. Any Available Funds remaining in the Collection Account
after distributing the amounts described above will be payable to the
Seller as compensation for obtaining the Policy, paying the premiums
thereon and maintaining all necessary related arrangements for the
benefit of the Certificate Insurer (such compensation, including
amounts paid to the Certificate Insurer described above, being
hereinafter referred to as the "Credit Enhancement Fee"), but shall be
transferred to a financial institution acting as collateral agent (the
"Collateral Agent") on behalf of the Certificate Insurer and the Owner
Trustee. Unless an Insurer Default has occurred and is continuing, the
Certificate Insurer will control the disposition of any funds held by
the Collateral Agent.
The following sets forth an example of the application of the
foregoing to a hypothetical monthly distribution:
February 1 - February 28 Monthly Period. Scheduled Payments and any
prepayments and other collections on the Receivables
are received and deposited into the Collection
Account.
February 28 Record Date. Distributions on the Distribution Date
will be made to Certificateholders of record at the
close of business on this date.
March 4 Deposit Date. On or before this date, NAFI and the
Servicer will make required payments of Purchase
Amounts to the Collection Account.
15
<PAGE> 19
March 7 Determination Date. On or about this date the
Servicer will notify the Owner Trustee of, among
other things, the amounts available in the
Collection Account and the amounts required to be
distributed on the Distribution Date.
March 10 Draw Date. On this date, the Owner Trustee will make
any required claims under the Policy if the
Available Funds in the Collection Account (plus any
amounts deposited therein by the Collateral Agent),
after giving effect to all of the other
distributions having a higher priority as set forth
above, are insufficient to pay in full the Interest
Payment and the Principal Payment.
March 15 Distribution Date. The Owner Trustee will distribute
interest and principal on the Certificates to
Certificateholders, pay any accrued and unpaid Owner
Trustee's fees, the Servicing Fee and any amounts
owing to the Certificate Insurer, and will transfer
the Credit Enhancement Fee to the Collateral Agent.
For the purposes of the foregoing paragraph the following terms shall
have the following meanings:
"Interest Payment" means, with respect to any Distribution Date,
one-twelfth of the Pass-Through Rate multiplied by the Certificate Balance as
of the related Accounting Date plus any unpaid portion of such amount with
respect to a prior Distribution Date and interest thereon at one-twelfth of the
Pass-Through Rate from the Distribution Date on which such amount was payable
to the Distribution Date on which it is paid.
"Liquidated Receivable" means a Receivable as to which (i) 91 days have
elapsed since the Servicer repossessed the related Financed Vehicle, (ii) the
Servicer has determined in good faith that all amounts it expects to recover
have been received or (iii) all or some portion of a Scheduled Payment has
become more than 180 days past due.
"Principal Payment" means, with respect to any Distribution Date (other
than the Final Scheduled Distribution Date), the amount equal to the sum of the
following amounts with respect to the related Monthly Period, in each case
computed in accordance with the simple interest method: (i) that portion of all
collections on Receivables (other than Liquidated Receivables and Purchased
Receivables) allocable to principal, including all full and partial prepayments
received during such Monthly Period, (ii) the principal balance of each
Receivable that became a liquidated Receivable during such Monthly Period,
(iii) the principle balance of each Receivable that was repurchased by NAFI or
the Servicer as of the last day of such Monthly Period and, at the option of
the Security Insurer, if any, the principal balance of each Receivable that was
required to be, but was not, so repurchased, (iv) the aggregate amount of any
reduction of the principal balance of a Receivable as a result of a court order
in an insolvency proceeding, and (v) any unpaid portion of the amounts included
in clauses (i), (ii), (iii) and (iv) above with respect to a prior Distribution
Date. The Principal Payment on the Final Scheduled Distribution Date will equal
the Certificate Balance on the Final Scheduled Distribution Date.
STATEMENTS TO CERTIFICATEHOLDERS
16
<PAGE> 20
On each Distribution Date, the Owner Trustee will include with the
distribution to each Certificateholder a statement (based on the information in
the Servicer's Certificate), setting forth the following information for the
related Monthly Period:
((i) the amount of the distribution allocable to interest;
((ii) the amount of the distribution allocable to principal;
((iii) the amount of the distribution payable pursuant to a
claim on the Policy or out of amounts deposited by the Collateral
Agent;
((iv) the Certificate Balance after giving effect to the
Principal Payment distributed on such Distribution Date;
((v) the amount of the Servicing Fee paid to the Servicer
with respect to such Monthly Period; and
((vi) the Pool Factor after giving effect to the Principal
Payment distributed on such Distribution Date.
The amounts set forth pursuant to clauses (i) through (iv) above will be
expressed as a dollar amount per $1,000 of original principal balance of a
Certificate.
Unless and until Definitive Certificates are issued, such reports will
be sent on behalf of the Trust to the Owner Trustee and Cede & Co., as
registered holder of the Certificates and the nominee of DTC. Certificate
Owners may receive copies of such reports upon written request, together with a
certification that they are Certificate Owners and payment of any expenses
associated with the distribution of such reports, from the Owner Trustee. See
"Reports to Certificateholders" herein and "Reports to Certificateholders and
Noteholders" and "Certain Information Regarding the Securities" in the
accompanying Prospectus.
Within the required period of time after the end of each calendar year,
the Owner Trustee will furnish to each person who at any time during such
calendar year was a Certificateholder, a statement as to the aggregate amounts
of interest and principal paid to such Certificateholder, information regarding
the amount of servicing compensation received by the Servicer and such other
information as the Seller deems necessary to enable such Certificateholder to
prepare its tax returns. See "Certain Federal Income Tax Consequences" in the
accompanying Prospectus.
THE POLICY
The following summary of the terms of the Policy does not purport to be
complete and is qualified in its entirety by reference to the Policy, a form of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus Supplement forms a part.
[Description of the Policy to be added here.]
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
[Specific disclosure to be added here if necessary.]
17
<PAGE> 21
ERISA CONSIDERATIONS
Section 406 of ERISA, and/or Section 4975 of the Code, prohibits a
pension, profit-sharing or other employee benefit plan, as well as individual
retirement accounts and certain types of Keogh Plans (each a "Benefit Plan")
from engaging in certain transactions with persons that are "parties in
interest" under ERISA or "disqualified persons" under the Code with respect to
such Benefit Plan. A violation of these "prohibited transaction" rules may
result in an excise tax or other penalties and liabilities under ERISA and the
Code for such persons. Title I of ERISA also requires that fiduciaries of a
Benefit Plan subject to ERISA make investments that are prudent, diversified
(except if prudent not to do so) and in accordance with governing plan
documents.
[ERISA Disclosure applicable to Trust Certificates]
[The Certificates may not be acquired by (a) an employee benefit plan
(as defined in section 3(3) of ERISA) that is subject to the provisions of
Title I of ERISA, (b) a plan described in Section 4975(e)(1) of the Code, or
(c) any entity whose underlying assets include plan assets by reason of a
plan's investment in the entity. By its acceptance of a Certificate, each
Certificateholder will be deemed to have represented and warranted that it is
not subject to the foregoing limitation. For additional information regarding
treatment of the Certificates under ERISA, see "ERISA Considerations" in the
accompanying Prospectus.]
Employee benefit plans that are governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33)
of ERISA) are not subject to ERISA requirements.
A plan fiduciary considering the purchase of Certificates should
consult its tax and/or legal advisors regarding whether the assets of the Trust
would be considered plan assets, the possibility of exemptive relief from the
prohibited transaction rules, and other issues and their potential
consequences.
UNDERWRITING
The Underwriters named below have severally agreed, subject to the
terms and conditions of the Underwriting Agreement, to purchase from the Seller
the respective principal amounts of Certificates set forth opposite their names
below:
Underwriter Principal Amount
$
Total $=====
The Underwriting Agreement provides that the Underwriters are obligated
to purchase all of the Certificates offered hereby, if any of such Certificates
are purchased.
18
<PAGE> 22
The Seller has been advised by________ , the Representative of the
several Underwriters, that the Underwriters propose initially to offer the
Certificates to the public at the public offering price set forth on the cover
page of this Prospectus Supplement and to certain dealers at such price less a
concession not in excess of ____% of the principal amount of the Certificates,
and that the Underwriters and such dealers may re-allow a discount of not in
excess of ____% of the principal amount of the Certificates to other dealers.
The public offering price and the concession and discount to dealers may be
changed by the Representative after the initial public offering of the
Certificates offered hereby.
NAFI and the Seller have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended.
The Seller does not intend to apply for listing of the Certificates on
a national securities exchange, but has been advised by the Underwriters that
the Underwriters currently intend to make a market in the Certificates, as
permitted by applicable laws and regulations. The Underwriters are not
obligated, however, to make a market in the Certificates and any such market
may be discontinued at any time at the sole discretion of the Underwriters.
Accordingly, no assurance can be given as to the liquidity of, or trading
markets for, the Certificates.
LEGAL MATTERS
Certain matters with respect to the legality of the Certificates and
with respect to the federal income tax matters discussed under "Certain Federal
Income Tax Consequences" will be passed upon for the Seller by Morrison &
Foerster, New York, New York. The validity of the Certificates will be passed
upon for the Underwriters by _________________________, New York, New York.
19
<PAGE> 23
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS, AND ANY
INFORMATION OR REPRESENTATION NOT CONTAINED HEREIN OR THEREIN MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY NAFI, THE SELLER OR ANY UNDERWRITER.
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OF ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH THE PROSPECTUS
SUPPLEMENT RELATES OR AN OFFER TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN
OFFER WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND
THE PROSPECTUS NOR ANY SALES MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF NAFI, THE SELLER OR ANY SECURITY HOLDER SINCE THE DATE HEREOF.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PROSPECTUS SUPPLEMENT Page
<S> <C>
Reports to Certificateholders.................................S-2
Incorporation of Certain Documents by Reference...............S-2
Summary of the Terms of the Certificates......................S-3
Risk Factors..................................................S-7
The Trust.....................................................S-7
The Receivables Pool..........................................S-8
The Certificate Insurer.......................................S-14
The Certificates..............................................S-15
The Policy....................................................S-18
Certain Federal Income Tax Consequences.......................S-18
ERISA Considerations..........................................S-18
Underwriting..................................................S-20
Legal Matters.................................................S-20
</TABLE>
PROSPECTUS
Available Information
Reports to Securityholders
Incorporation of Certain Documents by Reference
Prospectus Summary
Risk Factors
The Trusts
The Receivables
Yield and Prepayment Considerations
Pool Factor
Use of Proceeds
The Seller
National Auto Finance Company, Inc.
The Certificates
The Notes
Certain Information Regarding the Securities
Description of the Purchase Agreements and the
Trust Documents
Certain Legal Aspects of the Receivables
Certain Federal Income Tax Consequences
ERISA Considerations
Plan of Distribution
Index of Defined Terms
-------------------------
UNTIL ________________, 1997 ALL DEALERS EFFECTING TRANSACTIONS IN THE
NOTES OR THE CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION,
MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
NATIONAL AUTO FINANCE 1997-__ TRUST
$
% AUTOMOBILE RECEIVABLES-
BACKED CERTIFICATES
NATIONAL FINANCE AUTO FUNDING TRUST
(SELLER)
NATIONAL AUTO FINANCE COMPANY, L.P.
(SERVICER)
FULL AND TIMELY PAYMENT OF THE CERTIFICATEHOLDERS' DISTRIBUTABLE AMOUNT AND THE
CERTIFICATEHOLDERS' DISTRIBUTABLE AMOUNT ON EACH DISTRIBUTION DATE IS
UNCONDITIONALLY AND IRREVOCABLY GUARANTEED PURSUANT TO AN INSURANCE POLICY
ISSUED BY
[LOGO]
- -----------------------
PROSPECTUS SUPPLEMENT
- -----------------------
<PAGE> 24
PROSPECTUS SUPPLEMENT VERSION II
(TO PROSPECTUS DATED , 1997)
NATIONAL AUTO FINANCE 1997-1 TRUST
$ % AUTOMOBILE RECEIVABLES-BACKED NOTES
$ % AUTOMOBILE RECEIVABLES-BACKED CERTIFICATES
NATIONAL FINANCIAL AUTO FUNDING TRUST
(SELLER)
NATIONAL AUTO FINANCE COMPANY, INC.
(SERVICER)
FULL AND TIMELY PAYMENT OF THE NOTEHOLDERS' DISTRIBUTABLE AMOUNT AND
THE CERTIFICATEHOLDERS' DISTRIBUTABLE AMOUNT ON EACH DISTRIBUTION DATE IS
UNCONDITIONALLY AND IRREVOCABLY GUARANTEED PURSUANT TO FINANCIAL GUARANTY
INSURANCE POLICIES ISSUED BY
[Logo]
National Auto Finance 1997-1 Trust (the "Trust") will be formed
pursuant to a Trust Agreement, to be dated as of , among National Financial
Auto Funding Trust (the "Seller"), a wholly owned subsidiary of National Auto
Finance Company, Inc. ("NAFI"), (the "Security Insurer") and ,
as Owner Trustee. The Trust will issue $ _____ aggregate principal amount of
Automobile Receivables-Backed Notes (the "Notes"), pursuant to an Indenture, to
be dated as of (the "Indenture"), among the Trust and , as
Indenture Trustee and Indenture Collateral Agent. The Trust will also issue
$__________ aggregate principal amount % Automobile Receivables-Backed
Certificates (the "Certificates" and, together with the Notes, the
"Securities"). The assets of the Trust will include a pool of retail
installment sales contracts (the "Receivables") purchased by NAFI from motor
vehicle dealers and secured by new and used automobiles and light trucks,
certain monies paid or payable thereunder after (the "Initial Cutoff
Date"), an assignment of NAFI's security interests in vehicles financed
thereby, monies on deposit in a trust account (the "Pre-Funding Account") to be
established with the Indenture Trustee, and certain other property, as more
fully described herein. The aggregate principal balance of the Receivables on
the Initial Cutoff Date was $ . Additional retail installment sales contracts
(the "Subsequent Receivables") will be purchased by the Trust from the Seller
from time to time on or before the Distribution Date, from funds on
deposit in the Pre-Funding Account. The Notes will be secured by the assets of
the Trust pursuant to the Indenture.
Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings ascribed to such terms elsewhere in this
Prospectus Supplement or the accompanying Prospectus. A listing of the pages on
which some of such terms are defined is set forth herein on pg. and in the
Prospectus under the caption "Index of Defined Terms."
(Continued on following page)
FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE SECURITIES, SEE "RISK FACTORS" ON PAGE S-15
HEREIN AND ON PAGE 21 OF THE ACCOMPANYING PROSPECTUS.
THE NOTES REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES REPRESENT INTERESTS
IN, THE TRUST ONLY AND DO NOT REPRESENT OBLIGATIONS OF OR INTERESTS IN NAFI,
THE SELLER OR ANY AFFILIATE OF EITHER.
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.
<TABLE>
<CAPTION>
==================================================================================================
Price to Underwriting Proceeds to the
Public (1) Discount Seller (1)(2)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note % % %
- --------------------------------------------------------------------------------------------------
Per Certificate % % %
- --------------------------------------------------------------------------------------------------
Total $ $ $
==================================================================================================
</TABLE>
(1) Plus accrued interest, if any, from and including
(2) Before deducting estimated expenses of $________ payable by the Seller.
THE NOTES AND THE CERTIFICATES ARE OFFERED HEREBY BY THE UNDERWRITERS WHEN, AS
AND IF ISSUED AND ACCEPTED BY THE UNDERWRITERS AND SUBJECT TO THEIR RIGHT TO
REJECT ORDERS IN WHOLE OR IN PART. IT IS EXPECTED AT DELIVERY OF THE NOTES AND
THE CERTIFICATES WILL BE MADE IN BOOK-ENTRY FORM ONLY THROUGH THE SAME DAY
FUNDS SETTLEMENT SYSTEM OF THE DEPOSITORY TRUST COMPANY ON OR ABOUT _________.
[Underwriters]
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS , 1997.
<PAGE> 25
(Continued from previous page)
Interest on the Notes will accrue at the Interest Rate of % per
annum. Interest and principal on the Notes will be payable on the fifteenth day
of each month (or, if the fifteenth day is not a Business Day, the next
following Business Day) (each, a "Distribution Date"), commencing . It is a
condition of issuance that the Notes be rated AAA by Standard & Poor's
Corporation ("S&P") and Aaa by Moody's Investors Service, Inc. ("Moody's" and,
together with S&P, the "Rating Agencies"). The rating by S&P of the Notes will
be issued without regard to the benefit afforded by a financial guaranty
insurance policy (the "Note Policy") issued by the Security Insurer. The rating
by Moody's of the Notes will be based on the issuance of the Note Policy by the
Security Insurer.
The Certificates offered hereby represent fractional undivided
interests in the Trust. Principal, together with interest at one-twelfth of the
Pass-Through Rate of % per annum, will be distributed to the
Certificateholders on each Distribution Date. Distributions of interest and
principal on the Certificates will be subordinated in priority to payments of
interest and principal on the Notes as described herein. It is a condition of
issuance that the Certificates be rated AAA by S&P and Aaa by Moody's on the
basis of the issuance by the Security Insurer of a financial guaranty insurance
policy (the "Certificate Policy" and, together with the Note Policy, the
"Policies").
The Final Scheduled Distribution Date for the Notes and the
Certificates will be . However, payment in full of the Notes or of the
Certificates could occur earlier than such date as described herein. In
addition, the Notes will be subject to redemption in whole, but not in part,
and the Certificates will be subject to prepayment in whole, but not in part,
on any Distribution Date on which the Seller or the Servicer exercises its
option to purchase the Receivables. The Seller or the Servicer may purchase the
Receivables when the aggregate principal balance of the Receivables shall have
declined to 10% or less of the Original Pool Balance (as defined herein) of the
Receivables purchased by the Trust. The Notes will be subject to partial
mandatory redemption and the Certificates will be subject to partial mandatory
prepayment, at a premium described herein, in the event that funds remain in
the Pre-Funding Account at the end of the Funding Period (as defined herein).
The ratings assigned to the Notes and the Certificates by the Rating Agencies
do not address the likelihood that the premium will be paid by the Seller in
the event of such a partial mandatory redemption or prepayment.
The Securities initially will be represented by notes and
certificates 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 the limited circumstances described herein.
There currently is no secondary market for the Securities. The
Underwriters expect, but are not obligated, to make a market in the Securities.
There is no assurance that any such market will develop or continue.
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION
ABOUT THE OFFERING OF THE SECURITIES. ADDITIONAL INFORMATION IS CONTAINED IN
THE PROSPECTUS AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE SECURITIES MAY NOT BE
CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET
2
<PAGE> 26
PRICE OF THE SECURITIES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
[SECURITY INSURER LEGEND]
REPORTS TO SECURITYHOLDERS
Unless and until Definitive Notes or Definitive Certificates are
issued, unaudited monthly an annual reports, containing information concerning
the Trust and prepared by the Servicer, will be sent on behalf of the Trust to
, as Indenture Trustee for the Noteholders, and , as Owner Trustee for the
Certificateholders, and Cede & Co., as registered holder of the Notes and the
Certificates and the nominee of DTC. See "Description of the Purchase
Agreements and the Trust Documents - Statements to Securityholders" herein and
"Certain Information Regarding the Securities - Book-Entry Registration" and
"- Statements to Securityholders" in the accompanying Prospectus. NotE Owners
and Certificate Owners may receive such reports, upon written request, together
with (i) a certification that they are Note Owners or Certificate Owners, as
appropriate, and (ii) payment of any expenses associated with the distribution
of such reports, from the Indenture Trustee at , Attention:
. Such reports will not constitute financial statements prepared in
accordance with generally accepted accounting principles. Neither the Seller,
NAFI nor the Security Insurer intends to send any of its financial reports to
Securityholders. The Trust will file with the Securities and Exchange
Commission (the "Commission") periodic reports concerning the 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.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Seller will provide without charge to any person to whom this
Prospectus Supplement is delivered, upon the oral or written request of such
person, a copy of any or all of the following financial statements incorporated
herein by reference: [list of specific filings incorporated by reference].
Requests for such copies should be directed to _____ , Attention: _______.
3
<PAGE> 27
SUMMARY OF THE TERMS OF THE SECURITIES
The following summary is qualified in its entirety by reference to
the detailed information appearing elsewhere in this Prospectus Supplement and
in the accompanying Prospectus. Capitalized terms used herein and not otherwise
defined herein shall have the respective meanings ascribed to such terms
elsewhere in this Prospectus Supplement or the accompanying Prospectus. A
listing of the pages on which some of such terms are defined is set forth
herein on pg. and in the Prospectus under the caption "Index of Defined Terms."
Issuer................... National Auto Finance 1997-1 Trust (the
"Trust" or the "Issuer"), a Delaware business
trust to be formed on or about _____________
(the "Closing Date"), by National
Financial Auto Funding Trust (the "Seller")
pursuant to a Trust Agreement, dated as of
(the "Trust Agreement"), among____ , the
Seller, the Security Insurer and____ , as
Owner Trustee (the "Owner Trustee").
Seller................... National Financial Auto Funding Trust, a
wholly owned subsidiary of NAFI. See "The
Seller" in the accompanying Prospectus.
Servicer................ National Auto Finance Company, Inc. ("NAFI" or
the "Servicer"). See "National Auto Finance
Company, Inc." in the accompanying Prospectus.
Indenture Trustee....... ___________________ (the "Indenture Trustee").
See "The Notes - The Indenture Trustee" in
the accompanying Prospectus.
Owner Trustee........... ______________________________, as Owner
Trustee under the Trust Agreement. See
"Description of the Purchase Agreements and
the Trust Documents - The Owner Trustee" in
the accompanying Prospectus.
Backup Servicer......... __________________________ (the "Backup
Servicer"). NAFI may be terminated as Servicer
under certain circumstances, at which time the
Backup Servicer will automatically become the
Servicer. See "Description of the Purchase
Agreements and the Trust Documents - Servicer
Termination Events" and "- The Backup
Servicer" in the accompanying Prospectus.
The Notes............... The Trust will issue _____% Automobile
Receivables-Backed Notes (the "Notes") in the
aggregate principal amount of $_______. The
Notes will be issued pursuant to an Indenture,
dated as of _________________, between the
4
<PAGE> 28
Issuer, the Indenture Trustee and_____ , as
Indenture Collateral Agent (the "Indenture
Collateral Agent") for the benefit of the
Security Insurer and the Indenture Trustee on
behalf of the holder of Notes. The Notes will
be offered for purchase in minimum
denominations of $20,000 and integral
multiples of $1,000 in excess thereof in
book-entry form only. See "Certain Information
Regarding the Securities - Book-Entry
Registration" in the accompanying Prospectus.
The Notes will be secured by the assets of the
Trust (other than the Certificate Policy)
pursuant to the Indenture.
The Certificates......... The Trust will issue _____% Automobile
Receivables-Backed Certificates (the
"Certificates") representing fractional
undivided interests in the Trust with an
aggregated initial Certificate Balance (as
hereinafter defined) of $__________. The
Certificates will be issued pursuant to the
Trust Agreement. The Certificates will be
offered for purchase in minimum denominations
of $20,000 and integral multiples of $1,000 in
excess thereof in book-entry form only. See
"Certain Information Regarding the
Securities- Book-Entry Registration" in the
accompanying Prospectus.
The Receivables.......... The Receivables will consist of retail
installment sales contracts purchased from
motor vehicle dealers ("Dealers") by NAFI in
the ordinary course of business and secured by
new and used automobiles and light trucks (the
"Financed Vehicles").
On the Closing Date, the Trust will purchase
Receivables (the "Initial Receivables") having
an aggregate principal balance of $_______ as
of ______ (the "Initial Cutoff Date"), from the
Seller pursuant to a Sale and Servicing
Agreement, dated as of ________ (the "Sale and
Servicing Agreement"), among the Trust, the
Seller, NAFI, in its individual capacity and
as Servicer, and the Backup Servicer.
Following the Closing Date, pursuant to the
Sale and Servicing Agreement, the Seller will
be obligated, subject only to the availability
thereof, to sell, and the Trust will be
obligated to purchase, subject to the
satisfaction of certain conditions set forth
therein, additional Receivables (the
"Subsequent Receivables") from time to time
during the Funding Period (as defined below)
having an aggregate principal balance equal to
5
<PAGE> 29
approximately $_________ (such amount being
equal to the amount on deposit in the
Pre-Funding Account (the "Pre-Funded Amount")
on the Closing Date). With respect to each
sale of Subsequent Receivables to the Trust,
the Seller will designate as a cutoff date
(each a "Subsequent Cutoff Date") the date as
of which such Subsequent Receivables are sold
to the Trust. Subsequent Receivables will be
conveyed to the Trust on approximately a
monthly basis on dates specified by the Seller
(each date on which Subsequent Receivables are
conveyed being referred to as a "Subsequent
Transfer Date") occurring during the Funding
Period. See "Description of the Purchase
Agreements and the Trust Documents -- Sale and
Assignment of Receivables; Subsequent
Receivables" herein.
The Initial Receivables have been selected,
and the Subsequent Receivables will be
selected, form retail installment sales
contacts in NAFI's portfolio based on the
criteria specified in the Sale and Servicing
Agreement and described herein and in the
accompanying Prospectus. As of the Initial
Cutoff Date, the weighted average annual
percentage rate (the "APR") of the Initial
Receivables was approximately ______%, the
weighted average remaining maturity of the
Initial Receivables was approximately _______
months and the weighted average original
maturity of the Initial Receivables was
approximately ______ months. No Initial
Receivable has, and no Subsequent Receivable
will have, a scheduled maturity later than
__________ (the "Final Scheduled Maturity
Date"). The Receivables generally are or will
be prepayable at any time without penalty to
the purchaser or co-purchasers of the Financed
Vehicle or any other person who is or persons
who are obligated to make payments thereunder
(each, an "Obligor"). See "The Receivables
Pool" herein and "The Receivables" in the
accompanying Prospectus.
Subsequent Receivables may be originated using
credit criteria different from the criteria
applied with respect to the Initial
Receivables and may be of a different credit
quality and seasoning. In addition, following
the transfer of Subsequent Receivables to the
Trust, the characteristics of the entire pool
of Receivables included in the Trust may vary
significantly from those of the Initial
Receivables. See "Risk Factors - The
Receivables
6
<PAGE> 30
and the Pre-Funding Account" and "The
Receivables Pool" herein. The characteristics
of Subsequent Receivables transferred to the
Trust will be set forth in a Current Reportt
on Form 8-K filed with the Securities and
Exchange Commission within 15 days following
the applicable Subsequent Transfer Date.
The "Aggregate Principal Balance" of the
Receivables at any time means the aggregate
principal balance of the Receivables at the
end of the preceding calendar month (a
"Monthly Period") (other than (i) any
Receivable that became a Liquidated Receivable
during such Monthly Period and (ii) any
Receivable that the Seller, NAFI or the
Servicer is required to repurchase prior to
the next Distribution Date), after giving
effect to all payments received from Obligors
for such Monthly Period as of the end of such
Monthly Period.
Trust Property........... Each Note will represent an obligation of, and
each Certificate will represent a fractional
undivided interest in, the Trust. The Trust's
assets (the "Trust Property") will include,
among other things, a pool of Receivables (the
"Receivables Pool") consisting of the Initial
Receivables and the Subsequent Receivables,
certain monies paid or payable under the
Initial Receivables after the Initial Cutoff
Date, certain monies paid are payable under
the Subsequent Receivables after the
respective Subsequent Cutoff Dates, an
assignment of NAFI's security interests in the
Financed Vehicles and of the right to receive
proceeds from claims on certain insurance
polices covering the Financed Vehicles or the
Obligors, an assignment of certain rights of
NAFI against the Dealers originating such
Receivables, the Collection Account, the
Pre-Funding Account and certain other accounts
established by the Servicer (including all
investments therein, all income from the
investment of funds therein an all proceeds
thereof), and certain other rights under the
Trust Documents. The Initial Receivables will
be purchased by the Seller from NAFI pursuant
to a purchase agreement (the "Purchase
Agreement") between the Seller and NAFI on or
prior to the date of issuance of the
Securities, and the Subsequent Receivables
will be purchased by the Seller from NAFI
pursuant to purchase agreements (each, a
"Subsequent Purchase Agreement") on or prior
to the applicable Subsequent Transfer Dates.
The Trust Property will also include an
assignment of
7
<PAGE> 31
the Seller's rights under the Purchase
Agreement and the Subsequent Purchase
Agreements, including rights against NAFI upon
the occurrence of certain breaches of
representations and warranties thereunder (a
"Repurchase Event"). See "The Trust" and "The
Trust Property" herein. Pursuant to the
Indenture, the Trust Property (other than the
Certificate Policy) will be pledged to the
Indenture Collateral Agent for the benefit of
the Security Insurer and the Indenture Trustee
on behalf of the holders of the Notes.
Terms of the Notes....... The principal terms of the Notes will be as
described below:
A. Distribution Dates.. Payments of interest and principal on the
Notes will be made on the fifteenth day of
each month or, if the fifteenth day is not a
Business Day, on the next following Business
Day (each, a "Distribution Date") commencing
____________. Each reference to a "Payment
Date" in the accompanying Prospectus shall
refer to a Distribution Date. Payments will
be made to holders of record of the Notes
(the "Noteholders") as of the Business Day
immediately preceding such Distribution Date
(a "Record Date"). A "Business Day" is a day
other than a Saturday, Sunday or other day on
which commercial banks located in New York,
New York are authorized or obligated to be
closed.
B. Interest Rate....... The Notes will bear interest at the rate of
____% per annum (the "Interest Rate"),
calculated on the basis of a 360-day year
consisting of twelve 30-day months.
C. Interest............ Interest on the outstanding principal amount
of the Notes will accrue at the Interest Rate
from the Closing Date (in the case of the
first Distribution Date) or from the most
recent Distribution Date on which interest has
been paid to but excluding the following
Distribution Date (each an "Interest Period").
Interest on the Notes for any Distribution
Date due but not paid on such Distribution
Date will be due on the next Distribution Date
together with interest on such amount at the
Interest Rate. The amount of interest
distributable on the Notes on each
Distribution Date will equal 30 days' interest
(or, in the case of the first Distribution
Date, interest accrued from and including the
Closing Date to but excluding such Distribution
8
<PAGE> 32
Date). See "Description of the Notes -
Payments of Interest" herein.
D. Principal........... Principal of the Notes will be payable on each
Distribution Date in an amount equal to the
Noteholders' Principal Distributable Amount
for the Monthly Period preceding such
Distribution Date. The Noteholders' Principal
Distributable Amount will equal the
Noteholders' Percentage of an amount equal to
the sum of the following amounts with respect
to the related Monthly Period, in each case
computed in accordance with the simple
interest method: (i) that portion of all
collections on Receivables (other than
Liquidated Receivables and Purchased
Receivables) allocable to principal, including
full and partial principal prepayments,
received during such Monthly Period, (ii) the
principal balance of each Receivable that
became a Liquidated Receivable during such
Monthly Period, (iii) the principal balance of
each Receivable that was repurchased by NAFI
or the Servicer as of the last day of such
Monthly Period, and, at the option of the
Security Insurer, the principal balance of
each Receivable that was required to be, but
was not, so repurchased, (iv) the aggregate
amount of any reduction of the principal
balance of a Receivable as a result of a court
order in an insolvency proceeding and (v) any
unpaid portion of the amounts included in
clauses (i), (ii), (iii) and (iv) above with
respect to a prior Distribution Date. See
"Description of the Purchase Agreements and
the Trust Documents - Distributions" herein.
The outstanding principal amount of the Notes,
if any, will be payable on (the "Final
Scheduled Distribution Date").
E. Optional Redemption. The Notes will be redeemed in whole, but not
in part, on any Distribution Date on which the
Seller or the Servicer exercises its option to
purchase the Receivables, which, subject to
certain provisions in the Sale and Servicing
Agreement, can occur after the Aggregate
Principal Balance declines to 10% or less of
the Original Pool Balance, at a redemption
price equal to the unpaid principal amount of
the Notes plus accrued and unpaid interest
thereon. See "Description of the Notes -
Optional Redemption" herein. The "Original
Pool Balance" will equal the sum of (i) the
Aggregate Principal Balance as of the Initial
Cutoff Date plus (ii) the aggregate principal
balances of all Subsequent
9
<PAGE> 33
Receivables added to the Trust as of their
respective Subsequent Cutoff Dates.
F. Mandatory Redemption.. The Notes will be redeemed in part on the
Distribution Date on or immediately following
the last day of the Funding Period in the
event that any amount remains on deposit in
the Pre-Funding Account after giving effect to
the purchase of all Subsequent Receivables,
including any such purchase on such date (a
"Mandatory Redemption"). The aggregate
principal amount of the Notes to be redeemed
will be an amount equal to the Noteholders'
Percentage of the amount then on deposit in
the Pre-Funding Account (the "Note Prepayment
Amount").
A limited recourse mandatory prepayment
premium (the "Note Prepayment Premium") will
be payable by the Trust to the Noteholders if
the Note Prepayment Amount exceeds
$___________. The Note Prepayment Premium will
equal the excess, if any, discounted as
described below, of (i) the amount of interest
that would have accrued on the Note Prepayment
Amount at the Interest Rate during the period
commencing on and including the Distribution
Date on which such Note Prepayment Amount is
required to be distributed to Noteholders to
but excluding over (ii) the amount
of interest that would have accrued on
the Note Prepayment Amount over the same
period at a per annum rate of interest equal
to the bond equivalent yield to maturity on
the Determination Date preceding such
Distribution Date on the % United States
Treasury Note due . Such excess shall be
discounted to present value to such
Distribution Date at the applicable yield
described in clause (ii) above. The Trust's
obligation to pay the Note Prepayment Premium
shall be limited to funds which are received
from the Seller under the Sale and Servicing
Agreement as liquidated damages for the
failure to deliver Subsequent Receivables. No
other assets of the Trust will be available
for the purpose of making such payment. The
Note Policy does not guarantee payment of the
Note Prepayment Amount or the Note Prepayment
Premium. In addition, the ratings assigned to
the Notes by the Rating Agencies do not
address the likelihood that the Note
Prepayment Premium will be paid by the Seller.
10
<PAGE> 34
The Notes may be accelerated and subject to
immediate payment at par upon the occurrence
of an Event of Default under the Indenture. So
long as no Insurer Default shall have occurred
and be continuing, an Event of Default under
the Indenture will occur only upon delivery by
the Security Insurer to the Indenture Trustee
of notice of the occurrence of certain events
of default under the Insurance and Indemnity
Agreement, dated as of (the "Insurance
Agreement"), among the Security Insurer, the
Trust, the Seller and NAFI. In the case of
such an Event of Default, the Notes will
automatically be accelerated and subject to
immediate payment at par. See "Description of
the Notes -- Events of Default" herein.
Terms of the Certificates.... The principal terms of the Certificates will
be as described below:
A. Distribution Dates....... Distributions with respect to the Certificates
will be made on each Distribution Date,
commencing . Distributions will be made to
holders of record of the Certificates (the
"Certificateholders" and, together with the
Noteholders, the "Securityholders") as of the
related Record Date.
B. Pass-Through Rate........ % per annum (the "Pass-Through Rate")
payable monthly at one-twelfth of the annual
rate, calculated on the basis of a 360-day year
consisting of twelve 30-day months.
C. Interest................. On each Distribution Date, the Owner Trustee
will distribute pro rata to Certificateholders
accrued interest at the Pass-Through Rate on
the outstanding Certificate Balance. Interest
in respect of a Distribution Date will accrue
from the Closing Date (in the case of the
first Distribution Date) or from the most
recent Distribution Date on which interest has
been distributed to but excluding such
Distribution Date. Interest on the
Certificates for any Distribution Date due but
not paid on such Distribution Date will be due
on the next Distribution Date together with
interest on such amount at one-twelfth of the
Pass-Through Rate. The amount of interest
distributable on the Certificates on each
Distribution Date will equal 30 days' interest
(or in the case of the first Distribution
Date, interest accrued from and including the
Closing Date to but excluding such
Distribution Date). See "Description of the
11
<PAGE> 35
Certificates - Distributions of Interest
Income" herein.
D. Principal............. Principal of the Certificates will be payable
in an amount equal to the Certificateholders'
Principal Distributable Amount for the Monthly
Period preceding such Distribution Date. The
Certificateholders' Principal Distributable
Amount will equal the Certificateholders'
Percentage of an amount equal to the sum of
the following amounts with respect to the
related Monthly Period, in each case computed
in accordance with the simple interest method:
(i) that portion of all collections on
Receivables (other than Liquidated Receivables
and Purchased Receivables) allocable to
principal, including full and partial
principal prepayments, received during such
Monthly Period, (ii) the principal balance of
each Receivable that became a Liquidated
Receivable during such Monthly Period, (iii)
the principal balance of each Receivable that
was repurchased by NAFI or the Servicer as of
the last day of such Monthly Period, and, at
the option of the Security Insurer, the
principal balance of each Receivable that was
required to be, but was not, so repurchased,
(iv) the aggregate amount of any reduction of
the principal balance of a Receivable as a
result of a court order in an insolvency
proceeding and (v) any unpaid portion of the
amounts included in clauses (i), (ii), (iii)
and (iv) above with respect to a prior
Distribution Date. See "Description of the
Purchase Agreements and Trust Documents-
Distributions" herein.
The Certificate Balance, if any, will be
payable in full on the Final Scheduled
Distribution Date.
E. Optional Prepayment... If the Seller or Servicer exercises its option
to purchase the Receivables, which, subject to
certain provisions in the Sale and Servicing
Agreement, can occur after the Aggregate
Principal Balance declines to 10% or less of
the Original Pool Balance, the
Certificateholders will receive an amount in
respect of the Certificates equal to the
Certificate Balance together with accrued
interest at the Pass-Through Rate and the
Certificates will be retired. See "Description
of the Certificates- Optional Prepayment"
herein.
F. Mandatory Prepayment.. The Certificates will be prepaid in part on
the Distribution Date on or immediately
following the last day of the Funding Period
in the event that any amount remains on
deposit in the Pre-Funding
12
<PAGE> 36
Account after giving effect to the purchase of
all Subsequent Receivables, including any such
purchase on such date (a "Mandatory
Prepayment"). The aggregate principal amount
of Certificates to be prepaid will be an
amount equal to the Certificateholders'
Percentage of the amount then on deposit in
the Pre-Funding Account (the "Certificate
Prepayment Amount").
A limited recourse mandatory prepayment
premium (the "Certificate Prepayment Premium")
will be payable by the Trust to the
Certificateholders if the Certificate
Prepayment Amount exceeds $ . The
Certificate Prepayment Premium will equal the
excess, if any, discounted as described below,
of (i) the amount of interest that would have
accrued on the Certificate Prepayment Amount
at the Pass-Through Rate during the period
commencing on and including the Distribution
Date on which such Certificate Prepayment
Amount is required to be distributed to
Certificateholders to but excluding over (ii)
the amount of interest that would have accrued
on such Certificate Prepayment Amount over the
same period at a per annum rate of interest
equal to the bond equivalent yield to maturity
on the Determination Date preceding such
Distribution Date on the % United
States Treasury Note due . Such excess
shall be discounted to present value to such
Distribution Date at the yield described in
clause (ii) above. The Trust's obligation to
pay the Certificate Prepayment Premium shall
be limited to funds which are received from
the Seller under the Sale and Servicing
Agreement as liquidated damages for the
failure to deliver Subsequent Receivables. No
other assets of the Trust will be available
for the purpose of making such payment. The
Certificate Policy does not guarantee payment
of the Certificate Prepayment Amount or the
Certificate Prepayment Premium. In addition,
the ratings assigned to the Certificates by
the Rating Agencies do not address the
likelihood that the Certificate Prepayment
Premium will be paid by the Seller.
Pre-Funding Account ....... During the period (the "Funding Period") from
and including the Closing Date until the
earliest of (i) the Determination Date on
which (a) the amount on deposit in the
Pre-Funding Account is less than $ , (b) an
Event of Default occurs under the Indenture or
a Servicer Termination Event occurs under the
Sale and Servicing Agreement, (c) certain
events of insolvency occur with respect to
13
<PAGE> 37
the Seller or the Servicer or (ii) the close
of business on the Distribution Date, the
Pre-Funded Amount will be maintained as an
account in the name of the Indenture Trustee
(the "Pre-Funding Account"). The Pre-Funded
Amount will initially equal approximately
$ , and, during the Funding Period,
will be reduced by the amount thereof
used to purchase Subsequent Receivables in
accordance with the Sale and Servicing
Agreement. The Seller expects that the
Pre-Funded Amount will be reduced to less than
$ by the Distribution Date. Any
Pre-Funded Amount remaining at the end of the
Funding Period will be payable to the
Noteholders and Certificateholders pro rata in
proportion to the Noteholders' Percentage and
the Certificateholders' Percentage.
The Policies............... On the Closing Date, the Security Insurer will
issue the Note Policy to the Indenture Trustee
and the Certificate Policy to the Owner
Trustee pursuant to the Insurance Agreement.
Pursuant to the Note Policy, the Security
Insurer will unconditionally and irrevocably
guarantee to the Noteholders payment of the
Noteholders' Distributable Amount for each
Distribution Date. Pursuant to the Certificate
Policy, the Security Insurer will
unconditionally and irrevocably guarantee to
the Certificateholders payment of the
Certificateholders' Distributable Amount for
each Distribution Date. See "The Policies" and
"Description of the Purchase Agreements and
the Trust Documents - Distributions" herein.
Collection Account......... Except under certain conditions described
herein, the Servicer will establish one or
more accounts in the name of the Indenture
Trustee (the "Collection Account") for the
benefit of the Noteholders and
Certificateholders. All payments from Obligors
that are received by the Lockbox Bank on
behalf of the Trust will be deposited in the
Collection Account no later than two Business
Days after receipt thereof. Pursuant to the
Sale and Servicing Agreement, the Indenture
Trustee will, on each Distribution Date,
withdraw the Available Funds with respect to
such Distribution Date from the Collection
Account and apply such funds to the following
(in the priority indicated): (i) to the Owner
Trustee and the Indenture Trustee, any accrued
and unpaid trustee fees and any accrued and
unpaid fees of the [separate Lockbox Bank,]
Custodian, Backup Servicer, Collateral Agent,
14
<PAGE> 38
Indenture Collateral Agent or Administrator
(in each case, to the extent such fees have
not been previously paid by the Servicer or
NAFI), (ii) to the Servicer, the Servicing Fee
for the Related Monthly Period and any overdue
Servicing Fees, (iii) into the Note
Distribution Account, the Noteholders'
Interest Distributable Amount and the
Noteholders' Principal Distributable Amount,
(iv) into the Certificate Distribution
Account, the Certificateholders' Interest
Distributable Amount and the
Certificateholders' Principal Distributable
Amount, (v) to the Security Insurer, amounts
owing and not paid to the Security Insurer
under the Insurance Agreement and (vi) the
remaining balance, if any, to the Seller for
transfer to the Collateral Agent on behalf of
the Security Insurer, the Indenture Trustee
(on behalf of the Noteholders and the
Certificateholders) and the trustees for other
trusts established and to be established by
the Seller. See "Description of the Purchase
Agreements and the Trust Documents -
Distributions" herein and "Description of the
Purchase Agreements and Trust Documents -
Collections" in the accompanying Prospectus.
Tax Status................. In the opinion of counsel to NAFI, for federal
income tax purposes, the Notes will be
characterized as debt, and the Trust will not
be characterized as an association (or a
publicly traded partnership) taxable as a
corporation. Each Noteholder, by the
acceptance of a Note, will agree to treat the
Notes as debt. Each Certificateholder, by the
acceptance of a Certificate, will agree to
treat the Trust as a partnership in which the
Certificateholders are partners for federal
income tax purposes. Alternative
characterizations of the Trust and the
Certificates are possible, but would not
result in materially adverse tax consequences
to Certificateholders. See "Certain Federal
Income Tax Consequences" herein.
Each Noteholder will be required to report
interest income paid or accrued on the Notes
in accordance with such Noteholder's method of
accounting for federal income tax purposes.
The trust itself will not be taxable, but each
Certificateholder will be required to report
its allocable share of the taxable income or
loss of the Trust, as to each taxable year,
whether or not such taxable income is
distributed. The taxable income of the Trust
will generally be equal to the gross income
the Trust receives or accrues from the Trust
Property
15
<PAGE> 39
reduced by the interest paid or accrued on the
Notes and by other expenses paid or accrued by
the Trust during the related taxable year.
ERISA Considerations....... If the Notes are considered to be indebtedness
without substantial equity features under a
regulation issued by the United States
Department of Labor, the acquisition or
holding of Notes by or on behalf of a Benefit
Plan will not cause the assets of the Trust to
become plan assets, thereby generally
preventing the application of certain
prohibited transaction rules of the Employment
Retirement Income Security Act of 1974, as
amended, and the Internal Revenue Code of
1986, as amended, that otherwise could
possibly be applicable. The Seller believes
that the Notes should be treated as
indebtedness without substantial equity
features for purposes of such regulation.
The Certificates may not be acquired by any
employee benefit plan, individual retirement
account or Keogh Plan subject to either Title
I of the Employee Retirement Income Security
Act of 1974, as amended, or the Internal
Revenue Code of 1986, as amended. See "ERISA
Considerations" herein and in the accompanying
Prospectus.
Rating..................... As a condition of issuance, the Notes and the
Certificates will each be rated AAA by
Standard & Poor's Corporation ("S&P") and Aaa
by Moody's Investors Service, Inc. ("Moody's"
and, together with S&P, the "Rating
Agencies"). The rating by S&P of the Notes
will be issued without regard to the benefit
afforded by the Note Policy. The rating by
Moody's of the Notes will be based on the
issuance of the Note Policy by the Security
Insurer, and the ratings by each Rating Agency
of the Certificates will be based on the
issuance of the Certificate Policy by the
Security Insurer. There is no assurance that
the ratings initially assigned to the Notes
and the Certificates will not subsequently be
lowered or withdrawn by the Rating Agencies.
Such ratings will not constitute an assessment
of the likelihood that principal prepayments
on the Receivables underlying the Notes and
the Certificates will be made by the obligors
thereon or of the degree to which the rate of
such prepayments might differ from that
originally anticipated. See "Risk Factors -
Ratings on Securities" herein.
16
<PAGE> 40
RISK FACTORS
Prospective Noteholders and Certificateholders should consider, in
addition to the factors described under "Risk Factors in the accompanying
Prospectus, the following factors in connection with the purchase of the Notes
or the Certificates:
THE RECEIVABLES
On the Closing Date, the approximately $ of Initial
Receivables will be transferred to the Trust by the Seller and the
approximately $ Pre-Funded Amount will be deposited by the Trust in
the Pre-Funding Account. If the principal amount of eligible Receivables
originated by NAFI during the Funding Period is less than the Pre-Funded
Amount, the Seller will have insufficient Receivables to sell to the Trust on
the Subsequent Transfer Dates, thereby resulting in a prepayment of principal
to the Noteholders and the Certificateholders as described in the following
paragraph. See "-- Trust's Relationship to the Seller and NAFI" below. In
addition, any conveyance of Subsequent Receivables is subject to the
satisfaction, on or before the related Subsequent Transfer Date, of the
following conditions, among others: (i) each such Subsequent Receivable
satisfies the eligibility criteria specified in the Sale and Servicing
Agreement; (ii) the Security Insurer (so long as no Insurer Default shall have
occurred and be continuing) shall in its sole and absolute discretion have
approved the transfer of such Subsequent Receivables to the Trust; (iii) as of
the applicable Subsequent Cutoff Date, the Receivables in the Trust, together
with the Subsequent Receivables to be conveyed by the Seller as of such
Subsequent Cutoff Date, meet the following criteria (computed based on the
characteristics of the Initial Receivables on the Initial Cutoff Date and any
Subsequent Receivables as of the related Subsequent Cutoff Date): (a) the
weighted average APR of such Receivables will not be less than %, (b) the
weighted average remaining term of such Receivables will not be greater than
months and (c) not more than % of the principal balances of such
Receivables will represent used Financed Vehicles, and the Trust, the Indenture
Trustee, the Owner Trustee and the Security Insurer shall have received written
confirmation from a firm of certified independent public accountants as to such
satisfaction; (iv) the Seller shall have executed and delivered to the Trust
(with a copy to the Indenture Trustee) a written assignment (a "Subsequent
Transfer Agreement") conveying such Subsequent Receivables to the Trust
(including a schedule identifying such Subsequent Receivables); (v) the Seller
shall have delivered certain opinions of counsel to the Indenture Trustee, the
Owner Trustee, the Security Insurer and the Rating Agencies with respect to the
validity of the conveyance of all such Subsequent Receivables; and (vi) the
Rating Agencies shall have each notified the Seller, the Owner Trustee, the
Indenture Trustee and the Security Insurer in writing that, following the
addition of such Subsequent Receivables, the Notes and the Certificates will be
rated AAA by S&P and Aaa by Moody's. Such confirmation of the ratings of the
Notes and the Certificates may depend on factors other than the characteristics
of the Subsequent Receivables, including the delinquency, repossession and net
loss experience on the Receivables in the Receivables Pool. Each Subsequent
Receivable must satisfy the eligibility criteria specified in the Sale and
Servicing Agreement. However, Subsequent Receivables may have been originated
using credit criteria different from the criteria applied with respect to the
Initial Receivables and may be of a different credit quality and seasoning. See
"The Receivables Pool" herein.
PREPAYMENT OF FUNDS ON DEPOSIT IN PRE-FUNDING ACCOUNT
To the extent that amounts on deposit in the Pre-Funding Account have
not been fully applied to the purchase of Subsequent Receivables by the Trust
during the Funding Period, the Noteholders and the Certificateholders will
receive, on the Distribution Date on or immediately following the last day of
the Funding Period, a prepayment of principal in an amount equal to the
Noteholders' Percentage or the Certificateholders' Percentage, as applicable,
of the amount remaining in the Pre-Funding Account following the purchase of
any Subsequent Receivables on such Distribution Date. It is anticipated that
17
<PAGE> 41
the principal amount of Subsequent Receivables sold to the Trust will not be
exactly equal to the amount on deposit in the Pre-Funding Account and that
therefore there will be at least a nominal amount of principal prepaid to the
Noteholders and to the Certificateholders. Prepayment of funds remaining on
deposit in the Pre-Funding Account at the end of the Pre-Funding Period could
result in the Securityholders receiving unexpected principal payments at a time
when the Securityholders are unable to reinvest such payment in investments
having a yield and rating comparable to the yield and rating on the Securities
and will adversely effect the yield on Securities purchased at a premium.
TRUST'S RELATIONSHIP TO THE SELLER AND NAFI
Neither the Seller nor NAFI is generally obligated to make any
payments in respect of the Notes, the Certificates or the Receivables. However,
the ability of the Seller to convey Subsequent Receivables on Subsequent
Transfer Dates is completely dependent upon the generation of additional
receivables by NAFI. If, during the Funding Period, NAFI is unable to generate
or does not transfer sufficient Receivables to the Seller, the ability of the
Seller to sell Subsequent Receivables to the Trust would be adversely affected.
There can be no assurance that NAFI will continue to generate receivables that
satisfy the criteria set forth in the Sale and Servicing Agreement at the same
rate as in recent months or that the Security Insurer, in its sole and absolute
discretion, will approve any such transfer of Subsequent Receivables.
In connection with each sale of Receivables by NAFI to the Seller and
by the Seller to the Trust, each of NAFI and the Seller will make
representations and warranties with respect to the characteristics of such
Receivables. In certain circumstances, NAFI is required to repurchase
Receivables with respect to which such representations or warranties are not
true as of the date made. Neither NAFI nor the Seller is otherwise obligated
with respect to the Notes or the Certificates. See "Description of the Purchase
Agreements and the Trust Documents - Sale and Assignment of the Receivables"
in the accompanying Prospectus.
SUBORDINATION OF CERTIFICATES
Distributions of interest and principal on the Certificates will be
subordinated in priority of payment to interest and principal due on the Notes.
Consequently, the Certificateholders will not receive any distributions with
respect to a Monthly Period until the full amount of interest and principal
payable on the Notes on such Distribution Date has been deposited in the Note
Distribution Account.
LIMITED ASSETS
The Trust will not have, nor is it permitted or expected to have, any
significant assets or sources of funds other than the Receivables, the
Pre-Funding Account, the Reserve Account and the Policies. Holders of the Notes
and the Certificates must rely for repayment upon payments on the Receivables
and, if and to the extent available, amounts on deposit in the Pre-Funding
Account and the Reserve Account (as defined herein) and payments of claims made
under the Policies. The Pre-Funding Account and the Reserve Account will only
be available during the Funding Period. The Pre-Funding Account will be used
solely to purchase Subsequent Receivables and is not available to cover losses
on the Receivables. The Reserve Account is designed to cover obligations of the
Trust relating to that portion of its assets not invested in Receivables and is
not designed to provide substantial protection against losses on the
Receivables. Similarly, although the Policies will be available on each
Distribution Date to cover shortfalls in distributions of the Noteholders'
Distributable Amount and the Certificateholders' Distributable Amount on such
Distribution Date, if the Security Insurer defaults in its obligations under
the applicable Policy, the Trust will depend on current distributions on the
Receivables to make payments on the Notes and the Certificates. See "The
Security Insurer" and "The Policies" herein.
18
<PAGE> 42
GEOGRAPHIC CONCENTRATION OF RECEIVABLES
As of the Initial Cutoff Date, Obligors with respect to substantially
all of the Initial Receivables (based on principal balance and mailing
addresses) were located in [list states]. See "The Receivables Pool" herein.
NAFI expects that a substantial percentage of the Subsequent Receivables will
be originated in the same states. Accordingly, adverse economic conditions or
other factors particularly affecting any of these states could adversely affect
the delinquency, loan loss or repossession experience of the Trust with respect
to the Receivables (as well as the ability of NAFI to generate Subsequent
Receivables.)
DELINQUENCY, LOAN LOSS AND REPOSSESSION EXPERIENCE
NAFI commenced operations in November, 1994. Although NAFI has
calculated and presented herein its net loss experience with respect to its
servicing portfolio, there can be no assurance that the information presented
will reflect actual experience with respect to the Receivables. In addition,
there can be no assurance that the future delinquency, loan loss or
repossession experience of the Trust with respect to the Receivables will be
better or worse than that set forth herein with respect to NAFI's servicing
portfolio. See "The Receivables Pool - Delinquency, Repossession and Loss
Information" herein.
RATINGS ON SECURITIES
It is a condition to the issuance of the Notes and the Certificates
that they be rated AAA by S&P and Aaa by Moody's. A rating is not a
recommendation to purchase, hold or sell Notes or Certificates. There is no
assurance that a rating will remain in effect for any given period of time or
that a rating will not be lowered or withdrawn entirely by a Rating Agency if
in its judgment circumstances in the future so warrant. In the event that any
rating initially assigned to the Notes and the Certificates were subsequently
lowered or withdrawn for any reason, including by reason of a downgrading of
the Security Insurer's claims-paying ability, no person or entity will be
obligated to provide any additional credit enhancement with respect to the
Notes or the Certificates. Any reduction or withdrawal of a rating may have an
adverse effect on the liquidity and market price of the Notes and the
Certificates.
EVENTS OF DEFAULT UNDER THE INDENTURE
So long as no Insurer Default shall have occurred and be continuing,
neither the Indenture Trustee nor the Noteholders may declare an Event of
Default under the Indenture. So long as an Insurer Default shall not have
occurred and be continuing, an Event of Default will occur only upon delivery
by the Security Insurer to the Indenture Trustee of notice of the occurrence of
certain events of default under the Insurance Agreement. Upon the occurrence of
an Event of Default under the Indenture (so long as an Insurer Default shall
not have occurred and be continuing), the Security Insurer will have the right,
but not the obligation, to cause the liquidation, in whole or in part, of the
Trust Property, which will result in redemption, in whole or in part, of the
Notes and prepayment, in whole or in part, of the Certificates. Following the
occurrence of any Event of Default, the Indenture Trustee and the Owner Trustee
will continue to submit claims under the Policies as necessary to enable the
Trust to continue to make payments of the Noteholders' Distributable Amount and
the Certificateholders' Distributable Amount on each Distribution Date.
However, following the occurrence of an Event of Default, the Security Insurer
may elect upon receipt of a claim under the Note Policy to pay all or any
portion of the outstanding amount of the Notes, plus accrued interest thereon.
See "Description of the Notes - Events of Default" herein.
19
<PAGE> 43
EARLY TERMINATION OF TRUST
The Trust Agreement provides that, in the event that the Seller
becomes insolvent, or is terminated or dissolved (a "Dissolution Event") and
the Owner Trustee is unable to obtain an opinion of counsel satisfactory to the
Security Insurer to the effect that the Trust will not hereafter be an
association (or publicly traded partnership) taxable as a corporation for
federal income tax purposes, the Trust will terminate in 90 days and effect
redemption of the Notes and prepayment of the Certificates following the
winding-up of the affairs of the Trust, unless within such 90 days Owners of
100% of the Certificates agree in writing to continue the business of the Trust
and to the appointment of a successor to the Seller, and the Owner Trustee is
able to obtain the opinion of counsel described above. See "Description of the
Purchase Agreements and the Trust Documents - Termination" in the accompanying
Prospectus.
THE TRUST
The following information supplements the information contained in the
accompanying Prospectus. Prospective Securityholders should consider, in
addition to the information below, the information under "The Trusts" in the
accompanying Prospectus.
GENERAL
The Issuer, National Auto Finance 1997-1 Trust, is a trust formed
under the laws of the State of Delaware pursuant to the Trust Agreement for the
transactions described in this Prospectus Supplement. After its formation, the
Trust will not engage in any activity other than (i) acquiring, holding and
managing the Receivables and the other assets of the Trust and proceeds
therefrom, (ii) issuing the Notes and the Certificates, (iii) making payments
on the Notes and the Certificates and (iv) engaging in other activities that
are necessary, suitable or convenient to accomplish the foregoing or are
incidental thereto or connected therewith.
The Trust will initially be capitalized with equity equal to
$______________. Certificates with an aggregate original principal balance of
$______________ will be sold to [the Seller] [NAFI] and Certificates
representing the remainder of the Certificate Balance will be sold to third
party investors that are expected to be unaffiliated with the Seller, the
Servicer or their affiliates. The equity of the Trust, together with the
proceeds of the initial sale of the Notes, will be used by the Trust to
purchase the Initial Receivables from the Seller pursuant to the Sale and
Servicing Agreement and to fund the deposit of the pre-Funded Amount and the
Reserve Account (described under "Description of the Purchase Agreements and
the Trust Documents - Accounts" herein).
The Trust's principal offices are in ______________________, in care
of _________________, as Owner Trustee, at the address listed below under "-
The Owner Trustee".
CAPITALIZATION OF THE TRUST
The following table illustrates the capitalization of the Trust as of
the Initial Cutoff Date, as if the issuance and sale of the Notes and
Certificates had taken place on such date:
<TABLE>
<S> <C>
Notes................................................................... $
Certificates............................................................ ______
Total................................................................ $
</TABLE>
20
<PAGE> 44
THE OWNER TRUSTEE
______________________________ is the Owner Trustee under the Trust Agreement,
_____________________ is a __________________corporation and its principal
offices are located at ____________________________________________________.
The Seller and its affiliates may maintain commercial banking relations with
the Owner Trustee and its affiliates. The Owner Trustee will perform limited
administrative functions under the Trust Agreement, including making
distributions from the Certificate Distribution Account. The Owner Trustee's
liability in connection with the issuance and sale of the Certificates and the
Notes is limited solely to the express obligations of the Owner Trustee set
forth in the Trust Agreement and the Sale and Servicing Agreement.
THE TRUST PROPERTY
The Trust Property will include (i) the Receivables Pool
consisting of the Initial Receivables and the Subsequent Receivables; (ii) all
monies paid or payable under the Initial Receivables after the Initial Cutoff
Date and under the Subsequent Receivables after the respective Subsequent
Cutoff Dates; (iii) the Certificate Policy for the benefit of
Certificateholders; (iv) such amounts as from time to time may be held in [the
Lockbox Account,] the Collection Account and certain other accounts established
and maintained by the Servicer pursuant to the Sale and Servicing Agreement, as
described below (including all investments in the Collection Account and such
other accounts and all income from the investment of funds therein and all
proceeds thereof); (v) monies on deposit in the Pre-Funding Account and the
Reserve Account (as defined herein) (including all investments in such accounts
and all income from the investment of the funds therein and all proceeds
thereof); (vi) an assignment of the security interests of NAFI in the Financed
Vehicles; (vii) an assignment of the right to receive proceeds from the
exercise of rights against Dealers under agreements between NAFI and such
Dealers (the "Dealer Agreements") and the assignment of rights in respect of
each Receivable from the applicable Dealer to NAFI (the "Dealer Assignments");
(viii) an assignment of the right to receive proceeds from claims on certain
insurance policies covering the Financed Vehicles or the Obligors; (ix) the
rights of the Seller under the Purchase Agreement and any Subsequent Purchase
Agreement; and (x) certain other rights under the Trust Documents. See "The
Receivables" and "Description of the Purchase Agreements and the Trust
Documents - Collections" in the accompanying Prospectus.
Each Certificate will represent a fractional undivided
interest in the Trust Property. Pursuant to the Indenture the Trust will grant
a security interest in the Trust Property (other than the Certificate Policy)
in favor of the Collateral Agent for the benefit of the Indenture Trustee on
behalf of the Noteholders and for the benefit of the Security Insurer in
support of the obligations owing to it under the Insurance Agreement. Any
proceeds of such security interest in the Trust Property would be distributed
according to the Indenture, as described below under "Description of the
Purchase Agreements and the Trust Documents - Distributions." The Security
Insurer would be entitled to such distributions only after payment of amounts
owing to, among others, holders of the Notes and Certificates.
Initially, [OFSA], as custodian on behalf of the Trust (the
"Custodian"), 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"). The Owner Trustee may in the future, with the consent of
the Indenture Trustee and the Security Insurer (prior to an Insurer Default),
appoint NAFI as custodian. In order to protect the Trust's ownership interest
in the Receivables, NAFI and the Seller will each file a UCC-1 financing
statement in ___________ to give notice of the Trust's ownership of the
Receivables and the related Trust Property.
THE RECEIVABLES POOL
21
<PAGE> 45
GENERAL. The Seller will acquire the Initial Receivables from NAFI on
the Closing Date. Thereafter, Subsequent Receivables will be purchased from
NAFI on the Subsequent Transfer Dates. The Initial Receivables represent, as of
the Initial Cutoff Date, and the Subsequent Receivables will represent, as of
the related Subsequent Cutoff Date, a substantial portion of NAFI's retail
motor vehicle installment sale contracts which (a) are secured by a new or used
automobile, light-duty truck, van or minivan, (b) have a remaining maturity,
original maturity and an APR at origination within the ranges set forth in this
paragraph, (c) are fully amortizing with level payments over their terms, (d)
are dated on or after _________ (e) were not more than 30 days delinquent as of
the Initial Cutoff Date or the Subsequent Cutoff Date, as the case may be, and
(f) satisfy the representations and warranties required to be made with respect
thereto under the Trust Documents. As of the Initial Cutoff Date, Initial
Receivables representing approximately ____% of the Original Pool Balance [of
the Initial Receivables] were secured by Financed Vehicles that were used at
the time of origination of the Initial Receivables and the remainder were
secured by Financed Vehicles that were new at such time. All Initial
Receivables have an APR at origination of at least ____% and not more than
____% and the weighted average APR of the Initial Receivables is approximately
____%. The Initial Receivables had remaining scheduled maturities as of the
Initial Cutoff Date of at least [2] months but not more than [60] months and
original maturities of at least [12] months but not more than [60] months. The
final scheduled payment date on the Initial Receivable with the latest maturity
is . The weighted average remaining scheduled maturity of the Initial
Receivables as of the Initial Cutoff Date was approximately months. The average
outstanding principal balance per Initial Receivable as of the Initial Cutoff
Date was approximately $________, and the outstanding principal balances of the
Initial Receivables as of the Initial Cutoff Date ranged from $______ to
$_____. Initial Receivables providing for payment according to the simple
interest, the Rule of 78's and the actuarial method represent approximately
______%, ______% and _____%, respectively of the Original Pool Balance [of the
Initial Receivables] as of the Initial Cutoff Date. Based upon the Master
Servicer's billing records, the Obligors on the Initial Receivables were
domiciled in ______ states [and the District of Columbia] as of the Initial
Cutoff Date.
COMPOSITION OF INITIAL RECEIVABLES AS OF THE INITIAL CUTOFF DATE
<TABLE>
<CAPTION>
WEIGHTED ORIGINAL POOL NUMBER OF AVERAGE WEIGHTED WEIGHTED
AVERAGE BALANCE RECEIVABLES ORIGINAL BALANCE AVERAGE ORIGINAL AVERAGE
ANNUAL IN POOL TERM TO MATURITY REMAINING TERM
PERCENTAGE (RANGE)(1) TO MATURITY
RATE OF (RANGE)(1)
RECEIVABLES
(RANGE)(1)
<S> <C> <C> <C> <C> <C>
_____% $__________] ______ $_________ _____ Mo. _____ Mo.
(____-____%) (__-__ Mo.) (__-__ Mo.)
</TABLE>
- --------------------------------------------------------
(1) Based on Original Pool Balance.
The following table sets forth information, as of the Initial Cutoff Date,
regarding the number, outstanding principal balances and percentages of the
Pool Outstanding Principal Balance of the Initial Receivables originated by
Dealers in each state.
22
<PAGE> 46
<TABLE>
<CAPTION>
STATE NUMBER OUTSTANDING PERCENTAGE WEIGHTED WEIGHTED AVERAGE WEIGHTED FINAL SCHEDULED PAYMENT
OF PRINCIPAL OF POOL AVERAGE AVERAGE OUTSTANDING AVERAGE DATE OF RECEIVABLE WITH
LOANS BALANCE OUTSTANDING ORIGINAL REMAINING PRINCIPAL APR LATEST MATURITY
PRINCIPAL TERM TO MATURITY OF BALANCE OF
BALANCE MATURITY RECEIVABLES IN RECEIVABLES
IN MONTHS MONTHS
<S> <C> <C> <C> <C> <C> <C> <C>
$ ___ % $ ___ %
[Etc.]
Total $ ___ % $ ___ %
</TABLE>
23
<PAGE> 47
DISTRIBUTION OF THE INITIAL RECEIVABLES BY APR AS OF THE INITIAL CUTOFF DATE
<TABLE>
<CAPTION>
APR NUMBER OUTSTANDING PERCENTAGE WEIGHTED WEIGHTED AVERAGE SCHEDULED PAYMENT
OF PRINCIPAL OF POOL AVERAGE AVERAGE OUTSTANDING OF RECEIVABLE WITH
RECEIVABLES BALANCE OUTSTANDING ORIGINAL REMAINING PRINCIPAL TEST MATURITY
PRINCIPAL TERM TO MATURITY OF BALANCE OF
BALANCE MATURITY RECEIVABLES IN RECEIVABLES
IN MONTHS MONTHS
<S> <C> <C> <C> <C> <C> <C>
$ ___ % $
%
[Etc.
]
$ ___ % $
%
</TABLE>
24
<PAGE> 48
DEALER CONCENTRATION. [Two] groups of affiliated Dealers (each, an
"Affiliated Group") originated approximately ___% and ___%, respectively, of
the Original Pool Balance of the Initial Receivables as of the Initial Cutoff
Date. No other Dealer or its affiliates originated more than ___% of the
Original Pool Balance of the Initial Receivables. The failure of any one or
more of the Dealers in the Affiliated Groups to repurchase Receivables under a
Dealer Agreement with NAFI upon breaches of representations or warranties made
with respect thereto could materially and adversely impact NAFI's ability to
honor any corresponding repurchase obligation under the Trust Documents and
consequently the Seller's ability to honor any corresponding retransfer
obligation under the Trust Documents. Although NAFI historically has not had
any material problems with Dealers failing to honor their repurchase
obligations under their Dealer Agreements with NAFI, no representations are
made as to the financial condition of any Dealer and no assurance can be given
that any Dealer from whom NAFI purchased Receivables will have the financial
ability to perform its repurchase obligations, if any, under its Dealer
agreement with NAFI. In the event that full payment of a Receivable required to
be retransferred to the Seller is not received, the Seller defaults in its
obligation to accept a retransfer of such Receivable, the obligor under such
Receivable defaults thereon and the Security Insurer fails to pay any claim
under the Policies, the Noteholders and the Certificateholders may sustain a
loss of principal and interest on their Certificates.
AVERAGE LIFE OF THE RECEIVABLES. As of the Initial Cutoff
Date, the weighted average remaining scheduled maturity of the Initial
Receivables was approximately __ months, based on the following assumptions: (i)
the Initial Receivables have the characteristics described herein, (ii) all
scheduled payments on the Initial Receivables will be made on the last day of
each month, and (iii) no principal prepayments in full (including prepayments
resulting from defaults, from repurchases of Initial Receivables by the Seller
or the Servicer and from the application of insurance proceeds) will be made on
the Initial Receivables.
As described in the related Prospectus under the caption "The
Receivables - Types of Receivables - Simple Interest Receivables," additional
payments may be scheduled at the maturity dates of certain Receivables as a
result of late payments thereon, which could have the effect of extending the
weighted average remaining scheduled maturity of the Receivables at any given
time. In addition, the maturity dates of the Receivables may be extended under
the circumstances described herein under the caption "Description of the
Purchase Agreements and the Trust Documents - Collection and - Servicing
Procedures."
The Seller does not believe that the timing of principal
payments on the Receivables will have a material impact on the yield to the
initial purchasers of the Notes or the Certificates, unless the Notes or the
Certificates initially are purchased at a premium or a discount. No assurance
can be given, and no prediction can be made, as to the actual prepayment
experience on the Receivables.
CHARACTERISTICS OF SUBSEQUENT RECEIVABLES. After the transfer
of Subsequent Receivables to the Trust during the Pre-Funding Period, the
weighted average APR of the Receivables may be as low as ___%, the weighted
average remaining term of the Receivables may be as high as months, the
percentage of the aggregate outstanding principal balance of the Receivables
represented by Receivables relating to loans for the purchase of used Financed
Vehicles may be as high as ___% and the final scheduled payment date on the
Receivable with the latest maturity date may be as late as ___.
DELINQUENCY, REPOSSESSION AND LOSS INFORMATION. The
following table sets forth delinquency, repossession and loss information since
the month following NAFI's commencement of operations in October 1994 to ______
with respect to NAFI's entire portfolio of motor vehicle retail installment sale
contracts (including those previously sold by NAFI to or held by the Seller).
25
<PAGE> 49
Delinquency, Repossession and Loss Information
<TABLE>
<CAPTION>
199_ 199_ 199_ 199_ 199_ 199_ 199_ 199_
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding
Principal
Balance $ $ $ $ $ $ $ $
Number of
Outstanding
Receivables
Outstanding
Principal
Balance of
Delinquent
Receivables
(over 30 days)
as a Percentage
of
Outstanding
Principal
Balance(1) % % % % % % % %
Number of
Financed
Vehicles
Repossessed
as a Percentage
of
Outstanding
Receivables % % % % % % % %
Gross Losses(2) $ $ $ $ $
Gross Losses as a
percentage of
Outstanding
Principal
Amount(2) % % % % % % % %
Estimated Net
Losses(3) % % $ $ $ $ $
Estimated Net
Losses
as a percentage
of
Outstanding
Principal
Amount(3) % % % % % % % %
</TABLE>
(1) Delinquent figures reported exclude contracts as to which the
cumulative amount of payments over 30 days delinquent is less than
or equal to $40.
(2) A "Gross Loss" with respect to a contract charged-off during a
period equals the outstanding principal balance thereof, together with
earned interest thereon to the date of default.
26
<PAGE> 50
(3) "Estimated Net Losses,, include actual recoveries on liquidated
contracts and estimated recoveries on vehicles held in inventory. A
Net Loss with respect to a contract charged-off during a period is
determined by subtracting liquidation proceeds, insurance proceeds
and other recoveries with respect thereto from the outstanding
principal amount thereof, together with earned interest thereon
through the date of default and repossession expenses. The Seller
estimates a __% net loss on vehicles held in inventory. As of
___________________, 199__, vehicles held in inventory securing
contracts with an outstanding principal balance of approximately
$___________ had been repossessed but not yet liquidated.
NAFI commenced operations in October of 1994. Accordingly, its
historical delinquency, repossession and loss experience is limited. No
assurance can be given that the delinquency, repossession and loss experience
on the Receivables will be as favorable as the experience indicated in the
foregoing tables, especially in light of such limited historical experience.
The delinquency and loan loss experience described above should be considered
in light of the average maturity of the Receivables. In particular, there can
be no assurance that the rate of delinquencies and loan losses may not increase
over time.
THE SECURITY INSURER
[DESCRIPTION OF THE SECURITY INSURER TO BE ADDED HERE.]
DESCRIPTION OF THE NOTES
GENERAL
The Notes will be issued pursuant to the terms of the Indenture, a
form of which has been filed as an exhibit to the Registration Statement. A
copy of the Indenture pursuant to which the Notes will be issued will be filed
with the Commission following the issuance of the Securities. The following
summary describes certain terms of the Notes and the Indenture. The summary
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the Notes and the Indenture.
The following summary supplements the description of the general terms and
provisions of the Notes of any given series and the related Indenture set forth
in the accompanying Prospectus, to which description reference is hereby made.
___________________________________, a national banking association
headquartered in ________________________, will be the Indenture Trustee.
PAYMENTS OF INTEREST
Interest on the principal balance of the Notes will accrue at the
Interest Rate and will be payable to the Noteholders monthly on each
Distribution Date, commencing _________________. Interest will accrue from and
including the Closing Date (in the case of the first Distribution Date), or
from and including the most recent Distribution Date on which interest has been
paid to but excluding the following Distribution Date (each an "Interest
Period"). Interest on the Notes will be calculated on the basis of a 360-day
year consisting of twelve 30-day months. Interest accrued as of any
Distribution Date but not paid on such Distribution Date will be due on the
next Distribution Date, together with
27
<PAGE> 51
interest on such amount at the Interest Rate (to the extent lawful). Interest
payments on the Notes will be made from Available Funds (as hereinafter
defined) after payment of accrued and unpaid trustees' fees and other
administrative fees of the Trust and payment of the Servicing Fee. See
"Description of the Purchase Agreements and the Trust Documents -
Distributions" herein.
PAYMENTS OF PRINCIPAL
Principal payments will be made to the Noteholders on each
Distribution Date in an amount equal to the Noteholders' percentage of an
amount equal to the sum of the following amounts with respect to the related
Monthly Period, in each case computed in accordance with the simple interest
method: (i) that portion of all collections on Receivable (other than
Liquidated Receivables and Purchased Receivables) allocable to principal,
including full and partial principal prepayments, received during such Monthly
Period, (ii) the principal balance of each Receivable that became a Liquidated
Receivable during such Monthly Period, (iii) the principal balance of each
Receivable that was repurchased by NAFI or the Servicer as of the last day of
such Monthly Period, and, at the option of the Security Insurer, the principal
balance of each Receivable that was required to be, but was not, so
repurchased, (iv) the aggregate amount of any reduction of the principal
balance of a Receivable as a result of a court order in an insolvency
proceeding and (v) any unpaid portion of the amounts included in clauses (i),
(ii), (iii) and (iv) above with respect to a prior Distribution Date. Principal
payments on the Notes will be made from Available funds after payment of
accrued and unpaid trustees' fees and other administrative fees of the Trust,
payment of the Servicing Fee and after distribution of the Noteholders'
Interest Distributable Amount. See "Description of the Purchase Agreements and
the Trust Documents - Distributions" herein.
The principal balance of the Notes, to the extent not
previously paid, will be due on the Final Scheduled Distribution Date. The
actual date on which the aggregate outstanding principal amount of the Notes is
paid may be earlier than the Final Scheduled Distribution Date set forth above
based on a variety of factors.
MANDATORY REDEMPTION
The Notes will be redeemed in part on the Distribution Date
on or immediately following the last day of the Funding Period in the event
that any amount remains on deposit in the Pre-Funding Account after giving
effect to the purchase off all Subsequent Receivables, including any such
purchase on such date (a "Mandatory Redemption"). The aggregate principal
amount of the Notes to be redeemed will be an amount equal to the Noteholders'
Percentage of the amount then on deposit in the Pre-Funding Account (the "Note
prepayment Amount").
The Note Prepayment Premium will be payable by the Trust to
the Noteholders if the Note Prepayment Amount exceeds $_____. The Note
Prepayment premium will equal the excess, if any, discounted as described
below, of (i) the amount of interest that would have accrued on the Note
Prepayment Amount at the Interest Rate during the period commencing on and
including the Distribution Date on which such Note Prepayment Amount is
required to be distributed to the Noteholders to but excluding
_____________________, over (ii) the amount of interest that would have accrued
on such Note Prepayment Amount over the same period at a per annum rate of
interest equal to the bond equivalent yield to maturity on the Determination
Date preceding such Distribution Date on the _____% United States Treasury Note
due _____________________. Such excess shall be discounted to present value to
such Distribution Date at the applicable yield described in clause (ii) above.
The Trust's obligation to pay the Note Prepayment Premium shall be limited to
funds which are received from the Seller under the Sale and Servicing Agreement
as liquidated damages for the failure to deliver Subsequent Receivables. No
other assets of the Trust will be available for the purpose of making such
payment. The Note Policy does not guarantee payment of the Note Prepayment
Amount
28
<PAGE> 52
or the Note Prepayment Premium. In addition, the ratings assigned to the Notes
by the Rating Agencies do not address the likelihood that the Note Prepayment
Premium will be paid by the Seller.
OPTIONAL REDEMPTION
The Notes will be redeemed in whole, but not in part, on any
Distribution Date on which the Seller or the Servicer exercises its option to
purchase the Receivables. The Seller or the Servicer may purchase the
Receivables when the Aggregate Principal Balance shall have declined to 10% or
less of the Original Pool Balance, as described in the accompanying Prospectus
under "Description of the Purchase Agreements and the Trust Documents -
Termination." Such redemption will effect early retirement of the Notes. The
redemption price will be equal to the unpaid principal amount of the Notes plus
accrued and unpaid interest thereon (the "Redemption Price").
EVENTS OF DEFAULT
Unless an Insurer Default shall have occurred and be
continuing, "Events of Default" under the Indenture will consist of Insurance
Agreement Indenture Cross Defaults under the Insurance Agreement, but only if
the Security Insurer shall have delivered to the trust and the Indenture
Trustee, and not rescinded, a written notice specifying that any such Insurance
Agreement Indenture Cross Default constitutes an Event of Default under the
Indenture. "Insurance Agreement Indenture Cross Defaults" consist of: (i)
certain events of bankruptcy, insolvency, receivership or liquidation of the
Trust; (ii) the Trust becoming taxable as an association (or publicly traded
partnership) taxable as a corporation for federal or state income tax purposes;
(iii) on any Distribution Date, the sum of the Available Funds with respect to
such Distribution Date plus the amount (if any) on deposit in the Reserve
Account and certain funds held by the Collateral Agent being less than the sum
of the amounts described in clauses 1-8 under "Description of the Purchase
Agreements and the Trust Documents - Distributions" herein; and (iv) any
failure o observe or perform in any material respect any other covenants or
agreements in the Indenture, or any representation or warranty of the Trust
made in the Indenture or in any certificate or other writing delivered pursuant
thereto or in connection therewith providing to have been incorrect in any
material respect when made, and such failure continuing or not being cured, or
the circumstance or condition in respect of which such misrepresentation or
warranty was incorrect not having been eliminated otherwise cured, for 30 days
after the giving of written notice of such failure or incorrect representation
or warranty to the rust and the Indenture Trustee by the Security Insurer.
Upon the occurrence of an Event of Default, so long as an
Insurer Default shall not have occurred and be continuing, the Security Insurer
shall have the right, but not the obligation, to cause the Indenture Collateral
Agent to liquidate the Trust Property in whole or in part, on any date or dates
following the acceleration of the notes due to such Event of Default as the
Security Insurer, in its sole discretion, shall elect, and to deliver the
proceeds of such liquidation to the indenture Trustee or distribution in
accordance with the terms of the indenture. following the occurrence of an
Event of Default, the Indenture Trustee and the Owner Trustee will continue to
submit claims under the Policies for any shortfalls in the Scheduled Payments
on the Notes and the Guaranteed Distributions on the Certificates. The Security
Insurer may elect upon receipt of a claim under the Note Policy following an
event of Default under the Indenture to pay all or any portion of the
outstanding amount of the Notes, plus accrued interest thereon. See "The
Policies" herein.
If an Insurer Default has occurred and is continuing, "Events
of Default" under the Indenture will consist of the Events of Default described
in the accompanying Prospectus under "The Notes - The Indenture," and the
Indenture Trustee will have the rights under the Indenture described therein.
29
<PAGE> 53
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the terms of the
Trust Agreement, a form of which has been filed as an exhibit to the
Registration Statement of which this Prospectus Supplement is a part. A copy of
the Trust Agreement pursuant to which the Certificates will be issued will be
filed with the Commission following the issuance of the Securities. The
following summary describes certain terms of the Certificates and The Trust
Agreement. The summary does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all the provisions of the
Certificates and the Trust Agreement. The following summary supplements the
description of the general terms and provisions of the Certificates of any
given series and the related Trust Agreement set forth in the Prospectus, to
which description reference is hereby made.
DISTRIBUTIONS OF INTEREST INCOME
On each Distribution Date, commencing , the
Certificateholders will be entitled to distributions in an amount equal to the
amount of interest accrued on the Certificate Balance at the Pass-Through Rate.
Interest distributable on a Distribution Date will accrue from and including
the Closing Date (in the case of the first Distribution Date) or from the most
recent Distribution Date on which interest distributions have been made to but
excluding such Distribution Date and will be calculated on the basis of a
360-day year consisting of twelve 30-day months. Interest distributions due for
any Distribution Date but not distributed on such Distribution Date will be due
on the next Distribution Date together with interest on such amount at the
Pass-Through Rate (to the extent lawful). Interest distributions with respect
to the Certificates will be made from Available Funds after the payment of
accrued and unpaid trustees' fees and other administrative fees of the Trust,
the payment of the Servicing Fee and the distribution of the Noteholders'
Distributable Amount. See "Description of the Purchase Agreements and the Trust
Documents - Distributions" herein.
DISTRIBUTIONS OF PRINCIPAL PAYMENTS
Certificateholders will be entitled to distributions on each
Distribution Date in an amount equal to the Certificateholders' Percentage off
an amount equal to the sum of the following amounts with respect to the related
Monthly Period, in each case computed in accordance with the simple interest
method: (i) that portion of all collections on Receivables (other than
Liquidated Receivables and Purchased Receivables) allocable to principal,
including full and partial principal prepayments, received during such Monthly
Period, (ii) the principal balance of each Receivable that became a Liquidated
Receivable during such Monthly Period, (iii) the principal balance of each
Receivable that was repurchased by NAFI or the Servicer as of the last day of
such Monthly Period, and, at the option of the Security Insurer, the principal
balance of each Receivable that was required to be, but was not, so
repurchased, (iv) the aggregate amount of any reduction of the principal
balance of a Receivable as a result of a court order in an insolvency
proceeding and (v) any unpaid portion of the amounts included in clauses (i),
(ii), (iii) and (iv) above with respect to a prior Distribution Date.
Distributions with respect to principal payments will be made from Available
Funds after payment of accrued and unpaid trustees' fees and other
administrative fees of the Trust, payment of the Servicing Fee and the
distribution of the Noteholders' Distributable Amount and the
Certificateholders' Interest Distributable Amount. See "Description of the
Purchase Agreements and the Trust Documents - Distributions" herein.
MANDATORY PREPAYMENT
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<PAGE> 54
Cash distributions to Certificateholders will be made, on a
pro rata basis, on the Distribution Date on or immediately following the last
day of the Funding Period in the event that any amount remains on deposit in
the Pre-Funding Account after giving effect to the purchase of all Subsequent
Receivables, including any such purchase on such date (a "Mandatory
Prepayment"). The aggregate principal amount of the Certificates to be prepaid
will be an amount equal to the Certificateholders' Percentage of the amount
then on deposit in the Pre-Funding Account (the "Certificate Prepayment
Amount").
The Certificate Prepayment Premium will be payable by the
Trust to the Certificateholders if the Certificate Prepayment Amount exceeds
$ . The Certificate Prepayment Premium for the Certificates will equal
the excess, if any, discounted as described below, of (i) the amount of interest
that would have accrued on the Certificate Prepayment preAmount at the
Pass-Through Rate during the period commencing on and including the
Distribution Date on which such Certificate Prepayment Amount is required to be
distributed to Certificateholders to but excluding , over (ii) the amount of
interest that would have accrued on such Certificate Prepayment Amount over the
same period at a per annum rate of interest equal to the bond equivalent yield
to maturity on the Determination Date preceding such Distribution Date on the
% United States Treasury Note due. Such excess shall be discounted to present
value to such Distribution Date at the yield described in clause (ii) above.
The Trust's obligation to pay the Certificate Prepayment Premium shall be
limited to funds which are received from the Seller under the Sale and
Servicing Agreement as liquidated damages for the failure to deliver Subsequent
Receivables. No other assets of the Trust will be available for the purpose of
making such payment. The Certificate Policy does not guarantee payment of the
Certificate Prepayment Amount or the Certificate Prepayment Premium. In
addition, the ratings assigned to the Certificates by the Rating Agencies do
not address the likelihood that the Certificate Prepayment Premium will be paid
by the Seller.
Upon the occurrence of an Event of Default under the
Indenture (so long as an Insurer Default shall not have occurred and be
continuing), the Security Insurer will have the right, but not the obligation,
to cause the liquidation of the Trust property in whole or in part, on any date
or dates as the Security Insurer, in its sole discretion, shall elect. Any such
liquidation, in whole or in part, will cause a full or partial prepayment of
the Certificates.
OPTIONAL PREPAYMENT
If the Seller or the Servicer exercises its option to
purchase the Receivables when the Aggregate Principal Balance declines to 10%
or less of the Original Pool Balance, Certificateholders will receive an amount
in respect of the Certificates equal to the outstanding Certificate Balance
together with accrued interest at the Pass-Through Rate, which distribution
will effect early retirement of the Certificates. See "Description of the
Purchase Agreements and the Trust Documents -- Termination" in the accompanying
Prospectus.
TRANSFERS OF CERTIFICATES
Certificateholders, other than individuals or entities
holding Certificates through a broker who reports sales of securities on Form
1099-B, are required under the Trust Agreement to notify the Owner Trustee of
any transfer of their Certificates in a taxable sale or exchange within 30 days
of such transfer.
DESCRIPTION OF THE PURCHASE AGREEMENTS
AND THE TRUST DOCUMENTS
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<PAGE> 55
The following summary describes certain terms of the Purchase
Agreement and any Subsequent Purchase Agreement (together, the "Purchase
Agreements"), and the Sale and Servicing Agreement, any Subsequent Transfer
Agreement and the Trust Agreement (together, the "Trust Documents"). Forms of
the Purchase Agreements and the Trust Documents have been filed as exhibits to
the Registration Statement. A copy of the Purchase Agreements and the Trust
Documents will be filed with the Commission following the issuance of the
Securities. The summary does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all the provisions of the Purchase
Agreements and the Trust Documents. The following summary supplements the
description of the general terms and provisions of Purchase Agreements and the
Trust Documents (as such terms are used in the accompanying Prospectus) set
forth in the accompanying Prospectus, to which description reference is hereby
made.
The Sale and Servicing Agreement will not permit
modifications of Receivables to avoid prepayments by Obligors. See "Description
of the Purchase Agreements and the Trust Documents - Servicing Procedures" in
the accompanying Prospectus.
SALE AND ASSIGNMENT OF RECEIVABLES; SUBSEQUENT RECEIVABLES
Certain information with respect to the sale of the Initial
Receivables by NAFI to the Seller pursuant to the Purchase Agreement and the
conveyance of the Initial Receivables from the Seller to the Trust on the
Closing Date pursuant to the Sale and Servicing Agreement is set forth under
"Description of the Purchase Agreements and the Trust Documents - Sale and
Assignment of Receivables" in the accompanying Prospectus. In addition, during
the Funding Period, pursuant to the Sale and Servicing Agreement, the Seller
will be obligated to sell to the Trust Subsequent Receivables having an
aggregate principal balance equal to approximately $ (such amount being
equal to the initial Pre-Funded Amount) to the extent that such Subsequent
Receivables are available.
During the Funding Period, on each Subsequent Transfer Date,
subject o the conditions described below, the Seller will sell and assign to
the Trust, without recourse, the Seller's entire interest in the Subsequent
Receivables designated by the Seller as of the related Subsequent Cutoff Date
and identified in a schedule attached to a Subsequent transfer Agreement
relating to such Subsequent Receivables executed on such date by the Seller.
Upon the conveyance of Subsequent Receivables to the Trust on a Subsequent
Transfer Date, (i) the Aggregate Principal Balance will increase in an amount
equal to the aggregate principal balances of the Subsequent Receivables and
(ii) an amount equal to the aggregate principal balances of such Subsequent
Receivables will be withdrawn from the Pre-Funding Account and paid to or upon
the order of the Seller.
Any conveyance of Subsequent Receivables is subject to the
satisfaction, on or before the related Subsequent Transfer Date, of the
following conditions, amount others: (i) each such Subsequent Receivable
satisfies the eligibility criteria specified in the Sale and Servicing
Agreement; (ii) the Security Insurer (so long as no Insurer Default shall have
occurred and the continuing) shall in its absolute and sole discretion have
approved the transfer of such Subsequent Receivables to the Trust; (iii) as of
each applicable Subsequent Cutoff Date, the Receivables in the Trust together
with the Subsequent Receivables to be conveyed by the Seller as of such
Subsequent Cutoff Date, meet the following criteria (computed based on the
characteristics of the Initial Receivables on the Initial Cutoff Date and any
Subsequent Receivables on the related Subsequent Cutoff Date): (a) the weighted
average APR of such Receivables will not be less than %, (b) the weighted
average remaining term of such Receivables will not be greater than months
and (c) not more than % of the principal balances of such Receivables will be
attributable to Loans for the purchase of used Financed Vehicles, and the
Trust, the Indenture Trustee, the Owner Trustee and the Security Insurer shall
have received written confirmation from a firm of certified independent public
accountants as to such satisfaction; (iv) the
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<PAGE> 56
Seller shall have executed and delivered to the Trust (with a copy to the
Indenture Trustee) a Subsequent Transfer Agreement conveying such Subsequent
Receivables to the Trust (including a schedule identifying such Subsequent
Receivables); (v) the Seller shall have delivered certain opinions of counsel
to the Indenture Trustee, the Owner Trustee, the Security Insurer and the
Rating Agencies with respect to the validity of the conveyance of such
Subsequent Receivables; and (vi) the Rating Agencies shall have each notified
the Seller, the Owner Trustee, the Indenture Trustee and the Security Insurer
in writing that, following the addition of all such Subsequent Receivables, the
Notes and the Certificates will be rated AAA by S&P and Aaa by Moody's.
Subsequent Receivables may have been originated by NAFI at a
later date using credit criteria different from the criteria applied with
respect to the Initial Receivables. See "Risk Factors - The Receivables and the
Pre-Funding Account" and "The Receivables Pool" herein.
ACCOUNTS
The Servicer will establish and maintain one or more
accounts, in the name of the Indenture Trustee on behalf of the Noteholders and
the Certificateholders, into which all payments made on or with respect to the
Receivables will be deposited (the "Collection Account"). The Servicer will
also establish and maintain an account, in the name of the Indenture Trustee on
behalf of the Noteholders, in which amounts released from the Collection Amount
for distribution to Noteholders will be deposited and from which all
distributions to Noteholders will be made (the "Note Distribution Account").
The Owner Trustee will establish and maintain an account, in the name of the
Owner Trustee on behalf of the Certificateholders, in which amounts released
from the Collection Account for distribution to Certificateholders will be
deposited and from which all distributions to Certificateholders will be made
(the "Certificate Distribution Account"). The Collection Account, the Note
Distribution Account and the Certificate Distribution Account are collectively
referred to herein as the "Designated Accounts." See "Description of the
Purchase Agreements and the Trust Documents--Collections" in the accompanying
Prospectus.
In addition to the Designated Accounts, the Servicer will
also establish and will maintain the Pre-Funding Account in the name of the
Indenture Trustee on behalf of the Noteholders and the Certificateholders.
The Servicer will also establish and maintain an account (the
"Reserve Account") in the name of the Indenture Trustee on behalf of the
Noteholders and Certificateholders. On the Closing Date, the Seller will
deposit $_________ in the Reserve Account. On each Draw Date (as described
below) during the Funding Period, if the Available Funds are insufficient to
distribute the amounts described in clauses 1-8 under "-Distributions" below,
the Indenture Trustee will withdraw from the Reserve Account the amount of such
shortfall (but in __________ more than the difference between (i) the amount on
deposit in the Reserve Account and (ii) _________ Reserve Amount for the
related Distribution Date), and deposit such amount in the Collection Account.
On each Subsequent Transfer Date, the Servicer will recalculate the Requisite
Reserve Amount described below), and any funds in the Reserve Account in excess
of such amount will be distributed to [the Seller]. If the amount in the
Reserve Account on such Subsequent Transfer Date is less than the Requisite
Reserve Amount, such amount will be transferred to the Reserve Account from the
funds that would otherwise be paid to the Seller from the Pre-Funding Account.
The "Requisite Reserve Amount" as of any date during the Funding Period will
equal the product of (i) the difference between (A) the weighted average of the
Interest Rate and the Pass-Through Rate (based on the outstanding amount of the
Notes and the Certificate Balance on such date) and (B) the assumed yield
(____% per annum) of investments of funds in the Pre-Funding Account, divided
by 360, (ii) the Pre-Funded Amount on such date and (iii) the number of days
remaining in the Funding Period.
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<PAGE> 57
DISTRIBUTIONS
On or before the fifth day of each month (or, if such day is
not a Business Day, the next succeeding Business Day) (each such date, a
"Determination Date"), the Servicer will deliver to the Indenture Trustee, the
Owner Trustee, the Security Insurer and each Rating Agency a certificate (the
"Servicer's Certificate") setting forth, among other things, the following
amounts with respect to the preceding Monthly Period and the related
Distribution Date: (i) the amount of funds in the Collection Account allocable
to collections on the Receivables in the preceding Monthly Period (excluding
any Purchase Amounts) (the "Collected Funds"); (ii) the Purchase Amount of all
Receivables repurchased by NAFI or the Servicer as of the related Deposit Date;
(iii) the amount of Available Funds; (iv) the Noteholders' Interest
Distributable Amount and the Noteholders' Principal Distributable Amount; (v)
the Certificateholders' Interest Distributable Amount and the
Certificateholders' Principal Distributable Amount; and (vi) the Servicing Fee.
On each Distribution Date, the Servicer shall instruct the
Indenture Trustee to distribute the Available Funds in the following order of
priority:
1. To the Indenture Trustee and the Owner Trustee,
any accrued and unpaid trustees' fees and any accrued and
unpaid fees of the [separate Lockbox Bank,] Custodian, Backup
Servicer, Indenture Collateral Agent, Administrator or
Collateral Agent (described below) (in each case, to the
extent such fees have not been previously paid by the
Servicer or NAFI).
2. To the Servicer, the Servicing Fee for the
related Monthly Period.
3. To the Note Distribution Account, the
Noteholders' Interest Distributable Amount.
4. To the Note Distribution Account, the
Noteholders' Principal Distributable Amount.
5. To the Certificate Distribution Account, the
Certificateholders' Interest Distributable Amount.
6. To the Certificate Distribution Account, the
Certificateholders' Principal Distributable Amount.
7. To the Security Insurer, any amounts owing to the
Security Insurer under the Insurance Agreement and not paid.
8. Any Available Funds remaining in the Collection
Account after distributing the amounts described above will
be payable to the Seller as compensation for obtaining the
Policies, paying the premiums thereon and maintaining all
necessary related arrangements for the benefit of the
Security Insurer (such compensation, including amounts paid
to the Security Insurer described above, being hereinafter
referred to as the "Credit Enhancement Fee"), but shall be
transferred to a financial institution acting as collateral
agent (the "Collateral Agent") on behalf of the Security
Insurer, the Indenture Trustee and the Owner Trustee and the
trustees for other trusts established and to be established
by the Seller. Unless an Insurer Default has occurred and is
continuing, the Security Insurer will control the disposition
of any funds held by the Collateral Agent.
The following sets forth an example of the application of the
foregoing to a hypothetical monthly distribution:
February 1- February 28..... Monthly Period. Scheduled Payments and any
prepayments and other collections on the
Receivables are received and deposited into
the Collection Account.
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<PAGE> 58
March 4.................... Deposit Date. On or before this date, NAFI
and the Servicer will make required
payments of Purchase Amounts to the
Collection Account.
March 7.................... Determination Date. On or before this date
the Servicer will notify the Indenture
Trustee of, among other things, the amounts
available in the Collection Account and the
amounts required to be distributed
on the Distribution Date.
March 10................... Draw Date. On this date, the Indenture
Trustee will withdraw funds, if necessary,
from the Reserve Account (during the
Funding Period and subject to the
limitation described under "-Accounts")
and deposit such funds in the Collection
Account. In addition, the Indenture Trustee
will make any required claims under the
Note Policy if the funds in the Note
Distribution Account (plus any amounts
deposited therein by the Collateral Agent)
are insufficient to pay in full the
Noteholders' Distributable Amount.
Similarly, the Owner Trustee will make any
required claims under the Certificate
Policy if the funds in the Certificate
Distribution Account (plus any amounts
deposited therein by the Collateral Agent)
are insufficient to pay in full the
Certificateholders' Distributable Amount.
March 14................... Record Date. Distributions on the
Distribution Date will be made to
Noteholders and Certificateholders of
record at the close of business on this
date.
March 15................... Distribution Date. The Indenture Trustee
will pay all accrued and unpaid trustees'
fees and other administrative fees of the
Trust, pay the Servicing Fee and distribute
to Noteholders all amounts in the Note
Distribution Account. The Owner Trustee
will distribute all amounts in the
Certificate Distribution Account to the
Certificateholders. The Indenture Trustee
will pay any amounts owing to the Security
Insurer and will transfer the Credit
Enhancement Fee to the Collateral Agent.
For the purposes hereof, the following terms shall have the following
meanings:
"Available Funds" means, with respect to any Distribution Date, the
sum of the Collected Funds, any Purchase Amounts and all earnings from the
investment of funds in the Collection Account, the Pre-Funding Account and the
Reserve Account during the Monthly Period.
"Principal Distribution Amount" means, with respect to any
Distribution Date, the amount equal to the sum of the following amounts with
respect to the related Monthly Period, in each case computed in accordance with
the simple interest method: (i) that portion of all collections on Receivables
(other than Liquidated Receivables and Purchased Receivables) allocable to
principal, including all full and partial prepayments received during such
Monthly Period, (ii) the aggregate unpaid principal balance of all Receivables
(other than the Purchased Receivables) that became Liquidated Receivables
during the Monthly Period, (iii) the aggregate principal balances of all
Receivables that became Purchased Receivables as of the related Accounting
Date, and, at the option of the Security Insurer, the principal balance of each
Receivable that was required to be, but was not, so repurchased and (iv) the
aggregate amount of any reductions in the principal balance of Receivables as a
result of a court order in an insolvency proceeding.
"Liquidated Receivables" means a Receivable as to which (i) 91 days
have elapsed since the Servicer repossessed the related Financed Vehicle, (ii)
the Servicer has determined in good faith that all
35
<PAGE> 59
amounts it expects to recover have been received or (iii) all or some portion
of a Scheduled Payment has become more than 180 days past due.
"Purchased Receivable" means a Receivable (i)(A) that NAFI or the
Seller has become obligated to repurchase (or, under certain circumstances, has
elected to repurchase) as a result of an uncured breach by NAFI or the Seller
of a representation or warranty made by NAFI or the Seller with respect to such
Receivable or (B) that the Servicer has become obligated to repurchase (or,
under certain circumstances, has elected to repurchase) as a result of an
uncured breach of the covenants made by it with respect to such Receivable and
(ii) as to which the related Purchase Amount has been deposited in the
Collection Account by NAFI, the Seller or the Servicer, as the case may be, on
or before the related Deposit Date.
"Noteholders' Distributable Amount" means, with respect to any
Distribution Date, the sum of the Noteholders' Principal Distributable Amount
and the Noteholders' Interest Distributable Amount.
"Noteholders' Interest Distributable Amount" means, with respect to
any Distribution Date, the sum of the Noteholders' Monthly Interest
Distributable Amount for such Distribution Date and the Noteholders' Interest
Carryover Shortfall for such Distribution Date.
"Noteholders' Monthly Interest Distributable Amount" means, with
respect to any Distribution Date, 30 days' interest (or, in the case of the
first Distribution Date, interest accrued from and including the Closing Date
to but excluding such Distribution Date) at the Interest Rate on the
outstanding principal balance of the Notes on the immediately preceding
Distribution Date, after giving effect to all payments of principal to
Noteholders on or prior to such Distribution Date.
"Noteholders' Interest Carryover Shortfall" means, with respect to any
Distribution Date, the excess of the Noteholders' Monthly Interest
Distributable Amount for the preceding Distribution Date and any outstanding
Noteholders' Interest Carryover Shortfall on such preceding Distribution Date,
over the amount in respect of interest that is actually deposited in the Note
Distribution Account on such preceding Distribution Date, plus interest on the
amount of interest due but not paid to Noteholders on the preceding
Distribution Date, to the extent permitted by law, at the Interest Rate from
such preceding Distribution Date to but excluding the current Distribution
Date.
"Noteholders' Principal Distribution Amount" means, with respect to
any Distribution Date (other than the Final Scheduled Distribution Date), the
sum of the Noteholders' Monthly Principal Distributable Amount for such
Distribution Date and the Noteholders' Principal Carryover Shortfall as of the
close of the preceding Distribution Date, provided, however, that the
Noteholders' Principal Distributable Amount shall not exceed the outstanding
principal balance of the Notes. The Noteholders' Principal Distributable Amount
on the Final Scheduled Distribution Date will equal the outstanding principal
balance of the Notes on such Distribution Date.
"Noteholders' Monthly Principal Distributable Amount" means, with
respect to any Distribution Date, the Noteholders' Percentage of the Principal
Distribution Amount.
"Noteholders' Percentage" means, % for the first Distribution Date,
and for each Distribution Date thereafter, a percentage, expressed as a
fraction, the numerator of which is the outstanding principal balance of the
Notes on the related Accounting Date and the denominator of which is the
Aggregate Principal Balance (plus any funds remaining on deposit in the
Pre-Funding Account, other than reinvestment earnings) as of the related
Accounting Date.
"Noteholders' Principal Carryover Shortfall" means, as of the close of
any Distribution Date, the excess of the Noteholders' Monthly Principal
Distributable Amount and any outstanding Noteholders' Principal Carryover
Shortfall from the preceding Distribution Date over the amount in
36
<PAGE> 60
respect of principal that is actually deposited in the Note Distribution
Account on such Distribution Date.
"Certificateholders' Distributable Amount" means, with respect to any
Distribution Date, the sum of the Certificateholders' Principal Distributable
Amount and the Certificateholders' Interest Distributable Amount.
"Certificateholders' Interest Distributable Amount" means, with
respect to any Distribution Date, the sum of the Certificateholders' Monthly
Interest Distributable Amount for such Distribution Date and the
Certificateholders' Interest Carryover Shortfall for such Distribution Date.
"Certificateholders' Monthly Interest Distributable Amount" means,
with respect to any Distribution Date, 30 days' interest (or, in the case of
the first Distribution Date, interest accrued from and including the Closing
Date but excluding such Distribution Date) at the Pass-Through Rate multiplied
by the Certificate Balance as of the last day of the Monthly Period immediately
preceding such Distribution Date.
"Certificateholders' Interest Carryover Shortfall" means, with respect
to any Distribution Date, the excess of the Certificateholders' Monthly
Interest Distributable Amount for the preceding Distribution Date and any
outstanding Certificateholders' Interest Carryover Shortfall on such preceding
Distribution date, over the amount in respect of interest at the Pass-Through
Rate that is actually deposited in the Certificate Distribution Account on such
preceding Distribution Date, plus interest on such excess, to the extent
permitted by law, at the Pass-Through Rate from such preceding Distribution
Date to but excluding the current Distribution Date.
"Certificateholders' Principal Distributable Amount" means, with
respect to any Distribution Date (other than the Final Scheduled Distribution
Date), the sum of the Certificateholders' Monthly Principal Distributable
Amount for such Distribution Date and the Certificateholders' Principal
Carryover Shortfall as of the close of the preceding Distribution Date,
provided, however, that the Certificateholders' Principal Distributable Amount
shall not exceed the Certificate Balance. In addition, on the Final Scheduled
Distribution Date, the Certificateholders' Principal Distributable Amount will
equal the Certificate Balance on such Distribution Date.
"Certificateholders' Monthly Principal Distributable Amount" means,
with respect to any Distribution Date, the Certificateholders' Percentage of
the Principal Distribution Amount or, with respect to any Distribution Date on
or after the Distribution Date on which the outstanding principal balance of
the Notes is reduced to zero, 100% of the Principal Distribution Amount (less
any amount required on the first such Distribution Date to reduce the
outstanding principal balance on the Notes to zero, which shall be deposited in
the Note Distribution Account).
"Certificateholders' Percentage" means, for each Distribution Date, a
percentage equal to 100% minus the Noteholders' Percentage for such
Distribution Date.
"Certificateholders' Principal Carryover Shortfall" means, as of the
close of any Distribution Date, the excess of the Certificateholders' Monthly
Principal Distributable Amount and any outstanding Certificateholders'
Principal Carryover Shortfall from the preceding Distribution Date, over the
amount in respect of principal that is actually deposited in the Certificate
Distribution Account.
"Certificate Balance" equals, initially, $ and, thereafter, equals the
initial Certificate Balance, reduced by all amounts allocable to principal
previously distributed to Certificateholders.
STATEMENTS TO SECURITYHOLDERS
37
<PAGE> 61
On or prior to each Distribution Date, the Servicer will prepare and
provide to the Indenture Trustee a statement to be delivered to the Noteholders
and to the Owner Trustee a statement to be delivered to the Certificateholders
on such Distribution Date. Such statements will be based on the information in
the related Servicer's Certificate setting forth certain information required
under the Trust Documents. Each such statement to be delivered to Noteholders
will include the following information as to the Notes, and each such statement
to be delivered to Certificateholders will include the following information as
to the Certificates, with respect to such Distribution Date or the period since
the previous Distribution Date, as applicable:
(i) the amount of the distribution allocable to interest
on or with respect to the Notes and the Certificates;
(ii) the amount of the distribution allocable to principal
on or with respect to the Notes and the Certificates;
(iii) the amount of the distribution payable pursuant to a
claim on the Note Policy or the Certificate Policy, as the case may
be, or out of amounts on deposit with the Collateral Agent;
(iv) the aggregate outstanding principal balance and the
Note Pool Factor for the Notes and the Certificate Balance and the
Certificate Pool Factor for the Certificates after giving effect to
all payments reported under (ii) above on such date;
(v) the Noteholders' Interest Carryover Shortfall, the
Noteholders' Principal Carryover Shortfall, the Certificateholders'
Interest Carryover Shortfall and the Certificateholders' Principal
Carryover Shortfall, if any, and the change in such amounts from the
preceding statement;
(vi) the amount of the Servicing Fee paid to the Servicer
with respect to the related Monthly Period or Periods, as the case may
be;
(vii) for each such date during the Funding Period, the
remaining Pre-Funded Amount; and
(viii) for the first such date that is on or immediately
following the end of the Funding Period, the amount of any remaining
Pre-Funded Amount that has not been used to fund the purchase of
Subsequent Receivables and is being passed through as payments of
principal on the Securities.
Each amount set forth pursuant to subclauses (i) through (vi) with
respect to Certificates or Notes will be expressed as a dollar amount per
$1,000 of the initial principal amount of the Notes or the initial Certificate
Balance, as applicable.
Unless and until Definitive Notes or Definitive Certificates are issued, such
reports will be sent on behalf of the Trust to Cede & Co., as registered holder
of the Notes and the Certificates and the nominee of DTC. Note Owners and
Certificate Owners may receive copies of such reports upon written request,
together with a certification that they are Note Owners or Certificate Owners,
as the case may be, and payment of any expenses associated with the
distribution of such reports, from the Indenture Trustee or Owner Trustee. See
"Reports to Securityholders" herein and "Reports to Securityholders" and
"Certain Information Regarding the Securities" in the accompanying Prospectus.
38
<PAGE> 62
Within the required period of time after the end of each calendar
year, the Indenture Trustee and the Owner Trustee, as applicable, will furnish
to each person who at any time during such calendar year was a Noteholder or
Certificateholder, a statement as to the aggregate amounts of interest and
principal paid to such Noteholder or Certificateholder, information regarding
the amount of servicing compensation received by the Servicer and such other
information as the Seller deems necessary to enable such Noteholder or
Certificateholder to prepare its tax returns. See "Certain Federal Income Tax
Consequences" herein.
THE POLICIES
NOTE POLICY
The following paragraphs summarize the material terms of the Note
Policy. This summary is qualified by reference to the provisions of the Note
Policy, a form of which has been filed as an exhibit to the Registration
Statement of which this Prospectus Supplement is a part.
[Description of the Note Policy to be added here.]
CERTIFICATE POLICY
The following paragraphs summarize the material terms of the
Certificate Policy. The summary is qualified by reference to the provisions of
the Certificate Policy, a form of which has been filed as an exhibit to the
Registration Statement of which this Prospectus Supplement is a part.
[Description of the Certificate Policy to be added here.]
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain federal income tax
consequences relating to the purchase, ownership, and disposition of the Notes
and the Certificates. The discussion is based upon the current provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), the Treasury
regulations promulgated thereunder, and judicial or ruling authority, all of
which are subject to change, which change may be retroactive.
[Specific disclosure to be added here if necessary.]
ERISA CONSIDERATIONS
Section 406 of ERISA, and/or Section 4975 of the Code, prohibits a
pension, profit-sharing or other employee benefit plan, as well as individual
retirement accounts and certain types of Keogh Plans (each a "Benefit Plan")
from engaging in certain transactions with persons that are "parties in
interest" under ERISA or "disqualified persons" under the Code with respect to
such Benefit Plan. A violation of these "prohibited transaction" rules may
result in an excise tax or other penalties and liabilities under ERISA and the
Code for such persons. Title I of ERISA also requires that fiduciaries of a
Benefit Plan subject to ERISA make investments that are prudent, diversified
(except if prudent not do so) and in accordance with governing plan documents.
Certain transactions involving the purchase, holding or transfer of
the Securities might be deemed to constitute prohibited transactions under
ERISA and the Code if assets of the Trust were deemed to be assets of a Benefit
Plan. Under a regulation issued by the United States Department of Labor (the
"Plan Assets Regulation"), the assets of the Trust would be treated as plan
assets of a Benefit Plan for the purposes of ERISA and the Code only if the
Benefit Plan acquires an "Equity
39
<PAGE> 63
Interest" in the Trust and none of the exceptions contained in the Plan Assets
Regulation is applicable. An equity interest is defined under the Plan Assets
Regulation as an interest other than an instrument which is treated as
indebtedness under applicable local law and which has no substantial equity
features. The Seller believes that the Notes should be treated as indebtedness
without substantial equity features for purposes of the Plan Assets Regulation.
However, without regard to whether the Notes are treated as an Equity Interest
for such purposes, the acquisition or holding of Notes by or on behalf of a
Benefit Plan could be considered to give rise to a prohibited transaction if
the Trust, the Owner Trustee or the Indenture Trustee, the owner of collateral,
or any of their respective affiliates is or becomes a party interest or a
disqualified person with respect to such Benefit Plan. In such case, certain
exemptions from the prohibited transaction rules could be applicable depending
on the type of circumstances of the plan fiduciary making the decision to
acquire a Note. Included among these exemptions are: Prohibited Transaction
Class Exemption ("PTCE") 90-1, regarding investments by insurance company
pooled separate accounts; PTCE 91-38 regarding investments by bank collective
investment funds; and PTCE 84-14, regarding transactions effected by "qualified
professional asset managers."
The Certificates may not be acquired by (a) an employee benefit plan
(as defined in Section 3(3) of ERISA) that is subject to the provisions of
Title I of ERISA, (b) a plan described in Section 4975(e)(1) of the Code or (c)
any entity whose underlying assets include plan assets by reason of a plan's
investment in the entity. By its acceptance of a Certificate, each
Certificateholder will be deemed to have represented and warranted that it is
not subject to the foregoing limitation. For additional information regarding
treatment of the Certificates under ERISA, see "ERISA Considerations" in the
accompanying Prospectus.
Employee benefit plans that are governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33)
of ERISA) are not subject to ERISA requirements.
A plan fiduciary considering the purchase of Notes should consult its
tax and/or legal advisors regarding whether the assets of the Trust would be
considered plan assets, the possibility of exemptive relief from the prohibited
transaction rules and other issues and their potential consequences.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement with respect to the Notes and the Certificates (the "Underwriting
Agreement"), the Seller has agreed to cause the Trust to sell to each of the
Underwriters named below (collectively, the "Underwriters"), and each of the
Underwriters has severally agreed to purchase, the principal amount of the
Notes and Certificates set forth opposite its name below.
<TABLE>
<CAPTION>
AUTOMOBILE RECEIVABLES--BACKED NOTES
PRINCIPAL
UNDERWRITERS AMOUNT
------------ ------
<S> <C>
$
Total $
</TABLE>
AUTOMOBILE RECEIVABLES--BACKED CERTIFICATES
40
<PAGE> 64
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITERS AMOUNT
------
<S> <C>
$
Total $
</TABLE>
The Seller has been advised by ______("_____"), as Representatives of
the several Underwriters, that the Underwriters propose initially to offer the
Notes to the public at the prices set forth herein, and to certain dealers at
such prices less the initial concession not in excess of % per Note. The
Underwriters may allow and such dealers may reallow a concession not in excess
of % per Note. After the initial public offering of the Notes, the public
offering price and such concessions may be changed.
The Seller has been advised by ______, as Representative of the several
Underwriters, that the Underwriters propose initially to offer the Certificates
(other than the Certificates to be sold to [the Seller] [NAFI] as described
under "The Trust--General" herein) to the public at the price set forth herein,
and to certain dealers at such price less the initial concession not in excess
of ___% per Certificate. The Underwriters may allow and such dealers may
reallow a concession not in excess of ___% per Certificate to certain other
dealers. After the initial public offering of the Certificates, the public
offering price and such concessions may be changed.
NAFI and the Seller have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended.
LEGAL MATTERS
Certain matters with respect to the validity of the Notes and the
Certificates and with respect to the federal income tax matters discussed under
"Certain Federal Income Tax Consequences" herein will be passed upon for the
Seller by Morrison & Foerster, New York, New York. The validity of the Notes
and the Certificates will be passed upon for the Underwriters by ______, [New
York, New York].
41
<PAGE> 65
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Term Page Term
---- ---- ----
Page
----
<S> <C>
Aggregate Principal Balance Dissolution Event
APR Distribution Date
Available Funds DTC
Backup Servicer Events of Default
Benefit Plan Exchange Act
Business Day Final Scheduled Distribution Date
Certificate Balance Final Scheduled Maturity Date
Certificate Distribution Account Financed Vehicles
Certificate Policy Funding Period
Certificate Prepayment Amount General Partners
Certificate Prepayment Premium Indenture
Certificateholders Indenture Trustee
Certificateholders' Distributable Indenture Collateral Agent
Amount Initial Cutoff Date
Certificateholders' Interest Initial Receivables
Carryover Shortfall Insurance Agreement
Certificateholders' Interest Insurance Agreement Indenture
Distributable Amount Cross Default
Certificateholders' Monthly Interest Interest Period
Distributable Amount Interest Rate
Certificateholders' Monthly Issuer
Principal Distributable Amounts Liquidated Receivable
Certificateholders' Percentage Loan
Certificateholders' Principal Mandatory Prepayment
Carryover Shortfall Mandatory Redemption
Certificateholders' Principal Monthly Period
Distributable Amount Moody's
Certificates Note Distribution Account
Closing Date Note Policy
Code Note Prepayment Amount
Collateral Agent Note Prepayment Premium
Collected Funds Noteholders
Collection Account Noteholders' Distributable AmountNoteholders'
Commission Interest Carryover
Credit Enhancement Fee Shortfall
Custodian Noteholders' Interest Distributable
Cutoff Date Amount
Dealer Agreements Noteholders' Monthly Interest
Dealer Assignments Distributable Amount
Dealers Noteholders' Monthly Principal
Designated Accounts Distributable Amount
Determination Date Noteholders' Percentage
Noteholders' Principal Carryover
Shortfall
Noteholders' Principal Distributable
Amount
</TABLE>
42
<PAGE> 66
Notes
Obligor
NAFI
Original Pool Balance
Owner Trustee
Pass-Through Rate
Plan Assets Regulation
Policies
Pre-Funded Amount
Pre-Funding Account
Principal Distribution Amount
PTCE Purchase Agreement
Purchase Agreements
Purchased Receivable
Rating Agencies
Receivable Files
Receivables
Receivables Pool
Record Date
Redemption Price
Repurchase Event
Requisite Reserve Amount
Reserve Account
S&P Sale and Servicing Agreement
Securities Security Insurer
Securityholders
Seller
Servicer
Servicer's Certificate
Subsequent Cutoff Date
Subsequent Purchase Agreement
Subsequent Receivables
Subsequent Transfer Agreement
Subsequent Transfer Date
Trust
Trust Agreement
Trust Documents
Trust Property
Underwriters
Underwriting Agreement
43
<PAGE> 67
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS,
AND ANY INFORMATION OR REPRESENTATION NOT CONTAINED HEREIN OR THEREIN MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY NAFI, THE SELLER OR ANY
UNDERWRITER. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN
OFFER OF ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH THE
PROSPECTUS SUPPLEMENT RELATES OR AN OFFER TO ANY PERSON IN ANY JURISDICTION
WHERE SUCH AN OFFER WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS NOR ANY SALES MADE HEREUNDER OR THEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE
IN THE AFFAIRS OF NAFI, THE SELLER OR ANY SECURITY HOLDER SINCE THE DATE
HEREOF.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PROSPECTUS SUPPLEMENT PAGE
<S> <C>
Reports to Securityholders....................................S-2
Incorporation of Certain Documents by Reference...............S-2
Summary of the Terms of the Securities........................S-3
Risk Factors..................................................S-14
The Trust.....................................................S-17
The Trust Property............................................S-18
The Receivables Pool..........................................S-19
The Security Insurer..........................................S-24
Description of the Notes......................................S-25
Description of the Certificates...............................S-27
Description of the Purchase Agreements and the Trust
Documents.....................................................S-30
The Policies..................................................S-38
Certain Federal Income Tax Consequences.......................S-39
ERISA Considerations..........................................S-39
Underwriting..................................................S-40
Legal Matters.................................................S-41
Index of Defined Terms........................................S-42
</TABLE>
PROSPECTUS
Available Information
Reports to Securityholders
Incorporation of Certain Documents by Reference
Prospectus Summary
Risk Factors
The Trusts
The Receivables
Yield and Prepayment Considerations
Pool Factor
Use of Proceeds
The Seller
National Auto Finance Company, Inc.
The Certificates
The Notes
Certain Information Regarding the Securities
Description of the Purchase Agreements and the
Trust Documents
Certain Legal Aspects of the Receivables
Certain Federal Income Tax Consequences
ERISA Considerations
Plan of Distribution
Index of Defined Terms
-------------------------
UNTIL ________________, 1997 ALL DEALERS EFFECTING TRANSACTIONS IN THE
NOTES OR THE CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION,
MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
NATIONAL AUTO FINANCE 1997-__ TRUST
$
% AUTOMOBILE RECEIVABLES-
BACKED NOTES
$
% AUTOMOBILE RECEIVABLES-
BACKED CERTIFICATES
NATIONAL FINANCE AUTO FUNDING TRUST
(SELLER)
NATIONAL AUTO FINANCE COMPANY, L.P.
(SERVICER)
FULL AND TIMELY PAYMENT OF THE NOTEHOLDERS' DISTRIBUTABLE AMOUNT AND THE
CERTIFICATEHOLDERS' DISTRIBUTABLE AMOUNT ON EACH DISTRIBUTION DATE IS
UNCONDITIONALLY AND IRREVOCABLY GUARANTEED PURSUANT TO A FINANCIAL GUARANTY
INSURANCE POLICY ISSUED BY
[LOGO]
-----------------------
PROSPECTUS SUPPLEMENT
-----------------------
<PAGE> 68
PROSPECTUS
NATIONAL AUTO AUTOMOBILE RECEIVABLES TRUSTS
AUTOMOBILE RECEIVABLES-BACKED CERTIFICATES
AUTOMOBILE RECEIVABLES-BACKED NOTES
________________________
NATIONAL FINANCIAL AUTO FUNDING TRUST
(Seller)
________________________
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, if specified in the related Prospectus
Supplement, one or more classes of Certificates, in each case 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, Inc. ("NAFI"). The assets of each
Trust (the "Trust Property") will include a pool of retail installment sale
contracts (the "Receivables") purchased by NAFI principally from motor vehicle
dealers and secured by new and used automobiles, light trucks, vans or
minivans, certain monies paid or payable thereunder on or after the Cutoff Date
set forth in the related Prospectus Supplement (the "Cutoff Date"), an
assignment of the security interest of NAFI 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 NAFI in the event of a breach of a representation or warranty
made by NAFI 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, NAFI, 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, NAFI, 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 24 HEREIN AND AS MAY BE SET FORTH IN THE RELATED
PROSPECTUS SUPPLEMENT.
________________________
THE CERTIFICATES REPRESENT INTERESTS IN AND THE NOTES REPRESENT OBLIGATIONS
OF THE RELATED TRUST AND DO NOT REPRESENT INTERESTS IN OR
OBLIGATIONS OF NAFI, THE SELLER OR ANY AFFILIATE
OF EITHER.
________________________
<PAGE> 69
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 JUNE 6, 1997.
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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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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. The Commission maintains a Web site that
contains reports, proxy and information statements, and other information
regarding registrants that file electronically with the Commission. The
address for such Web site is: http://www.sec.gov.
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 NAFI 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
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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,
Inc., One Park Place, Suite 200, 621 N.W. 53rd Street, Boca Raton, Florida
33487 (telephone (800) 999-7535).
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<PAGE> 73
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, Inc.
("NAFI"), 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
Delaware business trust
wholly owned by NAFI and
affiliates of NAFI. See "The
Seller."
Servicer . . . . . . . . . . . . . . . . . National Auto Finance
Company, Inc. See "NAFI."
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 . . . . . . . . . . . . . . NAFI may be terminated as
Servicer under certain
circumstances, at which time
the Backup Servicer specified
in the related Prospectus
Supplement (the "Backup
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<PAGE> 74
Servicer") will automatically
become the Servicer. See
"Description of the Purchase
Agreements and the Trust
Documents - 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
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<PAGE> 75
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
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
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<PAGE> 76
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.
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
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<PAGE> 77
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 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, the
outstanding Notes, if any, of
such series will be subject
to partial redemption on or
immediately following the end
of the Pre-Funding 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
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<PAGE> 78
Property") will include a
pool (the "Receivables Pool")
of retail installment sale
contracts (the "Receivables")
purchased or to be purchased
primarily from motor vehicle
dealers ("Dealers") by NAFI
and secured by new and used
automobile 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
interest of the NAFI
Transferor 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 NAFI against the Dealers
originating such Receivables
or the Originators from whom
NAFI acquired 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 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."
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<PAGE> 79
The Receivables of each
Trust will be purchased by
the Seller from NAFI and/or
one or more special-purpose
finance subsidiaries of NAFI
(each of NAFI and any such
subsidiary, in its capacity
as transferor of Receivables
to the Seller, a "NAFI
Transferor") pursuant to a
purchase agreement (the
"Purchase Agreement") between
the Seller and the applicable
NAFI 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
NAFI 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 NAFI upon the
occurrence of certain
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
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<PAGE> 80
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 Trustee, as
applicable, of an executed
assignment, the Trustee
and/or Indenture Trustee, as
applicable, will release from
the
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<PAGE> 81
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
Pre-Funding 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 NAFI's
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
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<PAGE> 82
series and ending on the date
set forth in the related
Prospectus Supplement (the
"Revolving Period") during
which no principal payments
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
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<PAGE> 83
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
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/or 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."
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<PAGE> 84
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 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. If 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. In its
capacity as subservicer, OFSA
will directly service the
Receivables and will collect
payments received on the
Receivables, engage in
collection efforts in respect
of past due
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<PAGE> 85
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 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 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.
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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. Either
the Servicer or a subservicer
will establish and maintain a
lockbox account (the "Lockbox
Account") with a bank or
other depository institution
(the "Lockbox Bank") to which
payments in respect of motor
vehicle installment debt
obligations and lease
obligations serviced by the
Servicer or such subservicer
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 account
or accounts as may be
specified in the related
Prospectus Supplement.
Unless otherwise 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 may be
commingled with collections
in respect of other motor
vehicle installment debt
obligations and/or lease
obligations serviced by the
Servicer or such subservicer.
Neither the Trustee nor the
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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, NAFI
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 NAFI pursuant to the
related Purchase Agreement
and will assign to the
Trustee the right to enforce
the representations and
warranties made by NAFI 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 NAFI to
the Seller under the Purchase
Agreement will be entitled to
require that NAFI 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
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<PAGE> 88
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 NAFI will at any time have
sufficient funds to satisfy
any such repurchase
requirement. Mandatory
repurchase by the Seller or
NAFI 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> 89
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 Suppleement. 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 Propectus
Suppleement, 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
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<PAGE> 90
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.
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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<PAGE> 91
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. Each Trust Agreement will
provide that either the Trustee or a custodian specified in the related
Prospectus Supplement will hold the Receivable Files on behalf of each Trust or
that NAFI or the Servicer will retain possession of such Receivable Files. 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 NAFI 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 NAFI 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 NAFI Transferor. However, if the NAFI 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 NAFI Transferor or the NAFI Transferor as
debtor-in-possession might argue that such sale of Receivables by the NAFI
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 NAFI were to become a debtor under any Insolvency Law,
a creditor or trustee in bankruptcy of NAFI or NAFI as debtor-in-possession
might argue that the assets and liabilities of the Seller should be
consolidated with the assets and liabilities of NAFI. The Seller has taken and
will take steps in structuring the transactions contemplated hereby and by
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<PAGE> 92
the related Prospectus Supplement that are intended to make it unlikely that
any such attempt to consolidate the Seller and NAFI 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 NAFI or a creditor
of NAFI were to take the view that NAFI and the Seller or the Trust should be
substantively consolidated or if a filing is made by or against the Seller
under any applicable bankruptcy or insolvency laws, then delays in payments on
the Securities or reductions in such payments could result.
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, NAFI 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 from the related Financed Vehicle.
The servicing of receivables of customers with such credit profiles
requires special skill and diligence. NAFI believes that its credit loss and
delinquency experience reflect in part its trained staff and collection
procedures. If NAFI is removed as Servicer, or if NAFI resigns or is terminated
as Servicer by the Security Insurer (as defined in the related Prospectus
Supplement), if any, then a backup servicer, if any, or other successor
servicer will agree to assume the obligations of successor servicer under the
related Sale and Servicing Agreement or the related Pooling and Servicing
Agreement. There can be no assurance, however, that collections with respect to
the Receivables would not be adversely affected by a change in servicer.
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.
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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 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. In connection with the sale of
the Receivables by the applicable NAFI Transferor to the Seller and by the
Seller to the Trust, NAFI and the Seller will make certain representations and
warranties regarding the characteristics of the Receivables and, in certain
circumstances, NAFI and the Seller are required to repurchase Receivables with
respect to which such representations or warranties are not true as of the date
made. There is no assurance, however, that NAFI or the Seller will have the
financial ability to effect any such repurchase obligation.
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 NAFI or the Seller 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
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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
NAFI commenced operations in October of 1994. Accordingly, its
historical delinquency, repossession and loss experience is limited. No
assurance can be given that the delinquency, repossession and loss experience
on the Receivables 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 Receivables. Violations
of certain of those laws may give rise to claims and defenses by an Obligor
under a Receivable 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 Receivable, thereby 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
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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 interest of the NAFI
Transferor in the Financed Vehicles securing the related Receivables; (v) an
assignment of the right to receive proceeds from the exercise of rights against
Dealers and Originators under agreements between NAFI and such Dealers and
Originators and the assignment of rights in respect of each related Receivable
from the applicable Dealer or Originator to NAFI; (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. A 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 in the related Prospectus Supplement and will not become
effective until acceptance of the appointment by the successor trustee.
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THE RECEIVABLES
GENERAL
Pursuant to the Purchase Agreements, the Seller will acquire the
Initial Receivables from NAFI and/or one or more special-purpose finance
subsidiaries of NAFI to which NAFI may have previously transferred such
Receivables (each of NAFI and any such subsidiary, in its a capacity as
transferor of Receivables to the Seller, a "NAFI Transferor"). NAFI 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 NAFI to the Indenture Trustee pursuant to the Indenture. See
"Description of the Purchase Agreements and the Trust Documents."
Each Receivable will have been purchased by NAFI either from a Dealer
pursuant to a Dealer Agreement (such Receivables, "Dealer Receivables") or as
part of an bulk acquisition from an Originator pursuant to an Originator
Agreement (such Receivables, "Portfolio Receivables").
Each Dealer makes representations and warranties with respect to each
motor vehicle retail installment sale contract purchased by NAFI 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, NAFI
has the right under the applicable Dealer Agreement (which rights will be
assigned to the Seller by the NAFI Transferor 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 NAFI upon a breach
of representations or warranties made therein with respect to such Receivables
could adversely impact NAFI'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 NAFI has
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
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
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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 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, NAFI 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 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.
Dealer Receivables
Each Dealer Receivable has been or will be purchased by NAFI 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.
NAFI 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. NAFI 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. NAFI 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 NAFI's general underwriting
guidelines. NAFI utilizes a proprietary credit scoring system initially
developed by Fair, Isaac and Company, Inc. to assist it in determining a
customer's creditworthiness. Among other requirements, NAFI generally requires
that each Obligor make a minimum 10% downpayment on the purchase price of the
vehicle. In addition to evaluating the loan applicant's ability to make
payments on the auto loan and to service its other consumer debt obligations,
NAFI considers the value of the car in relation to the amount of the loan
requested. Although NAFI does not adhere to any specific loan-to-value ratios,
the
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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, NAFI will request additional
supporting information or discuss possible changes to the terms of a Dealer
Receivable that would allow it to be purchased in accordance with NAFI's
standards. NAFI allows 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 NAFI's
portfolio of motor vehicle retail installment sale contracts meet all of its
requirements.
If NAFI decides to purchase a Dealer Receivable, it reviews the actual
Receivable submitted for purchase and the required supporting documentation. In
addition, NAFI verifies that the Obligor on the Dealer Receivable has obtained
a comprehensive and collision insurance policy naming NAFI 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 such insurance. Accordingly no
assurance can be given as to the extent to which any such Receivables are
covered by any such insurance.
Portfolio Receivables
NAFI periodically acquires portfolios of motor vehicle installment
sale contracts in bulk from Originators whose underwriting guidelines and
market orientation are similar to NAFI's. NAFI has established relationships
with several Originators pursuant to which NAFI intends to make bulk purchases
of motor vehicle installment sale contracts on a monthly or quarterly basis.
In evaluating a potential bulk acquisition of motor vehicle retail
installment sale contracts NAFI reviews the prospective seller's written
underwriting guidelines and other documentation regarding its origination
program. If NAFI determines that the seller's underwriting guidelines and
origination program are sufficiently similar to NAFI's, employees of NAFI
proceed to conduct on-site reviews of each receivable file, including the sales
contract, the certificate of title or application therefor, proof of
comprehensive and collision insurance coverage and the credit application and
payment history of the related obligor, and assess, among other things, the
completeness of the receivable files, the concurrence of information within
each file, the conformity of the receivables with NAFI's portfolio acquisition
program guidelines and the seller's compliance with its own written
underwriting guidelines. However, unless fewer than four monthly payments have
been made with respect to a motor vehicle retail installment sale contract,
NAFI generally does not review the residency and employment history of the
obligors, obtain current credit reports from independent credit bureaus or
conduct certain other procedures that would constitute a
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reunderwriting of the receivables in accordance with NAFI's general
underwriting guidelines applicable to Dealer Receivables.
Portfolio Receivables acquired by NAFI may be originated by
Originators with varying underwriting guidelines that, although similar to the
underwriting guidelines observed by NAFI in connection with its acquisition of
Dealer Receivables, may be materially less stringent in certain respects.
However, based on its experience with its own portfolio of receivables and its
knowledge of the industry as a whole, NAFI believes that seasoning and payment
history are highly predictive of future obligor performance in the non-prime
motor vehicle finance sector. Accordingly, NAFI will acquire Portfolio
Receivables on the basis of seasoning and a superior payment history
notwithstanding that the underwriting guidelines of the seller are not as
stringent as NAFI's underwriting guidelines with respect to Dealer Receivables.
NAFI's portfolio acquisition program guidelines therefore place significant
emphasis on prior payment history, generally requiring that with respect to
each receivable (i) a minimum of four payments have been made by the obligor,
(ii) no payment has been 30 days or more past due, (iii) as of the date of
acquisition by NAFI the current payment is less than 15 days past due, (iv) no
payment tendered by the obligor on the receivable has been returned for
insufficiency of funds, (v) the obligor has not been involved in any bankruptcy
proceeding since entering into the retail installment sale contract, (vi) the
financed vehicle has not been repossessed and redeemed since the acquisition
financed by the retail instllment sale contract and (vii) the financed vehicle
as of the date of acquisition of the Portfolio Receivable by NAFI is not
greater than seven years old.
The Originator Agreements generally provide for the sale of such
retail installment sale contracts to NAFI without recourse to the Originator,
and accordingly, the Originator generally has no liability to NAFI if the
Obligor defaults on the Receivable. The liability of the Originator to NAFI
under the Originator Agreement is generally limited to its repurchase
obligation in respect of certain limited representations and warranties made
with respect to the Portfolio Receivables.
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 Security
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
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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
sale 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,
re-registering 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 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
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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 NAFI'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 NAFI's 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
The Receivables will be selected from NAFI's portfolio of Receivables
by several criteria, including that each Receivable (a) is secured by a new or
used automobile, light-duty truck, van or minivan, (b) was not more than 30
days delinquent as of its Cut-off Date and (c) satisfies the other criteria set
forth herein. See "Description of the Purchase Agreements and Trust
Documents,Sale and Assignment of the Receivables."
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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 NAFI 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
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 Pre-Funding 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, (iv) a
permitted refinancing of the related Financed Vehicle by the Obligor, or (v)
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
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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 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
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NAFI Transferors the purchase price for the Receivables and to make the deposit
of the Pre-Funded 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 NAFI Transferors will be used to reduce indebtedness under warehouse
loans or other interim financing sources, and any additional proceeds will be
added to NAFI's general funds and used for its general corporate purposes. See
"National Auto Finance Company, Inc."
THE SELLER
National Financial Auto Funding Trust (the "Seller") is a Delaware
business trust 100% of the beneficial ownership of which is owned by NAFI or
affiliates of NAFI. 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
(800) 999-7535.
NATIONAL AUTO FINANCE COMPANY, INC.
NAFI will act as master servicer (in such capacity, the "Servicer") of
the Receivables in each Trust pursuant to the related Trust Documents.
GENERAL
NAFI is a corporation organized under the laws of the State of
Delaware. Prior to January 1997 the business of NAFI was conducted by two
affiliated limited partnerships: National Auto Finance Company L.P., organized
under the laws of the State of Delaware in September 1994, and Auto Credit
Clearinghouse L.P., organized under the laws of the State of Delaware in
September 1995. NAFI was incorporated in October 1996.
The principal business of NAFI is to acquire from automobile dealers
and service motor vehicle retail installment sale and lease contracts. NAFI'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.
NAFI is an automotive finance company engaged primarily in the
indirect financing (by the purchase of motor vehicle retail installment sale
contracts from automotive Dealers or other companies engaged in the financing
of 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
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associated with non-prime motor vehicle retail installment sale contracts, NAFI
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.
NAFI 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. NAFI 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 NAFI without recourse
to the Dealer, and accordingly, the Dealer generally has no liability to NAFI
if the Obligor defaults on the Receivable. In addition, NAFI purchases bulk
portfolios of motor vehicle retail isntallment sales contracts from consumer
finance companies, depository institutions and other financial institutions
engaged in the financing of motor vehicle retail installment sale contracts
(each, an "Originator") pursuant to asset purchase agreements ("Originator
Agreements"). From time to time, NAFI may determine to commence business in
additional jurisdictions or cease doing business in any state in which it
presently does business. In certain cases NAFI 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.
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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.
Each Obligor is required to obtain insurance with respect to the
financed vehicle. However, the Servicer does not monitor the maintenance of
insurance coverage and, in the event the Servicer becomes aware of a lapse in
insurance coverage, does not currently force place insurance. The Servicer
does, however, maintain supplemental vendor's single interest insurance that
protects the Servicer's interest in financed vehicles against uninsured
physical damage (including total loss) and instances where neither the vehicle
nor the borrower can be located.
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 with respect to the Seller's portfolio of motor vehicle
retail installment sale 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. The Servicer is currently considering its options
with respect to developing its own servicing capability and enhancing its
management information systems.
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
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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, NAFI 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 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 - Book-Entry
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
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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 Pass-Through 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.
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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 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
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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.
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, Inc., 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.
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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 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,
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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 Distribution Date, if any, for such class specified in the
related Prospectus Supplement) will generally be determined by amounts
available to be deposited in the Note Distribution Account for such Payment
Date. Therefore, unless otherwise specified in the related Prospectus
Supplement, the failure to pay principal on a class of Notes generally will not
result in the occurrence of an Event of Default unless such class of Notes has
a Final Scheduled Distribution Date, and then not until such Final Scheduled
Distribution Date for such class of Notes. Unless otherwise specified in the
related Prospectus Supplement, 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.
Unless otherwise specified in the related Prospectus Supplement, 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 (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
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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, trustees, 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
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
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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
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obligated to appoint a successor trustee acceptable to the Security Insurer, if
any (prior to an 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
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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 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.
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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.
BOOK-ENTRY FACILITIES
Certificate Owners and Note Owners may elect to hold their interests
in the Securities through DTC in the United States or through CEDEL or
Euroclear in Europe, if they are participants of such systems, or indirectly
through organizations which are participants in such systems. The Securities
of each class will be issued in one or more certificates which equal the
aggregate principal balance of such class and will initially be registered in
the name of Cede, the nominee of DTC. CEDEL and Euroclear will hold omnibus
positions on behalf of their participants through customers' securities
accounts in CEDEL's and Euroclear's names on the books of their respective
depositaries which in turn will hold such positions in customers' securities
accounts in the depositaries' names on the books of DTC. Citibank will act as
depositary for CEDEL and Morgan will act as depositary for Euroclear (in such
capacities, individually the "Relevant Depositary" and collectively the
"European Depositaries").
Because of time zone differences, credits of securities received in
CEDEL or Euroclear as a result of a transaction with a Participant will be made
during subsequent securities settlement processing and dated the Business Day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear Participants or CEDEL Participants (each as defined below) on such
Business Day. Cash received in CEDEL or Euroclear as a result of sales of
securities by or through a CEDEL Participant or Euroclear Participant to a
Participant will be received with value on the DTC settlement date but will be
available in the relevant CEDEL or Euroclear cash account only as of the
business day following settlement in DTC. For information with respect to tax
documentation procedures relating to the Securities, see Annex I hereto,
"Global Clearance, Settlement and Tax Documentation Procedures".
Transfers between Participants will occur in accordance with DTC
rules. Transfers between CEDEL Participants and Euroclear Participants will
occur in accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected by DTC
in accordance with the Rules on behalf of the relevant
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European international clearing system by the Relevant Depositary; however,
such cross market transactions will require delivery of instructions to the
relevant European international clearing system by the counterparty in such
system in accordance with its rules and procedures and within its established
deadlines (European time). The relevant European international clearing system
will, if the transaction meets its settlement requirements, deliver
instructions to the Relevant Depositary to take action to effect final
settlement on its behalf by delivering or receiving securities in DTC, and
making or receiving payment in accordance with normal procedures for same day
funds settlement applicable to DTC. CEDEL Participants and Euroclear
Participants may not deliver instructions directly to the European
Depositaries.
DTC, which is a New York-chartered limited purpose trust company,
performs services for its Participants, some of which (and/or their
representatives) own DTC. In accordance with its normal procedures, DTC is
expected to record the positions held by each DTC participant in the
Securities, whether held for its own account or as a nominee for another
person. In general, beneficial ownership of Securities will be subject to the
rules, regulations and procedures governing DTC and its Participants as in
effect from time to time.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes
in accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, CEDEL is subject to regulation by the
Luxembourg Monetary Institute. CEDEL participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to CEDEL is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a CEDEL Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 32 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of
Morgan Guaranty Trust Company of New York (the "Euroclear Operator"), under
contract with Euroclear Clearance Systems S.C., a Belgian cooperative
corporation (the "Cooperative"). All operations are conducted by the Euroclear
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Operator, and all Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not the Cooperative. The
Cooperative establishes policy for Euroclear on behalf of Euroclear
Participants. Euroclear Participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries.
Indirect access to Euroclear is also available to other firms that clear
through or maintain a custodial relationship with a Euroclear Participant,
either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear
and the related Operating Procedures of the Euroclear System and applicable
Belgian law (collectively, the "Terms and Conditions"). The Terms and
Conditions govern transfers of securities and cash within Euroclear,
withdrawals of securities and cash from Euroclear, and receipts of payments
with respect to securities in Euroclear. All securities in Euroclear are held
on a fungible basis without attribution of specific certificates to specific
securities clearance accounts. The Euroclear Operator acts under the Terms and
Conditions only on behalf of Euroclear Participants, and has no record of or
relationship with persons holding through Euroclear Participants.
Under a book-entry format, Certificate Owners and Note Owners
may experience some delay in their receipt of payments, since such payments
will be forwarded by the Trustee to Cede. Distributions with respect to Notes
held through CEDEL or Euroclear will be credited to the cash accounts of CEDEL
Participants or Euroclear Participants in accordance with the relevant system's
rules and procedures, to the extent received by the Relevant Depositary. Such
distributions will be subject to tax reporting in accordance with relevant
United States tax laws and regulations. Since transactions in the Book-Entry
Notes will be effected only through DTC, CEDEL, Euroclear, participating
organizations, indirect participants and certain banks, the ability of a
Beneficial Owner to pledge Notes to persons or entities that do not participate
in the DTC, CEDEL or Euroclear systems, or otherwise to take actions in respect
of such Notes, may be limited due to lack of a physical certificate
representing such Notes. In addition, issuance of the Book-Entry Notes in
book-entry form may reduce the liquidity of such Notes in the secondary market
since certain potential investors may be unwilling to purchase Notes for which
they cannot obtain physical certificates.
DTC has advised the Seller and the Trustee that, unless and until
Definitive Notes are issued, DTC will take any action permitted to be taken by
the holders of the Book-Entry Notes under the Pooling and Servicing Agreement
only at the direction of one or more Participants to whose DTC accounts the
Book-Entry Notes are credited, to the extent that such actions are taken on
behalf of Indirect Participants whose holdings include such Book-Entry Notes.
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CEDEL or the Euroclear Operator, as the case may be, will take any other action
permitted to be taken by a Noteholder under the Pooling and Servicing Agreement
on behalf of a CEDEL Participant or Euroclear Participant only in accordance
with its relevant rules and procedures and subject to the ability of the
Relevant Depositary to effect such actions on its behalf through DTC. DTC may
take actions, at the direction of the related Participants, with respect to
some Notes which conflict with actions taken with respect to other Notes.
Although DTC, CEDEL and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Notes among participants of DTC,
CEDEL and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
STATEMENTS TO SECURITYHOLDERS
On or prior to each Distribution Date, the Servicer will prepare and
provide to the Trustee and the Security Insurer, if any, a statement to be
delivered to the related Certificateholders on such Distribution Date. 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:
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(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 aggregate outstanding principal balance
and Pool Factors for each class of Securities, 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 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."
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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.
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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 NAFI 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, Inc., 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.
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 NAFI Transferor
(and, if such NAFI Transferor is a special-purpose finance subsidiary of NAFI,
NAFI) will enter into a Purchase Agreement with the Seller pursuant to which
such NAFI 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, NAFI 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 NAFI 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
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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, NAFI will warrant to the Seller, the
Trustee and the Security Insurer, if any, and in the Trust Documents, the
Seller will warrant to the Trustee and the Security Insurer, if any, 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 NAFI in
the Financed Vehicle (and, within 180 days after the Closing Date, all title
documents to the Financed Vehicles will show NAFI as first lienholder), which
security interest has been validly assigned by NAFI 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 NAFI from such
Dealer under an existing Dealer Agreement with NAFI or from an Originator
pursuant to an Originator Agreement and was validly assigned to NAFI (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 NAFI 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, 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 NAFI and (B) as of the Closing 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
Closing Date, no Financed Vehicle has been repossessed; (vii) immediately prior
to the conveyance of the Receivables to the Seller, the applicable NAFI
Transferor 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
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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 or Originator has a participation in or other right
to receive proceeds of any Receivable, and neither the applicable NAFI
Transferor 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 applicable NAFI Transferor nor
the Seller has done anything to convey any right to any person that would
impair the rights of the Trust, the Security Insurer, if any, the
Certificateholders or the Noteholders in any Receivable or the proceeds
thereof; (x) each Receivable was sold by a Dealer or Originator to NAFI without
any fraud or misrepresentation on the part of such seller; (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 NAFI 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 and the proceeds thereof 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 NAFI
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 NAFI (the "Electronic Ledger") relating to the Receivables will have been
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
NAFI 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
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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, and the operation of the terms of any Receivable or
the exercise of any right thereunder will not render such Receivable
unenforceable in whole or in part or subject to any right of rescission,
set-off, defense or counterclaim, and no such right of rescission, set-off,
defense or counterclaim has been asserted; (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 NAFI 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 NAFI 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 NAFI being
a "Repurchase Event"), NAFI, unless it cures the breach within the time period
specified in the related Purchase Agreement following the date on which NAFI
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 NAFI or the Seller for any such uncured breach, except that
pursuant to the Trust Documents, NAFI 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 NAFI of a Warranty Receivable, the Trustee will
convey such Receivable and the related Trust Property to NAFI.
CUSTODY OF RECEIVABLE FILES
Unless otherwise specified in the related Prospectus Supplement, OFSA
as designee of NAFI under a Custodial Agreement, on behalf of each Trust, will
hold the original installment sale 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, NAFI 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, NAFI will be
appointed to act as custodian for the Receivable Files of each Trust. The Trust
and NAFI or such other institution specified in the related Prospectus
Supplement, as the case may be, may enter into a custodial agreement pursuant
to which NAFI 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 NAFI is custodian, by the Security Insurer, on 30 days'
notice to NAFI or such other institution or, in the case of termination by the
Security Insurer of NAFI as custodian, immediately. If NAFI resigns or is
terminated as the Servicer, any custodial agreement with NAFI shall terminate
at the same time.
The Receivable Files, if held by NAFI 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
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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 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 and the Security
Insurer, if any. 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
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Rating Agency of the rating(s) then assigned to the Securities. NAFI and the
Servicer will also deposit into the Collection Account within the time period
specified in the related Prospectus Supplement the Purchase Amount of each
Warranty Receivable or Administrative Receivable to be purchased by it.
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 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
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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 (as
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.
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
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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 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.
NAFI, 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
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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.
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EVIDENCE AS TO COMPLIANCE
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 known 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,
NAFI'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 NAFI'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, NAFI'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
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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 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
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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
"Servicer Termination Events" under the Trust Documents will consist
of, among other things (except as otherwise provided in the related Prospectus
Supplement), (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 NAFI 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 NAFI 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 with respect to the Servicer or the Seller, 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
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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 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
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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 sale 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 sale 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.
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AMENDMENT
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,
NAFI or the Servicer) reasonably satisfactory to the Trustee, the Security
Insurer, if any, 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
Pass-Through 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
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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 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 and the Security Insurer, if any, 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 Termination Event, and the
right to waive defaults under the Trust Documents.
THE TRUSTEE
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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 Default). The Seller, or if so
specified in the related Prospectus Supplement, the Servicer may also remove the
Trustee, with the prior written 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
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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 NAFI 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 NAFI to perform such obligations. The 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 (the "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.
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CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
The following discussion contains summaries of certain legal aspects of
consumer motor vehicle retail installment sale contracts that are general in
nature. Because such legal aspects are governed by applicable state law (which
laws may differ substantially), the summaries do not purport to be complete nor
to reflect the laws of any particular state, nor to encompass the laws of all
states in which the security for the Receivables is located. The summaries are
qualified in their entirety by reference to the applicable federal and state
laws governing the Receivables and the Financed Vehicles.
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 NAFI Transferors 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. NAFI 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 NAFI 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, Security Insurer's (if any),
Certificateholders' or Noteholders' interest in any Receivable (a "Repurchase
Event"), NAFI will be obligated to repurchase such Receivable.
Unless otherwise specified in the related Prospectus Supplement, OFSA
as designee of NAFI under a Custodial Agreement, on behalf of each Trust, will
hold the original installment sale 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, NAFI 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
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Receivables and the related Trust Property. If held by OFSA, the Receivable
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 NAFI 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 NAFI 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 NAFI 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 NAFI
Transferor 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
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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 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, the Security
Insurer, if any, Noteholders or Trust were materially and adversely affected.
In most states, a perfected security interest 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 NAFI 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, NAFI 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, the Security Insurer, if any, 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 NAFI
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 NAFI) as secured party.
However, liens for taxes, judicial liens or liens arising by operation of law
could arise at any
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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 NAFI nor the
Servicer will be required to repurchase or purchase the related Receivable.
REPOSSESSION
In the event of default by an Obligor, the owner of a retail
installment sale 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 NAFI 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 indemnify 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.
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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. NAFI 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.
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 sale 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
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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.
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 sale 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.
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The Seller will warrant in the related Trust Document (and NAFI 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
NAFI to repurchase the Receivable unless the breach were cured. Under each
Purchase Agreement, NAFI 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 is a general summary of certain anticipated material
federal income tax consequences of the purchase, ownership and disposition of
the Notes and the Certificates of any series thereof. This summary is directed
solely to prospective investors that hold the 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 (e.g., banks,
insurance companies, foreign investors), some of whom may be subject to special
rules. Further, the authorities on which this discussion, and the opinion
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 are urged to consult with their own tax advisors and tax
return
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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, NAFI 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. Each Trust
will be provided with an opinion of special federal tax counsel to each Trust
specified in the related Prospectus Supplement ("Federal Tax Counsel"),
regarding certain federal income tax matters discussed below. An 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.
The federal income tax consequences to Certificateholders will vary
depending on whether (i) an election is made to treat the Trust as a partnership
under the Code, (ii) all the Certificates are retained by the Seller or an
affiliate thereof, or (iii) whether the Trust will be treated as a grantor trust
under the Code. The Prospectus Supplement for each series of Certificates will
specify which of the above situations applies.
TRUSTS FOR WHICH A PARTNERSHIP ELECTION IS MADE
TAX CHARACTERIZATION OF OWNER TRUSTS
Federal Tax Counsel will deliver its opinion that a Trust for which a
partnership election is made will not be an association (or publicly traded
partnership) taxable as a corporation for federal income tax purposes. This
opinion will be based on the assumption that the terms of the Trust Agreement
and related documents will be complied with, and on Federal Tax Counsel's
conclusions that the nature of the income of the Trust will exempt it from the
rule that certain publicly traded partnerships are taxable as corporations.
If an Owner Trust were taxable as a corporation for federal income tax
purposes, such Trust would be subject to corporate income tax on its taxable
income. The Trust's taxable
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income would include all its income on the Receivables, possibly reduced by its
interest expense on the Notes, if any. Any such corporate income tax could
materially reduce cash available to make payments on the Notes, if any, and
distributions on the Certificates, and Certificateholders could be liable for
any such tax that is unpaid by the Trust.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES
General. The following discussion only applies to a Trust which elects
to be treated as a partnership and issues one or more classes of Notes.
Furthermore, the following discussion assumes that all payments on the Notes are
denominated in U.S. dollars and that any such Notes are sold to persons other
than the Seller. If these conditions are not satisfied with respect to any given
series of Notes, any additional tax considerations with respect to such Notes
will be disclosed in the applicable Prospectus Supplement.
Treatment of the Notes as Indebtebtedness. The Seller will agree and
the Noteholders will agree, by their purchase of Notes, to treat the Notes as
debt for federal income tax purposes. Federal Tax Counsel will, except as
otherwise provided in the related Prospectus Supplement, advise the Trust that
the Notes will be classified as debt for federal income tax purposes. The
discussion below assumes this characterization of the Notes is correct.
OID, Etc. The discussion below assumes that all payments on the Notes
are denominated in U.S. dollars and that the Notes are not Strip Notes.
Moreover, the discussion assumes that the interest formula for the Notes meets
the requirements for "qualified stated interest" under the Treasury regulations
(the "OID regulations") relating to original issue discount ("OID"), and that
any OID on the Notes (i.e, any excess of the principal amount of the Notes over
their issue price) does not exceed a de minimis amount (i.e., 1/4% of their
principal amount multiplied by the number of full years included in their term),
all within the meaning of the OID regulations. If these conditions are not
satisfied with respect to any given series of Notes, additional tax
considerations with respect to such Notes will be disclosed in the applicable
Prospectus Supplement.
Interest Income on the Notes. Based on the above assumptions, except as
discussed in the following paragraph, the Notes will not be considered issued
with OID. The stated interest thereon will be taxable to a Noteholder as
ordinary interest income when received or accrued in accordance with such
Noteholder's method of tax accounting. Under the OID regulations, a holder of a
Note issued with a de minimis amount of OID must include such OID in income, on
a pro rata basis, as principal payments are made on the Note, and that any
prepayment premium paid as a result of a mandatory redemption will be taxable as
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 Noteholder 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
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companies, as set forth in Section 1281 of the Code) generally would be required
to report interest income as interest accrues on a straight-line basis over the
term of each interest period. Other cash basis holders of Short-Term Notes
would, in general, be required to report interest income as interest is paid
(or, if earlier, upon the taxable disposition of the Short-Term Note). However,
a cash basis holder of a Short-Term Note reporting interest income as it is paid
may be required to defer a portion of any interest expense otherwise deductible
on indebtedness incurred to purchase or carry the Short-Term Note until the
taxable disposition of the Short-Term Note. A cash basis taxpayer may elect
under Section 1281 of the Code to accrue interest income on all nongovernment
debt obligations with a term of one year or less, in which case the taxpayer
would include interest on the Short-Term Note in income as it accrues, but would
not be subject to the interest expense deferral rule referred to in the
preceding sentence. Certain special rules apply if a Short-Term Note is
purchased for more or less than its principal amount.
Sale or Other Disposition. If a Noteholder sells a Note, the
holder will recognize gain or loss in an amount equal to the difference between
the amount realized on the sale and the holder's adjusted tax basis in the Note.
The adjusted tax basis of a Note to a particular Noteholder will equal the
holder's cost for the Note, increased by any market discount, OID and gain
previously included by such Noteholder in income with respect to the Note (if
any) and decreased by the amount of bond premium previously amortized (if any)
and by the amount of principal payments previously received by such Noteholder
(if any) with respect to such Note. Any such gain or loss will be capital gain
or loss if the Note was held as a capital asset, except for gain representing
accrued interest and accrued market discount not previously included in income.
Capital losses generally may be used only to offset capital gains.
Foreign Holders. Interest payments made (or accrued) to a Noteholder
who is a nonresident alien, foreign corporation or other non-United States
person (a "foreign person") generally will be considered "portfolio interest",
and generally will not be subject to United States federal income tax and
withholding tax, if the interest is not effectively connected with the conduct
of a trade or business within the United States by the foreign person and the
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.
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Any capital gain realized on the sale, redemption, retirement
or other taxable disposition of a Note by a foreign person will be exempt from
United States federal income and withholding tax, provided that (i) such gain is
not effectively connected with the conduct of a trade or business in the United
States by the foreign person and (ii) in the case of an individual foreign
person, the foreign person is not present in the United States for 183 days or
more in the taxable year.
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 interests in the Trust. If so treated, the Trust
might be treated as a publicly traded partnership taxable as a corporation with
the adverse consequences described above and, as a publicly traded partnership
taxable as a corporation, would not be able to reduce its taxable income by
deductions for interest expense on Notes recharacterized as equity.
Alternatively, and most likely in the view of Federal Tax Counsel, the Trust
might be treated as a publicly traded partnership that would not be taxable as a
corporation because it would meet certain qualifying income tests. Nonetheless,
treatment of the Notes as equity interests in such a publicly traded partnership
could have adverse tax consequences to certain holders. For example, income to
certain tax-exempt entities (including pension funds) would be "unrelated
business taxable income," income to foreign holders generally would be subject
to U.S. tax and U.S. tax return filing and withholding requirements, and
individual holders might be subject to certain limitations on their ability to
deduct their share of Trust expenses.
TAX CONSEQUENCES TO CERTIFICATEHOLDERS ISSUED BY AN OWNER TRUST
Treatment of the Trust as a Partnership. The Seller and the Servicer
will agree, and the Certificateholders will agree by their purchase of
Certificates, to treat the Trust as a partnership for purposes of federal and
state income tax, franchise tax and any other tax measured in whole or in part
by income, with the assets of the partnership being a Trust, the partners of the
partnership being the Certificateholders (including the Seller), and the Notes,
if any, being debt of the partnership. However, the proper characterization of
the arrangement involving the Trust, the Certificates, the Notes, if any, the
Seller and the Servicer is not clear because there is no authority on
transactions closely comparable to that contemplated herein.
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A variety of alternative characterizations are possible. For example,
because the Certificates have certain features characteristic of debt, the
Certificates might be considered debt of the Seller or the Trust. Any such
characterization would not result in materially adverse tax consequences to
Certificate Owners 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, that all payments on the Certificates are denominated in U.S.
dollars, none of the Certificates are 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 allocable 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, OID, 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 Agreement and related documents). The Trust Agreement will
generally provide 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 any amortization by the Trust of premium on Receivables that
corresponds to any excess of the issue price of Certificates over their
principal amount. All remaining taxable income of the Trust will be allocated to
the Seller. Based on the economic arrangement of the parties, this approach for
allocating Trust income should be permissible under applicable Treasury
regulations, although no assurance can be given that the IRS would not require a
greater amount of income to be allocated to Certificateholders. Moreover, even
under the foregoing method of allocation, Certificateholders may be allocated
income equal to the entire 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
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will in effect be required to report income from the Certificates on the accrual
basis, and 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. Such miscellaneous itemized deductions are allowed only to the
extent they exceed, in the aggregate, 2% of an individual's adjusted gross
income. Furthermore, Section 68 of the Code provides that itemized deductions
otherwise allowable for a taxable year of an individual taxpayer whose adjusted
gross income exceeds a specified amount will be reduced by the lesser of (i) 3%
of the excess, if any, of adjusted gross income over such amount, or (ii) 80% of
the amount of itemized deductions otherwise allowable for such year.
Accordingly, such deductions might be disallowed to such individual in whole or
in part and might result in such holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to such holder over the life of
the Trust.
The Trust intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each 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 OID, and, therefore, the Trust should not have OID 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.)
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.
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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
have contributed all of its assets 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 Trust in liquidation thereof, which would not
constitute a sale or exchange.
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.
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.
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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 Certificateholder's adjusted basis in the Certificate. To
the extent that the amount of money distributed exceeds such 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 generally be capital gain or loss.
Section 754 Election. In the event that a Certificateholder sells its
Certificate at a profit (or loss), the purchasing Certificateholder will have a
higher (lower) basis in the Certificate 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 Certificateholder's allocable share of items of Trust
income and expense to holders and the IRS on Schedule K-1. The Trust will
provide the Schedule K-1 information to nominees that fail to provide the Trust
with the information statement described below and such nominees will be
required to forward such information to the beneficial owners of the
Certificates. Generally, holders must file tax returns that are consistent with
the information return filed by the Trust or be subject to penalties unless the
holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust with
a statement containing certain information on the nominee, the beneficial owners
and the Certificates so held. Such information includes (i) the name, address
and taxpayer identification number of the nominee and (ii) as to each beneficial
owner (x) the name, address and identification number of such person, (y)
whether such person is a United States person, a tax-exempt entity or a foreign
government, an international organization, or any wholly owned agency or
instrumentality of either of the foregoing, and (z) certain information on
Certificates that were held, bought or sold on behalf of such person throughout
the year. In addition, brokers and financial institutions that hold Certificates
through a nominee are required to furnish directly to the Trust information as
to themselves and their ownership of Certificates. A clearing agency registered
under Section 17A of the 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
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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 foreign person.
Accordingly, no interest in a Certificate should be acquired by or on behalf of
any foreign persons 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 foreign persons who are partners 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 foreign persons
because there is no clear authority dealing with that issue under facts
substantially similar to those described herein. Although it is not expected
that the Trust would be engaged in a trade or business in the United States for
such purposes, the Trust will withhold as if it were so engaged in order to
protect the Trust from possible adverse consequences of a failure to withhold.
The Trust expects to withhold on the portion of its taxable income that is
allocable to foreign Certificateholders pursuant to Section 1446 of the Code, as
if such income were effectively connected to a U.S. trade or business, at a rate
of 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 Certificateholder's
withholding status, the Trust may rely on IRS Form W-8, IRS Form W-9, or the
holder's certification of nonforeign status signed under penalties of perjury.
Each foreign holder might be required to file a U.S. individual or
corporate income tax return (including, in the case of a corporation, the branch
profits tax) on its share of the Trust's income. Each foreign holder must obtain
a taxpayer identification number from the IRS and submit that number to the
Trust on Form W-8 in order to assure appropriate crediting of the taxes
withheld. A foreign holder generally would be entitled to file with the IRS a
claim for refund with respect to taxes withheld by the Trust, taking the
position that no taxes were due because the Trust was not engaged in a U.S.
trade or business. However, interest
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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 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 percent 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
If a partnership election is not made, Federal Tax Counsel will deliver
its opinion that the Trust will not be classified as an association taxable as a
corporation and that such Trust will be classified as a grantor trust under
subpart E, Part I of subchapter J of the Code. In this case, beneficial owners
of Certificates (referred to herein as "Grantor Trust Certificateholders") will
be treated for federal income tax purposes as owners of a portion of the Trust's
assets as described below. The Certificates issued by a Trust that is treated as
a grantor trust are referred to herein as "Grantor Trust Certificates."
Characterization. Each Grantor Trust Certificateholder will be treated
as the owner of a pro rata undivided interest in the interest and principal
portions of the Trust represented by the Grantor Trust Certificates and will be
considered the equitable owner of a pro rata undivided interest in each of the
Receivables and any other assets in the Trust. Any amounts received by a Grantor
Trust Certificateholder in lieu of amounts due with respect to any Receivable or
other asset in the Trust because of a default or delinquency in payment will be
treated for federal income tax purposes as having the same character as the
payments they replace.
TAXATION OF OWNERS OF GRANTOR TRUST CERTIFICATES
GENERAL. Grantor Trust Certificateholders 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. Because of stripped interests,
market or OID, 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
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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 Grantor Trust Certificateholders who are
subject to the limitations of either Section 67 or Section 68 of the Code may be
substantial. Further, individual Certificateholders 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 OID 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, a Grantor Trust Certificateholder (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 OID.
The OID 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 original 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
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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 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
the 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 OID and (ii) adjustments in the accrual of OID
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 OID in general and, in
particular, whether a prepayment assumption should be used in reporting OID 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
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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 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 OID, 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 OID rules will apply to a Grantor Trust Certificate
to the extent it evidences an interest in Receivables issued with OID.
The OID, 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, and--in the case of Receivables bearing
adjustable or variable interest rates--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.
Notwithstanding the general definition of OID, OID will be considered
to be de minimis if such OID 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, OID of only a de minimis amount (other
than de minimis OID attributable to a so-called "teaser" rate or initial
interest holiday) will be included in income as each payment of
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stated principal price is made, based on the product of the total amount of such
de minimis OID 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 OID into income currently based on a constant yield method.
See " - TAXATION OF OWNERS OF GRANTOR TRUST CERTIFICATES - Market Discount"
below.
If OID is in excess of a de minimis amount, all OID 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 OID. 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 OID 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 OID 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 OID 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 OID 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 OID 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 OID 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
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with respect to OID 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 OID, at a
purchase price less than its remaining stated redemption price or in the case of
a Receivable issued with OID, 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 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 OID) 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 OID, 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 OID, in an amount that bears the same
ratio to the total remaining market discount as the OID accrued in the accrual
period bears to the total OID remaining at the beginning of the accrual period.
The prepayment assumption, if
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any, used in calculating the accrual of OID 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 OID.
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 OID 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 under the foregoing rule, it appears
that actual discount would be treated in a manner similar to OID 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 OID
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
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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
OID on the Notes. 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 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. Regulations were finalized on June 11, 1996 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 regulations, may be excepted from such regulations. Like
the OID regulations, the contingent payment debt instruments regulations do not
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 debt instrument 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. Certificateholders 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 comparable 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
comparable yield referred to above is a reasonable yield, which, in some
circumstances is presumed to be 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 comparable 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
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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 OID 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 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 Grantor Trust Certificateholder 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
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related Pass-Through 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 CERTIFICATEHOLDERS
PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR TAX
ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP
AND DISPOSITION OF 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
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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.
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
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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
Certificate, 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 Plan 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
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exemptive 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.
Plan fiduciaries should consider whether an individual prohibited
transaction exemption has been issued with respect to the Securities 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 and the eligibility of a class of
securities for purchase by Plans.
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 First Union Capital Markets Corp. (the "First Union Partner"), is a 15%
limited partner of NAFI. 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 the Company.
Based upon several factors, including the overall performance of the referral
program and the total market value of NAFI over a specified time period, the
First Union Partner may increase its limited partnership interest in NAFI 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 NAFI 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.
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Each Underwriting Agreement will provide that NAFI 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.
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 Morrison & Foerster, New York,
New York.
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INDEX OF DEFINED TERMS
401(c) Regulations.............................................. 108
Actuarial Receivables........................................... 33
Administration Agreement........................................ 76
Administrative Receivables...................................... 26
Administrator................................................... 76
Aggregate Principal Balance..................................... 17
Amortization Period............................................. 15
APR............................................................. 33
Backup Servicer................................................. 6
Bankruptcy Laws................................................. 70
CEDEL Participants.............................................. 51
Certificate Balance............................................. 7
Certificate Distribution Account................................ 60
Certificate Majority............................................ 49
Certificate Owners.............................................. 23
Certificateholders.............................................. 7
Certificates.................................................... 1
Code............................................................ 83
Collection Account.............................................. 18
Commission...................................................... 4
Computer Tape................................................... 58
Cooperative..................................................... 51
Cutoff Date..................................................... 1
Dealer Agreements............................................... 28, 38
Dealer Assignments.............................................. 28
Dealers......................................................... 11, 38
Debt Certificates............................................... 84
Defaulted Receivable............................................ 33
Definitive Certificates......................................... 49
Definitive Notes................................................ 49
Depositor....................................................... 115
Depository...................................................... 40
Designated Accounts............................................. 61
Distribution Date............................................... 41, 63
DOL............................................................. 107
DTC............................................................. 3
Electronic Ledger............................................... 58
Eligible Account................................................ 61
Eligible Investments............................................ 62
Eligible Servicer............................................... 71
ERISA........................................................... 107
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Euroclear Operator.............................................. 51
Euroclear Participants.......................................... 51
European Depositaries........................................... 50
Events of Defaul................................................ 44
Exchange Act.................................................... 4
Federal Tax Counsel............................................. 83
Financed Vehicles............................................... 11
First Union Partner............................................. 110
Foreign person.................................................. 88
FTC............................................................. 82
Funding Trust................................................... 115
Indenture....................................................... 1
Indenture Trustee............................................... 1, 7
Indirect participants........................................... 48
Insolvency Laws................................................. 24
Insurance Agreement............................................. 67
Insurer Default................................................. 20
Interest Rate................................................... 9
IRS............................................................. 83
JMFE............................................................ 39
Lien............................................................ 57
Lockbox Account................................................. 19, 61
Lockbox Bank.................................................... 19, 61
Monthly Period.................................................. 64
NAFCO........................................................... 1, 6
NAFCO Transferor................................................ 12, 29
Note Distribution Account....................................... 61
Note Majority................................................... 43
Note Owners..................................................... 23
Noteholders..................................................... 9
Notes........................................................... 1
Obligor......................................................... 18
Obligors........................................................ 25
Odometer Act.................................................... 81
OFSA............................................................ 17, 39
OID Regulations................................................. 85
Originator Agreements........................................... 38
Originators..................................................... 1, 38
Participants.................................................... 48
Parties in Interest............................................. 107
Pass-Through Rate............................................... 7
Payment Date.................................................... 42
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Plan Asset Regulations.......................................... 107
Plans........................................................... 107
Policy.......................................................... 16
Pool Factor..................................................... 36
Pooling and Servicing Agreement................................. 1
Pre-Funded Amount............................................... 12
Pre-Funding Account............................................. 13
Pre-Funding Period.............................................. 13
Prepayment Assumption........................................... 99
Prospectus Supplement........................................... 1
PTCE............................................................ 108
Purchase Agreement.............................................. 12, 5
Purchase Amount................................................. 59
Qualified stated interest....................................... 99
Rating Agency................................................... 22
Receivable Files................................................ 60, 77
Receivables..................................................... 1, 11
Receivables Pool................................................ 11
Registration Statement.......................................... 4
Related Documents............................................... 46
Relevant Depositary............................................. 50
Relief Act...................................................... 57
Repurchase Event................................................12, 20, 59, 77
Required Deposit Rating......................................... 61
Retained Interest............................................... 16
Revolving Period................................................ 15
Rule of 78's Receivables........................................ 33
Rules........................................................... 49
Sale and Servicing Agreement.................................... 1
Schedule of Receivables......................................... 57
Securities...................................................... 1
Security Insurer................................................ 16
Securityholders................................................. 4
Seller.......................................................... 1, 6, 37
Servicer........................................................ 6, 37
Servicer Responsible Officer.................................... 66
Servicer Termination Events..................................... 70
Servicer's Certificate.......................................... 53
Servicing Agreement............................................. 38
Servicing Fee................................................... 17
Short-Term Note................................................. 87
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Simple Interest Receivables..................................... 33
Strip Certificates.............................................. 8
Strip Notes..................................................... 9
Subsequent Receivables.......................................... 1, 12
Subservicing Agreement.......................................... 17, 32
Terms and Conditions............................................ 52
Trust........................................................... 1, 6
Trust Agreement................................................. 1, 115
Trust Documents................................................. 1, 56
Trust Property.................................................. 1, 10
Trustee......................................................... 1, 6
UCC............................................................. 24
Underwriting Agreement.......................................... 110
Warranty Receivables............................................ 26
World Omni...................................................... 39
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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:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee.......$30,303
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....................................................$810,303
========
</TABLE>
- ----------------------
* All fees and expenses, other than the Securities and Exchange Commission
Registration Fee, are estimated.
ITEM 15. INDEMNIFICATION OF TRUSTEES 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, Inc., as depositor to Funding Trust (in
such capacity, the "Depositor"), will indemnify The Chase Manhattan Bank (USA),
as Trustee, and any of its officers, trustees, 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
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reasonably incurred by such person in connection with such action, suit or
proceeding to the full extent permitted by law.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees, co-trustees, 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 trustee, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, 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.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
The Exhibits filed as part of this Registration Statement are:
<S> <C>
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 Morrison & Foerster with respect to legality.
8.1 -- Opinion and consent of Morrison & Foerster with respect to tax matters (included as part of Exhibit 5.1).
10.1* -- Form of Purchase Agreement between the Seller and NAFI.
23.1 -- Consent of Morrison & Foerster (included as part of Exhibit 5.1).
24.1 -- Power of Attorney (included as part of signature page to Registration Statement)
- -----------------
* Incorporated by reference from the Registration Statement on Form S-3 (File No. 33-80813).
</TABLE>
ITEM 17. UNDERTAKINGS.
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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.
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.
(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.
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(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;
(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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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York on the 6th day of June,
1997. The Registrant reasonably believes that the security rating requirement
set forth in paragraph I.B.5. of the General Instructions to Form S-3 will be
met by the time of sale of each Series of Securities.
NATIONAL FINANCIAL AUTO FUNDING TRUST
By :/s/ Keith B. Stein
----------------------------------
Keith B. Stein
Attorney-in-Fact
Pursuant to the requirements of the Securities Act, this Registration
Statement on Form S-3 has been signed by the following persons in the capacities
indicated on June 6, 1997. Each person whose signature to this Registration
Statement appears below hereby constitutes and appoints Keith Stein as his true
and lawful attorney-in-fact and agent, with full power of substitution, to sign
on his behalf individually and in the capacity stated below and to perform any
acts necessary to be done in order to file all amendments and post-effective
amendments to this Registration Statement, any and all instruments or documents
filed as part of or in connection with this Registration Statement or the
amendments thereto and each of the undersigned does hereby ratify and confirm
all that said attorney-in-fact and agent, or his substitutes, shall do or cause
to be done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C>
/s/ Gary L. Shapiro Co-Trustee, Principal Executive Officer, Principal Financial
- ------------------- Officer and Principal Accounting Officer, National Financial
Gary L. Shapiro Auto Funding Trust
/s/ Keith B. Stein Co-Trustee, National Financial Auto Funding Trust
- ------------------
Keith B. Stein
/s/ Peter H. Sorenson Co-Trustee, National Financial Auto Funding Trust
- ---------------------
Peter H. Sorensen
</TABLE>
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
- ------ -----------
<S> <C>
5.1 Opinion and Consent of Morrison & Foerster with respect to legality and tax
matters
</TABLE>
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<PAGE> 1
EXHIBIT 5.1
June 6, 1997
National Financial Auto Funding Trust
One Park Place
621 N.W. 53rd Street
Boca Raton, Florida 33487
Re: National Auto Automobile Receivables Trusts -- Automobile
Receivables-Backed Certificates and Automobile
Receivables-Backed Notes
Ladies and Gentlemen:
We have acted as special counsel to National Financial Auto
Funding Trust, a Delaware business trust (the "Registrant") in connection with
the registration under the Securities Act of 1933, as amended (the "Act"), of
Automobile Receivables-Backed Certificates (the "Certificates") and Automobile
Receivables-Backed Notes (the "Notes"; together with the Certificates, the
"Securities") and the related preparation and filing of a Registration Statement
on Form S-3 (the "Registration Statement"). The Certificates are issuable in
series under (i) separate pooling and servicing agreements (each such agreement,
a "Pooling and Servicing Agreement") among the Registrant, a master servicer to
be identified in the prospectus supplement for such series of Certificates and a
trustee to be identified in the prospectus supplement for such series of
Certificates or (ii) separate trust agreements (each such agreement, a "Trust
Agreement") among the Registrant, a trustee to be identified in the prospectus
supplement for such series of Certificates and certain other parties as
specified in such prospectus supplement. The Notes are issuable in series under
separate indentures (each, an "Indenture") between a trust formed pursuant to a
Trust Agreement (the "Issuer") and an indenture trustee to be identified in the
prospectus supplement for such series of Notes. Each Pooling and Servicing
Agreement, Trust Agreement, Indenture, Note and Certificate will be
substantially in the form filed as an Exhibit to the Registration Statement
(the "Documents").
In connection with rendering this opinion letter, we have
examined the forms of the Documents, the Registration Statement and such
records and other documents, and considered such questions of law as we
have deemed necessary. In making our examination of the Documents, we have
assumed that: (i) each party to one or more of the Documents will be duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its formation, and will have the power and authority to conduct
its business as presently conducted; (ii) each party to one or more of the
Documents will have the power and authority to execute and deliver, and to
perform and observe the provisions of the Documents, and will have duly
authorized, executed and delivered such Documents; (iii) such Documents will
constitute valid and binding obligations of such party (other than the
Registrant and the applicable Issuer), enforceable against such party (other
than the Registrant and the applicable Issuer) in accordance with their
respective terms; and (iv) the Documents will be executed and delivered
substantially in the form filed as an Exhibit to the Registration Statement and
the Certificates and Notes will be sold as described therein.
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The opinions hereinafter expressed are subject to the
following qualifications and exceptions:
(i) The effect of bankruptcy, insolvency, reorganization,
arrangement, moratorium or other similar laws relating to or affecting the
rights of creditors generally, including, without limitation, laws relating to
fraudulent transfers or conveyances, preferences and equitable subordination;
(ii) limitations imposed by general principles of equity upon
the availability of equitable remedies or the enforcement of provisions of the
Documents, and the effect of judicial decisions which have held that certain
provisions are unenforceable where their enforcement would violate the implied
covenant of good faith and fair dealing, or would be commercial unreasonable, or
where their breach is not material; and
(iii) we express no opinion as to the effect on the opinions
expressed herein of (1) the compliance or non-compliance of any party to the
Documents with any laws or regulations applicable to it, or (2) the legal or
regulatory status or nature of the business of any such party.
Based upon and subject to the foregoing, we are of the
opinion that:
1. Upon the authorization, execution and delivery thereof by
the parties thereto, each Pooling and Servicing Agreement and Trust Agreement
will constitute the legal, valid and binding obligation of the Registrant,
enforceable against the Registrant in accordance with its terms.
2. Upon the authorization, execution and delivery of a Pooling
and Servicing Agreement or Trust Agreement for a series of Certificates by the
parties thereto, the execution and authorization of the Certificates of such
series in accordance with the provisions of that Pooling and Servicing Agreement
or Trust Agreement, as applicable, and the sale and delivery of such
Certificates as contemplated in the Registration Statement and the prospectus
and prospectus supplement delivered in connection therewith, such Certificates
will be legally and validly issued and outstanding, fully paid and
non-assessable and entitled to the benefits of that Pooling and Servicing
Agreement or Trust Agreement, as applicable.
3. Upon the authorization, execution and delivery thereof by
the parties thereto, each Indenture will constitute the legal, valid and binding
obligation of the applicable Issuer, enforceable against such Issuer in
accordance with its terms.
4. Upon the authorization, execution and delivery of an
Indenture for a series of Notes by the parties thereto, the execution and
authentication of the Notes of such
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series in accordance with the provisions of that Indenture and the sale and
delivery of such Notes as contemplated in the Registration Statement and
prospectus and prospectus supplement delivered in connection therewith, such
Notes will be legally and validly issued and outstanding, fully paid and
non-assessable, and will be the legal, valid and binding obligations of the
applicable Issuer and entitled to the benefits of that Indenture.
5. The description of the material federal income tax
consequences appearing under the heading "Certain Federal Income Tax
Consequences" in the prospectus contained in the Registration Statement, while
not purporting to discuss all possible federal income tax consequences of an
investment in Certificates and/or Notes, is accurate in all material respects
with respect to those tax consequences that are discussed, and our opinion is
limited to those federal income tax consequences specifically discussed therein.
We express no opinion as to matters governed by any laws
other than the substantive laws of the State of New York (including its
applicable choice-of-law rules) and the federal laws of the United States of
America, as in effect on the date hereof. For purposes of this opinion, we have
assumed that Section 5-1401 of the General Obligations Law of the State of New
York would be given effect in accordance with its terms. We have assumed that
the transactions contemplated by the Documents do not violate the public policy
of any jurisdiction other than New York having a substantial relationship to
that transaction. We express no opinion as to any New York choice-of-law
provision in the Documents to the extent that Section 1-105(2) of the Uniform
Commercial Code of the State of New York requires the application of the law of
another jurisdiction. We have further assumed, with your permission, that any
provision in the Documents excepting New York choice or conflicts of law rules
from any New York choice-of-law provision would not be interpreted to include
Section 5-1401 of the General Obligations Law of the State of New York.
This opinion is furnished to you solely for use in connection
with the Registration Statement. We hereby consent to the filing of this
opinion letter as an Exhibit to the Registration Statement, and to the use of
our name in the prospectus and prospectus supplement included in the
Registration Statement under the heading "Legal Matters", and in the prospectus
included in the Registration Statement under the heading "Certain Federal
Income Tax Consequences". In giving such consent, we do not admit and we hereby
disclaim that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission (the "Commission")
thereunder, nor do we admit that we are experts with respect to any part of
such Registration Statement within the meaning of the term "experts" as used in
the Securities Act of 1933, as amended, or the rules and regulations of the
Commission thereunder.
Very truly yours,
Morrison & Foerster LLP
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