<PAGE> 1
Filed Pursuant to Rule 424(b)5
Registration Statement No. 333-30737
THIS PROSPECTUS SUPPLEMENT RELATES TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1913, AND IS SUBJECT TO COMPLETION OR AMENDMENT. THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY
SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY 9, 1998
PROSPECTUS SUPPLEMENT (TO PROSPECTUS
DATED JULY 9, 1998)
NAVISTAR FINANCIAL DEALER NOTE MASTER TRUST
$200,000,000 CLASS A FLOATING RATE DEALER NOTE ASSET BACKED CERTIFICATES,
SERIES 1998-1
NAVISTAR FINANCIAL SECURITIES CORPORATION, SELLER
NAVISTAR FINANCIAL CORPORATION, SERVICER
The Class A Floating Rate Dealer Note Asset Backed Certificates, Series 1998-1
(the "Series 1998-1 Certificates") offered hereby evidence undivided interests
in certain assets of the Navistar Financial Dealer Note Master Trust (the
"Master Trust" or the "Issuer") created pursuant to a Pooling and Servicing
Agreement (the "Pooling and Servicing Agreement") among Navistar Financial
Corporation ("NFC" or the "Servicer"), Navistar Financial Securities Corporation
("NFSC" or the "Seller"), The Chase Manhattan Bank, as Trustee under the Dealer
Note Trust 1990 (the "1990 Trust"), and The Bank of New York, as trustee (the
"Master Trust Trustee"). The Master Trust assets in which the Series 1998-1
Certificates have an undivided interest will include, initially, the Class A-6
Floating Rate Pass-Through Certificate (the "Class A-6 Investor Certificate")
issued by the 1990 Trust created pursuant to a Pooling and Servicing Agreement
dated as of December 1, 1990 (as amended, the "1990 Trust Agreement") among
NFSC, NFC and The Chase Manhattan Bank, as trustee. Following the termination of
the 1990 Trust, the Master Trust assets in which the Series 1998-1
Certificateholders will have an interest will include the Dealer Notes and other
assets described in the accompanying Prospectus dated July 9, 1998 (the
"Prospectus").
Interest on the Series 1998-1 Certificates will generally be paid on the
twenty-fifth day of each month commencing August 25, 1998 (each, a "Distribution
Date"). The interest rate for the period from July , 1998 (the "Closing
Date") through August 24, 1998 (the "Initial Distribution Period") and for each
Distribution Period thereafter will be equal to LIBOR (as defined herein) as of
the related LIBOR Determination Date (as defined herein) plus % (the "Offered
Certificate Rate"). The payment of principal with respect to the Series 1998-1
Certificates is expected to be made in full on the July 2008 Distribution Date
(the "Expected Payment Date"). However, under certain circumstances, the actual
payment in full of the Series 1998-1 Certificates could occur earlier or later
than the Expected Payment Date.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK FACTORS"
ON PAGES 27 THROUGH 30 IN THE ACCOMPANYING PROSPECTUS
THE SERIES 1998-1 CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN THE MASTER
TRUST ONLY AND DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE SELLER, THE
SERVICER OR ANY AFFILIATE THEREOF.
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.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Price to Underwriting Proceeds to
Public Discount the Seller(1)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Series 1998-1 Certificates 100.000% % %
- --------------------------------------------------------------------------------------------------------------------------
Total $200,000,000 $ $
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Before deducting expenses payable by the Seller estimated to be $500,000.
The Series 1998-1 Certificates are offered by the Underwriter, subject to prior
sale, when, as and if issued by the Seller and accepted by the Underwriter. The
Underwriter reserves the right to withdraw, cancel or modify such offer and
reject orders in whole or in part. It is expected that the Series 1998-1
Certificates will be delivered in book-entry form through the facilities of the
Depository Trust Company on or about July , 1998, against payment therefor in
immediately available funds.
J.P. MORGAN & CO.
The date of this Prospectus Supplement is July , 1998.
<PAGE> 2
No dealer, salesperson or other person has been authorized to give any
information or to make any representations not contained in this Prospectus
Supplement and the Prospectus in connection with the offer made by this
Prospectus Supplement and the Prospectus, and, if given or made, such
information or representations must not be relied upon as having been authorized
by Navistar International Corporation ("NIC"), Navistar International
Transportation Corp. ("NITC"), NFC, NFSC or the Underwriter. This Prospectus
Supplement and the Prospectus do not constitute an offer to sell or a
solicitation of any offer to buy any securities other than the registered
securities offered by this Prospectus Supplement and the Prospectus, nor does it
constitute an offer to sell or a solicitation of any offer to buy any securities
by anyone in any jurisdiction in which such offer or solicitation is not
authorized, or in which the person making such offer or solicitation is not
qualified to do so, or to any person to whom it is unlawful to make such offer
or solicitation. Neither the delivery of this Prospectus Supplement and the
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that information herein is correct as of any time subsequent to
the date hereof.
Until October , 1998, all dealers effecting transactions in the Series 1998-1
Certificates, whether or not participating in this distribution, may be required
to deliver a Prospectus Supplement and the Prospectus to which it relates. This
delivery requirement is in addition to the obligation of dealers to deliver a
Prospectus Supplement and Prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE PAGE
PROSPECTUS SUPPLEMENT
<S> <C> <C> <C>
The Dealer Notes.................................. S-3 Use of Proceeds.................................. 32
Description of the Series 1998-1 Certificates..... S-9 The Navistar Financial Dealer Floor Plan
Other Series Issued By Master Trust............... S-14 Financing Business.............................. 32
1990 Trust Investor Certificates.................. S-14 Relationship with NITC........................... 36
Plan of Distribution.............................. S-16 Description of the Offered Certificates.......... 40
Legal Matters..................................... S-16 Terms of the 1990 Trust Investor Certificates.... 76
Index of Terms.................................... S-17 Description of the Purchase Agreements........... 85
Federal Income Tax Matters....................... 87
PROSPECTUS Certain State Tax Matters........................ 93
Certain Matters Relating to Bankruptcy........... 94
Available Information............................. 3 Certain Matters Relating to the Dealer Notes..... 95
Reports to the Offered Certificateholders......... 3 ERISA Considerations............................. 95
Incorporation of Certain Documents by Reference... 3 Plan of Distribution............................. 96
Prospectus Summary................................ 5 Legal Matters.................................... 97
Risk Factors...................................... 27 Index of Terms................................... 98
Navistar Financial Securities Corporation and Annex I-Global Clearance, Settlement and Tax
the Master Trust................................ 31 Documentation Procedures....................... 104
</TABLE>
THE SERIES 1998-1 CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE
PART OF A SEPARATE SERIES OF OFFERED CERTIFICATES BEING OFFERED BY THE SELLER
PURSUANT TO ITS PROSPECTUS DATED JULY 9, 1998, OF WHICH THIS PROSPECTUS
SUPPLEMENT IS A PART AND WHICH ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE
PROSPECTUS CONTAINS IMPORTANT INFORMATION REGARDING THIS OFFERING WHICH IS NOT
CONTAINED HEREIN, AND PROSPECTIVE INVESTORS ARE URGED TO READ THE PROSPECTUS AND
THIS PROSPECTUS SUPPLEMENT IN FULL. SALES OF THE SERIES 1998-1 CERTIFICATES MAY
NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS.
There is currently no secondary market for the Series 1998-1 Certificates, and
there is no assurance that one will or, if one does develop, that it will
continue until the Series 1998-1 Certificates are paid in full.
Capitalized terms used and not defined herein have the meanings they are given
in the Prospectus.
S-2
<PAGE> 3
THE DEALER NOTES
GENERAL
Dealer Notes that are conveyed to the Active Trust consist of all
wholesale notes issued by Dealers that are identified by the Servicer as meeting
the eligibility criteria specified in the Applicable Agreement for Dealer Notes.
In order to be eligible, each Dealer Note must be issued pursuant to NFC's
Credit Guidelines and meet certain other criteria provided in the Agreement. See
"Description of the Offered Certificates -- Eligible Dealer Notes" and "--
Certain Representations and Warranties; Ineligible Dealer Notes; Purchase of
Certificateholders' Interest" in the Prospectus. The aggregate principal amount
of Eligible Dealer Notes as of the Closing Date is expected to be in excess of
$800 million.
The following tables provide general statistics regarding the total
portfolio of wholesale notes serviced by NFC (the "Wholesale Portfolio") for the
periods ended on the dates specified. As of the Closing Date, the Dealer Notes
which are expected to be held in the 1990 Trust will represent approximately 95%
of the Wholesale Portfolio. However, there can be no assurance that the Dealer
Notes which are transferred to the 1990 Trust after the Closing Date and which,
after the 1990 Trust Termination Date, will be transferred to the Master Trust,
will continue to constitute such a significant portion of the Wholesale
Portfolio. There can be no assurance that the experience of the Dealer Notes in
the future will be similar to the historical experience set forth below.
The Seller believes that the improved performance of the Wholesale
Portfolio since fiscal year 1993 is largely attributable to the improved United
States economy since 1993. Fluctuations in net losses and delinquencies in the
Wholesale Portfolio generally follow cycles in the overall business environment
and, the Seller believes, are particularly sensitive to the industrial sector,
which generates a significant portion of freight tonnage hauled. Truck demand
and Wholesale Portfolio performance also depend on general economic conditions,
interest rates and fuel costs.
S-3
<PAGE> 4
LOSS EXPERIENCE
The following table provides the loss experience on the Wholesale
Portfolio for the periods indicated:
LOSS EXPERIENCE FOR THE WHOLESALE PORTFOLIO
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Annualized
Net Losses Average
(Recoveries)/ Maturity
Fiscal Year- Net Losses Average Average (Days in
To-Date Period Net Dealer Note Liquidations (Recoveries)/ Dealer Note Dealer Notes Year/
Ending Last Losses of Dealer Liquidations Principal Principal Annualized Annualized
Day of (Recoveries)(1) Notes(1) (1) Balance(2) Balance(3) Turnover(4) Turnover)
- ---------------- ---------------- ------------ -------------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Fiscal Year 1998
January....... $(0.1) $725.3 (0.01)% $716.7 (0.06)% 4.05x 90.1
April......... (0.3) 1,557.0 (0.02) 775.4 (0.08) 4.02x 90.8
Fiscal Year 1997
January....... 0.0 599.7 0.00 690.2 0.00 3.48x 105.2
April......... (0.1) 1,232.1 (0.01) 683.2 (0.03) 3.61x 101.4
July.......... (0.1) 1,945.5 (0.01) 682.3 (0.02) 3.80x 96.1
October....... (0.2) 2,767.8 (0.01) 674.9 (0.03) 4.10x 89.0
Fiscal Year 1996
January....... 0.1 721.6 0.01 913.0 0.04 3.16x 115.5
April......... 0.0 1,436.2 0.00 920.3 0.00 3.12x 117.0
July.......... 0.0 2,139.8 0.00 906.5 0.00 3.15x 116.2
October....... (0.2) 2,874.4 (0.01) 859.7 (0.02) 3.34x 109.3
Fiscal Year 1995
January....... (0.1) 618.6 (0.01) 597.5 (0.07) 4.14x 88.2
April......... (0.1) 1,237.5 (0.01) 643.9 (0.03) 3.84x 95.1
July.......... (0.3) 1,963.3 (0.02) 689.7 (0.06) 3.80x 96.3
October....... (0.9) 2,712.4 (0.03) 706.0 (0.13) 3.84x 95.1
Fiscal Year 1994
January....... 0.1 485.6 0.03 576.8 0.07 3.37x 108.3
April......... 0.1 1,024.8 0.01 593.6 0.03 3.45x 105.8
July.......... 0.1 1,656.1 0.01 602.5 0.02 3.66x 99.7
October....... 0.1 2,278.9 0.01 579.2 0.03 3.93x 92.9
Fiscal Year 1993
January 0.0 377.1 0.00 431.1 0.00 3.50x 104.3
April......... 0.4 795.2 0.05 461.2 0.17 3.45x 105.8
July.......... 0.9 1,283.5 0.07 475.3 0.25 3.60x 101.4
October....... 0.8 1,820.1 0.04 477.1 0.16 3.81x 95.8
</TABLE>
- ----------
(1) Figures shown for Net Dealer Note Losses (Recoveries) and Liquidations
of Dealer Notes are cumulative within each fiscal year. Thus, figures as of
January 31 of each fiscal year represent the Net Dealer Note Losses or
Liquidations of Dealer Notes for the first quarter of such fiscal year;
figures as of April 30 of each fiscal year represent the cumulative Net
Dealer Note Losses or Liquidations of Dealer Notes for the first six months
of such fiscal year; and so on.
(2) Figures shown for Average Dealer Note Principal Balance are calculated
as the year-to-date average of the daily outstanding Dealer Note Principal
Balance.
(3) The Net Losses (Recoveries) for a fiscal quarter used in the numerator
are cumulative within a fiscal year and have been annualized. Thus, the
numerator for the figure shown as of the fiscal quarter ended January 31 of
each fiscal year equals the Net Dealer Note Losses (Recoveries) for such
fiscal quarter multiplied by four; for April 30 equals the cumulative Net
Dealer Note Losses (Recoveries) for the six months ended on such date
multiplied by two; for July 31 equals the cumulative Net Dealer Note Losses
(Recoveries) for the nine months ended on such date multiplied by 4/3; and
for October 31 equals such cumulative Net Dealer Note Losses (Recoveries).
(4) Turnover is calculated as the annualized Liquidations of Dealer Notes
for each fiscal period (annualized in the same manner described in note 3
for Net Losses (Recoveries)) divided by Average Dealer Note Principal
Balance.
S-4
<PAGE> 5
Losses occur on wholesale notes when a Dealer has been terminated under
circumstances in which the Dealer has sold one or more financed vehicles to a
retail customer and has failed to remit the appropriate proceeds of such sale to
NFC. Losses also occur when used trucks financed at wholesale and repossessed by
NFC from a terminated Dealer cannot be sold for the balance due on the
underlying wholesale note. By contrast, losses generally have not occurred when
new trucks financed by NFC are repossessed from terminated Dealers, because such
new trucks are repurchased by the manufacturer NITC or an OEM Supplier. NFC
recognizes losses on wholesale notes at the time it deems such wholesale notes
to be uncollectible (which is generally at the time it has exhausted all
non-legal remedies).
The characteristics of the Dealer Notes held by the Active Trust have
not been and are not expected to be significantly different from the
characteristics of the Wholesale Portfolio at any given time, except to the
extent that the eligibility requirements in the Applicable Agreement for Dealer
Notes serve to screen out certain types of wholesale notes at their inception
(such as wholesale notes from Dealers who are on cash on delivery terms or who
are insolvent, although Dealer Notes which have been or are transferred to the
Active Trust will not become ineligible if the Dealer thereafter is put on cash
on delivery status or becomes insolvent). Such differences are not expected to
affect adversely the performance of the Dealer Notes held by the Active Trust in
comparison to the Wholesale Portfolio at such time.
DELINQUENCIES
The following table presents the aggregate amount of delinquent
principal payments (past due over 30 days) for the Wholesale Portfolio as a
percentage of the total principal amount outstanding as of the end of the fiscal
quarters specified:
DELINQUENCIES AS A PERCENTAGE OF THE WHOLESALE PORTFOLIO
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
------------------------------------------------------------
Total Principal
Amount of Dealer Aggregate Amount of Delinquent Principal
Notes Payments on Dealer Notes
Last Day of Outstanding (Past Due Over 30 Days)
- ------------------------------------------------------------ ---------------- ----------------------------------------
<S> <C> <C> <C>
Fiscal Year 1998
January................................................... $758.2 $2.1 0.28%
April..................................................... 892.0 1.1 0.13
Fiscal Year 1997
January................................................... 651.3 1.4 0.22
April..................................................... 670.2 2.1 0.31
July...................................................... 649.1 2.4 0.38
October................................................... 691.1 2.0 0.28
Fiscal Year 1996
January................................................... 927.6 0.6 0.06
April..................................................... 909.7 0.8 0.09
July...................................................... 803.2 1.2 0.15
October................................................... 685.9 1.3 0.19
Fiscal Year 1995
January................................................... 611.3 0.6 0.11
April..................................................... 766.0 0.3 0.04
July...................................................... 723.2 0.4 0.06
October................................................... 854.4 0.4 0.05
Fiscal Year 1994
January................................................... 564.5 0.6 0.11
April..................................................... 638.0 0.6 0.09
July...................................................... 546.3 0.2 0.04
October................................................... 586.5 0.4 0.06
Fiscal Year 1993
January................................................... 447.4 1.4 0.32
April..................................................... 522.9 1.0 0.19
July...................................................... 449.3 0.5 0.11
October................................................... 559.0 0.7 0.13
</TABLE>
S-5
<PAGE> 6
AGING EXPERIENCE
The following table provides the age distribution of the Wholesale
Portfolio by principal amount outstanding as of the dates indicated:
AGE DISTRIBUTION OF THE WHOLESALE PORTFOLIO
<TABLE>
<CAPTION>
April 30 October 31
-------------- --------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<C> <C> <C> <C> <C> <C> <C> <C>
Days
1-180............. 90% 81% 90% 70% 84% 88% 87%
181-360........... 8 11 7 21 14 10 11
Over 360.......... 2 8 3 9 2 2 2
---- ---- ---- ---- ---- ---- ----
Total.......... 100% 100% 100% 100% 100% 100% 100%
</TABLE>
CYCLICALITY
The average outstanding principal amount of the Wholesale Portfolio has
varied historically according to business cycles in the truck manufacturing
industry. The following table provides the highest, lowest and average principal
amounts outstanding based on month-end balances during the years indicated:
OUTSTANDING PRINCIPAL AMOUNT OF THE WHOLESALE PORTFOLIO
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Highest Lowest Average of
During Year Ended Month-End Month-End Month-End
October 31, Amount Amount Amounts
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
1997............. $694 $635 $669
1996............. 933 686 850
1995............. 854 588 709
1994............. 638 473 570
1993............. 559 425 475
</TABLE>
S-6
<PAGE> 7
GEOGRAPHIC DISTRIBUTION
The following table provides the geographic distribution of the
principal amount of the Wholesale Portfolio as of April 30, 1998:
GEOGRAPHIC DISTRIBUTION OF THE WHOLESALE PORTFOLIO
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Percentage of Percentage of
Amount Wholesale Amount Wholesale
State Outstanding Portfolio State Outstanding Portfolio
- ----------------------------------------------------------------- --------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Illinois............. $68.5 7.68% Tennessee............. $18.9 2.12%
Texas................ 68.0 7.63 Virginia.............. 18.7 2.10
Minnesota............ 57.2 6.41 Georgia............... 18.7 2.09
Pennsylvania......... 51.3 5.75 North Carolina........ 15.9 1.78
California........... 46.7 5.24 Nebraska.............. 14.6 1.64
Ohio................. 42.8 4.80 Utah.................. 14.3 1.60
Indiana.............. 37.3 4.18 Massachusetts......... 14.2 1.59
New York............. 35.7 4.00 Arkansas.............. 13.2 1.47
Maryland............. 29.6 3.32 Oregon................ 12.5 1.41
Alabama.............. 29.5 3.30 Connecticut........... 10.2 1.15
Florida.............. 28.5 3.20 Washington............ 9.9 1.11
Michigan............. 26.9 3.02 Colorado.............. 9.2 1.03
Oklahoma............. 25.0 2.80 Kentucky.............. 9.1 1.02
Wisconsin............ 23.8 2.67 Louisiana............. 9.0 1.01
Missouri............. 21.9 2.46 Subtotal......... 820.6 91.99
New Jersey........... 19.7 2.21 All others(1)......... 71.4 8.01
Mississippi.......... 19.7 2.21 ------ ------
Total............ $892.0 100.00%
</TABLE>
- ----------
(1) Includes the remaining 19 states (each of which represents less than 1% of
the Wholesale Portfolio).
SEASONALITY
The aggregate principal amount of the Wholesale Portfolio generally
varies during the year. The following table provides the average principal
amount of the Wholesale Portfolio during the months specified:
SEASONAL FLUCTUATION IN THE WHOLESALE PORTFOLIO
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
-----------------------------------------------------------
Average Monthly Principal
Amount Outstanding
-----------------------------------------------------------
Month 1998 1997 1996 1995 1994 1993
- ---------------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
November.................... $689 $694 $876 $604 $578 $411
December.................... 732 706 938 593 578 434
January..................... 726 656 923 597 549 431
February.................... 794 658 925 633 567 459
March....................... 836 674 927 683 601 486
April....................... 869 677 928 749 649 514
May......................... 676 903 776 643 508
June........................ 686 898 814 638 501
July........................ 675 831 752 578 483
August...................... 648 759 705 508 453
September................... 645 703 745 480 471
October..................... 666 690 811 534 523
</TABLE>
Declines in the principal amount of Dealer Notes outstanding due to
seasonality, cyclicality, competitive conditions or other factors may cause
Principal Collections to be invested in 1990 Trust Investment Securities or
Eligible
S-7
<PAGE> 8
Investments, as the case may be, rather than to be used for acquisitions or
assignments of Dealer Notes. See "Terms of the 1990 Trust Investor
Certificates -- Application of Collections" and "Description of the Offered
Certificates --Allocation of Collections After the 1990 Trust Termination Date"
in the Prospectus.
LIQUIDATIONS
The following table provides the liquidation history with respect to
NFC month-end balances outstanding and one-month liquidations of notes in the
Wholesale Portfolio for the months indicated:
LIQUIDATION HISTORY OF WHOLESALE PORTFOLIO
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct
--- --- --- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fiscal Year 1998
Balances........ $ 713 $ 709 $ 758 $ 819 $ 852 $ 892
Liquidations.... 216 250 260 240 299 293
Fiscal Year 1997
Balances...... 694 655 651 668 675 670 $681 $688 $649 $635 $649 $691
Liquidations.. 184 209 207 193 208 230 216 238 259 264 263 296
Fiscal Year 1996
Balances...... 904 913 928 926 933 910 896 892 803 709 694 686
Liquidations.. 236 236 250 222 243 249 237 216 251 267 219 249
Fiscal Year 1995
Balances...... 599 588 611 656 737 766 809 806 723 707 778 854
Liquidations.. 213 199 206 183 231 205 225 246 254 256 219 273
Fiscal Year 1994
Balances...... 579 545 565 566 622 638 631 612 546 473 482 587
Liquidations.. 157 182 147 153 192 194 210 206 215 236 189 198
Fiscal Year 1993
Balances...... 428 425 447 473 508 523 504 525 449 450 482 559
Liquidations.. 120 130 127 117 143 158 155 154 179 173 169 195
</TABLE>
MONTHLY PAYMENT RATES
The following table sets forth the highest and lowest monthly payment
rates for the Wholesale Portfolio in the periods shown and the average of the
monthly payment rates for all months during the periods shown, in each case
calculated as the percentage equivalent of a fraction, the numerator of which is
the aggregate of all collections of principal during the specified period and
the denominator of which is the aggregate ending principal balance of the
Wholesale Portfolio for such period.
HISTORICAL MONTHLY PAYMENT RATES
<TABLE>
<CAPTION>
---------------------------------------------------------------------
Six Months Ended Year Ended October 31
April 30
----------------- ------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Highest Month.................... 35.3% 34.3% 42.8% 37.7% 36.2% 49.9% 39.9%
Lowest Month..................... 29.3 26.5 26.5 24.0 26.8 26.0 24.7
Average for the Months in the Period 32.8 30.7 34.6 28.2 31.4 33.3 31.5
</TABLE>
S-8
<PAGE> 9
DESCRIPTION OF THE SERIES 1998-1 CERTIFICATES
MASTER TRUST TRUSTEE
The Bank of New York is the Master Trust Trustee. NFC and its affiliates
(other than the Seller) may from time to time enter into normal banking and
trustee relationships with The Bank of New York or any other bank that may
become a successor Master Trust Trustee. As of the date of this Prospectus
Supplement, the Corporate Trust Office is located at 101 Barclay Street, New
York, New York 10286, Attention: Corporate Trust Administration.
TERMS AND CONDITIONS
The Series 1998-1 Certificates are a Series of Offered Certificates
described in the attached Prospectus to be issued by the Master Trust. In
addition to the terms and conditions set forth below, reference is made to the
Prospectus for the terms and conditions of the Series 1998-1 Certificates
(including a description of when principal and interest distributions are to be
made on, and settlement information for, the Series 1998-1 Certificates). Also,
see "Other Series Issued by Master Trust" for a description of Other Series
issued by the Master Trust which are outstanding as of the date of this
Prospectus Supplement.
Initial Invested Amount........................................ $200,000,000
Expected Payment Date.......................................... July 25, 2008
Subordinated Percentage........................................ %
Specified Accumulation Period Commencement Date................ October 1, 2007
Series Termination Date........................................ July 25, 2011
There will be no Investment Events with respect to the Series 1998-1
Certificates and thus there will be no Investment Period, Investment Period
Commencement Date, Investment Period Short Fall Amount or Fully Funded Date. In
addition, there will be no Negative Carry Reserve Fund with respect to the
Series 1998-1 Certificates and thus there will be no Negative Carry Reserve Fund
Deposit Amount, Negative Carry Reserve Fund Required Amount or Negative Carry
Subordinated Amount.
"Accumulation Period Commencement Date" shall mean the first day of the nth
full Due Period prior to the Expected Payment Date where n is the number of
Due Periods in the Accumulation Period Length; provided, however, that the
Accumulation Period Commencement Date shall be the Specified Accumulation
Period Commencement Date if, on the Specified Accumulation Period
Commencement Date, any other outstanding Series shall have entered into an
investment period or an early amortization period; and provided further
that, if the Accumulation Period Length and the Accumulation Period
Commencement Date have been determined previously but the Accumulation
Period has not commenced and any other outstanding Series shall enter into
an investment period or any early amortization period, the Accumulation
Period Commencement Date shall be the date that such outstanding Series
shall have entered into an investment period or an early amortization
period.
"Accumulation Period Length" shall mean a period which is between one
and nine Due Periods and which is determined by the Servicer in its sole
discretion on or prior to the first day of the Due Period which is nine
months prior to the Due Period related to the Distribution Date which is the
Expected Payment Date.
"LIBOR" shall mean (a) prior to the 1990 Trust Termination Date, the
one-month London interbank offered rate as determined by the 1990 Trust
Trustee in accordance with the 1990 Trust Agreement, and (b) after the 1990
Trust Termination Date, the interest rate determined by the Master Trust
Trustee in accordance with the following provisions:
(i) On each LIBOR Determination Date, LIBOR will be determined on
the basis of the offered rates for deposits in United States
Dollars having a one month maturity, which appear on the Reuters
Screen LIBO Page as of 11:00 A.M., London time, on such LIBOR
Determination Date. Such posted offered rates are for value on
the second business day after which dealings in deposits in
United States Dollars are transacted in the London interbank
market. If at least two such offered rates appear on the Reuters
Screen LIBO Page, the rate
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<PAGE> 10
in respect of such LIBOR Determination Date will be the
arithmetic mean (rounded, if necessary, to the nearest one
hundred-thousandth of a percent) of such offered rates as
determined by the Master Trust Trustee. If fewer than two offered
rates appear, LIBOR in respect of such LIBOR Determination Date
will be determined as if the parties had specified the rate
described in (ii) below.
(ii) On any LIBOR Determination Date on which fewer than two
offered rates appear on the Reuters Screen LIBO Page as specified
in (i) above, LIBOR will be determined on the basis of the rates
at which deposits in United States Dollars are offered by the
Reference Banks at approximately 11:00 A.M., London time, on such
LIBOR Determination Date to prime banks in the London interbank
market, having a one month maturity, such deposits commencing on
the second London business day immediately following such LIBOR
Determination Date and in a principal amount of not less than
U.S. $1,000,000 that is representative for a single transaction
in such market at such time. The Master Trust Trustee will
request the principal London office of each of such Reference
Banks to provide a quotation of its rate. If at least two such
quotations are provided, LIBOR in respect of such LIBOR
Determination Date will be the arithmetic mean (rounded, if
necessary, to the nearest one hundred-thousandth of a percent) of
such quotations. If fewer than two quotations are provided, LIBOR
in respect of such LIBOR Determination Date will be the
arithmetic mean (rounded, if necessary, to the nearest one
hundred-thousandth of a percent) of the rates quoted by three
major banks in The City of New York selected by the Master Trust
Trustee at approximately 11:00 A.M., New York City time, on such
LIBOR Determination Date for loans in United States Dollars to
leading European banks, having a one month maturity, such loans
commencing on the second London business day immediately
following such LIBOR Determination Date and in a principal amount
of not less than U.S. $1,000,000 that is representative for a
single transaction in such market at such time, provided,
however, that if the banks in The City of New York selected as
aforesaid by the Master Trust Trustee are not quoting as
mentioned in this sentence, LIBOR with respect to such LIBOR
Determination Date will be LIBOR in effect immediately prior to
such LIBOR Determination Date.
"LIBOR Determination Date" means, with respect to any Distribution
Period, the date which is two London business days prior to the start of
such Distribution Period, which with respect to the Initial Distribution
Period is July , 1998.
"Minimum Series Seller's Interest" shall mean, with respect to any
business day after the 1990 Trust Termination Date, the sum of (a) the
Available Subordinated Amount as of the end of the preceding Transfer Date
and (b) the Required Excess Seller Interest as of the end of the preceding
Distribution Date.
"New Vehicle Monthly Interest Rate" shall mean, with respect to any Due
Period, the product of (a) the per annum rate of interest and finance
charges billed by NFC during such Due Period on Dealer Notes financing new
vehicles and (b) the quotient of (i) the number of days during such Due
Period and (ii) the actual number of days in the related calendar year.
"Offered Certificate Rate" shall mean the interest rate on the Series
1998-1 Certificates, which shall be calculated on the basis of actual days
elapsed and a 360-day year, and for the Initial Distribution Period and for
each Distribution Period thereafter will equal LIBOR as of the related LIBOR
Determination Date plus %.
"Projected Dealer Note Income" shall mean, on any Transfer Date after
the 1990 Trust Termination Date, an amount equal to the sum of (a) the
product of (i) the principal amount of Dealer Notes financing new vehicles
outstanding on such Transfer Date, (ii) the New Vehicle Monthly Interest
Rate for the Due Period in which such Transfer Date occurs and (iii) the
Series Allocation Percentage for such Due Period and (b) the product of (i)
the principal amount of Dealer Notes financing used vehicles outstanding on
such Transfer Date, (ii) the Used Vehicle Monthly Interest Rate for such Due
Period and (iii) the Series Allocation Percentage for such Due Period.
"Projected Monthly Interest" shall mean, on any LIBOR Determination Date
after the 1990 Trust Termination Date with respect to the related
Distribution Period, an amount equal to the product of (a) the Offered
Certificate Rate for such Distribution Period, (b) the Invested Amount as of
the immediately preceding Distribution Date and (c) the result of (i) the
actual number of days in such Distribution Period divided by (ii) 360.
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<PAGE> 11
"Projected Monthly Servicing Fee" shall mean, on any Transfer Date after
the 1990 Trust Termination Date with respect to the Due Period in which such
Transfer Date occurs, an amount equal to one-twelfth of the product of (a)
1%, (b) the aggregate principal amount of Dealer Notes as of such Transfer
Date, (c) the Series 1998-1 Allocation Percentage for the Due Period related
to such Transfer Date and (d) the Floating Allocation Percentage for the Due
Period related to such Transfer Date.
"Projected Spread" shall mean, on any Transfer Date after the 1990 Trust
Termination Date with respect to the Distribution Period next following the
Distribution Period to which such Transfer Date relates, the sum of (a) the
positive amount, if any, by which (i) the sum of (A) Projected Monthly
Interest for such Distribution Period and (B) the Projected Monthly
Servicing Fee for the Due Period in which such Transfer Date occurs exceeds
(ii) the Projected Dealer Note Income as of such Transfer Date and (b) %
of the Invested Amount as of the preceding Distribution Date.
"Reference Banks" shall mean the principal London offices of Morgan
Guaranty Trust Company of New York, Swiss Bank Corporation and Barclays Bank
PLC.
"Required Excess Seller Interest" shall mean, with respect to any
business day, % of the Invested Amount as of the end of the preceding
Distribution Date (and such percentage shall be the "Required Excess Seller
Interest Percentage").
"Required Subordinated Amount" shall mean, with respect to any Transfer
Date related to a Due Period commencing after the 1990 Trust Termination
Date, an amount equal to % of the Maximum Subordinated Amount as of such
Transfer Date.
"Series Allocable Servicing Fee" shall equal, for each Due Period
commencing after the 1990 Trust Termination Date and occurring prior to the
earlier of the first Distribution Date following the Series Termination Date
and the first Distribution Date on which the Invested Amount is zero, an
amount equal to one-twelfth of the product of (a) 1%, (b) the aggregate
principal amount of Dealer Notes outstanding as of the last day of such Due
Period, and (c) the Series Allocation Percentage with respect to such Due
Period.
"Used Vehicle Monthly Interest Rate" shall mean, with respect to any Due
Period, the product of (a) the per annum rate of interest and finance
charges billed by NFC during such Due Period on Dealer Notes financing used
vehicles and (b) the quotient of (i) a number equal to the number of days
during such Due Period and (ii) the actual number of days in the related
calendar year.
INVESTMENT IN STRUCTURED NOTES BACKED BY INVESTOR CERTIFICATES
In addition to the investments described as Eligible Investments in the
Prospectus, Eligible Investments for the Excess Funding Account will include any
security (a "SPECIAL STRUCTURED NOTE") issued by a trust (the "SPECIAL ISSUER")
the assets of which consist solely of Investor Certificates issued by the Master
Trust and of one or more liquidity swap arrangements for the benefit of
investors in the Special Issuer. In addition, the Rating Agencies will permit
100% of the Eligible Investments in the Excess Funding Account to consist of
Special Structured Notes, so long as such Special Structured Notes have at the
time of the Master Trust's investment therein a credit rating from each of the
Rating Agencies in the highest investment category granted thereby,
notwithstanding the otherwise applicable limitation that Eligible Investments
consisting of obligations of or investments in any single issuer not exceed the
greater of $1,000,000 and 20% of the aggregated amount of funds in the Series
Principal Account, the Excess Funding Account, the Negative Carry Reserve Fund
and the Liquidity Reserve Fund. See "Description of the Offered Certificates --
Master Trust Accounts; Other Accounts for the Offered Series" in the Prospectus.
In the event that an Early Amortization Event occurs at a time that Special
Structured Notes are held in the Excess Funding Account, an Early Distribution
will be deemed to occur immediately prior to the end of the last day of the
Revolving Period with respect to a portion (the "EARLY DISTRIBUTION AMOUNT") of
the Invested Amount of the Offered Certificates equalling the principal amount
of the Special Structured Notes held in the Excess Funding Account. An "EARLY
DISTRIBUTION" with respect to the Offered Certificates means that principal in
respect of the Offered Certificates, in an amount equal to the principal amount
of the Special Structured Notes held in the Excess Funding Account, will
S-11
<PAGE> 12
be deemed to be paid to the Special Issuer in exchange for the cancellation of
such Special Structured Notes. The effect of such an Early Distribution will be
to reduce, simultaneously, the Invested Amount of the Offered Certificates and
the amount of Eligible Investments in the Excess Funding Account, each by an
amount equal to the Early Distribution Amount.
RATINGS OF THE CERTIFICATES
It is a condition to issuance of the Series 1998-1 Certificates that they be
rated in the highest long-term rating category by each of Standard and Poor's
Ratings Services and Moody's Investors Service, Inc. The rating of the Series
1998-1 Certificates addresses the likelihood of the timely payment of interest
at the Offered Certificate Rate and the ultimate payment of principal by the
Series Termination Date on the Series 1998-1 Certificates. However, a Rating
Agency does not evaluate, and the rating of the Series 1998-1 Certificates does
not address, the likelihood that the outstanding principal amount of the Series
1998-1 Certificates will be paid on the Expected Payment Date or the likelihood
of the payment of any penalty interest. The rating of the Series 1998-1
Certificates is based primarily on the value of the Class A-6 Investor
Certificate and the Dealer Notes and the rating requirements for investments of
funds in Eligible Deposit Accounts maintained for the benefit of the Series
1998-1 Certificateholders and the level of subordination of the 1990 Trust
Seller Interest and the Master Trust Seller's Interest. A rating is not a
recommendation to buy, sell or hold securities, inasmuch as such rating does not
comment as to the market price or the suitability for a particular investor.
There is no assurance that a rating will remain 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.
EARLY AMORTIZATION EVENTS
An "Early Amortization Event" with respect to Series 1998-1 refers to any of
the following events:
(a) the Master Trust becomes an "investment company" within the meaning
of the Investment Company Act of 1940, as amended, and is not exempt from
compliance with such Act;
(b) the Invested Amount is not reduced to zero by the Expected Payment
Date;
(c) the United States government or any agency or instrumentality
thereof files a notice of a lien under Internal Revenue Code ss. 6323 or any
similar statutory provision (including, but not limited to, 302(f) or ss.
4068 of ERISA) on the assets of NFC or NFSC which is or may in the future be
prior to the lien of the Master Trust Trustee on the assets of the Master
Trust (including without limitation proceeds of the Dealer Notes);
(d) failure on the part of the Seller (i) to make any payment,
distribution or deposit required under the Pooling and Servicing Agreement
on the date due or within five business days thereafter or (ii) to observe
or perform in any material respect any other material covenants or
agreements of the Seller, which continues unremedied for a period of 60 days
after written notice of such failure shall have been given to the Seller;
(e) any representation or warranty made by the Seller pursuant to the
Pooling and Servicing Agreement or any information contained in the schedule
of Dealer Notes delivered thereunder shall prove to have been incorrect in
any material respect when made or when delivered, which representation,
warranty or schedule, or the circumstances or condition that caused such
representation, warranty or schedule to be incorrect, continues to be
incorrect or uncured in any material respect for a period of 60 days after
written notice of such incorrectness shall have been given to the Seller and
as a result of which the interests of the Series 1998-1 Certificateholders
are materially and adversely affected, except that an Early Amortization
Event shall not be deemed to occur if the Seller has repurchased the related
Dealer Notes or all such Dealer Notes, if applicable, during such period in
accordance with the provisions of the Pooling and Servicing Agreement;
(f) after the 1990 Trust Termination Date, the Seller shall become
legally unable for any reason to transfer Dealer Notes to the Master Trust
in accordance with the provisions of the Pooling and Servicing Agreement;
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<PAGE> 13
(g) on any Transfer Date related to a Due Period commencing after the
1990 Trust Termination Date, the Available Subordinated Amount for such
Transfer Date will be reduced to an amount less than the Required
Subordinated Amount;
(h) any Servicer Termination Event shall occur (i) which would have a
material adverse effect on the Series 1998-1 Certificateholders and (ii)
for which the Servicer has received a notice of termination;
(i) after the 1990 Trust Termination Date, the delivery by the Seller to
the Master Trust Trustee of a notice stating that the Seller will no longer
continue to sell Dealer Notes to the Master Trust commencing on the date
specified in such notice;
(j) after the 1990 Trust Termination Date, on three consecutive
Determination Dates, the "Average Coverage Differential" (defined as the
average of the highest three of the four most recent Coverage Differentials
(defined generally as the difference between the annualized percentage yield
on the Dealer Notes and the sum of 1.00% and the Offered Certificate Rate
for the related Due Period)) shall be equal to or less than negative two
percent (-2.00%);
(k) at the end of any Due Period commencing after the 1990 Trust
Termination Date, the Master Trust Seller's Interest is reduced to an amount
less than the Master Trust Minimum Seller's Interest and the Seller has
failed to assign additional Dealer Notes or cash to the Master Trust in the
amount of such deficiency within ten business days following the end of such
Due Period;
(l) on any Determination Date after the 1990 Trust Termination Date, the
Turnover is less than 1.7;
(m) on any Determination Date after the 1990 Trust Termination Date, the
quotient of (i) the sum of Dealer Note Losses for each of the related Due
Period and the five immediately preceding Due Periods and (ii) the sum of
Principal Collections for each of the related Due Period and the five
immediately preceding Due Periods, is greater than or equal to 1%;
(n) at any time prior to the 1990 Trust Termination Date, a 1990 Trust
Amortization Event occurs under the 1990 Trust with respect to the Related
1990 Certificate (other than a 1990 Trust Amortization Event that also
constitutes an Early Amortization Event under the Master Trust) or the
Scheduled Class Amortization Date occurs with respect to the Related 1990
Certificate;
(o) the occurrence of certain events of bankruptcy, insolvency or
receivership relating to the Seller, NFC, NITC or NIC; and
(p) after the 1990 Trust Termination Date, failure on the part of NITC
to make a deposit in the Interest Deposit Account required by the terms of
the Master Trust Interest Deposit Agreement on or before the date occurring
five business days after the date such deposit is required by the Master
Trust Interest Deposit Agreement to be made.
Upon the occurrence of Early Amortization Event (c), distributions in
respect of the Invested Amount will commence on the immediately succeeding
Distribution Date. Upon the occurrence of any other Early Amortization Event,
distributions in respect of the Invested Amount will commence at the time
described in the Prospectus.
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<PAGE> 14
OTHER SERIES ISSUED BY THE MASTER TRUST
The table below sets forth the principal characteristics of the other Series
of investor certificates issued by the Master Trust which are outstanding on the
date of this Prospectus Supplement.
<TABLE>
<S> <C>
SERIES 1995-1
Certificate Rate..................................................LIBOR + 0.30%
Closing Date.......................................................June 8, 1995
Expected Payment Date...........................................August 25, 2004
Initial Invested Amount............................................$200,000,000
Interest in 1990 Trust...........................Class A-4 Investor Certificate
Number of classes within Series.............................................One
Ordinary means of principal repayment.......................Accumulation Period
Primary source of credit enhancement..............................Subordination
Series Termination Date.........................................August 25, 2007
Servicing Fee Percentage.....................................................1%
Subordinated Percentage...................................................15.5%
SERIES 1997-1
Certificate Rate..................................................LIBOR + 0.15%
Closing Date....................................................August 19, 1997
Expected Payment Date...........................................August 25, 2003
Initial Invested Amount............................................$200,000,000
Interest in 1990 Trust...........................Class A-5 Investor Certificate
Number of classes within Series.............................................One
Ordinary means of principal repayment.......................Accumulation Period
Primary source of credit enhancement..............................Subordination
Series Termination Date.........................................August 25, 2006
Servicing Fee Percentage.....................................................1%
Subordinated Percentage...................................................15.5%
</TABLE>
1990 TRUST INVESTOR CERTIFICATES
PRINCIPAL TERMS
The principal terms of each Class of 1990 Trust Investor Certificates (the
"Principal Terms") are as follows:
Related 1990 Certificate. The Class A-6 Investor Certificate is the Related
1990 Certificate to be issued to the Master Trust in connection with the
issuance of the Series 1998-1 Certificates, as described in the attached
Prospectus. The Class A-6 Investor Certificate will be issued by the 1990 Trust.
In addition to the terms and conditions set forth below, reference is made to
the Prospectus for the terms and conditions of the Class A-6 Investor
Certificate.
Class Initial Invested Amount.....................$200,000,000
Class Initial Investor Interest...................$200,000,000
Class Termination Date...........................July 25, 2011
The Related 1990 Certificate Rate for the Class A-6 Investor Certificate
equals LIBOR plus the Class Certificate Margin. The "Class Certificate Margin"
with respect to any Distribution Period shall be an amount equal to (a) the
product of (1) the sum of LIBOR with respect to such Distribution Period and 0.
% and (2) a fraction the numerator of which is the number of days in the related
Distribution Period and the denominator of which is 30 days (days with respect
to the Initial Distribution Period) minus (b) LIBOR with respect to such
Distribution Period. The "Scheduled
S-14
<PAGE> 15
Class Amortization Date" for the Class A-6 Investor Certificate shall mean the
earlier of (a) July 25, 2008, and (b) the date on which any Early Amortization
Event with respect to the Series 1998-1 Certificates occurs.
Class A-3 Investor Certificates
Class Initial Invested Amount.....................$100,000,000
Class Initial Investor Interest...................$100,000,000
Class Certificate Margin.................................0.90%
Scheduled Class Amortization Date.............December 1, 1998
Class Termination Date........................January 25, 2003
Class A-4 Investor Certificates
Class Initial Invested Amount.....................$207,860,000
Class Initial Investor Interest...................$207,860,000
Class Certificate Margin.................................0.30%
Class Termination Date...........................July 25, 2007
The "Scheduled Class Amortization Date" for the Class A-4 Investor
Certificate shall mean the earlier of (a) August 25, 2004 and (b) the date on
which any Early Amortization Event or Investment Event, in each case with
respect to the Series 1995-1 Certificates (the Series of certificates issued by
the Master Trust in connection with the Class A-4 Investor Certificate), occurs.
Class A-5 Investor Certificates
Class Initial Invested Amount.....................$200,000,000
Class Initial Investor Interest...................$200,000,000
Class Termination Date...........................July 25, 2006
The "Class Certificate Margin" with respect to any Distribution Period shall
be an amount equal to (a) the product of (1) the sum of LIBOR with respect to
such Distribution Period and 0.15% and (2) a fraction the numerator of which is
the number of days in the related Distribution Period and the denominator of
which is 30 (37 with respect to the Initial Distribution Period) minus (b) LIBOR
with respect to such Distribution Period. The "Scheduled Class Amortization
Date" for the Class A-5 Investor Certificate shall mean the earlier of (a)
August 25, 2003, and (b) the date on which any Early Amortization Event with
respect to the Series 1997-1 Certificates occurs.
SUBORDINATION OF SELLER'S INTEREST
The right of the holder of the 1990 Trust Seller Certificate to receive
payments in respect of the 1990 Trust Seller Interest is subordinated to the
interests of the 1990 Trust Investor Certificates, including the Class A-6
Investor Certificate, to the extent of the 1990 Trust Available Subordinated
Amount. As of the June 1998 Distribution Date (after giving pro forma effect to
the issuance of the Class A-6 Investor Certificate to the Master Trust and the
issuance of the Series 1998-1 Certificates by the Master Trust), the 1990 Trust
Available Subordinated Amount was $109 million. For additional information
regarding the subordination of the 1990 Trust Seller Interest, see "Terms of the
1990 Trust Investor Certificates -- Limited Subordination of the 1990 Trust
Seller Interest; 1990 Trust Available Subordinated Amount" in the Prospectus.
ISSUANCE OF ADDITIONAL CLASSES OF CERTIFICATES
The Seller may in the future issue additional classes of Dealer Note Asset
Backed Certificates ("Additional Classes") which would be payable out of Series
Allocable Principal Collections and Series Allocable Finance Charge Collections
allocated to the Series 1998-1 Certificates on the basis of the Series
Allocation Percentage for the Series 1998-1 Certificates. Such issuance will
require amendment to the Pooling and Servicing Agreement, the Supplement with
respect to the Series 1998-1 Certificates and other related documents, which,
not withstanding the description set forth
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<PAGE> 16
under the caption "Description of the Offered Certificates -- Amendments" in the
Prospectus, may be done without the consent of the holders of the Series 1998-1
Certificates provided that the Rating Agency Condition shall have been satisfied
with respect to the Series 1998-1 Certificates in connection with any such
issuance.
PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), the Seller has agreed to sell to J.P. Morgan
Securities, Inc. (the "Underwriter"), and the Underwriter has agreed to purchase
from the Seller, all of the Series 1998-1 Certificates.
The Underwriter intends initially to sell the Series 1998-1 Certificates to
a trust with respect to which the Underwriter will act as depositor. The Seller
does not intend to apply for listing of the Series 1998-1 Certificates on a
national securities exchange, and has been advised by the Underwriter that it
does not intend to make a market in the Series 1998-1 Certificates.
In the ordinary course of its business, the Underwriter and its affiliates
have engaged and may in the future engage in commercial banking or investment
banking transactions with affiliates of the Seller, including the Seller's
parent, NFC.
The Seller has agreed to indemnify the Underwriter against certain
liabilities including liabilities under the Securities Act of 1933 and to
contribute to payments the Underwriter may be required to make in respect
thereof.
LEGAL MATTERS
In addition to the legal opinions described in the Prospectus, certain legal
matters relating to the Series 1998-1 Certificates will be passed upon for the
Underwriter by Mayer, Brown & Platt.
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<PAGE> 17
INDEX OF TERMS
1990 Trust..........................................................S-1
1990 Trust Agreement................................................S-1
Accumulation Period Commencement Date.........................S-9, S-13
Accumulation Period Length..........................................S-9
Additional Classes.................................................S-15
Average Coverage Differential......................................S-13
Class A-6 Investor Certificate......................................S-1
Class Certificate Margin.....................................S-14, S-15
Closing Date........................................................S-1
Distribution Date...................................................S-1
Early Amortization Event...........................................S-12
Early Distribution.................................................S-11
Early Distribution Amount..........................................S-11
Expected Payment Date...............................................S-1
Initial Distribution Period.........................................S-1
Issuer..............................................................S-1
LIBOR...............................................................S-9
LIBOR Determination Date...........................................S-10
Master Trust........................................................S-1
Master Trust Trustee................................................S-1
Minimum Series Seller's Interest...................................S-10
New Vehicle Monthly Interest Rate..................................S-10
NFC.................................................................S-1
NFSC................................................................S-1
NIC.................................................................S-2
NITC................................................................S-2
Offered Certificate Rate......................................S-1, S-10
Pooling and Servicing Agreement.....................................S-1
Principal Terms....................................................S-14
Projected Dealer Note Income.......................................S-10
Projected Monthly Interest.........................................S-10
Projected Monthly Servicing Fee....................................S-11
Projected Spread...................................................S-11
Prospectus..........................................................S-1
Reference Banks....................................................S-11
Required Excess Seller Interest....................................S-11
Required Excess Seller Interest Percentage.........................S-11
Required Subordinated Amount.......................................S-11
Scheduled Class Amortization Date............................S-14, S-15
Seller..............................................................S-1
Series 1998-1 Certificates..........................................S-1
Series Allocable Servicing Fee.....................................S-11
Servicer............................................................S-1
Special Issuer.....................................................S-11
Special Structured Note............................................S-11
Underwriter........................................................S-16
Underwriting Agreement.............................................S-16
Used Vehicle Monthly Interest Rate.................................S-11
Wholesale Portfolio.................................................S-3
S-17
<PAGE> 18
PROSPECTUS
NAVISTAR FINANCIAL DEALER NOTE MASTER TRUST
DEALER NOTE ASSET BACKED CERTIFICATES
---------------
NAVISTAR FINANCIAL SECURITIES CORPORATION
SELLER
---------------
NAVISTAR FINANCIAL CORPORATION
SERVICER
---------------
The Dealer Note Asset Backed Certificates described herein (the
"Certificates") each represent an undivided interest in certain assets of the
Navistar Financial Dealer Note Master Trust (the "Master Trust") created
pursuant to the Pooling and Servicing Agreement (the "Pooling and Servicing
Agreement") entered into among Navistar Financial Corporation ("NFC" or the
"Servicer"), Navistar Financial Securities Corporation ("NFSC" or the "Seller"),
The Chase Manhattan Bank, as trustee under the 1990 Trust (as defined below),
and The Bank of New York, as trustee of the Master Trust (the "Master Trust
Trustee"). The Certificates may be offered and sold from time to time (the
"Offered Certificates"), in one or more series (each, an "Offered Series"), in
an amount (the "Initial Invested Amount"), at a price and on terms to be
determined at the time of sale and to be set forth in a supplement to this
Prospectus (each, a "Prospectus Supplement"). Interest on the Offered
Certificates will be paid on the twenty-fifth day of each month (or if such day
is not a business day, the next business day thereafter) (each, a "Distribution
Date"). If so provided in the Prospectus Supplement for an Offered Series, and
unless an Early Amortization Event occurs, upon the occurrence of certain events
described in such Prospectus Supplement an Investment Period with respect to
such Offered Series will commence and certain amounts allocable to the Offered
Certificates will be deposited in the Series Principal Account and used to make
principal payments with respect to the Offered Certificates on the Expected
Payment Date (or earlier or later under certain circumstances described herein
and in the Prospectus Supplement).
The Navistar Financial Dealer Note Trust 1990 (the "1990 Trust") was formed
pursuant to a Pooling and Servicing Agreement, dated as of December 1, 1990,
among NFC, as Servicer, NFSC, as Seller, and The Chase Manhattan Bank, as
trustee (the "1990 Trust Trustee") (as it has been or may be supplemented and
amended, the "1990 Trust Agreement"). The corpus of the 1990 Trust includes,
among other things, wholesale dealer notes which are generated from time to time
in the ordinary course of business and are issued by dealers to finance
purchases of new and used medium and heavy duty trucks and new and used
trailers, all monies due or to become due with respect thereto, the interest of
the Seller in the security interests in the related financed vehicles, and all
proceeds of the foregoing. Prior to the date hereof, the 1990 Trust has issued
five classes of 1990 Trust Investor Certificates, the Class A-1, Class A-2,
Class A-3, Class A-4 and Class A-5 Investor Certificates. Of such 1990 Trust
Investor Certificates, only the Class A-4 and Class A-5 Investor Certificates
are included in the assets of the Master Trust. Certain assets of the 1990 Trust
have been allocated to the holders of the 1990 Trust Investor Certificates
(whether or not issued to the Master Trust), each of which represents a
fractional undivided interest in the 1990 Trust, including the right to receive
varying percentages of the collections with respect to the assets in the 1990
Trust. (continued on next page)
---------------
THE OFFERED CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN THE MASTER TRUST
ONLY AND DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE SELLER, THE
SERVICER OR ANY AFFILIATE THEREOF.
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.
---------------
SEE "RISK FACTORS" AT PAGE 27 FOR A DISCUSSION OF MATERIAL RISKS THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS IN CONNECTION WITH AN INVESTMENT IN THE
OFFERED CERTIFICATES.
Retain this Prospectus for future reference. This Prospectus may not be used
to consummate sales of Offered Certificates unless accompanied by a Prospectus
Supplement.
The date of this Prospectus is July 9, 1998.
<PAGE> 19
Prior to the 1990 Trust Termination Date, (a) the assets of the Master Trust
will include the Class A-4 and Class A-5 Investor Certificates, any 1990 Trust
Investor Certificate issued to the Master Trust in connection with the issuance
of any Offered Series (each, a "Related 1990 Certificate"), any 1990 Trust
Investor Certificate issued to the Master Trust in connection with the issuance
of any other series of certificates issued by the Master Trust (each, a
"Subsequent 1990 Trust Investor Certificate"), any interest rate hedge or other
enhancement that the Master Trust may have entered into or obtained for the
benefit of any such series (any series of certificates issued by the Master
Trust, including any Offered Series, is referred to herein as a "Series"), the
1990 Trust Seller Certificate, and all funds on deposit in certain accounts of
the Master Trust, (b) the dealer notes are sold on a daily basis to the Seller
pursuant to the 1990 Trust Purchase Agreement between NFC and the Seller, and
the Seller in turn conveys the dealer notes on a daily basis to the 1990 Trust,
and (c) the holders of any Series of Offered Certificates (the "Offered
Certificateholders") will have an interest only in the Related 1990 Certificate,
any interest rate hedge or other enhancement that the Master Trust may have
entered into or obtained for the benefit of such Series of Offered Certificates,
and all of the funds on deposit in certain accounts of the Master Trust.
As of the 1990 Trust Termination Date, if a 1990 Trust Early Amortization
Period shall not have occurred prior to such date, (a) the 1990 Trust will
transfer to the Master Trust all of the property of the 1990 Trust (other than
funds on deposit in respect of the Class A-3 Investor Certificates, the
outstanding class of 1990 Trust Investor Certificates that are not assets of the
Master Trust), and (b) the Class A-4 and Class A-5 Investor Certificates, each
Related 1990 Certificate, any Subsequent 1990 Trust Investor Certificate and the
1990 Trust Seller Certificate will automatically be canceled, and all rights of
the Master Trust with respect to such certificates will terminate.
As of the 1990 Trust Termination Date and thereafter, (a) the assets of the
Master Trust will include all Dealer Notes transferred to the Master Trust by
the 1990 Trust and all Dealer Notes thereafter transferred to the Master Trust
by the Seller, all monies due or to become due with respect thereto and all
proceeds of such Dealer Notes, the interest of the Seller in the security
interests in the Financed Vehicles related to the Dealer Notes and the proceeds
thereof, the interest of the Seller in the Insurance Proceeds, each Interest
Rate Swap, interest rate cap, or other interest rate hedge, if any, that the
Master Trust may have entered into or obtained for the benefit of any Series,
and all funds on deposit in certain accounts of the Master Trust, (b) NFC will
sell Dealer Notes on a daily basis to the Seller pursuant to the Master Trust
Purchase Agreement (which will become effective upon the 1990 Trust Termination
Date), and the Seller in turn will convey on a daily basis the Dealer Notes to
the Master Trust, and (c) the Offered Certificateholders will have an interest
in and a right to receive a varying percentage of each month's collections with
respect to the dealer notes contained in the Master Trust as of such time. NFC
will service the dealer notes in its capacity as Servicer under the 1990 Trust
Agreement or the Pooling and Servicing Agreement, as applicable, and will
receive a monthly servicing fee as compensation for its servicing activities
thereunder.
From time to time, subject to certain conditions, the Seller may designate
and offer other Series of certificates, which may have terms significantly
different from the terms of an Offered Series.
The Seller will own the interest in the Master Trust not represented by the
Offered Certificates or the certificates of any other Series issued by the
Master Trust. A portion of the Master Trust Seller's Interest will be
subordinated to the rights of the Offered Certificateholders after the 1990
Trust Termination Date to the limited extent described herein. See "Description
of the Offered Certificates "Allocations of Collections After the 1990 Trust
Termination Date "Limited Subordination of Master Trust Seller's Interest;
Spread Account; Liquidity Reserve Account."
There is currently no secondary market for the Offered Certificates, and
there is no assurance that one will develop. The underwriters with respect to an
Offered Series are expected, but are not obligated, to make a market in such
Offered Certificates. However, even if the underwriters do make such a market,
there is no assurance that any such market will continue.
Delivery of the Offered Certificates is expected to be made in book-entry
form only through the facilities of The Depository Trust Company ("DTC").
2
<PAGE> 20
AVAILABLE INFORMATION
The Seller has filed a Registration Statement (the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"), with the
Securities and Exchange Commission (the "Commission") with respect to the
Offered Certificates offered pursuant to this Prospectus and the related
Prospectus Supplement. This Prospectus, which forms part of the Registration
Statement, does not contain all of the information contained in the Registration
Statement and the exhibits thereto. For further information, reference is made
to the Registration Statement and the amendments thereof and the exhibits
thereto, which are available for inspection without charge at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549; 7 World Trade Center, New York, New York 10048; and
Northwestern Atrium Center, Suite 1400, 500 West Madison Street, Chicago, IL
60601. Copies of the Registration Statement and the amendments thereof and the
exhibits thereto may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
The Master Trust is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports and other information with the Commission.
Such reports and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the regional offices of the Commission located at 7 World Trade Center, 13th
Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60601. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. Electronic reports and other information filed
through the Commission's Electronic Data Gathering, Analysis and Retrieval
system are publicly available through the Commission's Web site
(http://www.sec.gov).
REPORTS TO THE OFFERED CERTIFICATEHOLDERS
Unless and until Definitive Certificates are issued, monthly and annual
reports containing information concerning the Master Trust, prepared by the
Servicer, will be sent on behalf of the Master Trust to Cede & Co. ("Cede") (as
the registered holder of the Offered Certificates) to be available for
forwarding to holders of interests in the Offered Certificates. The Seller is
authorized to file, and will file on behalf of the Master Trust, such periodic
reports with respect to the Master Trust as are required to be filed pursuant to
the Exchange Act or any rules and regulations thereunder. The annual reports
will not contain financial information that has been examined and reported on by
independent public accountants.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following reports and documents filed by NFSC on behalf of the Master
Trust pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act are
hereby incorporated by reference in this Prospectus:
(1) Annual Report on Form 10-K for the fiscal years ended October 31,
1997; and
(2) Current Reports on Form 8-K for November 25, 1997, December 26,
1997, January 26, 1998, February 25, 1998, March 25, 1998, April 24, 1998,
May 26, 1998 and June 25, 1998.
All reports and other documents filed by NFSC on behalf of the Master Trust
pursuant to Sections 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
investor certificates shall be deemed to be incorporated by reference into this
Prospectus and to be a part hereof. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as modified or superseded, to constitute
a part of this Prospectus.
3
<PAGE> 21
The Servicer will provide without charge to each person, including any
beneficial owner of investor certificates, to whom a copy of this Prospectus is
delivered, a copy of any and all the documents incorporated herein by reference
(other than exhibits to such documents) upon request. Requests should be
directed to Navistar Financial Corporation, 2850 West Golf Road, Rolling
Meadows, IL 60008 (telephone 847/734-4094).
4
<PAGE> 22
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus and by reference to the
information with respect to the Offered Certificates contained in the related
Prospectus Supplement to be prepared and delivered in connection with the
offering of such Offered Certificates. Certain capitalized terms used in this
Prospectus Summary are defined elsewhere in this Prospectus. A listing of the
pages on which terms are defined is found in the "Index of Terms."
SECURITIES OFFERED..................... Dealer Note Asset Backed Certificates.
ISSUER................................. Navistar Financial Dealer Note Master
Trust.
SELLER................................. Navistar Financial Securities
Corporation, a wholly owned special
purpose financing subsidiary of
Navistar Financial Corporation.
SERVICER............................... Navistar Financial Corporation, a wholly
owned subsidiary of Navistar
International Transportation Corp.
MASTER TRUST TRUSTEE................... The Bank of New York.
1990 TRUST TERMINATION DATE............ The "1990 Trust Termination Date" means
the close of business on the date, which
will be given retroactive effect, which
is the last day of the Due Period
related to the Distribution Date on
which the Class Invested Amount of each
of the Class A-1, A-2 and A-3 Investor
Certificates is reduced to zero. In the
absence of a 1990 Trust Amortization
Event, the 1990 Trust Termination Date
will occur following the repayment of
the Class Invested Amount for the Class
A-3 Investor Certificates, which
repayment will commence on the first
Distribution Date following the Due
Period commencing December 1, 1998.
Prior to the 1990 Trust Termination
Date, the principal assets held by the
Master Trust will be the Class A-4 and
Class A-5 Investor Certificates, each
Related 1990 Certificate, any Subsequent
1990 Trust Investor Certificate, any
associated Interest Rate Swap and the
1990 Trust Seller Certificate. Each
Related 1990 Certificate will bear
interest at a rate intended to provide
sufficient cash flows to make required
payments of interest on the Offered
Certificates or on an associated
Interest Rate Swap and will have an
invested amount intended to be
sufficient, in the event of early
amortization of the 1990 Trust, to repay
the Invested Amount on the Offered
Certificates or, in the event that such
amortization event constitutes an
Investment Period with respect to the
Offered Certificates, to fund the Series
Principal Account and the Negative Carry
Reserve Fund. As described in more
detail herein, prior to the 1990 Trust
Termination Date, the 1990 Trust will be
the Active Trust and will hold the
Dealer Notes and certain related assets
and receive and allocate the collections
and losses thereon to holders of the
1990 Trust Investor Certificates,
including the Master Trust as holder of
each Related 1990 Certificate. During
this time, the Master Trust will be
essentially a passive entity in which
Collections received on each Related
1990 Certificate and any Net Swap
Receipts will be used to make payments
to Certificateholders, including the
Offered Certificateholders, and any Net
Swap Payments.
5
<PAGE> 23
Following the 1990 Trust Termination
Date, the Master Trust will become the
Active Trust. As described in more
detail herein, the Dealer Notes and
other assets held by the 1990 Trust will
be transferred to the Master Trust, and
the Master Trust will thereafter receive
and allocate the Collections thereon to
Certificateholders, including Offered
Certificateholders.
MASTER TRUST PROPERTY.................. Until the occurrence of the 1990 Trust
Termination Date the assets of the
Master Trust will include (a) the 1990
Trust Seller Certificate transferred by
the Seller to the Master Trust, all
rights of the Seller thereunder and all
other rights of the Seller under the
1990 Trust Agreement (including the
right to exchange such 1990 Trust Seller
Certificate for new classes of 1990
Trust Investor Certificates in the
manner described herein, the right to
receive distributions and other payments
from the 1990 Trust, and the right to
receive funds on deposit in the 1990
Trust Liquidity Reserve Account, 1990
Trust Spread Account and 1990 Trust
Interest Deposit Account), (b) the Class
A-4 and Class A-5 Investor Certificates,
each Related 1990 Certificate and any
Subsequent 1990 Trust Investor
Certificate and all monies due or to
become due with respect thereto, (c)
each Interest Rate Swap, interest rate
cap, or other interest rate hedge, if
any, that the Master Trust may have
entered into or obtained for the benefit
of any Series and (d) all funds on
deposit in certain accounts of the
Master Trust, including funds on deposit
in the Collections Account, the Series
Principal Account, the Distribution
Account, the Negative Carry Reserve Fund
and any other Series Accounts created
under a Supplement to the Pooling and
Servicing Agreement.
Each Related 1990 Certificate will be a
newly-issued 1990 Trust Investor
Certificate issued to the Master Trust
in connection with the issuance of a
Series of Offered Certificates. The
Class Initial Invested Amount of the
Related 1990 Certificate is expected to
equal or exceed the Initial Invested
Amount of the Offered Certificates. The
Related 1990 Certificate will bear
interest at a floating rate equal to one
month LIBOR plus a margin, which margin
will be established as specified in the
Prospectus Supplement. The Related 1990
Certificate will represent an undivided
interest in the 1990 Trust and will
entitle the Master Trust, as the holder
thereof, to share in the collections on
the Dealer Notes held by the 1990 Trust
ratably with each other series of 1990
Trust Investor Certificates issued by
the 1990 Trust (including the Class A-4
and Class A-5 Investor Certificates, any
Related 1990 Certificate and any
Subsequent 1990 Trust Investor
Certificate) on the basis described
herein. A Related 1990 Certificate will
be transferred to the Master Trust in
connection with the issuance of the
Offered Certificates to provide a source
of funds for the required payments
thereon prior to the 1990 Trust
Termination Date. Prior to such date,
Dealer Notes issued to the 1990 Trust
cannot be transferred to the Master
Trust.
6
<PAGE> 24
As of the 1990 Trust Termination Date
(a) the 1990 Trust will transfer to the
Master Trust all of its right, title and
interest in and to all of the property
of the 1990 Trust (other than funds on
deposit in respect of the Class A-3
Investor Certificates), and (b) the
Class A-4 and Class A-5 Investor
Certificates, each Related 1990
Certificate, any Subsequent 1990 Trust
Investor Certificate and the 1990 Trust
Seller Certificate will automatically be
canceled, and all rights of the Master
Trust with respect to such certificates
will terminate. As of the 1990 Trust
Termination Date, funds on deposit in
the 1990 Trust Spread Account will be
transferred to the Master Trust and
allocated among the Offered Series and
any other outstanding Series that so
provides based on the projected spread
for each such Series (including the
Projected Spread for the Offered
Series). Any such funds allocated to the
Offered Series will be deposited in the
Spread Account for the benefit of the
Offered Certificateholders. In addition,
as of the 1990 Trust Termination Date,
1990 Trust Investment Securities will be
transferred to the Master Trust and
deposited in the Excess Funding Account
for the benefit of the Offered
Certificateholders and the
certificateholders of each other
outstanding Series (such other
certificateholders, together with the
Offered Certificateholders, are referred
to as the "Certificateholders").
Finally, as of the 1990 Trust
Termination Date, funds on deposit in
the 1990 Trust Interest Deposit Account
will be transferred to the Master Trust
and deposited in the Interest Deposit
Account, subject to allocation and
distribution as Finance Charge
Collections to the extent provided
herein. Thus, as of the 1990 Trust
Termination Date and thereafter, the
assets of the Master Trust will include
(a) all Dealer Notes transferred to the
Master Trust by the 1990 Trust and all
Dealer Notes thereafter transferred to
the Master Trust by the Seller, all
monies due or to become due with respect
thereto and all proceeds of such Dealer
Notes, (b) the interest of the Seller in
the security interests in the Financed
Vehicles related to the Dealer Notes and
the proceeds thereof, (c) the interest
of the Seller in the Insurance Proceeds,
(d) each Interest Rate Swap, interest
rate cap, or other interest rate hedge,
if any, that the Master Trust may have
entered into or obtained for the benefit
of any Series, and (e) all funds on
deposit in certain accounts of the
Master Trust, including funds on deposit
in the Series Principal Account, the
Distribution Account, the Spread
Account, the Excess Funding Account, the
Interest Deposit Account, the Negative
Carry Reserve Fund and any other Series
Account created under a Supplement to
the Pooling and Servicing Agreement.
On each business day (except in certain
limited circumstances), NFC will sell
Dealer Notes to the Seller and the
Seller will transfer such Dealer Notes
to the 1990 Trust, or after the 1990
Trust Termination Date, the Master Trust
(in either case, the "Active Trust")
based on criteria provided in the 1990
Trust Agreement when the 1990 Trust is
the Active Trust or the Pooling and
Servicing Agreement when the Master
Trust is the Active Trust (in either
case, the "Applicable Agreement").
Accordingly, the aggregate amount of
Dealer Notes in the Active Trust will
fluctuate from day to day as new Dealer
Notes are generated and as existing
Dealer Notes are collected, charged off
as uncollectible or otherwise adjusted
or removed from the Active Trust.
7
<PAGE> 25
DEALER NOTES........................... The Dealer Notes consist of wholesale
notes issued by Dealers to finance new
and used trucks and new and used
trailers manufactured by or for NITC and
other manufacturers. A Dealer Note is
created upon shipment of, or upon
receipt of an invoice with respect to,
each new truck to such a Dealer or upon
the purchase or acceptance in trade by
such a Dealer of a used vehicle or
trailer. NFC purchases Dealer Notes on a
daily basis from NITC and from dealers.
Currently, the Dealer Notes bear
interest at a floating rate equal to the
prime rate as announced from time to
time by certain U.S. financial
institutions plus a margin. See
generally, "The Navistar Financial
Dealer Floor Plan Financing Business."
The Seller transfers Dealer Notes
identified by the Servicer as Eligible
Dealer Notes on a daily basis to the
Servicer on behalf of the Active Trust
(except in certain limited
circumstances). Under certain
circumstances, the Seller may be
required to purchase (a) from the Active
Trust (in which case NFC will be
required to purchase from the Seller),
those Dealer Notes previously
transferred to the Active Trust that
were not Eligible Dealer Notes as of the
date of transfer to the Active Trust or
(b) from the holders thereof (in which
case NFC will be required to purchase
from the Seller), all outstanding
classes of 1990 Trust Investor
Certificates or the Certificateholders'
Interest in the Master Trust, as the
case may be, if a material amount of
Dealer Notes were not Eligible Dealer
Notes as of the date of transfer to the
Master Trust. If the Related 1990
Certificate is purchased from the Master
Trust, an Investment Event or Early
Amortization Event will occur and
amounts received in respect thereof
(other than accrued 1990 Trust Investor
Certificate Interest) will be treated as
Principal Collections. See "Description
of the Offered Certificates -- Certain
Representations and Warranties;
Ineligible Dealer Notes; Purchase of
Certificateholders' Interest."
SERVICING THE DEALER NOTES............. The Applicable Agreement authorizes NFC
to service and administer the Dealer
Notes on behalf of the Active Trust and
the Seller and to collect payments due
under the Dealer Notes in accordance
with its customary and usual servicing
procedures. Prior to the 1990 Trust
Termination Date, the Servicer will be
entitled to receive a fee payable in
arrears equal to 1.0% per annum of the
daily average principal amount of Dealer
Notes pursuant to the 1990 Trust
Agreement. After the 1990 Trust
Termination Date, the Servicer will
receive a servicing fee with respect to
each outstanding Series, determined at
the time of issuance of such Series. The
servicing fee payable with respect to
the Offered Series will be specified in
the Prospectus Supplement.
OFFERED CERTIFICATES................... The Offered Certificates on the date of
their original issuance (with respect to
the Offered Series, the "Closing Date")
will be issued in minimum denominations
of $1,000 and in integral multiples
thereof. Prior to the 1990 Trust
Termination Date, all amounts payable by
the 1990 Trust in respect of the Related
1990 Certificate ("Related 1990
Certificate Collections") will be
allocated to the Offered Series and
amounts payable by the 1990 Trust in
respect of any other 1990 Trust Investor
Certificate issued in connection with
the issuance of a Series will be
allocated as provided in the Supplement
related to the other Series. All
allocations to the Offered
Certificateholders, both prior to and
after the 1990 Trust Termination Date,
are referred to herein as the "Offered
Certificateholders' Interest."
8
<PAGE> 26
The Offered Certificates will evidence
an undivided beneficial interest in the
assets of the Master Trust allocated to
the Offered Certificateholders' Interest
and will represent the right to receive
from such assets funds up to (but not in
excess of) the amounts required to make
monthly payments of interest on the
Invested Amount at the Offered
Certificate Rate ("Monthly Interest")
and to make the payment of principal on
the Expected Payment Date (or earlier or
later under certain circumstances) in an
amount not to exceed the Invested
Amount. Prior to the 1990 Trust
Termination Date, Related 1990
Certificate Collections, Investment
Income and any Net Swap Receipts will be
the sole source used to fund payments
due in respect of the Offered
Certificates (including, to the extent
described herein, Monthly Interest and
Net Swap Payments), and any other
amounts received by the Master Trust
will be allocated to the Seller or to
other outstanding Series.
The principal amount of the Master Trust
Seller's Interest will fluctuate (a)
prior to the 1990 Trust Termination
Date, based on changes in the size of
the 1990 Trust Seller Interest, (b)
based on changes in the outstanding
principal amount of any variable funding
certificate issued by the Master Trust,
(c) after the 1990 Trust Termination
Date, as the aggregate principal amount
of the Dealer Notes in the Master Trust
changes from time to time and (d) as new
Series are issued and as outstanding
Series amortize.
The Offered Certificates will represent
beneficial interests in the Master Trust
only and will not represent interests in
or obligations of NFC, the Seller or the
1990 Trust. Neither the Offered
Certificates nor the Dealer Notes are
insured or guaranteed by NFC or the
Seller or any affiliate thereof or by
any governmental agency.
REGISTRATION OF THE The Offered Certificates will initially
OFFERED CERTIFICATES................... be represented by one or more
certificates registered in the name of
Cede, as the nominee of DTC. No person
acquiring an interest in the Offered
Certificates will be entitled to receive
a Definitive Certificate representing
such person's interest unless Definitive
Certificates are issued under the
limited circumstances described herein.
See "Description of the Offered
Certificates -- Definitive
Certificates."
9
<PAGE> 27
ISSUANCE OF NEW SERIES................. The Pooling and Servicing Agreement
provides that, pursuant to any one or
more supplements thereto (each, a
"Supplement"), the Seller may cause the
Master Trust Trustee to issue one or
more new Series of certificates (a "New
Issuance"). The Pooling and Servicing
Agreement also provides that the Seller
may specify with respect to any Series,
among other things, the Principal Terms
of such Series. Such Series may have the
benefit of letters of credit, surety
bonds, cash collateral accounts,
collateral invested amounts, spread
accounts, guaranteed rate agreements,
liquidity facilities, interest rate swap
agreements or other similar
arrangements. The Seller may offer any
Series to the public under a prospectus
in transactions registered under the
Securities Act or to other investors
pursuant to other disclosure documents
in private placements and other
transactions exempt from registration
under the Securities Act, in each case
directly or through one or more
underwriters or placement agents. The
Master Trust Trustee and the Servicer do
not expect to file periodic reports with
the Commission or otherwise publicize
the issuance of a Series exempt from
registration under the Securities Act.
See "Risk Factors -- Potential Adverse
Impact of Issuance of Additional Series"
for a discussion of the impact that a
New Issuance may have on the Offered
Series.
Under the Pooling and Servicing
Agreement and pursuant to a Supplement,
a New Issuance may only occur upon
delivery to the Master Trust Trustee of,
among other things, the following: (a) a
Supplement specifying the Principal
Terms, (b) a Tax Opinion and (c)
evidence of satisfaction of the Rating
Agency Condition. The Pooling and
Servicing Agreement further provides
that, if the Seller effects a New
Issuance prior to the 1990 Trust
Termination Date, the Master Trust
Trustee will, to the extent requested by
the Seller but without any further
action by the Seller or any
Certificateholder, deliver the 1990
Trust Seller Certificate to the 1990
Trust Trustee prior to such New Issuance
in exchange for one or more 1990 Trust
Investor Certificates and a newly issued
1990 Trust Seller Certificate. See
"Description of the Offered Certificates
-- New Issuances."
INTEREST............................... Monthly Interest on the Offered
Certificates will accrue at the Offered
Certificate Rate and will be paid on the
twenty-fifth day of each month, or if
such twenty-fifth day is not a business
day, the next business day thereafter.
Monthly Interest will accrue from the
most recent Distribution Date on which
interest has been paid (or, with respect
to the initial Distribution Date, the
Closing Date) to but excluding the
current Distribution Date on the
Invested Amount at a per annum rate
equal to the Offered Certificate Rate.
Monthly Interest for any Distribution
Date due but not paid on such
Distribution Date will be due on the
next Distribution Date.
10
<PAGE> 28
Prior to the 1990 Trust Termination Date
and prior to the commencement of a Class
Amortization Period for the Related 1990
Certificate, to the extent described
herein, the Related 1990 Certificate
Interest Collections and any Net Swap
Receipts, together with Investment
Income, will be used to make payments
when due of Monthly Interest to the
Offered Certificateholders and Net Swap
Payments to any Swap Counterparty. Upon
the commencement, if any, of a Class
Amortization Period for the Related 1990
Certificate, Monthly Interest will be
funded from (a) Related 1990 Certificate
Interest Collections, Investment Income,
any Net Swap Receipts and any other
amounts on deposit in the Distribution
Account and (b) amounts on deposit in
the Negative Carry Reserve Fund.
After the 1990 Trust Termination Date,
Offered Series Finance Charge
Collections, Investment Income, any Net
Swap Receipts and certain other amounts,
to the extent described herein, will be
used to make payments of Monthly
Interest to the Offered
Certificateholders and any Net Swap
Payments to a Swap Counterparty. Under
certain circumstances, Monthly Interest
and any Net Swap Payments will be funded
from withdrawals from the Spread
Account, withdrawals from the Negative
Carry Reserve Fund, withdrawals from the
Liquidity Reserve Account and Available
Seller's Finance Charge Collections to
the extent described herein.
PRINCIPAL.............................. Although the final payment of principal
with respect to the Offered Certificates
is expected to be made on the Expected
Payment Date, such final principal
payment may be made earlier if an Early
Amortization Event occurs or an Early
Distribution election is made in
connection with an Investment Event (see
"Investment Period" below), or later
under certain circumstances described
herein. Unless an Early Amortization
Event occurs or an Early Distribution
election is made in connection with an
Investment Event, it is expected that
principal will be paid in one lump sum
on the Expected Payment Date. If an
Early Amortization Event occurs, an
Early Amortization Period will commence,
and (unless otherwise provided in the
Prospectus Supplement) principal will be
paid to the Offered Certificateholders
on each Distribution Date thereafter
beginning with the first Distribution
Period following the Due Period in which
such Early Amortization Period
commences. Principal payments (if any)
prior to the 1990 Trust Termination Date
will be funded out of Related 1990
Certificate Principal Collections. After
the 1990 Trust Termination Date,
principal payments will be funded from
Principal Collections allocated to the
Offered Series in the manner set forth
herein. See "Risk Factors" -- Delays or
Reductions in Payments Due to
Insolvency."
ALLOCATIONS PRIOR TO THE 1990 Prior to the 1990 Trust Termination
TRUST TERMINATION DATE................. Date, the assets of the Master Trust
will be allocated to the Offered
Certificateholders' Interest as
described below.
11
<PAGE> 29
Related 1990 Certificate Collections,
Investment Income and any Net Swap
Receipts will be allocated to the
Offered Certificateholders' Interest
(but only to the extent necessary to
make payments in respect of the Offered
Certificates and any Interest Rate Swap)
or paid to the Seller. Related 1990
Certificate Interest Collections and any
Net Swap Receipts will be deposited in
the Distribution Account and, together
with Investment Income, distributed to
the Offered Certificateholders and any
Swap Counterparty to the extent
necessary to make payments on the
Offered Certificates and any Net Swap
Payments as provided herein. Unless an
Investment Event or an Early
Amortization Event occurs prior to the
1990 Trust Termination Date, no
principal distributions will be made on
any Related 1990 Certificate. During an
Investment Period or an Early
Amortization Period, Related 1990
Certificate Principal Collections will
be allocated pro rata between the Series
Principal Account to the extent of the
Invested Amount and the Negative Carry
Reserve Fund to the extent of the
Negative Carry Reserve Fund Deposit
Amount. Any remaining Related 1990
Certificate Principal Collections shall
be paid to the Seller. Except for such
subordinated right to receive remaining
Related 1990 Certificate Principal
Collections prior to the 1990 Trust
Termination Date, the Master Trust
Seller's Interest is not subordinated to
the Offered Certificateholders'
Interest. All distributions and other
payments made to the Master Trust as
assignee of the Seller's rights under
the 1990 Trust Agreement or as holder of
the 1990 Trust Seller Certificate (the
"1990 Trust Seller Collections") will be
allocated between any variable funding
certificate issued by the Master Trust
and the Seller (or as otherwise provided
in any Supplement). If any new class of
1990 Trust Investor Certificates is
issued under the 1990 Trust to the
Master Trust in respect of the issuance
of any new Series by the Master Trust,
then any payment to the Master Trust
with respect to such class will be
allocated as provided in the Supplement
related to the issuance of such Series.
ALLOCATIONS AFTER THE 1990 TRUST After the 1990 Trust Termination Date,
TERMINATION DATE....................... Finance Charge Collections, Principal
Collections and Dealer Note Losses will
be allocated to the Offered Series based
on the Series Allocation Percentage.
Finance Charge Collections, Principal
Collections and Dealer Note Losses not
allocated to the Offered Series will be
allocated to other outstanding Series.
Series Allocable Finance Charge
Collections, Series Allocable Principal
Collections and Series Allocable Dealer
Note Losses will be further allocated
between the Offered Certificateholders'
Interest and the Master Trust Seller's
Interest. In addition, after the 1990
Trust Termination Date, a portion of the
Master Trust Seller's Interest will be
subordinated to the Offered
Certificateholders' Interest under
certain circumstances summarized below
in -- "Subordination of the Master Trust
Seller's Interest."
12
<PAGE> 30
Series Allocable Finance Charge
Collections and Series Allocable Dealer
Note Losses will be allocated at all
times to the Offered Certificateholders'
Interest based on the Floating
Allocation Percentage. Investment Income
will be allocated entirely to the
Offered Certificateholders' Interest at
all times. Any Series Allocable Finance
Charge Collections and Investment Income
allocated to the Offered
Certificateholders' Interest and not
needed to pay the Offered Series
Servicing Fee, Monthly Interest and Net
Swap Payments nor applied in certain
other ways may be reallocated to other
Series to the extent of any shortfalls
and otherwise will be allocated to the
Seller.
During the Revolving Period, Series
Allocable Principal Collections will be
allocated to the Offered
Certificateholders' Interest based on
the Floating Allocation Percentage.
During the Revolving Period, Offered
Series Principal Collections will be
available for reallocation to other
Series that so provide and that are in
amortization, early amortization or
accumulation periods to the extent
necessary to cover any principal
shortfalls with respect thereto.
Otherwise, Offered Series Principal
Collections generally will be allocated
to any variable funding certificate
issued by the Master Trust or paid to
the Seller during the Revolving Period
or, to the extent described herein,
allocated to and deposited in the Excess
Funding Account in order to maintain the
Master Trust Seller's Interest at a
level equal to the Master Trust Minimum
Seller's Interest. The purpose of the
Excess Funding Account is to hold
Principal Collections that would
otherwise be paid to the Seller in order
to maintain the Master Trust Seller's
Interest at a level equal to the Minimum
Master Trust Seller's Interest. Any
amounts on deposit in the Excess Funding
Account will be invested in Eligible
Investments.
During an Accumulation Period,
Investment Period or Early Amortization
Period, Series Allocable Principal
Collections will be allocated to the
Offered Certificateholders' Interest
based on the Principal Allocation
Percentage and, together with any shared
principal collections from other Series
allocable to the Offered Series,
deposited in the Series Principal
Account (subject to certain
limitations). In addition, during the
Accumulation Period (unless an
Investment Event or an Early
Amortization Event shall have occurred),
deposits of principal to the Series
Principal Account will not exceed the
Controlled Deposit Amount and, subject
to certain limitations, any Offered
Series Principal Collections in excess
of the Controlled Deposit Amount will be
paid to the Seller or allocated to other
Series that so provide. See "Description
of the Offered Certificates --
Principal."
13
<PAGE> 31
REVOLVING PERIOD....................... During the period commencing immediately
following the 1990 Trust Termination
Date and ending upon the commencement of
the first to occur of the Accumulation
Period, any Investment Period, or any
Early Amortization Period (the
"Revolving Period"), Series Allocable
Principal Collections are effectively
reinvested in the Master Trust to enable
Investor Certificateholders to invest in
the Master Trust for a period that is
expected to exceed substantially the
average maturity of the Dealer Notes.
Unless an Investment Period or an Early
Amortization Period is occurring, the
Revolving Period will begin on the 1990
Trust Termination Date and will end on
the earliest of (a) the business day
immediately preceding the Accumulation
Period Commencement Date, (b) the
business day immediately preceding the
Investment Period Commencement Date and
(c) the business day immediately
preceding the Early Amortization Period
Commencement Date. See "Description of
the Offered Certificates -- Investment
Events; Early Amortization Events" for a
discussion of certain events that might
lead to the termination of the Revolving
Period in advance of the Accumulation
Period Commencement Date.
SHARED SELLER PRINCIPAL During the Revolving Period, Shared
COLLECTIONS............................ Seller Principal Collections will be
allocated among any other Series that
provide for shared seller principal
collections in respect of principal
shortfalls before being allocated to the
Excess Funding Account, if necessary, or
paid to the Seller. During the
Accumulation Period, Shared Seller
Principal Collections and any shared
seller principal collections for any
other Series that provide for shared
seller principal collections will be
allocated among an Offered Series to the
extent of any Accumulation Period
Principal Shortfall and each other
series that provides for the use of
shared seller principal collections in
respect of principal shortfalls before
being allocated to the Excess Funding
Account, if necessary, or paid to the
Seller. There will be no Shared Seller
Principal Collections during any
Investment Period or Early Amortization
Period.
INVESTMENT PERIOD...................... The Prospectus Supplement for the
Offered Series will specify whether the
terms of an Offered Series will include
Investment Events and Investment
Periods. Unless an Early Amortization
Period commences, if an Investment Event
occurs, the Offered Certificates will
have an investment period (the
"Investment Period") which will commence
on the Investment Period Commencement
Date and, except as described below,
will continue until the earlier of (a)
the commencement of an Early
Amortization Period and (b) payment of
the Invested Amount in full on the
Expected Payment Date. During the
Investment Period, Related 1990
Certificate Principal Collections or
Offered Series Principal Collections, as
the case may be, and certain other
amounts allocable to the Offered
Certificateholders' Interest, will be
deposited on each Distribution Date or
business day, respectively, in the
Series Principal Account and will be
used to make principal distributions to
the Offered Certificateholders on the
Expected Payment Date or any Early
Distribution Date. During an Investment
Period, funds held in the Series
Principal Account will be invested from
time to time in Eligible Investments to
avoid accelerating the repayment of the
Invested Amount. The amount to be
deposited in the Series Principal
Account on any Distribution Date during
the Investment Period will not be
limited to any Controlled Deposit
Amount.
14
<PAGE> 32
Beginning on the Distribution Date
falling in an Investment Period on which
the amount on deposit in the Series
Principal Account equals the Invested
Amount and the cumulative amount on
deposit in the Negative Carry Reserve
Fund (excluding any investment earnings)
equals the Negative Carry Reserve Fund
Required Amount (without giving effect
to clause (b) in the definition thereof)
(the "Fully Funded Date"), the Offered
Certificateholders will no longer have
any interest in the Related 1990
Certificate or the Dealer Notes, as the
case may be, and all the representations
and covenants of the Seller and the
Servicer relating to the Related 1990
Certificate or the Dealer Notes, as well
as certain other provisions of the
Pooling and Servicing Agreement and all
remedies for breaches thereof, will no
longer accrue to the benefit of the
Offered Certificateholders. On and after
the Fully Funded Date, the Offered
Certificateholders will instead have an
interest in the funds on deposit in the
Series Principal Account, the
Distribution Account and the Negative
Carry Reserve Fund, Investment Income on
all such funds, the Interest Rate Swap
and Net Swap Receipts. In addition, upon
the occurrence of the Fully Funded Date,
no Related 1990 Certificate Collections,
Finance Charge Collections, Principal
Collections or Dealer Note Losses will
be allocated to the Offered Series and,
if the final distribution has been made
with respect to each other Series or the
fully funded date has occurred with
respect thereto, all right, title and
interest in and to any 1990 Trust
Investor Certificates issued to the
Master Trust and the Dealer Notes will
be conveyed and transferred to the
Seller. See "Description of the Offered
Certificates -- Termination; Fully
Funded Date."
During an Investment Period, the amount
of funds available to pay Monthly
Interest and Net Swap Payments may
(before application of the Negative
Carry Reserve Fund) be less than during
the Revolving Period, because funds on
deposit in the Series Principal Account
are expected to earn interest at a lower
rate than the rate payable on the Dealer
Notes. As a result, the Negative Carry
Reserve Fund is designed to provide an
additional source of funds for the
payment of Monthly Interest and Net Swap
Payments.
In connection with the issuance of the
Offered Certificates, the Prospectus
Supplement may provide for Early
Distributions of principal to certain
Offered Certificateholders on the Early
Distribution Date. In such case, the
terms "Early Distribution," "Early
Distribution Amount" and "Early
Distribution Date" will be defined in
the Prospectus Supplement. If the
Prospectus Supplement does not provide
for Early Distributions, such terms will
not be operative.
15
<PAGE> 33
ACCUMULATION PERIOD.................... Unless an Investment Period or an Early
Amortization Period commences and unless
otherwise specified in the Prospectus
Supplement with respect to the Offered
Series, the Offered Certificates will
have an accumulation period (the
"Accumulation Period"), which allows for
the accumulation of principal in the
Series Principal Account in anticipation
of a lump sum payment on the Expected
Payment Date, and which will commence on
the Accumulation Period Commencement
Date and continue until the earliest of
(a) the commencement of an Investment
Period, (b) the commencement of an Early
Amortization Period and (c) payment of
the Invested Amount in full. During the
Accumulation Period, Offered Series
Principal Collections and certain other
amounts allocable to the Offered
Certificateholders' Interest will be
deposited on each business day in an
Eligible Deposit Account under the
Master Trust (the "Series Principal
Account") and will be used to make
principal distributions to the Offered
Certificateholders when due. The
cumulative amount to be deposited in the
Series Principal Account for any Due
Period during the Accumulation Period
will be limited to an amount equal to
the Controlled Deposit Amount.
On or prior to the Distribution Date
which is ten months prior to the
Expected Payment Date, the Servicer will
determine the number of Due Periods in
the Accumulation Period (the
"Accumulation Period Length") and the
day on which the Accumulation Period
commences (the "Accumulation Period
Commencement Date"), which will be the
first day of a Due Period.
Notwithstanding the foregoing, the
Accumulation Period Commencement Date
will be the "Specified Accumulation
Period Commencement Date" (which will be
set forth in the Prospectus Supplement)
if, prior to such date, any other
outstanding Series shall have entered
into an investment period or an early
amortization period. In addition, if the
Accumulation Period Length and the
Accumulation Period Commencement Date
have been determined but the
Accumulation Period has not commenced
and any other outstanding Series enters
into an investment period or an early
amortization period, the Accumulation
Period Commencement Date will be the
date that such outstanding Series has
entered into its investment period or
early amortization period.
Other Series issued by the Master Trust
may have either an accumulation period
or an amortization period. Such
accumulation periods or amortization
periods may have different lengths and
begin on different dates. Thus, certain
Series may be in their revolving
periods, while others are in periods
during which Principal Collections are
distributed to, or reserved for, such
Series.
16
<PAGE> 34
EARLY AMORTIZATION The Prospectus Supplement for an Offered
PERIOD................................. Series will specify that the Pooling and
Servicing Agreement requires the
accelerated repayment of principal (to
the extent of Related 1990 Certificate
Principal Collections or Offered Series
Principal Collections, as the case may
be) during the Early Amortization
Period, which commences upon the
occurrence of an Early Amortization
Event. Therefore, if an Early
Amortization Period commences prior to
the 1990 Trust Termination Date, Related
1990 Certificate Principal Collections
will (unless otherwise provided in the
Prospectus Supplement) be distributed to
the Offered Certificateholders monthly
on each Distribution Date beginning with
the Distribution Date following the Due
Period in which such Early Amortization
Period commences.
If an Early Amortization Period
commences after the 1990 Trust
Termination Date, then the Revolving
Period, the Investment Period or the
Accumulation Period, as applicable, will
terminate, and Offered Series Principal
Collections and certain other amounts
allocable to the Offered
Certificateholders' Interest will no
longer be paid to the Seller or the
holders of any other outstanding Series
or retained in the Excess Funding
Account but instead will (unless
otherwise specified in the Prospectus
Supplement) be distributed to the
Offered Certificateholders monthly on
each Distribution Date beginning with
the Distribution Date following the Due
Period in which an Early Amortization
Period commences.
During an Early Amortization Period,
distributions of principal on the
Offered Certificates will not be subject
to the Controlled Deposit Amount. See
"Description of the Offered Certificates
-- Distributions to Offered
Certificateholders and the Swap
Counterparty; -- Principal." In addition
(unless otherwise provided in the
Prospectus Supplement), on the
Distribution Date following the first
Due Period occurring during an Early
Amortization Period, any amounts on
deposit in the Series Principal Account
and amounts on deposit in the Excess
Funding Account that are allocable to
the Offered Series (based on the Series
Allocation Percentage for the Offered
Series) will be paid to the Offered
Certificateholders up to the Invested
Amount. See "Description of the Offered
Certificates -- Distributions to Offered
Certificateholders and the Swap
Counterparty." No Investment Period may
commence during an Early Amortization
Period.
17
<PAGE> 35
NEGATIVE CARRY RESERVE The Prospectus Supplement for the
FUND................................... Offered Series will specify whether the
terms of the Offered Series will include
a Negative Carry Reserve Fund, Negative
Carry Reserve Fund Deposit Amount,
Negative Carry Reserve Fund Required
Amount or Negative Carry Subordinated
Amount. The Negative Carry Reserve Fund
provides an additional source of funds
to make Monthly Interest payments and
Net Swap Payments during an Investment
Period, Early Amortization Period or
Accumulation Period and in limited
instances to fund the Liquidity Reserve
Account and to make principal payments
with respect to the Offered
Certificates. Therefore, if, during any
Investment Period, Early Amortization
Period or Accumulation Period, Related
1990 Certificate Interest Collections
(if any), Investment Income, Offered
Series Finance Charge Collections (if
any), Net Swap Receipts and, after the
1990 Trust Termination Date, excess
interest collections from other Series
allocable to the Offered Series and
certain amounts otherwise attributable
to the Seller are not sufficient to pay
Monthly Interest and Net Swap Payments,
the Master Trust Trustee shall, after
applying funds from the Spread Account
(if any) and, during an Early
Amortization Period or Investment
Period, the Liquidity Reserve Account,
withdraw funds from the Negative Carry
Reserve Fund up to the amount of such
respective insufficiencies, to make
payments of Monthly Interest and Net
Swap Payments pro rata based on their
respective amounts. The Negative Carry
Reserve Fund will be funded (a) prior to
the 1990 Trust Termination Date (but
only after an Investment Event or Early
Amortization Event has occurred), from
Related 1990 Certificate Collections,
and (b) after the 1990 Trust Termination
Date (after the occurrence of an
Investment Event or an Early
Amortization Event or during the
Accumulation Period), from Available
Seller's Finance Charge Collections and
Available Seller's Principal
Collections, in each case to the extent
of the Negative Carry Reserve Fund
Deposit Amount.
18
<PAGE> 36
SPREAD ACCOUNT......................... As of the 1990 Trust Termination Date,
the Master Trust Trustee will establish
and maintain an Eligible Deposit Account
under the Master Trust for the benefit
of the Offered Certificateholders (the
"Spread Account"), which is intended to
provide an additional source of funds
for the payment of Monthly Interest, Net
Swap Payments, the Offered Series
Servicing Fee and certain other
deficiencies and losses on the Dealer
Notes and in limited instances to fund
the Liquidity Reserve Account and to
make principal payments with respect to
the Offered Certificates. The Spread
Account will be funded initially in an
amount up to the Projected Spread with
funds transferred from the 1990 Trust
Spread Account and allocated to the
Offered Certificates and from funds
otherwise allocable to the Seller.
Generally, on any Transfer Date, the
funds on deposit will be increased if
the sum of Monthly Interest, Net Swap
Payments and the Offered Series
Servicing Fee, in each case as projected
for the following Distribution Period,
exceeds the amount of the Master Trust's
projected income for the related Due
Period which is allocable to the Offered
Series based on the Series Allocation
Percentage. On any Transfer Date
occurring prior to or on the Fully
Funded Date but after the 1990 Trust
Termination Date on which the Offered
Series Finance Charge Collections,
Investment Income, Net Swap Receipts,
and certain amounts otherwise
attributable to the Seller as described
herein are not sufficient to pay the
Offered Series Servicing Fee, Monthly
Interest and the Net Swap Payment
(including any previously due but unpaid
Monthly Interest and Net Swap Payments,
and interest thereon) and to cover
Offered Series Dealer Note Losses and
unreimbursed Certificateholder
Charge-Offs, the amount on deposit in
the Spread Account on such Transfer Date
shall be applied by the Master Trust
Trustee up to the amount of such
insufficiency to make such payments in
the order and priority described herein,
subject to certain limitations described
herein. The amount required to be
maintained in the Spread Account may be
reduced upon satisfaction of the Rating
Agency Condition. The Spread Account is
not required to be funded after the
Fully Funded Date.
Prior to the 1990 Trust Termination
Date, the 1990 Trust Spread Account will
be available to satisfy shortfalls of
interest on the Related 1990 Certificate
and the other outstanding 1990 Trust
Investor Certificates. The 1990 Trust
Spread Account is required to be funded
at all times with an amount equal to at
least 1.25% of the result of the
aggregate outstanding principal amount
of all 1990 Trust Investor Certificates
minus unreimbursed charge-offs and
losses on investments of principal
payable to the holders of 1990 Trust
Investor Certificates. The funds on
deposit in the 1990 Trust Spread Account
are required to be increased to the
extent that the sum of projected
interest on the 1990 Trust Investor
Certificates and projected fees of the
Servicer exceeds the 1990 Trust's
projected income for the related Due
Period.
19
<PAGE> 37
SUBORDINATION OF THE MASTER Prior to the 1990 Trust Termination
TRUST SELLER'S INTEREST................ Date, all subordination in respect of
the Offered Certificates will be
provided by the 1990 Trust Available
Subordinated Amount under the 1990 Trust
Agreement, and the Master Trust Seller's
Interest will not be subordinated to the
Offered Certificateholders' Interest
(except that the Seller will be entitled
to receive Related 1990 Certificate
Principal Collections only to the extent
the Invested Amount and the Negative
Carry Reserve Fund Deposit Amount have
been provided for in full). The 1990
Trust Available Subordinated Amount
generally is equal to 15.5% of the 1990
Trust Total Invested Amount, subject to
certain reductions, reinstatements,
floors and other limitations. See "Terms
of the 1990 Trust Investor Certificates
-- Limited Subordination of the 1990
Trust Seller Interest; 1990 Trust
Available Subordinated Amount."
Beginning on the 1990 Trust Termination
Date and thereafter until the Fully
Funded Date, the right of the Seller to
receive payments in respect of the
Master Trust Seller's Interest will be
subordinated to the interests of the
Offered Certificateholders. Such
subordination is limited to the
Available Subordinated Amount, plus,
following the commencement of the
Accumulation Period, any Investment
Period or any Early Amortization Period,
the Negative Carry Subordinated Amount.
If Available Certificateholder Interest
Collections and Net Swap Receipts are
insufficient to cover the Offered Series
Servicing Fee, accrued Monthly Interest,
the Net Swap Payment, if any, and the
Offered Series Dealer Note Losses, a
limited portion of the Master Trust
Seller's Interest will be available to
make up such deficiency. If such portion
is not sufficient, certain amounts in
the Spread Account and, in certain
circumstances, the Liquidity Reserve
Account and the Negative Carry Reserve
Fund, will also be available to cover
such deficiency. See "Description of the
Offered Certificates -- Allocation of
Collections After the 1990 Trust
Termination Date -- Limited
Subordination of Master Trust Seller's
Interest; Spread Account; Liquidity
Reserve Account."
The "Available Subordinated Amount" for
the Offered Series on the Transfer Date
related to the first Due Period
commencing after the 1990 Trust
Termination Date will equal the product
of the Invested Amount and the
Subordinated Percentage (which will be
set forth in the Prospectus Supplement).
The Available Subordinated Amount for
each Transfer Date thereafter will be
reduced by amounts previously drawn from
the Master Trust Seller's Interest and,
subject to certain limitations, by
reductions in the Invested Amount, and
will be reinstated to the extent
Available Certificateholder Interest
Collections, Net Swap Receipts and
Excess Interest Collections are paid to
the Seller or, during any Investment
Period or Early Amortization Period,
deposited in the Liquidity Reserve
Account (up to an amount equal to the
Subordinated Percentage multiplied by
the Invested Amount).
20
<PAGE> 38
LIQUIDITY RESERVE After the 1990 Trust Termination Date
ACCOUNT................................ and prior to or on the commencement of
an Investment Period or an Early
Amortization Period, the Master Trust
Trustee will establish (for the benefit
of the Seller) an Eligible Deposit
Account the purpose of which is to
cash-collateralize the Available
Subordinated Amount during an Investment
Period or an Early Amortization Period
(the "Liquidity Reserve Account"). In
addition, in certain circumstances, the
Liquidity Reserve Account provides an
additional source of funds to make
principal payments with respect to the
Offered Certificates. Upon the
commencement of an Investment Period or
an Early Amortization Period, funds in
the Spread Account will be deposited in
the Liquidity Reserve Account. During an
Investment Period or an Early
Amortization Period, Available Seller's
Finance Charge Collections and Available
Seller's Principal Collections will be
deposited in the Liquidity Reserve
Account until such time as the amount on
deposit is equal to the Available
Subordinated Amount, in order to provide
a source of funds for payments in
respect thereof.
ADVANCES............................... For any Due Period, the Servicer will be
required to make an Advance to the
collections account under the Active
Trust in an amount equal to all Dealer
Finance Charges for such Due Period
which have not been paid by the Transfer
Date (other than the amount of Dealer
Finance Charges that the Servicer
determines will be uncollectible). Once
any previously unpaid Dealer Finance
Charges are paid on the Dealer Notes to
which any portion of an Advance relates,
or when the Servicer determines that it
will be unable to recover such unpaid
Dealer Finance Charges on the Dealer
Notes to which the portion of the
Advance relates, the Servicer will be
reimbursed in an amount equal to such
portion of the Advance.
INTEREST RATE SWAP..................... In connection with the issuance of any
Series of Offered Certificates, the
Master Trust may enter into one or more
interest rate swap agreements (each, an
"Interest Rate Swap") with a Swap
Counterparty with terms that will be
more fully described in the Prospectus
Supplement. If the Master Trust does
enter into an Interest Rate Swap, all
terms and provisions described herein
relating to the Interest Rate Swap,
including the defined terms "Swap
Counterparty," "Swap Fixed Rate," "Swap
Floating Rate," "Swap Receipt," "Swap
Payment," "Net Swap Receipt" and "Net
Swap Payment," will apply and be
operative. If the Master Trust Trustee
does not enter into an Interest Rate
Swap, such terms and provisions, as well
as paragraphs (x) and (y) under
"Description of the Offered Certificates
-- Allocation of Collections After the
1990 Trust Termination Date -- Available
Certificateholder Interest Collections,"
will not be operative (unless otherwise
specified in the Prospectus Supplement).
The Master Trust will likely not enter
into an Interest Rate Swap in the event
that the Offered Certificate Rate is a
floating rate. The floating rate payable
by the Master Trust in respect of an
Interest Rate Swap or an Offered Series
that bears interest at a floating rate,
as applicable, is the "Applicable
Floating Rate."
21
<PAGE> 39
In accordance with the terms of each
Interest Rate Swap, the Swap
Counterparty will be obligated to pay to
the Master Trust, not later than each
Distribution Date, interest at a rate
per annum equal to the Swap Fixed Rate
on the Invested Amount as of the
preceding Distribution Date (after
giving effect to all distributions on
such date). In exchange for such
payments, the Master Trust will be
obligated to pay to the Swap
Counterparty, on each Distribution Date,
interest at a per annum rate equal to
the Swap Floating Rate on the Invested
Amount as of the preceding Distribution
Date (after giving effect to all
distributions on such date). With
respect to each Distribution Date, the
payment to the Master Trust by the Swap
Counterparty will be referred to herein
as the "Swap Receipt" and the payment by
the Master Trust to the Swap
Counterparty will be referred to herein
as the "Swap Payment." Under the
Interest Rate Swap, on each Distribution
Date, the amount the Master Trust is
obligated to pay will be netted against
the amount the Swap Counterparty is
obligated to pay such that only the net
amount will be due from the Master Trust
(referred to herein as the "Net Swap
Payment") or from the Swap Counterparty
(referred to herein as the "Net Swap
Receipt"), as the case may be. Net Swap
Receipts on any Distribution Date will
be allocated and distributed in the same
manner as Series Allocable Finance
Charge Collections on such Distribution
Date, except as otherwise described
herein. Net Swap Payments will be paid
out of Related 1990 Certificate Interest
Collections, Investment Income and, in
certain circumstances, the Negative
Carry Reserve Fund, prior to the 1990
Trust Termination Date, and thereafter
out of Offered Series Finance Charge
Collections, Investment Income, excess
interest collections from other Series
allocable to the Offered Series,
withdrawals from the Spread Account,
withdrawals from the Negative Carry
Reserve Fund, withdrawals from the
Liquidity Reserve Account and Available
Seller's Finance Charge Collections to
the extent described herein. Net Swap
Payments and Monthly Interest will be
paid on a pari passu basis, as described
under "Description of the Offered
Certificates -- Allocations of
Collections After the 1990 Trust
Termination Date."
THE 1990 TRUST......................... The 1990 Trust was formed pursuant to a
Pooling and Servicing Agreement, dated
as of December 1, 1990, among NFC, as
Servicer, NFSC, as Seller, and The Chase
Manhattan Bank, as trustee (the "1990
Trust Trustee"), as supplemented by the
supplement relating to the Related 1990
Certificate to be dated as of the
Closing Date among NFC, as Servicer,
NFSC, as Seller, and the 1990 Trust
Trustee and any other supplement
relating to any other 1990 Trust
Investor Certificate (as so supplemented
and as it has been or may be
supplemented and amended, the "1990
Trust Agreement"). The property of the
1990 Trust includes all Eligible Dealer
Notes previously and hereafter
transferred to the 1990 Trust, all
monies due or to become due with respect
thereto and all proceeds of such Dealer
Notes, the interest of the Seller in the
security interests in the Financed
Vehicles related to the Dealer Notes,
the interest of the Seller in the
Insurance Proceeds, the 1990 Trust
Investment Securities and such funds as
from time to time are deposited in the
accounts created under the 1990 Trust
for the benefit of the holders of 1990
Trust Investor Certificates.
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<PAGE> 40
RELATED 1990 CERTIFICATE............... The Related 1990 Certificate represents
a fractional undivided interest in the
1990 Trust. The Master Trust, as holder
of the Related 1990 Certificate, will be
entitled to receive (a) monthly payments
of interest at a rate equal to the
Related 1990 Certificate Rate (which
will be set forth in the Prospectus
Summary) and (b) payments of principal
(to the extent of the unpaid Class
Invested Amount for the Related 1990
Certificate), such principal payments
beginning after the earlier of the
Scheduled Class Amortization Date for
the Related 1990 Certificate and the
date on which a 1990 Trust Amortization
Event occurs. The Class Invested Amount
for the Related 1990 Certificate will be
equal to the Class Initial Invested
Amount for the Related 1990 Certificate
less principal repayments, charge- offs
and losses of principal on investments
of funds on deposit in the Certificate
Principal Account under the 1990 Trust
allocated to the Related 1990
Certificate which are not otherwise
reimbursed. The aggregate interest in
the assets of the 1990 Trust represented
by the Related 1990 Certificate at any
time will not exceed an amount equal to
the Class Invested Amount for such class
at such time plus accrued and unpaid
interest thereon. The Related 1990
Certificate represents an interest in
the 1990 Trust and does not represent an
interest in or obligation of NFC or the
Seller.
As of the date hereof, the 1990 Trust
has three other issued and outstanding
classes of Investor Certificates: its
Class A-3 Floating Rate Pass-Through
Certificates (the "Class A-3 Investor
Certificates"), having an outstanding
principal balance of $100,000,000, its
Class A-4 Floating Rate Pass- Through
Certificates (the "Class A-4 Investor
Certificate"), having an outstanding
principal balance of $207,860,000 and
its Class A-5 Floating Rate Pass-Through
Certificates (the "Class A-5 Investor
Certificates"), having an outstanding
principal balance of $200,000,000. The
Class A-3, Class A-4 and Class A-5
Investor Certificates and the Related
1990 Certificate, together with any
other outstanding class of certificates
issued under the 1990 Trust, are
referred to as the "1990 Trust Investor
Certificates." The 1990 Trust previously
issued Class A-1 Floating Rate
Pass-Through Certificates (the "Class
A-1 Investor Certificates"), having an
initial outstanding principal balance of
$100,000,000 and Class A-2 Floating Rate
Pass-Through Certificates (the "Class
A-2 Investor Certificates"), having an
initial outstanding principal balance of
$100,000,000, each of which have since
been paid in full.
The other principal terms of each of the
Related 1990 Certificate, the Class A-3,
Class A-4 and Class A-5 Investor
Certificates, as well as any other class
of 1990 Trust Investor Certificates
issued to the Master Trust, will be set
forth in the Prospectus Supplement.
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<PAGE> 41
Interest on the Related 1990 Certificate
will be paid on the twenty-fifth day of
each month, or if such twenty-fifth day
is not a business day, the next business
day thereafter. Interest will accrue
from the most recent Distribution Date
on which interest has been paid to but
excluding the current Distribution Date
on the unpaid principal amount of the
Related 1990 Certificate at a floating
per annum rate (the "Related 1990
Certificate Rate") equal to one-month
LIBOR plus an amount which shall be
specified in the Prospectus Supplement
(calculated on the basis of a 360-day
year of twelve 30-day months). Interest
payments will be funded from that
portion of Dealer Finance Charges, NITC
Finance Charges and 1990 Trust
Investment Income during the Due Period
allocable to the Related 1990
Certificate (after making payments in
respect of the 1990 Trust Monthly
Servicing Fee and Advance
Reimbursements, if any). If such funds
are insufficient to pay interest on the
Related 1990 Certificate, such interest
payments will be paid from funds
otherwise payable with respect to the
1990 Trust Seller Certificate, to the
extent of the 1990 Trust Available
Subordinated Amount.
No principal payments will be made with
respect to the Related 1990 Certificate
during the 1990 Trust Non-Amortization
Period. Upon the occurrence of the Class
Amortization Date for the Related 1990
Certificate, however, the holder of the
Related 1990 Certificate will begin to
receive monthly payments of principal in
addition to interest. Once the Class
Amortization Period has commenced for
the Related 1990 Certificate, monthly
payments of principal will begin on the
Distribution Date related to the Due
Period during which the Class
Amortization Date for the Related 1990
Certificate occurred.
The occurrence of a 1990 Trust
Amortization Event is the only
circumstance under which principal
payments to each class of 1990 Trust
Investor Certificates will commence
prior to the Scheduled Class
Amortization Date for each such class.
If a 1990 Trust Amortization Event
occurs, each outstanding class of 1990
Trust Investor Certificates will begin
to receive payments of principal on the
Distribution Date related to the Due
Period during which the 1990 Trust
Amortization Event takes place. See
"Terms of the 1990 Trust Investor
Certificates -- 1990 Trust Amortization
Events" for a discussion of events which
constitute 1990 Trust Amortization
Events.
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<PAGE> 42
1990 TRUST SELLER The 1990 Trust Seller Certificate
CERTIFICATE............................ represents the fractional undivided
interest in the 1990 Trust not
represented by the 1990 Trust Investor
Certificates (the "1990 Trust Seller
Interest"). The right of the holder of
the 1990 Trust Seller Certificate to
receive payments in respect of the 1990
Trust Seller Interest is subordinated to
the interests of the 1990 Trust Investor
Certificates to the extent of the 1990
Trust Available Subordinated Amount. As
amounts are made available for the
benefit of the 1990 Trust Investor
Certificates from the subordinated
portion of the 1990 Trust Seller
Interest, the 1990 Trust Available
Subordinated Amount and, in certain
circumstances, the 1990 Trust Seller
Interest, will be reduced. In subsequent
Due Periods, the 1990 Trust Available
Subordinated Amount may be reinstated by
the amount of any payments of 1990 Trust
Excess Servicing in respect of the 1990
Trust Seller Certificate. The amount of
the 1990 Trust Seller Interest must at
all times equal or exceed the 1990 Trust
Minimum Seller Interest. Since the date
of the first issuance of 1990 Trust
Investor Certificates, the 1990 Trust
Available Subordinated Amount has not
been drawn upon, but there can be no
assurance that it will not be drawn upon
in the future.
The 1990 Trust Agreement provides that,
subject to certain conditions, the
holder of the 1990 Trust Seller
Certificate may deliver the 1990 Trust
Seller Certificate to the 1990 Trust
Trustee in exchange for (a) one or more
newly issued classes of 1990 Trust
Investor Certificates and (b) a reissued
1990 Trust Seller Certificate. The
Master Trust, as holder of the 1990
Trust Seller Certificate, will effect
such an exchange only in the event that
the Seller effects a New Issuance under
the Master Trust as described herein.
CREDIT ENHANCEMENT UNDER Credit enhancement of the 1990 Trust
THE 1990 TRUST......................... Investor Certificates is afforded by the
use of 1990 Trust Excess Servicing and
subordination of the 1990 Trust Seller
Interest to the extent of the 1990 Trust
Available Subordinated Amount. Such
subordination is effected by payments
from 1990 Trust Seller Interest Income,
the 1990 Trust Spread Account, the
proceeds of 1990 Trust Investment
Securities and (during a 1990 Trust
Amortization Term) the 1990 Trust
Liquidity Reserve Account and by
reductions in the 1990 Trust Seller
Interest. Credit enhancement of the 1990
Trust Investor Certificates will be
limited at all times during the term of
the 1990 Trust to the sum of 1990 Trust
Excess Servicing and the 1990 Trust
Available Subordinated Amount. If at any
time during the term of the 1990 Trust
the 1990 Trust Available Subordinated
Amount is reduced to zero, the holders
of 1990 Trust Investor Certificates
(including the Master Trust, as holder
of the Related 1990 Certificate) will
thereafter bear the credit and other
risks associated with their fractional
undivided interest in the 1990 Trust
directly without the benefit of any
further credit enhancement other than
1990 Trust Excess Servicing, if any.
Prior to the 1990 Trust Termination
Date, Offered Certificates are dependent
upon distributions by the 1990 Trust in
respect of the Related 1990 Certificate.
Accordingly, if credit enhancement of
the Related 1990 Certificate is
insufficient, the Offered
Certificateholders could suffer losses.
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<PAGE> 43
1990 TRUST EXCESS "1990 Trust Excess Servicing" means on
SERVICING.............................. any Determination Date during the term
of the 1990 Trust the excess of 1990
Trust Interest Income over the sum of
Advance Reimbursements, the 1990 Trust
Monthly Servicing Fee, 1990 Trust
Investor Certificate Interest and
notional interest on the 1990 Trust
Seller Certificate (in each case, for
the related Due Period or Distribution
Period, as applicable). Any 1990 Trust
Excess Servicing which is not needed to
offset losses is paid to the holder of
the 1990 Trust Seller Certificate. If
the 1990 Trust Available Subordinated
Amount has previously been reduced, it
is reinstated up to an amount no greater
than the 1990 Trust Maximum Subordinated
Amount by certain payments of 1990 Trust
Excess Servicing to the holder of the
1990 Trust Seller Certificate. Payments
of 1990 Trust Excess Servicing for the
benefit of any class of 1990 Trust
Investor Certificates will not reduce
the 1990 Trust Available Subordinated
Amount.
TAX STATUS............................. The Seller has received an opinion of
Tax Counsel that under existing law the
Offered Certificates will be treated as
indebtedness for federal income tax
purposes. Tax Counsel has also opined
that similar treatment would apply for
Illinois income tax purposes and New
York income and corporate franchise tax
purposes. Each Offered
Certificateholder, by the acceptance of
an Offered Certificate, will agree to
treat the Offered Certificates as
indebtedness for United States federal,
state and local income and franchise tax
purposes. See "Federal Income Tax
Matters" and "Certain State Tax
Matters."
ERISA CONSIDERATIONS................... If the assets of the Master Trust are
deemed to be "plan assets" of Offered
Certificateholders, a Plan's ownership
of the Offered Certificates might give
rise to a prohibited transaction under
ERISA and the Code. Unless certain
conditions are satisfied, no assurances
can be given that the assets of the
Master Trust will not be deemed to be
"plan assets." Regardless of whether or
not the assets of the Master Trust are
deemed to be "plan assets," however,
prior to purchasing Offered Certificates
on behalf of a Plan, the Plan fiduciary
should determine whether an investment
in the Offered Certificates is permitted
under the documents and instruments
governing the Plan and should consult
with counsel with respect to the
potential consequences under ERISA and
the Code of the Plan's acquisition and
ownership of Offered Certificates. See
"ERISA Considerations."
RATING OF THE OFFERED It is a condition of issuance that the
CERTIFICATES........................... Offered Certificates be rated in the
highest rating category by at least one
nationally recognized statistical rating
organization.
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<PAGE> 44
RISK FACTORS
LIMITED LIQUIDITY
There is currently no market for the Offered Certificates, and there is no
assurance that one will develop. The underwriters with respect to an Offered
Series are expected, but are not obligated, to make a market in such Offered
Certificates. However, even if the underwriters do make such a market, there is
no assurance that such market will continue.
DELAYS OR REDUCTIONS IN PAYMENTS DUE TO INSOLVENCY
The transfers of the Dealer Notes from NITC to NFC, from NFC to the Seller
and from the Seller to the Active Trust have been structured to be treated as
sales. In the event that NITC, NFC or the Seller were to become a debtor in a
bankruptcy case and a creditor or trustee in bankruptcy of such debtor or such
debtor itself were to take the position that the transfer of the Dealer Notes by
such debtor should be recharacterized as a pledge of such Dealer Notes to secure
a borrowing of such debtor, then delays in payments of collections on the Dealer
Notes to the Active Trust could occur and, if a court ruled in favor of any such
creditor, trustee in bankruptcy or debtor, reductions in the amount of such
payments could result. If the transfer of Dealer Notes to NFC, the Seller or the
Active Trust were recharacterized as a pledge, then a tax or other similar lien
on the property of NITC, NFC or the Seller might have priority over the interest
of the Seller or the Active Trust, respectively, in such Dealer Notes. See
"Certain Matters Relating to Bankruptcy."
In addition, if NFC or the Seller were to become a debtor in a bankruptcy
case and a creditor or trustee in bankruptcy of such debtor or such debtor
itself were to request a bankruptcy court to order that NFC be substantively
consolidated with the Seller, delays in and reductions in the amount of payments
and distributions on the Offered Certificates could result.
If certain events relating to the bankruptcy of NIC, NITC, NFC or the Seller
occur, then an Investment Event or Early Amortization Event will occur and,
among other things, the Active Trust will stop acquiring additional Dealer
Notes. See "Certain Matters Relating to Bankruptcy."
Transfers made in certain specified transactions contemplated by the
Applicable Agreement, including payments made with respect to repurchases of
Dealer Notes, may be recoverable by NITC, NFC, the Servicer or the Seller, as
debtor in possession, or by a creditor or a trustee in bankruptcy of NITC, NFC,
the Servicer or the Seller as preferential transfers from NITC, NFC, the
Servicer or the Seller if such transfers are made within certain periods prior
to the filing of a bankruptcy case in respect of NITC, NFC, the Servicer or the
Seller.
The Seller warrants in the Applicable Agreement that transfers of the Dealer
Notes to the Active Trust are either (a) valid transfers and assignments of the
Dealer Notes and the proceeds thereof to the Active Trust or (b) a grant to the
Active Trust of a security interest in such property. The Seller has taken all
required actions under Illinois, New York and Delaware state law to perfect the
1990 Trust's interests and the Master Trust's interests in such assets. The
Seller has also taken all actions necessary under Illinois and New York law to
perfect the transfer to the Master Trust of the 1990 Trust Seller Certificate
and the Class A-4 and Class A-5 Investor Certificates and will take all actions
necessary under Illinois and New York law to perfect the transfer to the Master
Trust of any Related 1990 Certificate. In addition, the Seller warrants that, if
the transfer of Dealer Notes by the Seller to the Active Trust is a grant to the
Active Trust of a security interest in the Dealer Notes, the Active Trust will
at all times have a first priority perfected security or ownership interest in
all Dealer Notes transferred to the Active Trust and all proceeds thereof,
except that if such a transfer is deemed to create a security interest under the
Illinois, New York or Delaware Uniform Commercial Codes (collectively, the
"Uniform Commercial Code"), certain prospective liens on the property of the
Seller may have priority over the Active Trust's interests in such Dealer Notes.
Pursuant to the terms of the Applicable Agreement and the Active Purchase
Agreement, under certain circumstances the Seller may be required to purchase
Ineligible Dealer Notes from the Active Trust, in which case NFC will be
required to purchase all such Ineligible Dealer Notes from the Seller. In
addition, in the event of a breach of certain representations and warranties or
if a material amount of Dealer Notes are Ineligible Dealer Notes, and (a) prior
to the 1990 Trust Termination Date, such event has a material adverse effect on
the holders of the 1990 Trust Investor
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<PAGE> 45
Certificates, the Seller may be required to purchase all outstanding classes of
1990 Trust Investor Certificates or (b) after the 1990 Trust Termination Date,
such event has a material adverse effect on the Certificateholders, the Seller
may be required to purchase the Certificateholders' Interest. In either case,
NFC will be required to purchase all such outstanding certificates or the
Certificateholders' Interest from the Seller. See "Description of the Offered
Certificates -- Certain Representations and Warranties; Ineligible Dealer Notes;
and Purchase of Certificateholders' Interest." The 1990 Trust Trustee has not,
and it is not anticipated that either it or the Master Trust Trustee will, make
any examination of the Dealer Notes or the records relating thereto for the
purpose of establishing compliance with eligibility requirements,
representations and warranties or any other purpose.
Application of federal and state bankruptcy and debtor-related laws could
affect the interests of the Master Trust in the Dealer Notes (as holder of 1990
Trust Investor Certificates, including any Related 1990 Certificate) prior to
the 1990 Trust Termination Date, and the interests of the Offered
Certificateholders in the Dealer Notes after the 1990 Trust Termination Date, if
such laws result in any Dealer Notes being written off as uncollectible or
result in delays in payments due on such Dealer Notes.
LIMITED AMOUNT OF CREDIT ENHANCEMENT
Prior to the 1990 Trust Termination Date, the Master Trust is dependent upon
distributions by the 1990 Trust in respect of the Related 1990 Certificate,
Investment Income and Swap Receipts to fund payments and distributions to the
Offered Certificateholders and Swap Payments with respect to each such Offered
Series. Therefore, prior to the 1990 Trust Termination Date, credit enhancement
with respect to any Offered Series will only be provided through the 1990 Trust
and by the Interest Rate Swap and, under certain circumstances, the Negative
Carry Reserve Fund with respect to such Offered Series. Credit enhancement of
the 1990 Trust Investor Certificates (including any Related 1990 Certificates)
is afforded by the use of 1990 Trust Excess Servicing and subordination of the
1990 Trust Seller Interest to the extent of the 1990 Trust Available
Subordinated Amount. Such subordination is effected by payments from 1990 Trust
Seller Interest Income, the 1990 Trust Spread Account, the proceeds of 1990
Trust Investment Securities and (during a 1990 Trust Amortization Term) the 1990
Trust Liquidity Reserve Account, and by reductions in the 1990 Trust Seller
Interest. Credit enhancement of the 1990 Trust Investor Certificates will be
limited at all times during the term of the 1990 Trust to the sum of 1990 Trust
Excess Servicing and the 1990 Trust Available Subordinated Amount. If at any
time during the term of the 1990 Trust the 1990 Trust Available Subordinated
Amount is reduced to zero, the holders of 1990 Trust Investor Certificates
(including the Master Trust, as holder of a Related 1990 Certificate) will
thereafter bear the credit and other risks associated with their fractional
undivided interest in the 1990 Trust directly without the benefit of any further
credit enhancement other than 1990 Trust Excess Servicing, if any. Accordingly,
a 1990 Trust Early Amortization Period could occur, leading to an Investment
Event or Early Amortization Event with respect to the Offered Certificates. In
that case, under certain circumstances, losses on the Offered Certificates could
result if credit enhancement in respect of the Related 1990 Certificate has been
exhausted.
After the 1990 Trust Termination Date, credit enhancement of an Offered
Series will be provided by the subordination of a portion of the Master Trust
Seller's Interest to the extent of the Available Subordinated Amount as
described herein, plus, in some instances, the Negative Carry Subordinated
Amount, the Spread Account and the Interest Rate Swap with respect to such
Offered Series. The amount of such credit enhancement is limited and will be
reduced from time to time as described herein. See "Description of the Offered
Certificates -- Allocation of Collections Prior to the 1990 Trust Termination
Date" and "-- Allocation of Collections After the 1990 Trust Termination Date."
BASIS RISK ON DEALER NOTES
The interest rate on Dealer Notes is presently based on the prime rate,
while the Related 1990 Certificate Rate and the Applicable Floating Rate will be
based on the one-month London interbank offered rate as determined by the Active
Trustee ("LIBOR"). The prime rate, which is an "administered" rate, tends to lag
behind one-month LIBOR, which is a "market rate," and the spread between the
prime rate and LIBOR could thus narrow or disappear during periods of rising
interest rates. During the past ten years, the prime rate has exceeded one-month
LIBOR at all times. However, there is no assurance that the prime rate will
continue to exceed LIBOR in the future. In addition, the approximate five week
lag between the date on which the interest rate on Dealer Notes is established
by NFC and the date on which the Related 1990 Certificate Rate and the
Applicable Floating Rate are fixed could create a distortion during periods of
rapidly rising or volatile interest rates, even though the underlying prime
rate-LIBOR relationship remained constant during such period. See "Description
of the Offered Certificates -- Due Periods; Distribution Periods." If any of the
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<PAGE> 46
foregoing situations causes the positive spread between the Dealer Note interest
rate and the Related 1990 Certificate Rate or the Applicable Floating Rate to
decline or disappear in the future, the result could be, under certain
circumstances, an Investment Event or Early Amortization Event and, if all
sources of credit enhancement were exhausted, losses on the Offered
Certificates. Credit enhancement, if available, will minimize the effect of any
such situation.
RISK OF DEFAULT BY INTEREST RATE SWAP COUNTERPARTY
A payment default by a Swap Counterparty will result in the commencement of
an Early Amortization Period and may result in the termination of the Interest
Rate Swap. Amounts, if any, on deposit in the Negative Carry Reserve Fund will
be available to make interest payments on the Offered Certificates during an
Early Amortization Period. Nonetheless, if the Interest Rate Swap is terminated,
reductions in the amount of interest paid on the Offered Certificates may
result. See "Description of the Offered Certificates -- Interest Rate Swap" and
"-- Early Amortization Events."
DEPENDENCE OF ACTIVE TRUST ON NFC AND NITC
The Active Trust is completely dependent on NFC as its exclusive source for
Acquisitions or Assignments of new Dealer Notes. The ability of NFC to supply
new Dealer Notes to the Active Trust is in turn dependent to a substantial
degree on the ability of NITC to sell Navistar Vehicles to Dealers in exchange
for Dealer Notes. There is, however, no assurance that NITC will continue to
sell Navistar Vehicles at the same rate as in prior years as a result of the
possibility of declining sales in the trucking industry generally, strikes,
fires or other unforeseeable events. A significant decline in NITC's sales of
Navistar Vehicles may cause an Investment Event or Early Amortization Event.
NITC currently purchases all new Navistar Vehicles that NFC has repossessed
from terminated Dealers for cash equal to the balance due on the underlying
Dealer Notes financing such vehicles. If NITC were to cease purchasing such
repossessed vehicles, the amount of Dealer Notes written off as uncollectible
could increase, which could, if all sources of credit enhancement under the
Active Trust were exhausted, result in losses on the Offered Certificates. NITC
currently has no plans to cease such purchases.
NITC provides a substantial amount of floor plan and other financial
assistance to Dealers through a number of formal and informal programs. See "The
Navistar Financial Dealer Floor Plan Financing Business" and "Relationship with
NITC." Such financial assistance often accounts for more than half of all
outstanding interest obligations on the Dealer Notes. The Interest Deposit
Agreement requires NITC to deposit the amount of such assistance in the Interest
Deposit Account at approximately the same time that such financial assistance is
granted. However, if NITC were to discontinue providing such assistance to
Dealers, the effect could be to reduce sales of Navistar Vehicles, which may
cause an Investment Event or Early Amortization Event.
If NFC were to cease acting as Servicer, delays in processing payments made
by Dealers could occur, therefore creating delays in payments to Offered
Certificateholders.
DEPENDENCE ON RATE OF DEALERS' PAYMENTS ON DEALER NOTES
Dealer Notes are generally due and payable by Dealers upon the sale of the
underlying Financed Vehicle. The timing of such sales by the Dealers is
uncertain and there is no assurance that any particular pattern of payments will
occur on the Dealer Notes. Further, there is no assurance that new Dealer Notes
will continue to be generated. A significant decline in the generation of Dealer
Notes that lasts for an extended period of time may cause an Investment Event or
Early Amortization Event.
The payment of principal on the Offered Certificates is dependent on Dealer
repayments. Accordingly, a significant decline in the rate of payments on the
Dealer Notes could slow the distribution of principal on Offered Certificates
during an Early Amortization Period. In addition, the Offered Certificates may
not be fully amortized by the Expected Payment Date. In the event that other
Series are issued subsequent to the Closing Date, the payment of the Offered
Certificates in full by the Expected Payment Date may become dependent on the
reallocation of Principal Collections which are initially allocated to such
other outstanding Series. The shorter the Accumulation Period, the greater the
likelihood that such a reallocation will be necessary. If one or more other
Series from which Principal Collections are expected to be available to be
reallocated to the payment of the Offered Certificates enters into an early
amortization period or
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<PAGE> 47
investment period, Principal Collections allocated to such Series may not be
available to be reallocated to make payments of principal of the Offered
Certificates and the final payment of principal of the Offered Certificates may
be later than the Expected Payment Date. Upon written request, the Seller will
make available to Offered Certificateholders the prospectus or other document
describing or summarizing the salient terms of any subsequently issued Series (a
"Disclosure Document") which describe the events which could result in the
commencement of an early amortization event or investment period with respect to
such outstanding Series.
RISKS ARISING FROM CONCENTRATION OF DEALERS
As of April 30, 1998, NFC provided wholesale financing to 337 of NITC's
domestic Dealers. Of such Dealers, 100 are expected to account for approximately
75% of the Dealer Notes. As a result of this level of Dealer concentration, the
financial failure of any single Dealer could adversely affect the Offered
Certificateholders. In order to mitigate the potential impact of the financial
failure of any single large Dealer on the Active Trust, however, the Applicable
Agreement prohibits the Active Trust from holding Dealer Notes from a single
Dealer in excess of the greater of (a) $4,000,000 or (b) 2.0% of the sum of the
aggregate principal balance of Dealer Notes and the aggregate principal amount
of 1990 Trust Investment Securities (or funds on deposit in the Excess Funding
Account) in the Active Trust (the "Concentration Limit"), although the Seller
has the right from time to time in its sole discretion to decrease or increase
(but not above the greater of (a) or (b) above) the Concentration Limit with
respect to any Dealer.
POTENTIAL ADVERSE IMPACT OF ISSUANCE OF ADDITIONAL SERIES
The Master Trust is expected to issue additional Series (which may be
represented by different classes within a Series) from time to time. A
Supplement delivered in connection with the issuance of other Series will
specify certain Principal Terms applicable to such Series. Such Principal Terms
may include methods for determining applicable allocation percentages and
allocating collections, provisions creating different or additional security or
other credit enhancement, different classes of certificates (including
subordinated classes of certificates) and any other amendment or supplement to
the Pooling and Servicing Agreement which is made applicable only to such
Series. No Supplement, however, may change the terms of the Offered Certificates
or the terms of the Pooling and Servicing Agreement as applied to the Offered
Certificates. See "Description of the Offered Certificates -- New Issuances." As
long as any Offered Certificates are outstanding, a condition to the execution
of any Supplement will be that the Rating Agency Condition shall have been
satisfied.
There can be no assurance, however, that the terms of any other Series might
not have an impact on the timing or amount of payments received by an Offered
Certificateholder. Although the imposition of the Rating Agency Condition is
intended to protect against the possibility that such impact would be materially
adverse to any Offered Series, the issuance of additional Series could result in
less excess interest collections being available for reallocation to an Offered
Series (for example, if the additional Series has a higher interest rate or swap
floating rate than a previously outstanding series or class of investor
certificates) and in a longer Accumulation Period or Early Amortization Period
for an Offered Series (if such additional Series were to have an expected
payment date that would require it to be in an accumulation period at the same
time as the Offered Series or if it were to enter an Early Amortization Period
at the same time as the Offered Series). Further, the issuance of an additional
Series will reduce the Seller's Interest in the Active Trust, which could
increase the possibility that a shortfall in the amount of available Dealer
Notes in the Active Trust would require funds to be retained in the Active Trust
and invested in short-term eligible investments in order to maintain the
required minimum seller's interest. Increased holdings of eligible investments
in the Active Trust will reduce the overall portfolio yield of the Active Trust,
which could lead to the occurrence of an Investment Event or Early Amortization
Event.
NITC'S ABILITY TO CHANGE TERMS OF DEALER NOTES
NITC may change the terms governing new Dealer Notes at any time so long as
any such change is made on a non-discriminatory basis. Although the Active Trust
is obligated to acquire only Eligible Dealer Notes including those Dealer Notes
with an interest rate (a) based on the prime rate or another benchmark floating
interest rate and (b) subject to adjustment at least monthly, there is no
assurance that the interest rate on Dealer Notes will always exceed the Related
1990 Certificate Rate or the Applicable Floating Rate (see "Risk Factors --
Basis Risk on Dealer Notes"). Failing to maintain an appropriate spread between
the interest rate on Dealer Notes and the Related 1990 Certificate Rate or the
Applicable Floating Rate, respectively, may cause an Investment Event or Early
Amortization Event.
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<PAGE> 48
NAVISTAR FINANCIAL SECURITIES CORPORATION AND THE MASTER TRUST
NAVISTAR FINANCIAL SECURITIES CORPORATION
NFSC was incorporated in the State of Delaware on September 13, 1990. NFSC
was organized for the limited purpose of purchasing Dealer Notes from NFC and
transferring such Dealer Notes to third parties. NFSC's executive offices are
located at Navistar Financial Securities Corporation, 2850 W. Golf Road, Rolling
Meadows, IL, telephone (847) 734-4000.
THE MASTER TRUST
The Master Trust was formed in accordance with the laws of the State of
Illinois pursuant to the Pooling and Servicing Agreement. Under the Pooling and
Servicing Agreement, the Seller assigned the 1990 Trust Seller Certificate and
all other rights of the Seller under the terms of the 1990 Trust Agreement to
the Master Trust. On the Closing Date with respect to any Series of Offered
Certificates, the Seller will instruct the Master Trust Trustee to deliver the
1990 Trust Seller Certificate to the 1990 Trust, and the 1990 Trust Trustee will
authenticate and deliver a Related 1990 Certificate and a reissued 1990 Trust
Seller Certificate to the Master Trust Trustee.
Until the 1990 Trust Termination Date, the assets of the Master Trust will
include (a) the 1990 Trust Seller Certificate transferred by the Seller to the
Master Trust, all rights of the Seller thereunder (including the right to
exchange such 1990 Trust Seller Certificate for new classes of 1990 Trust
Investor Certificates in the manner described herein) and all monies due or to
become due with respect thereto, (b) the Class A-4 and Class A-5 Investor
Certificates, each Related 1990 Certificate and any Subsequent 1990 Trust
Investor Certificate and all monies due or to become due with respect thereto,
(c) each Interest Rate Swap, interest rate cap, or other interest rate hedge
that the Master Trust may have entered into or obtained for the benefit of any
Series and (d) all funds on deposit in certain accounts of the Master Trust,
including funds on deposit in the Collections Account, the series principal
accounts, the distribution account, the negative carry reserve funds, if any,
and any other Series Accounts for each Series. Certain terms of the 1990 Trust,
and the 1990 Trust Seller Certificate, the Class A-4 and Class A-5 Investor
Certificates and the Related 1990 Certificates issued and to be issued
thereunder, are described herein under the heading "Terms of the 1990 Trust
Investor Certificates."
As of the 1990 Trust Termination Date, (a) the 1990 Trust will transfer to
the Master Trust all of its right, title and interest in and to all of the
property of the 1990 Trust (other than funds on deposit in the Trust Accounts
for the benefit of, and allocated to, 1990 Trust Investor Certificates that are
not held by the Master Trust), and (b) the Class A-4 and Class A-5 Investor
Certificates, each Related 1990 Certificate, any Subsequent 1990 Trust Investor
Certificate and the 1990 Trust Seller Certificate will automatically be
canceled, and all rights of the Master Trust with respect to such certificates
will terminate. As of the 1990 Trust Termination Date, funds on deposit in the
1990 Trust Spread Account will be transferred to the Master Trust, allocated
among an Offered Series and any other outstanding Series that so provides based
on the projected spread for each such Series (including the Projected Spread for
the Offered Series) and deposited in the associated Spread Account for the
benefit of the Offered Certificateholders and the spread accounts for each other
outstanding Series for the benefit of the Certificateholders of such other
outstanding Series; 1990 Trust Investment Securities will be transferred to the
Master Trust and deposited in the Excess Funding Account for the benefit of the
Certificateholders; and funds on deposit in the 1990 Trust Interest Deposit
Account will be transferred to the Master Trust and deposited in the Interest
Deposit Account, subject to allocation and distribution as Finance Charge
Collections to the extent described herein. Thus, after the 1990 Trust
Termination Date, the assets of the Master Trust will include (a) all Dealer
Notes transferred to the Master Trust by the 1990 Trust and all Dealer Notes
thereafter transferred to the Master Trust by the Seller, all monies due or to
become due with respect thereto and all proceeds of such Dealer Notes, (b) the
interest of the Seller in the security interests in the Financed Vehicles
related to the Dealer Notes and all proceeds thereof, (c) the interest of the
Seller in any amounts recovered by the Servicer pursuant to any casualty
insurance policies covering any Dealer with respect to Financed Vehicles (the
"Insurance Proceeds"), (d) each Interest Rate Swap, interest rate cap or other
interest rate hedge, if any, entered into or obtained by the Master Trust
Trustee for the benefit of any Series, and (e) all funds on deposit in certain
accounts of the Master Trust, including funds on deposit in the Series Principal
Account, the Distribution Account, the Spread Account, the Excess Funding
Account, the Interest Deposit Account, the Negative Carry Reserve Fund and any
other Series Account created under a Supplement to the Pooling and Servicing
Agreement associated with the Offered Series.
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On each business day (except in certain limited circumstances) during the
term of the Active Trust, NFC will sell Dealer Notes to the Seller and the
Seller will transfer such Dealer Notes to the Active Trust based on criteria
provided in the Applicable Agreement. Accordingly, the aggregate amount of
Dealer Notes in the Active Trust will fluctuate from day to day as new Dealer
Notes are generated and as existing Dealer Notes are collected, charged off as
uncollectible or otherwise adjusted or removed from the Active Trust.
The Master Trust was formed pursuant to the Pooling and Servicing Agreement
for these and similar transactions. Prior to formation, the Master Trust had no
assets or obligations. The Master Trust has not engaged and will not engage in
any business activity other than acquiring and holding 1990 Trust Investor
Certificates, the 1990 Trust Seller Certificate, the Dealer Notes, and the other
assets of the Master Trust described herein and proceeds therefrom, issuing
certificates of any Series or class, and issuing the Master Trust Seller's
Certificate.
USE OF PROCEEDS
Except as provided in the Prospectus Supplement, the net proceeds from the
sale of the Offered Certificates will be paid to the Seller, which will use such
proceeds (net of any amounts retained in the Excess Funding Account to maintain
the Master Trust Seller's Interest at least equal to the Minimum Master Trust
Seller's Interest) to repay indebtedness to NFC incurred by the Seller in
connection with the Seller's purchase of Dealer Notes from NFC prior to the
associated Closing Date under a Master Revolving Credit Agreement between NFC
and the Seller (the "Master Revolving Credit Agreement"). Interest accrues on
the outstanding principal amount of the note representing such indebtedness (the
"Master Revolving Note") at a rate per annum equal to the prime rate of interest
announced from time to time by Morgan Guaranty Trust Company of New York. The
principal amount of the Master Revolving Note is due and payable on the date on
which the Master Trust Purchase Agreement terminates in accordance with its
terms. NFC will use the proceeds received from the Seller to repay outstanding
short term indebtedness.
THE NAVISTAR FINANCIAL DEALER FLOOR PLAN FINANCING BUSINESS
Wholesale promissory notes issued by Dealers to NITC or NFC ("Dealer Notes")
are conveyed to the Active Trust by the Seller pursuant to the Applicable
Agreement. When used herein, unless the context otherwise requires, "Dealer
Notes" shall refer to those Dealer Notes which are held by the Active Trust. The
Dealer Notes are issued by Dealers to purchase new vehicles manufactured or
distributed by NITC (each such vehicle, a "Navistar Vehicle") or other
manufacturers (each such vehicle, an "OEM Vehicle") or to finance new trailers,
used vehicles and used trailers accepted in trade by Dealers or purchased by
them (all such new and used vehicles and trailers, "Financed Vehicles"). The
Active Trust will include Dealer Notes financing OEM Vehicles for a Dealer only
if NFC also provides financing for Navistar Vehicles for such Dealer.
As used herein, "Dealer" means (a) a person with whom NITC has a valid
Dealer Agreement to sell Navistar Vehicles, (b) a truck equipment manufacturer
to whom NITC sells vehicles pursuant to a valid Dealer Agreement or (c) a person
with whom NFC has a valid Dealer Agreement to extend used truck floor plan
terms.
NFC is the principal source of "wholesale" or "floor plan" financing for
Dealers in the United States, financing, as of April 30, 1998, 90% of the total
number of Dealers (approximately 337). The percentage of new NITC trucks sold
directly to Dealers in the United States for which NFC provided financing was
approximately 94% and 95% for the first six months of fiscal years 1998 and
1997, respectively, and 94%, 94%, 93%, 93% and 89% for fiscal years 1997, 1996,
1995, 1994 and 1993, respectively. Dealers financed by NFC include medium duty
truck dealers, medium and heavy duty truck dealers and a small number of allied
equipment manufacturers (such as school bus distributors and manufacturers and
distributors of cement mixers) who purchase chassis or other truck components
from NITC. NFC services the Dealers through its home office located in Rolling
Meadows, Illinois and through six District Finance Offices located throughout
the United States.
CREATION OF DEALER NOTES
NFC finances 100% of the wholesale invoice price of new Financed Vehicles,
including destination charges. In the case of Navistar Vehicles, NITC creates a
wholesale note upon shipment of each new truck to a Dealer and executes such
wholesale note under the signature authority of the Dealer granted to NITC. NFC
purchases all wholesale notes relating to new Navistar Vehicles from Dealers
financed by NFC on a daily basis from NITC (see "Relationship With NITC").
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NFC creates wholesale notes with respect to OEM Vehicles upon NFC's receipt
of an invoice from the vehicle manufacturer and executes such wholesale note
under the signature authority of the Dealer granted to NFC. NFC finances 75% of
the as-is appraised retail value of used vehicles taken in trade by a Dealer or
purchased by a Dealer from outside sources, and 100% of the purchase price for
used vehicles purchased by a Dealer from a NITC Used Truck Center and at 100% of
the NFC appraised value for repossessed vehicles purchased from NFC. Used
vehicles represented approximately 7% and 8% of the aggregate amount of
wholesale notes serviced by NFC as of April 30, 1998 and 1997, respectively, and
8%, 8%, 7%, 7% and 7% of the aggregate amount of wholesale notes serviced by NFC
as of October 31, 1997, 1996, 1995, 1994 and 1993, respectively. NFC will
continue to purchase from NITC wholesale notes issued by a Dealer for new
Navistar Vehicles and to provide floor plan financing to a Dealer for used
vehicles so long as such Dealer's Dealer Agreement is in effect and such Dealer
satisfies NFC's Credit Guidelines (see "-- Credit Approval Process and Credit
Guidelines" and "-- Dealer Monitoring; Write-Offs").
CREDIT APPROVAL PROCESS AND CREDIT GUIDELINES
NFC provides floor plan financing to Dealers pursuant to pre-established
credit guidelines ("Credit Guidelines"). NFC must approve each prospective
Dealer before such Dealer receives a NITC Dealer Sales/Maintenance Agreement (a
"Dealer Agreement").
NFC bases its approval upon a credit evaluation of the principal owners of a
prospective Dealer and such Dealer's capital structure. In conducting such an
evaluation, representatives of NFC's District Finance Office will conduct
interviews with prospective Dealer principal(s), obtain credit applications and
personal financial statements, review "letters of intent" provided by management
of the prospective dealership and review existing business plans and proposed
funding sources for the purchase and/or financing of the prospective dealership
(which proposals generally include pro forma financials for the following three
to five years). In addition, NFC will obtain both personal and business credit
references and will evaluate any available credit bureau reports.
If a prospective Dealer is approved by NFC, the Dealer and NITC enter into a
Dealer Agreement and NITC offers the Dealer wholesale floor plan terms approved
by NFC. The principal owner of the Dealer is generally required by NFC to
guarantee the Dealer's obligations to NITC and NFC. Pursuant to the Dealer
Agreement, in order to secure all indebtedness of the Dealer to NFC or NITC, the
Dealer grants to NFC and NITC a first priority security interest in its
inventory of new and used vehicles. Generally, the Dealer also grants NFC a
security interest in its service parts inventory. NFC maintains a master
physical damage insurance policy providing coverage for each Financed Vehicle
with Harco National Insurance Company ("Harco"), a wholly owned subsidiary of
NFC. The policy provides coverage to NFC and the related Dealer on all Financed
Vehicles for the actual cash value of each such Financed Vehicle up to an
aggregate amount of $10 million per contiguous Dealer location for each loss
occurrence. Harco maintains reinsurance with financially strong, non-affiliated
reinsurers for any loss in excess of $250,000 per occurrence. The policy has
been endorsed to provide that the Seller and the 1990 Trust Trustee are loss
payees as their interests may appear, and such policy (or any successor policy)
will be endorsed to provide that the Master Trust Trustee will be substituted
for the 1990 Trust Trustee as loss payee thereunder as of the 1990 Trust
Termination Date.
NFC establishes a base inventory guideline to provide floor plan financing
adequate for a Dealer's normal vehicle sales. The inventory guidelines are based
upon the Dealer's financial strength, its current credit and collection history
and the Dealer's historical or projected sales volume. NFC reviews a Dealer's
guideline at least annually.
Each month, the NFC corporate office staff and the appropriate District
Finance Office compare each Dealer's prescribed inventory guideline with the
aggregate principal amount of wholesale notes actually issued by such Dealer and
outstanding. If the amount of notes outstanding exceeds the Dealer's guideline
by a certain percentage (which percentage is based upon the Dealer's financial
strength rating), the NFC District Credit Manager may place the Dealer on
inventory control. In addition, a Dealer may also be placed on inventory control
if such Dealer fails to remit proceeds as agreed, if the Dealer's new or used
vehicle inventory is over-aged, if the Dealer's Open Account is past due or if a
Dealer's check is returned unpaid. Once any Dealer is placed on inventory
control, the District Finance Office will report monthly to NFC home office
management any progress made to resolve the deficiency. Upon its review, NFC
corporate office management will take appropriate actions with respect to such
Dealer. For example, NITC may be requested to sell and transfer certain truck
inventory to another Dealer, and, in extreme cases, NFC may foreclose on all
outstanding wholesale notes, place the Dealer on cash-on-delivery terms or
terminate the Dealer.
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Dealers that are placed on inventory control will not receive NFC financing
for shipments unless specifically approved by NFC. Accordingly, if NITC
generates a wholesale note to finance the purchase of a Navistar Vehicle by a
Dealer on inventory control without the prior approval of NFC, NFC will charge
NITC for the amount of such wholesale note. NFC may approve shipments to a
Dealer on inventory control to fill orders for trucks that have already been
sold to a retail purchaser or to permit the Dealer to stock a particular model
vehicle. A Dealer will remain on inventory control until the circumstances that
caused it to be placed on inventory control are remedied to the satisfaction of
the District Finance Office Credit Manager. NFC will not purchase the invoice or
set up a floor plan note for OEM Vehicles if a Dealer is in default or shipment
is otherwise not approved by NFC.
The following table sets forth the percentage of Dealers on inventory
control and the percentage of the total wholesale note balances of such Dealers
as of the end of the fiscal quarters specified:
<TABLE>
<CAPTION>
PERCENTAGE OF NOTES
FISCAL QUARTER PERCENTAGE OF DEALERS FROM DEALERS ON
ENDING LAST DAY OF ON INVENTORY CONTROL INVENTORY CONTROL
------------------ -------------------- -----------------
<S> <C> <C>
Fiscal Year 1998
January.......... 0.9% 1.2%
April............ 0.6 1.7
Fiscal Year 1997
January.......... 0.8 1.6
April............ 0.8 1.6
July............. 0.9 1.3
October.......... 0.9 1.5
Fiscal Year 1996
January.......... 2.1 1.1
April............ 1.6 2.0
July............. 1.9 2.6
October.......... 1.6 2.1
Fiscal Year 1995
January.......... 2.9 4.9
April............ 2.2 0.9
July............. 2.6 1.6
October.......... 2.3 1.4
Fiscal Year 1994
January.......... 6.5 11.8
April............ 5.0 7.7
July............. 5.1 8.9
October.......... 4.0 6.2
Fiscal Year 1993
January.......... 6.0 11.9
April............ 7.3 12.7
July............. 7.1 12.6
October.......... 6.2 10.6
</TABLE>
The high percentage of Dealers on inventory control in 1993 and 1994
reflects the time necessary for Dealers impacted by the recession in 1991 and
1992 to rebuild their financial strength to a level where they can be taken off
inventory control. A key component in NFC's credit approval system is the
Dealer's equity position; in the event that a Dealer is put on inventory control
due to low equity, then its removal from inventory control is dependent upon
increasing its sales and profits over the period of time necessary to rebuild
its equity.
PAYMENT TERMS
A wholesale note issued by a Dealer for a new Financed Vehicle is due on the
earlier of the sale of the truck or a specified date generally within 12 months
from the first day of the calendar month following the date of shipment of the
truck to the Dealer. If such note is not paid at the end of the 12-month period,
the Dealer may extend the term of the note for 90 days in exchange for a
quarterly curtailment payment equal to 10% of the original balance of the note.
These curtailment payments and 90-day extensions are permitted until the balance
of the note is paid in full or until the unit is sold, as long as the Dealer
maintains its floor plan financing arrangements with NFC and the related
Financed Vehicle is on-hand and in saleable condition. NFC may in its
discretion, based upon local or regional economic conditions, waive such
curtailment payments.
A wholesale note secured by a used vehicle is due on the earlier of the sale
of the Financed Vehicle or a specified date generally no later than 180 days
from the date of financing. A Dealer is allowed to extend quarterly the term of
a
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used vehicle wholesale note for 90-day periods upon payment of a curtailment
amount equal to 10% of the original principal balance of the wholesale note.
These extensions may continue until the note is paid in full. NFC may in its
discretion waive any curtailment payment.
Currently, NFC charges interest on wholesale notes outstanding during any
month at a rate equal to the prime rate plus a designated spread. The prime rate
is currently reset monthly by NFC based upon the reference banks' prime rate as
of the third Monday of the preceding month and is applied to all balances
outstanding during the applicable period. Wholesale notes secured by new
vehicles generally bear interest at a spread equal to 1% over the prime rate,
while used vehicle wholesale notes generally bear interest at a spread equal to
1 1/2% over the prime rate.
The competitive rate environment is changing the pricing of Dealer floor
plan financing. Upon giving notice to the Dealers, NITC/NFC may change the
reference rate mechanism in any manner (including changing the reference banks,
the intervals between which the reference rate is reset or the reference rate
itself) or the applicable spread(s). In addition, NFC may from time to time
offer special pricing programs to Dealers who enroll in those programs. NFC is
currently offering the Advantage program which allows an enrolled Dealer to
obtain discounts based on the volume and finance market share of retail finance
and lease business generated by that Dealer. A Dealer can earn rebates that
effectively reduce its base floor plan financing charges by up to 100 basis
points. Additional pricing actions may be taken by NFC to meet competition in
their market area.
NFC also currently charges each Dealer a monthly charge (the "Flat Charge")
equal to 0.065% of the Dealer's aggregate outstanding wholesale note balance as
of the end of each month, subject to certain monthly minimum charges. Under
certain rebate programs a Dealer may reduce its Flat Charges by up to 50%. Upon
giving notice to the Dealers, NITC/NFC may change the Flat Charge percentage.
BILLING AND COLLECTION PROCEDURES
A statement (the "Open Account Statement") setting forth interest and Flat
Charges and other billing and account information is prepared by NFC and
distributed on a monthly basis to each Dealer. Each Dealer's Open Account
Statement is generated on approximately the second business day of the month,
and payments are due on the fifteenth day of the month in which they are billed.
Interest and Flat Charges are billed in arrears. Dealers remit interest payments
by check or electronic funds transfer to a lockbox owned by NFC. See
"Relationship with NITC -- Open Account."
Each Dealer's monthly Open Account Statement also contains a "Wholesale Note
and Inventory Statement" prepared by NFC, listing each outstanding note issued
by the Dealer and detailing all credits and debits applied to each wholesale
note during the period. Dealers are required to remit principal payments on
wholesale notes when due by check or electronic funds transfer to NFC's lockbox.
DEALER MONITORING; WRITE-OFFS
NFC Finance Sales Representatives or agents of NFC conduct physical
inventories of each Dealer's inventory on a regular basis to verify that the
Dealer is paying its wholesale notes upon receiving payment for the related
Financed Vehicles from retail customers. NFC performs these inventories monthly
for most Dealers, although some Dealers with satisfactory financial strength and
good payment histories or with small dealerships in remote areas are inventoried
only every sixty to ninety days. The timing of each visit is varied and no
advance notice is given to the Dealer. Representatives conduct a physical
inventory by comparing the serial numbers of the vehicles on the Dealers'
premises to a current listing of vehicles being financed by NFC. Representatives
also confirm with outside sources such as body shops that they hold units of a
Dealer's inventory. NFC District Finance Offices perform approximately five test
checks per month to ensure that each Finance Sales Representative's inventory
procedures are proper. Test check procedures are more stringent than inventories
and involve a review of a Dealer's remittance habits and financial records and
an evaluation of such Dealer's financial strength.
When NFC discovers that a Dealer is suffering financial difficulties, NFC's
District Finance Office closely monitors the Dealer while working with the
Dealer to improve its financial condition. In these circumstances, NFC field
management personnel may perform a more detailed audit to verify a Dealer's
inventory, cash and sales records. These detailed audits also take place when
the routine inventory reveals a shortage in a Dealer's inventory, when NFC
receives from a Dealer a check for which the Dealer does not have sufficient
funds or when NFC deems itself insecure. The
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Dealer is required to make a payment in certified funds of all amounts owing to
NFC before the NFC representative leaves the Dealer's premises. If the Dealer
cannot pay the amount owing to NFC, NFC may place the Dealer on cash-on-
delivery status for parts orders, and prohibit future shipment of vehicle orders
to the Dealer unless such orders are "sold orders" and specific arrangements are
made to assure prompt receipt of the proceeds by NFC.
If NFC's review reveals that a Dealer has used proceeds from vehicle sales
due to NFC for other purposes, the NFC District Finance Office may place the
Dealer on cash-on-delivery terms, causes NITC to hold all shipments to the
Dealer and sends letters to the Dealer's guarantors and bank advising them of
NFC's interest in the Dealer's funds. In addition, NFC's District Finance Office
management takes certain actions at the dealership, including obtaining the
manufacturer's statement of origin or the certificate of title for each vehicle
in the Dealer's inventory.
If a Dealer is unable to pay amounts owing to NFC, NITC may terminate such
Dealer's Dealer Agreement in accordance with the terms of the Dealer Agreement
and applicable state law. Generally, in such circumstances the Dealer will
return all new trucks and parts inventory to NITC in accordance with the terms
of the Dealer Agreement and will receive credit against such Dealer's
outstanding wholesale notes. If the Dealer resists such termination, however,
NFC will declare the Dealer in default of its obligations, accelerate its
wholesale notes and foreclose on its collateral by taking possession of the
Dealer's vehicle and parts inventory or, if necessary, NFC will obtain a court
order requiring foreclosure. The Dealer's new vehicle inventory purchased from
NITC is returned to NITC in exchange for NITC's cash payment in full of such
Dealer's wholesale notes and the fulfillment of any other obligations owing to
NFC subject to the terms of the Dealer Agreement and applicable state law.
(Similar arrangements are in effect with other OEM Suppliers with respect to OEM
Notes.) Used vehicles are sold to the highest bidder; the proceeds are paid to
NFC to satisfy amounts owing to it. NFC will seek to collect any remaining
amounts it is owed from any other collateral that it may hold and from the
Dealer's guarantors. Once NFC has commenced liquidating a Dealer's inventory, it
writes off any amounts that it identifies as uncollectible. During the course of
a liquidation, NFC may recognize additional losses or recoveries. Collections
under a parts security agreement, a guarantee or other security arrangement are
generally allocated to the following items in the following order: Open Account
balances, new wholesale note balances, parts note balances, deficiency balances
on used floor plan notes, Dealer retail note deficiencies, retail note recourse
obligations, and finally, obligations owed to NITC by the Dealer. Dealer Notes
secured by new OEM Vehicles also are generally foreclosed by return of such
vehicles to the manufacturer in the event of Dealer termination.
RELATIONSHIP WITH NITC
NITC manufactures and markets medium and heavy duty trucks, including school
buses, mid-range diesel engines and replacement parts primarily for sale in the
United States and Canada, as well as selected export markets. NITC has been
manufacturing trucks for approximately 90 years; it is now the industry market
share leader in the North American combined medium and heavy duty truck market,
offering a full line of diesel-powered products in the common carrier, private
carrier, government/service, leasing, construction, energy/petroleum and student
transportation markets. NITC also produces mid-range diesel engines for use in
its medium duty trucks, school buses and selected heavy duty truck models and
for sale to original equipment manufacturers. As NFC is a wholly owned finance
subsidiary of NITC, the level of NFC's floor plan financing activity is
substantially dependent on the level of sales of NITC and its Dealers so that
any continuing material change therein may have a corresponding effect on NFC's
floor plan financing business.
NITC provides floor plan assistance to Dealers through several formal and
informal programs, which are specifically discussed in "Special Price Allowances
at Retail" and "Floor Plan Financing Assistance." Much of this assistance is
provided at the option of NITC, which may terminate any of such optional
programs in whole or in part at any time.
INTEREST DEPOSIT AGREEMENTS AND INTEREST DEPOSIT ACCOUNTS
In order to promote the sale of Navistar Vehicles, NITC periodically grants
interest credits to Dealers and implements programs pursuant to which NITC
undertakes to pay, on behalf of the Dealers, interest owing on the related
Dealer Notes (during such time, such Dealer Notes are referred to as
"Non-Interest Bearing Dealer Notes"). In order to insure that the amount of such
interest owed to the Active Trust will be available (i) prior to the 1990 Trust
Termination Date, NITC, the Servicer and the 1990 Trust Trustee have entered
into an interest deposit agreement (the "1990 Trust Interest Deposit Agreement")
and (ii) after the 1990 Trust Termination Date, NITC, the Servicer and the
Master Trust have entered into an interest deposit agreement which will become
effective on the 1990 Trust Termination Date (the operative Interest Deposit
Agreement being the "Active Interest Deposit Agreement"), in each case pursuant
to which NITC makes or will
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<PAGE> 54
make weekly deposits into the 1990 Trust Interest Deposit Account or the
Interest Deposit Account, as applicable, in an amount equal to the amount of
interest NITC has undertaken during that week to pay on behalf of the Dealers.
Pursuant to the terms of the Active Interest Deposit Agreement, NITC and the
Servicer will calculate the NITC Interest Amount as of the close of business on
Friday (or the immediately preceding business day if such Friday is not a
business day) of each week and as of the close of business on the last business
day of each Due Period (each, a "Calculation Day").
The "NITC Interest Amount" equals the sum of (a) the amount of the aggregate
amount of interest credits ("Up-Front Interest Credit") granted to Dealers by
NITC during the current Due Period, (b) the aggregate amount of NITC Earned
Interest on all Non-Interest Bearing Dealer Notes accrued during the current Due
Period and (c) the amount of the aggregate amount of NITC Future Due Interest on
all Non-Interest Bearing Dealer Notes as of such Calculation Day.
"NITC Earned Interest" means, on any Calculation Day or NITC Interest
Transfer Date with respect to any Dealer Note that was a Non-Interest Bearing
Dealer Note during the related Due Period or any portion thereof, an amount
equal to the product of (i) the product of (a) the principal amount of such
Non-Interest Bearing Dealer Note and (b) the interest rate on such Dealer Note
billed by NFC during such Due Period (the "Current Interest Rate") and (ii) the
quotient of (a) a number equal to the number of days elapsed during the Due
Period for which the Dealer Note is outstanding and is a Non-Interest Bearing
Dealer Note and (b) the actual number of days in the related calendar year.
"NITC Future Due Interest" means, with respect to any Non-Interest Bearing
Dealer Note on any Calculation Day, an amount equal to the product of (i) the
product of (a) the principal amount of such Non-Interest Bearing Dealer Note and
(b) the Current Interest Rate and (ii) the quotient of (a) a number equal to the
number of days from and including the Calculation Day to, but not including, the
date on which the obligor on such Dealer Note is requested to start paying
interest and (b) the actual number of days in the related calendar year.
If on any Calculation Day (i) prior to the 1990 Trust Termination Date, the
amount on deposit in the interest deposit account which the 1990 Trust Trustee
has established and will maintain in the name of the 1990 Trust for the benefit
of the holders of 1990 Trust Investor Certificates (the "1990 Trust Interest
Deposit Account") and (ii) after the 1990 Trust Termination Date, the amount on
deposit in the interest deposit account which the Master Trust Trustee will
establish prior to the 1990 Trust Termination Date and maintain for the benefit
of the Certificateholders (the "Interest Deposit Account"), including any
interest earned thereon (collectively, the "Deposit Amount"), is less than the
NITC Interest Amount, NITC will deposit the amount of such deficiency in the
1990 Trust Interest Deposit Account or the Interest Deposit Account, as
applicable. However, if on any Calculation Day the Deposit Amount exceeds the
NITC Interest Amount, the Servicer will direct the Active Trustee to withdraw
the amount of such excess from the 1990 Trust Interest Deposit Account or the
Interest Deposit Account, as applicable, on the business day following such
Calculation Day (the "NITC Payment Date") and refund that amount to NITC.
MASTER INTERCOMPANY AGREEMENT
The operating relationship between NFC and NITC is governed by a Master
Intercompany Agreement dated as of April 26, 1993 and amended from time to time
(the "Master Intercompany Agreement").
Purchase of Notes and Accounts Receivable. The Master Intercompany Agreement
requires that NITC, with limited exceptions, offer NFC all wholesale and retail
notes and installment sales contracts which NITC acquires in the regular course
of its business from sales of trucks and related equipment to Dealers and
customers. Such offers must be on terms which will (together with charges made
to others for financing services) afford reasonable compensation for the
financing services rendered by NFC to NITC and the Dealers with respect to the
sale of NITC products and used goods. NFC in turn has agreed, to the extent that
it is able to finance such purchases, that it will purchase all such receivables
without recourse except those, if any, as to which the risk of loss is
unacceptable to NFC.
Pursuant to the Master Intercompany Agreement, NFC also purchases NITC
wholesale accounts receivable from the Dealers arising out of NITC's sales of
goods (primarily parts) and services to such Dealers. NFC receives compensation
from NITC in the form of a floating rate service charge for financing these
accounts.
Payments to NITC for Administrative and Other Services. The Master
Intercompany Agreement provides for payment by NFC to NITC of service fees for
data processing and other administrative services provided by NITC to NFC. The
amounts of these service fees are agreed upon from time to time, taking into
consideration such services and the costs
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<PAGE> 55
thereof. NFC paid NITC service fees of $2.1 million, $2.4 million, $2.4 million,
$2.5 million and $2.3 million, for fiscal years 1997, 1996, 1995, 1994 and 1993,
respectively.
NO GUARANTEE BY NITC
None of the operating agreements constitute guarantees by NITC of the
interest on or principal of the notes, the account balances or any other
obligation of the obligors thereunder.
SPECIAL PRICE ALLOWANCES AT RETAIL
NITC agrees from time to time with a Dealer to pay a portion of the
principal amount of a wholesale note issued by the Dealer when the Dealer sells
the vehicle financed by such note to a retail customer. These retail special
price allowances ("Retail SPAs") (in addition to the wholesale special price
allowances described below) are intended to respond to competitive pressures by
allowing a Dealer to offer a lower price to a potential customer.
Generally, NITC will approve a Retail SPA for a vehicle held in inventory
only when the Dealer has identified a potential buyer. A representative of the
Dealer applies for the Retail SPA over the telephone, at which time a
representative of NITC asks for certain pertinent information. NITC will quote
the Dealer the Retail SPA on the telephone and later confirm it on a computer
printout sent to the Dealer. Once approved, a Retail SPA is only effective for a
60-day period; if the Dealer does not sell the vehicle to the identified
customer during that time, the Dealer must reapply for, or seek an extension of,
the Retail SPA.
NITC is required to remit the amount of a Retail SPA to NFC upon the sale by
the Dealer of the vehicle financed by the wholesale note. However, NFC does not
reduce the principal balance of the wholesale note until it actually receives
payment of the Retail SPA from NITC. Although NITC has never failed to make such
a payment, it is the policy of NFC and NITC that the Dealer is obligated to the
holder of the wholesale note for the entire principal amount of the wholesale
note until NFC receives payment from NITC. If NITC becomes financially unable to
continue providing such assistance or otherwise refuses to follow through with
its payment obligations, delays in the payment of Dealer Notes could occur as a
result of Dealer disputes with NFC (in which a Dealer could assert that the
outstanding balance of the disputed Dealer Note should be reduced by the amount
of any credit or deduction previously approved by NITC with respect to such
Dealer Note).
The amount of Retail SPAs paid by NITC in each month during the period
April, 1995 through April, 1998, ranged between a low of approximately 0.23% and
a high of approximately 3.18% of the outstanding Dealer Notes during such month.
The amount of Retail SPAs paid by NITC during each of the consecutive
12-month periods ending on the last day of each month from April, 1995 through
April, 1998 as a percentage of sales during such period ranged between a low of
approximately 2.86% and a high of approximately 6.55%.
In addition to providing Retail SPAs, from time to time NITC will also
provide wholesale special price allowances to Dealers ordering trucks for
inventory. Unlike a Retail SPA, a wholesale special price allowance will reduce
the invoice price of the truck and the original principal amount of the
wholesale note. Therefore, in contrast to a Retail SPA, NITC has no subsequent
principal payment obligation with respect to such wholesale note.
FLOOR PLAN FINANCING ASSISTANCE
General. NITC currently has a number of formal and informal floor plan
assistance programs for Dealers. NITC implements these programs in two ways: by
issuing Dealers interest credits to be applied to their monthly bills, or by
paying wholesale note interest to NFC on the Dealers' behalf for a specified
period of time. In each case, these programs are agreements between NITC and the
Dealers and do not affect the Dealers' obligations on the wholesale notes until
NFC receives payment of amounts owing to it on the wholesale notes. NITC may
choose to discontinue or alter such programs in the future.
Interest Credits. NITC's floor plan assistance terms currently provide that,
upon issuance of a wholesale note by a Dealer, NITC will issue a credit (an
"Interest Credit") to a Dealer's Open Account balance in order to provide the
Dealer
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<PAGE> 56
with a specified free interest period for the related Financed Vehicle. NITC
presently provides a free interest period of 15 days for Financed Vehicles that
the Dealer has sold to retail customers, 45 days for Financed Vehicles that the
Dealer intends to hold as inventory and 105 days for school bus chassis. The
Interest Credit is issued when NITC issues an invoice for the Financed Vehicle
and is computed at the interest rate in effect as of such date, taking into
account the principal amount of the wholesale note and the number of days
covered by the interest credit.
The aggregate amount of Interest Credits is applied to the Dealer's Open
Account balance on a monthly basis. If the aggregate amount of such credits
exceeds the interest charges for the month, the Dealer is entitled to apply the
excess to any of its outstanding obligations to NFC and NITC that appear on its
Open Account Statement. The Dealer remains obligated to pay interest on the
wholesale note to which the Interest Credit relates.
Pursuant to the Active Interest Deposit Agreement, NITC deposits in the 1990
Trust Interest Deposit Account or the Interest Deposit Account, as applicable on
a weekly basis an amount equal to all Interest Credits granted by it to Dealers
during each such week (see "Interest Deposit Agreements and Interest Deposit
Accounts").
Payment of Interest by NITC. NITC's current floor plan assistance terms also
include an agreement by NITC to pay interest on behalf of the Dealers for the
period during which the Financed Vehicles are in transit to the Dealers. In
addition, NITC periodically implements special sales programs pursuant to which
it agrees to pay interest on behalf of the Dealers for extended periods.
Pursuant to the Master Intercompany Agreement, NITC pays the amount of interest
owing on the wholesale notes directly to NFC; the Dealers are not billed for
interest owing on the wholesale notes for the specified period. NITC will
continue to pay interest on a wholesale note on behalf of a Dealer until the
first to occur of the end of the specified time period and the sale of the
related Financed Vehicle.
The Active Interest Deposit Agreement requires NITC to deposit in the 1990
Trust Interest Deposit Account or the Interest Deposit Account, as applicable,
on a weekly basis an amount equal to the aggregate amount of interest that NITC
has agreed during such week to pay on behalf of the Dealers, regardless of
whether such interest has been earned on the wholesale notes or if such interest
is to be earned in the future.
The following table sets forth the average monthly amount of Interest
Credits and NITC interest payments (in millions of dollars) for the periods
ended on the date specified:
<TABLE>
<CAPTION> SIX MONTHS
ENDED APRIL 30 YEAR ENDED OCTOBER 31
------------------- -----------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Average monthly amount of Interest Credits... $1.5 $1.2 $1.4 $ 1.6 $ 1.7 $ 0.9 $ 0.6
Average monthly amount of NITC interest payments 2.4 1.4 1.6 1.4 1.5 1.5 1.1
</TABLE>
OPEN ACCOUNT
NITC sells parts, accessories and other miscellaneous items, and charges for
services provided, to Dealers through their open accounts (each, an "Open
Account"). Dealers are billed monthly on their Open Account balances. NITC also
issues credits to the Open Account, which include Interest Credits, warranty
work reimbursements, other sales and interest adjustments and miscellaneous
credits. A Dealer's monthly Open Account Statement includes NFC's charge to the
Dealer for accrued wholesale note interest. This charge appears as a net item
(which is calculated in the Wholesale Note and Inventory Statement that
accompanies the Open Account Statement), and includes the application of any
Interest Credits issued to the Dealer by NITC. The Open Account Statement also
contains the Flat Charge billed to such Dealer.
The Open Account billing period is for a calendar month, from the first day
of the month through the last day of the month (i.e., a Due Period). NFC issues
Open Account Statements on approximately the second business day following the
end of the Due Period. If a Dealer fails to pay its Open Account balance by the
fifteenth day of the month following the end of the Due Period, interest on the
balance of the Account is charged retroactively from the beginning of such month
until the balance is paid. The Dealer's Open Account Statement is accompanied by
NFC's Wholesale Note and Inventory Statement, which lists each truck in the
Dealer's inventory being financed during the month, showing, by unit, the amount
of interest charged by NFC during that month and the amount of Interest Credits
or other adjustments issued by NITC. The net interest owed by the Dealer after
application of Interest Credits is shown at the bottom of the Wholesale Note and
Inventory Statement and is also reflected on the Dealer's Open Account
Statement.
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<PAGE> 57
NFC purchases the aggregate Open Account balances of all Dealers from NITC
on a non-recourse basis. NFC's purchase of Open Account items occurs during the
month as part of the daily, weekly, or monthly settlements between NITC and NFC
pursuant to the Master Intercompany Agreement. Credits due the Dealer for
warranty work, floor plan interest reimbursement and other items are netted
against the price paid by NFC for the aggregate Dealer Open Account balance.
DESCRIPTION OF THE OFFERED CERTIFICATES
GENERAL
The Offered Certificates will be issued pursuant to the Pooling and
Servicing Agreement dated as of June 8, 1995 (as supplemented and amended from
time to time, the "Pooling and Servicing Agreement"), among NFSC, NFC, the 1990
Trust Trustee and the Master Trust Trustee, which has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part. The Master
Trust Trustee will make available for inspection a copy of the Pooling and
Servicing Agreement (without exhibits or schedules) and any Supplement to
Offered Certificateholders without charge upon written request. The following
summary describes certain terms of the Pooling and Servicing Agreement, does not
purport to be complete and is qualified in its entirety by reference to the
Pooling and Servicing Agreement.
The Offered Certificates will evidence undivided beneficial interests in
certain assets of the Master Trust allocated to the Offered Certificateholders'
Interest, representing the right to receive from such assets funds up to (but
not in excess of) the amounts required to make payments of interest on and
principal of the Offered Certificates pursuant to the Pooling and Servicing
Agreement.
The Offered Certificates will be available for purchase in minimum
denominations of $1,000 and integral multiples thereof in book-entry form only.
The Seller will keep or cause to be kept by a transfer agent (initially the
Master Trust Trustee) a register for the Offered Certificates (the "Certificate
Register"). Unless otherwise designated by the Seller in writing to the Master
Trust Trustee, the Certificate Register will be maintained at the Corporate
Trust Office of the Master Trust Trustee. The Master Trust Trustee, the paying
agent, the transfer agent, and any agent of any of them may treat the person in
whose name any Offered Certificate is registered as the owner of such Offered
Certificate for all purposes, including receiving distributions, and none of the
Master Trust Trustee, the paying agent, the transfer agent, or any agent of any
of them will be affected by any notice to the contrary.
INTEREST
The rate per annum at which Monthly Interest for the Offered Certificates
(the "Offered Certificate Rate") will accrue will be set forth in the Prospectus
Supplement. During each Distribution Period, Monthly Interest on the Invested
Amount will accrue at the Offered Certificate Rate for such Distribution Period
and will be payable to the Offered Certificateholders on each Distribution Date.
Monthly Interest will accrue from and including the preceding Distribution Date
(or, in the case of the first Distribution Date, from and including the Closing
Date) to but excluding the current Distribution Date and, if Monthly Interest is
calculated at a fixed rate, will be calculated on a basis of a 360-day year of
twelve 30-day months and, if Monthly Interest is calculated at a floating rate,
will be calculated on a basis of actual days elapsed and a 360-day year. Monthly
Interest due for any Distribution Date but not paid on such Distribution Date
will be due on the next Distribution Date, together with interest on such amount
at the Offered Certificate Rate for the Distribution Period related to such
Distribution Date.
On each Transfer Date related to a Due Period commencing prior to the 1990
Trust Termination Date and prior to the commencement of a Class Amortization
Period with respect to the Related 1990 Certificate, interest payments received
by the Master Trust in respect of the Related 1990 Certificate (the "Related
1990 Certificate Interest Collections") and any Net Swap Receipts will be
deposited in the Distribution Account and, together with Investment Income (if
any), will be used to make payments of Monthly Interest to the Offered
Certificateholders when due. Upon the commencement, if any, of a Class
Amortization Period with respect to the Related 1990 Certificate, funds on
deposit in the Negative Carry Reserve Fund will also be used to make payments of
Monthly Interest to the Offered Certificateholders. After the 1990 Trust
Termination Date, Monthly Interest will generally be derived from Available
Certificateholder Interest Collections, Net Swap Receipts and, under certain
circumstances, withdrawals from the Spread
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<PAGE> 58
Account, the Negative Carry Reserve Fund, the Liquidity Reserve Account and
Available Seller's Finance Charge Collections to the extent described herein.
PRINCIPAL
The date on which the final payment of principal with respect to the Offered
Certificates is expected to be made (the "Expected Payment Date") will be set
forth in the related Prospectus Supplement. In general, no principal payments
will be made to the Offered Certificateholders until the Expected Payment Date
or until the first Distribution Date related to the Due Period in which an Early
Amortization Period commences. Although it is expected that the final payment in
respect of the Invested Amount will be made on the Expected Payment Date, the
Invested Amount may be paid earlier or, depending on the actual payment rate on
the Dealer Notes, later, as described under "Risk Factors -- Delays or
Reductions in Payments Due to Insolvency."
Distributions on the Offered Certificates will be made on each Distribution
Date to the holders of Offered Certificates in whose names the Offered
Certificates were registered (expected to be Cede, as nominee of DTC) at the
close of business on the day preceding such Distribution Date (each, a "Record
Date"). However, the final distribution on the Offered Certificates will be made
only upon presentation and surrender of the Offered Certificates. Distributions
to DTC will be made in immediately available funds.
Pre-1990 Trust Termination Date. Prior to the 1990 Trust Termination Date,
unless a Class Amortization Period with respect to the Related 1990 Certificate
has commenced, the Master Trust will not receive any payments of principal in
respect of the Related 1990 Certificate (such payments are referred to herein as
the "Related 1990 Certificate Principal Collections").
"Class Amortization Period" means, for a class of 1990 Trust Investor
Certificates, the first to occur of (a) the period from and including the
Scheduled Class Amortization Date to and including the date of the final
distribution to the holders of such class and (b) the period from and
including the date on which a 1990 Trust Amortization Event occurs to and
including the date of the final distribution to the holders of such class.
On each Transfer Date related to a Due Period occurring during a Class
Amortization Period with respect to the Related 1990 Certificate (which will
result in the occurrence of either an Early Amortization Event or an Investment
Event as described herein), Related 1990 Certificate Principal Collections will
be allocated between the Series Principal Account and the Negative Carry Reserve
Fund as described in "-- Allocation of Collections Prior to the 1990 Trust
Termination Date -- Allocations." The funds on deposit in the Series Principal
Account will be used to pay the Invested Amount (i) on each Distribution Date
related to a Due Period occurring during an Early Amortization Period (unless
otherwise provided in the Prospectus Supplement, commencing with the
Distribution Date related to the Due Period in which the Early Amortization
Event occurs) until the Invested Amount has been paid in full or the Series
Termination Date has occurred or (ii) on the Expected Payment Date or any Early
Distribution Date if an Investment Event has occurred. Even if the amount on
deposit in the Series Principal Account on the Expected Payment Date is
insufficient to pay the Invested Amount in full, such amount will be distributed
to the Offered Certificateholders at such time. Any remaining Related 1990
Certificate Principal Collections shall be paid to the Seller.
Post-1990 Trust Termination Date. On each business day with respect to the
Revolving Period, Offered Series Principal Collections, subject to certain
limitations, will either be (a) allocated to one or more Series which are in
amortization, early amortization or accumulation periods to cover principal
payments due to the Certificateholders of any such Series or (b) if no such
Series is then amortizing or accumulating principal in series principal
accounts, (i) allocated to any variable funding certificate at the Seller's
option, (ii) allocated to and deposited in the Excess Funding Account to the
extent necessary to maintain the Minimum Master Trust Seller's Interest or (iii)
paid to the Seller.
Unless and until an Early Amortization Event shall have occurred and until
the Invested Amount is paid in full, on each Transfer Date related to a Due
Period occurring during the Accumulation Period or any Investment Period,
Offered Series Principal Collections will no longer be paid for the benefit of
another Series or to the Seller as described above but instead an amount thereof
up to the Controlled Deposit Amount for each such Due Period, in the case of the
Accumulation Period, or the Invested Amount, in the case of an Investment
Period, will be deposited in the Series Principal Account and will be used to
pay the Invested Amount on the Expected Payment Date or any Early Distribution
Date. As described in "-- Allocations of Collections After the 1990 Trust
Termination Date -- Principal Collections," Shared Principal Collections and
Shared Seller Principal Collections may also be available for deposit into the
Series
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<PAGE> 59
Principal Account in respect of the Invested Amount. If on the Expected Payment
Date the amount on deposit in the Series Principal Account is less than the
Invested Amount, the Early Amortization Period will commence and on each
Distribution Date thereafter the Offered Certificateholders will receive
distributions of Offered Series Principal Collections until the Invested Amount
has been paid in full or the Series Termination Date has occurred. If the
Expected Payment Date occurs after the Fully Funded Date, the Offered
Certificateholders will only be entitled to receive the amounts on deposit in
the Series Principal Account. See "Description of Offered Certificates --
Termination; Fully Funded Date." Even if the amount on deposit in the Series
Principal Account on the Expected Payment Date is insufficient to pay the
Invested Amount in full, such amount will be distributed to the Offered
Certificateholders at such time.
BOOK-ENTRY REGISTRATION
Offered Certificateholders may hold their Offered Certificates through DTC
(in the United States) or CEDEL or Euroclear (in Europe) if they are
participants in such systems, or indirectly through organizations which are
participants in such systems.
Cede, as nominee for DTC, will be the registered holder of the global
Offered Certificates. Except as described herein, no Offered Certificateholder
will be entitled to receive a certificate representing such person's interest in
the Offered Certificates. Unless and until Definitive Certificates are issued
under the limited circumstances described below, all references herein to
actions by Offered Certificateholders shall refer to actions taken by DTC upon
instructions from its Participants, and all references herein to distributions,
notices, reports and statements to Offered Certificateholders shall refer to
distributions, notices, reports and statements to Cede, as the registered holder
of the Offered Certificates, for distribution to the Offered Certificateholders
in accordance with DTC procedures.
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, N.A. ("Citibank") will act as depositary for CEDEL and
Morgan Guaranty Trust Company of New York will act as depositary for Euroclear
(in such capacities, the "Foreign Agency Depositaries").
Transfers between DTC Participants will occur in the ordinary way in
accordance with DTC rules. Transfers between CEDEL Participants and Euroclear
Participants will occur in the ordinary way in accordance with their applicable
rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL or
Euroclear Participants, on the other, will be effected in DTC in accordance with
DTC rules on behalf of the relevant European international clearing system by
its Foreign Agency Depositary. However, such cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Foreign Agency 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 Foreign Agency Depositaries.
Because of time-zone difference, credits of securities received in CEDEL or
Euroclear as a result of a transaction with a DTC 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 or CEDEL Participant on such business day. Cash received in CEDEL or
Euroclear as a result of sales of securities by or through a CEDEL Participant
or a Euroclear Participant to a DTC Participant will be received with value on
the DTC settlement date but will be available in the relevant CEDEL or Euroclear
cash account only as of the business day following settlement in DTC. For
additional information regarding clearance and settlement procedures for the
Offered Certificates, see Annex I hereto, and for information with respect to
tax documentation procedures relating to the Offered Certificates, see Annex I
hereto and "Federal Income Tax Matters -- Foreign Holders."
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<PAGE> 60
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York UCC and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participating organizations ("Participants") and facilitate
the clearance and settlement of securities transactions between Participants
through electronic book-entry changes in their accounts, thereby eliminating the
need for physical movement of certificates. Participants include securities
brokers and dealers, banks, trust companies and clearing corporations and may
include certain other organizations (including underwriters involved in the
distribution of the Offered Certificates). DTC is owned by a number of its
Participants and by the New York Stock Exchange, Inc., the American Stock
Exchange, Inc. and the National Association of Securities Dealers, Inc. Indirect
access to the DTC system also is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants").
Offered Certificateholders that are not Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of, or
other interests in, Offered Certificates may do so only through Participants and
Indirect Participants. In addition, Offered Certificateholders will receive all
distributions of principal of and interest on the Offered Certificates from the
Master Trust Trustee through DTC and its Participants. Under a book-entry
format, Offered Certificateholders will receive payments after the related
Distribution Date because, while payments are required to be forwarded to Cede,
as nominee for DTC, on each such date, DTC will forward such payments to its
Participants which thereafter will be required to forward them to Indirect
Participants or Offered Certificateholders. It is anticipated that the only
"Investor Certificateholder" (as such term is used in the Pooling and Servicing
Agreement) will be Cede, as nominee of DTC, and that Offered Certificateholders
will not be recognized by the Master Trust Trustee as Investor
Certificateholders under the Pooling and Servicing Agreement. Offered
Certificateholders will only be permitted to exercise the rights of Investor
Certificateholders under the Pooling and Servicing Agreement indirectly through
DTC and its Participants who in turn will exercise their rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among Participants
on whose behalf it acts with respect to the Offered Certificates and is required
to receive and transmit distributions of principal of and interest on the
Offered Certificates. Participants and Indirect Participants with which Offered
Certificateholders have accounts with respect to the Offered Certificates
similarly are required to make book-entry transfers and receive and transmit
such payments on behalf of their respective Offered Certificateholders. Because
DTC can only act on behalf of Participants, who in turn act on behalf of
Indirect Participants and certain banks, the ability of an Offered
Certificateholder to pledge Offered Certificates to persons or entities that do
not participate in the DTC system, or otherwise take actions in respect of such
Offered Certificates, may be limited due to the lack of a physical certificate
for such Offered Certificates.
DTC has advised the Seller that it will take any action permitted to be
taken by an Offered Certificateholder under the Pooling and Servicing Agreement
only at the direction of one or more Participants to whose account with DTC the
Offered Certificates are credited. DTC may take conflicting actions with respect
to an undivided interest held by a Participant to the extent that it is directed
to do so by such Participant based on such Participant's instructions from
various beneficial owners.
Cedel Bank, societe anonyme ("CEDEL"), 67 Bd Grande-Duchesse Charlotte,
L-1331, Luxembourg, was incorporated in 1970 as a limited company under
Luxembourg law. CEDEL is owned by a parent corporation, Cedel International,
societe anonyme, the shareholders of which are banks, securities dealers and
financial institutions. Cedel International currently has about 100
shareholders, including U.S. financial institutions or their subsidiaries. No
single entity may own more than five percent of Cedel International's stock.
CEDEL is registered as a bank in Luxembourg, and as such is subject to
regulation by the Institut Monetaire Luxembourgeous, the Luxembourg Monetary
Authority, which supervises Luxembourg banks. CEDEL provides clearance and
settlement services for its customers and currently accepts over 70,000
securities issues for clearance, settlement, and custody. CEDEL's customers
consist of broker-dealers, financial institutions, and other securities
professionals involved in the movement and/or custody of securities. CEDEL's
U.S. customers are limited to brokers, dealers, and banks. Currently, CEDEL has
approximately 3000 customers located in over 60 countries, including all major
European countries, Canada and the United States.
The Euroclear System was created in 1968 to hold securities for participants
of the Euroclear System ("Euroclear Participants") and to clear and settle
transactions between Euroclear Participants through simultaneous electronic
book-entry delivery against payment, thereby eliminating the need or physical
movement of certificates and any risk from lack
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<PAGE> 61
of simultaneous transfers of securities and cash. Transactions may now be
settled in any of 30 currencies, including United States dollars. The Euroclear
System includes various other services, including securities lending and
borrowing, and interfaces with domestic markets in several countries generally
similar to the arrangements for cross-market transfers with DTC described above.
The Euroclear System is operated by Morgan Guaranty Trust Company of New York,
Brussels, Belgium office (the "Euroclear Operator" or "Euroclear"), under
contract with Euroclear S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear Clearance System cash
accounts are accounts with the Euroclear Operator, not the Cooperative. The
Cooperative establishes policy for the Euroclear System on behalf of Euroclear
Participants. Euroclear Participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries
and may include any underwriters, agents or dealers involved in the distribution
of the Offered Certificates. Indirect access to the Euroclear System is also
available to other firms that clear through or maintain a custodial relationship
with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operative Procedures of the Euroclear System, and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawals of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific 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.
Distributions with respect to Offered Certificates held through CEDEL or
Euroclear will be credited to the cash accounts of CEDEL Participants or
Euroclear Participants in accordance with the relevant system's rules and
procedures, to the extent received by its Foreign Agency Depositary. Such
distributions will be subject to tax reporting in accordance with relevant
United States tax laws and regulations. See "Federal Income Tax Matters." CEDEL
or the Euroclear Operator, as the case may be, will take any other action
permitted to be taken by an Investor Certificateholder under the Pooling and
Servicing Agreement or the Supplement related to the Offered Certificates on
behalf of a CEDEL Participant or Euroclear Participant only in accordance with
its relevant rules and procedures and subject to its Foreign Agency Depositary's
ability to effect such actions on its behalf through DTC.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures in
order to facilitate transfers of Offered Certificates among participants of DTC,
CEDEL and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
DEFINITIVE CERTIFICATES
The Offered Certificates will be issued in fully registered, certificated
form to Offered Certificateholders or their nominees ("Definitive
Certificates"), rather than to DTC or its nominee only if (a) the Seller advises
the Master Trust Trustee in writing that DTC is no longer willing or able to
properly discharge its responsibilities under the depository agreement with
respect to the Offered Certificates, and the Master Trust Trustee or the Seller
is unable to locate a qualified successor, (b) the Seller, at its option, elects
to terminate the book-entry system through DTC or (c) after the occurrence of a
Master Trust Servicer Termination Event or a 1990 Trust Servicer Termination
Event (any such event, a "Servicer Termination Event"), Offered
Certificateholders representing beneficial interests aggregating not less a
majority of the Invested Amount advise the Master Trust Trustee and DTC through
Participants in writing that the continuation of a book- entry system through
DTC (or a successor thereto) is no longer in the best interests of the such
Offered Certificateholders.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Certificates for the Offered
Certificates. Upon surrender by DTC of the certificate or certificates
representing the Offered Certificates, accompanied by instructions for
re-registration, the Master Trust Trustee will issue the Offered Certificates in
the form of Definitive Certificates, and thereafter the Master Trust Trustee
will recognize each holder of a Definitive Certificate as an Investor
Certificateholder
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under the Pooling and Servicing Agreement. In the event that Definitive
Certificates are issued or DTC ceases to be the clearing agency for the Offered
Certificates, the Pooling and Servicing Agreement provides that the Offered
Certificateholders will be notified of such event.
Upon the issuance of Definitive Certificates, distributions of principal and
Monthly Interest will be made by the Master Trust Trustee directly to the
holders of Definitive Certificates in accordance with the procedures set forth
herein and in the Pooling and Servicing Agreement. Payments of principal, if
any, and Monthly Interest on each Distribution Date will be made to holders in
whose names the Definitive Certificates were registered at the close of business
on the related Record Date. Distributions will be made by check mailed to the
address of such holder as it appears on the register maintained by the Master
Trust Trustee. The final payment on any Offered Certificate (whether Definitive
Certificates or Book-Entry Certificates), however, will be made only upon
presentation and surrender of such Offered Certificate at the office or agency
specified in the notice of final distribution to Offered Certificateholders. The
Master Trust Trustee will provide such notice to registered Offered
Certificateholders not later than the Determination Date of the month of such
final payment.
"Determination Date" means, with respect to any Due Period, the twelfth
day of each calendar month next following the end of such Due Period, or if
such twelfth day is not a Business Day, the next Business Day thereafter.
Definitive Certificates will be transferable and exchangeable at the offices
of the Master Trust Trustee, or at such other office as the Seller shall
designate (initially the Corporate Trust Office). No service charge will be
imposed for any registration of transfer or exchange, but the transfer agent may
require payment of a sum sufficient to cover any tax or other governmental
charge imposed in connection therewith.
THE MASTER TRUST SELLER'S CERTIFICATES
The Pooling and Servicing Agreement provides that the Seller may exchange
one or more portions of the certificate evidencing the Master Trust Seller's
Interest (the "NFSC Certificate") for one or more certificates (each, a
"Supplemental Certificate" and together with the NFSC Certificate the "Master
Trust Seller's Certificates") for transfer or assignment upon the execution and
delivery of a Supplement to the Pooling and Servicing Agreement (which
Supplement shall be subject to the amendment section of the Pooling and
Servicing Agreement to the extent that it amends any of the terms of the Pooling
and Servicing Agreement) so long as (a) the Seller shall have delivered to the
Master Trust Trustee and any Enhancement Provider a Tax Opinion with respect to
such exchange and (b) the Rating Agency Condition shall have been satisfied. Any
subsequent transfer or assignment of a Supplemental Certificate is also subject
to the conditions described in the preceding sentence. Upon satisfaction of the
foregoing conditions, the Seller may exchange the NFSC Certificate for one or
more Supplemental Certificates in order to transfer a portion of the Master
Trust Seller's Interest, to facilitate the issuance of a new Series, or for any
other reason. If any Supplemental Certificates are issued, allocations to the
Master Trust Seller's Interest as described herein will include amounts
subsequently allocated between the holder of the NFSC Certificate and the
holders of any Supplemental Certificates.
NEW ISSUANCES
The Pooling and Servicing Agreement provides that the Master Trust Trustee
will issue two types of certificates: (a) one or more Series of investor
certificates (including the Offered Certificates) which are transferable and
have the characteristics described below and (b) the Master Trust Seller's
Certificates. The Pooling and Servicing Agreement also provides that, pursuant
to one or more Supplements, the Seller may cause the Master Trust Trustee to
issue one or more new Series. Under the Pooling and Servicing Agreement, the
Seller may specify, among other things, the Principal Terms with respect to any
Series. The Seller may offer any Series to the public under a Disclosure
Document in transactions either registered under the Securities Act or exempt
from registration thereunder, directly or through one or more underwriters or
placement agents. There is no limit to the number of Series that may be issued
under the Pooling and Servicing Agreement.
The Pooling and Servicing Agreement provides that the Seller may specify
Principal Terms of a new Series such that each Series has an amortization period
or accumulation period which may have a different length and begin on a
different date than the amortization period or accumulation period for any other
Series. Further, one or more Series may be in their early amortization periods
or accumulation periods while other Series are not. Thus, certain Series may be
amortizing or accumulating principal, while other Series are not. Moreover,
different Series may have the benefits of letters of credit,
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surety bonds, cash collateral accounts, collateral invested amounts, spread
accounts, guaranteed rate agreements, liquidity facilities, tax protection
agreements, interest rate swap agreements or other similar arrangements (each,
an "Enhancement") which may be issued by different entities. Under the Pooling
and Servicing Agreement, the Master Trust Trustee will hold each form of
Enhancement only on behalf of the Series (or a particular class within a Series)
with respect to which it relates. The Pooling and Servicing Agreement also
provides that the Seller may specify different series certificate rates and
monthly servicing fees with respect to each Series (or a particular class within
a Series). In addition, the Seller has the option under the Pooling and
Servicing Agreement to vary among Series (or classes within a Series) the terms
upon which a Series (or classes within a Series) may be repurchased by the
Seller.
"Principal Terms" means, with respect to any Series, the principal terms of
such Series, which may include without limitation: (a) the name or designation;
(b) the initial principal amount (or method for calculating such amount or, with
respect to any variable funding certificate, variations in principal amount);
(c) the rate of interest thereon (or method for the determination thereof); (d)
the payment date or dates and the date or dates from which interest shall
accrue; (e) the method of allocating Collections to Certificateholders; (f) the
designation of any Series Accounts and the terms governing the operation of any
such Series Accounts; (g) the amount of the Servicing Fee allocable to such
Series and the Certificateholders' portion thereof; (h) the issuer and terms of
any form of Enhancement with respect thereto; (i) the terms of which the
investor certificates of such Series may be exchanged for investor certificates
of another Series, repurchased by the Seller or remarketed to other investors;
(j) the series termination date for such Series; (k) the number of classes of
investor certificates of such Series and, if more than one class, the rights and
priorities of each such class; (l) the extent to which the investor certificates
of such Series will be issuable in temporary or permanent global form (and, in
such case, the depositary for such global certificate or certificates, the terms
and conditions, if any, upon which such global certificate may be exchanged, in
whole or in part, for Definitive Certificates, and the manner in which any
interest payable on a temporary or global certificate will be paid); (m) whether
the investor certificates of such Series may be issued in bearer form and any
limitations imposed thereon; (n) the priority of such Series with respect to any
other Series; (o) whether such Series will be prefunded; and (p) any other terms
of such Series.
Under the Pooling and Servicing Agreement and pursuant to a Supplement, a
new Series may be issued only upon the satisfaction of certain specified
conditions. The Seller may cause the issuance of a new Series by notifying the
Master Trust Trustee at least five business days in advance of the date on which
such Series will be issued (with respect to any such Series, the "Series
Issuance Date"). The notice shall state the designation of any Series (and
classes within a Series, if any). The Pooling and Servicing Agreement provides
that the Master Trust Trustee will issue any such Series only upon delivery to
it of the following: (i) a Supplement in form satisfactory to the Master Trust
Trustee signed by the Seller and the Servicer and specifying the Principal Terms
of such Series, (ii) the form of any Enhancement and any related agreement,
(iii) an opinion of counsel to the effect that, for federal income tax purposes,
(x) such issuance will not adversely affect the characterization of the
certificates of any outstanding Series (including the Offered Certificates) (or
class within a Series) either as debt or as a partnership interest, (y) such
issuance will not cause a taxable event to any Certificateholder (including the
Offered Certificateholders) or cause the Master Trust to be treated as an
association (or publicly traded partnership) taxable as a corporation (an
opinion of counsel to the effect referred to in clauses (x) and (y) with respect
to any action is referred to herein as a "Tax Opinion") and (z) such new Series
will be characterized as debt or as a partnership interest (other than an
interest in a publicly traded partnership) in the hands of any person other than
the Seller, any affiliate of the Seller or any trust in which the Seller or any
affiliate of the Seller holds an interest, (iv) evidence of satisfaction of the
Rating Agency Condition and (v) evidence that the amount of the Master Trust
Seller's Interest as of such date (after giving effect to such issuance and the
deposit, if any, of proceeds from such issuance in the Excess Funding Account)
will not be less than the Minimum Master Trust Seller's Interest. Such proceeds
will be deposited in the Excess Funding Account as contemplated by clause (v) if
the principal balance of Dealer Notes at the time of such new issuance is less
than the sum of the Master Trust Invested Amount and the Minimum Master Trust
Seller's Interest and would constitute, in effect, a "pre-funding" pending an
increase in the available amount of Dealer Notes. Such issuance is also subject
to the condition that the Seller shall have represented and warranted that such
issuance shall not, in the reasonable belief of the Seller, cause an Early
Amortization Event or Investment Event to occur. In addition, prior to the 1990
Trust Termination Date, it is a condition precedent to the issuance of a new
Series that the Master Trust Trustee shall have received a newly issued 1990
Trust Investor Certificate and 1990 Trust Seller Certificate. Upon satisfaction
of all such conditions, the Master Trust Trustee will issue such Series.
TRANSFER OF DEALER NOTES TO THE ACTIVE TRUST
Each business day since December 27, 1990, the Servicer has acquired, on
behalf of the 1990 Trust, Eligible Dealer Notes from the Seller for an
acquisition price equal to the aggregate principal amount of such Dealer Notes
plus accrued
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and unpaid finance charges thereon for the current Due Period, if any (each such
acquisition, an "Acquisition"). Subject to the availability of new Eligible
Dealer Notes, the Servicer will continue to make Acquisitions on each business
day on and after the Closing Date on behalf of the 1990 Trust during its term as
Active Trust except upon the occurrence of certain bankruptcy events involving
the Seller, NFC, NITC or NIC. Effective as of the 1990 Trust Termination Date,
the Seller shall assign Eligible Dealer Notes ("Assignments") on each business
day to the Servicer on behalf of the Master Trust during its term as the Active
Trust except upon the occurrence of a bankruptcy event involving the Seller,
NFC, NITC or NIC. The Servicer has delivered to the 1990 Trust Trustee, and will
continue to deliver to the 1990 Trust Trustee (during the period prior to the
1990 Trust Termination Date) or the Master Trust Trustee (during the period
after the 1990 Trust Termination Date) (the operative trustee during any such
period being referred to herein as the "Active Trustee") a computer file, hard
copy or microfiche list which shall contain a true and complete list of all
Dealer Notes acquired on each business day, which shall be deemed to be an
amendment as of such business day to the computer file, hard copy or microfiche
list delivered to the Active Trustee containing a true and complete list of
outstanding Dealer Notes conveyed to the Active Trust.
ELIGIBLE DEALER NOTES
The Seller obtains from NFC only those Dealer Notes that are identified by
the Servicer as Eligible Dealer Notes. The Seller in turn conveys such Eligible
Dealer Notes to the Active Trust (see "Description of Offered Certificates --
Transfer of Dealer Notes to the Active Trust)." In certain circumstances, the
Seller may be required to repurchase (a) those Dealer Notes previously
transferred to the Active Trust which are Ineligible Dealer Notes from the
Active Trust and (b) in the event that a material amount of Dealer Notes are
Ineligible Dealer Notes, (i) prior to the 1990 Trust Termination Date, all
classes of 1990 Trust Investor Certificates (in which case an Investment Event
or Early Amortization Event would occur) or (ii) after the 1990 Trust
Termination Date, the interests in the Master Trust of the Certificateholders of
all outstanding Series (the "Certificateholders' Interest"), from the holders
thereof (see "Description of Offered Certificates Certain Representations and
Warranties; Ineligible Dealer Notes; Purchase of Certificateholders' Interest").
An "Eligible Dealer Note" is any Dealer Note: (a) which is payable in
United States dollars; (b) which was created in compliance with all
requirements of law the failure with which to comply would have a material
adverse effect on Certificateholders; (c) with respect to which all consents
or authorizations of, or registrations with, any Governmental Authority
required to be obtained in connection with (i) the creation of such Dealer
Note or the Dealer Agreement, or (ii) the execution, delivery and
performance by any Person who sells OEM Vehicles to a Dealer and who has
entered into an agreement for the benefit of NFC to repurchase new vehicle
inventory from NFC upon NFC's foreclosure upon such inventory owned by such
Dealer (subject to such customary conditions and limitations as are
acceptable to NFC) (an "OEM Supplier") or by NITC of the Dealer Agreement
pursuant to which such Dealer Note was created, have been duly obtained, and
are in full force and effect as of such date of creation; (d) as to which at
all times following the transfer of such Dealer Note to the Active Trust,
the Active Trust will have good and marketable title thereto free and clear
of all liens arising prior to the transfer or arising at any time under or
through any member of Navistar International Corporation, a Delaware
corporation, ("NIC"), NITC, NFC, NFSC and any other direct or indirect
subsidiaries of NIC (the "Navistar Group"); (e) which will at all times be
the legal, valid and binding payment obligation of the Dealer obligated
thereunder, enforceable against such Dealer in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy or
other similar laws, and except as such enforceability may be limited by
general principles of equity; (f) which constitutes either an "account,"
"chattel paper" or a "general intangible" under and as defined in Article 9
of the Uniform Commercial Code; (g) which is not subject to any right of
rescission, setoff, counterclaim or any other defense (including defenses
arising out of violations of usury laws) of the Dealer, other than defenses
arising out of applicable bankruptcy or other similar laws, and except as
such enforceability may be limited by general principles of equity; (h) as
to which, at the time of transfer of such Dealer Note to the Active Trust,
the Servicer has satisfied its obligations with respect to such Dealer Note;
(i) as to which, at the time of transfer of such Dealer Note to the Active
Trust, the Servicer has not taken nor failed to take any action which would
impair the rights of the Active Trust or the holders of interests therein;
(j) which, at the time of transfer of such Dealer Note to the Active Trust,
has not been issued by a Dealer that is insolvent; (k) which, at the time of
transfer by NFSC of such Dealer Note to the Active Trust, has not been
issued by a Dealer that has been placed on cash-on-delivery terms by the
Servicer; (l) which, at the time of transfer by NFSC of such Dealer Note to
the Active Trust, is not past due over thirty days; (m) which has not been
issued by a Dealer in connection with such Dealer's purchase of parts from
NITC or an OEM Supplier; (n) which, when the principal amount of such Dealer
Note is added to the principal amount of the other outstanding Dealer Notes
issued by the same Dealer previously or concurrently transferred to the
Active Trust, shall not cause the sum of the principal
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amounts of all such Dealer Notes to exceed the applicable Concentration
Limit as of the close of business on the business day preceding the date on
which such Dealer Note is to be transferred; (o) which, in the case of a
Dealer Note financing an OEM Vehicle (an "OEM Note"), when the principal
amount of such OEM Note is added to the principal amount of the other
outstanding OEM Notes previously transferred to the Active Trust, shall not
cause the sum of such principal amounts to exceed 10% (or any larger
percentage as to which the Rating Agency Condition has been satisfied) of
the sum of the aggregate principal balance of Dealer Notes and the aggregate
principal amount of 1990 Trust Investment Securities (or funds on deposit in
the Excess Funding Account) in the Active Trust; (p) as to which a valid
first priority security interest in the Financed Vehicle has been
transferred to the Active Trust; (q) as to which the Navistar Group has
assigned to the Active Trust designation as loss payee on the insurance
policies insuring the Financed Vehicle against casualty and theft losses;
(r) the principal amount of which is due upon the sale of the related
Financed Vehicle; (s) the interest rate of which (i) is based on the prime
rate or another benchmark floating interest rate and (ii) is subject to
adjustment at least monthly; (t) the principal amount of which (i) in the
case of a Financed Vehicle which is a new vehicle, is equal to not more than
one hundred percent of the invoice price of such Financed Vehicle, (ii) in
the case of a Financed Vehicle which is a used vehicle purchased by a Dealer
from a NITC Used Truck Center or a repossessed vehicle purchased from NFC,
is equal to not more than one hundred percent of the agreed upon purchase
price, and (iii) in the case of a Financed Vehicle which is a used vehicle
taken in trade by a Dealer or purchased by a Dealer from outside sources, is
equal to not more than seventy-five percent of the "as is" value of such
Financed Vehicle as determined by NFC's appraisal thereof; (u) which was
created in accordance with the standard practice of the Navistar Group; and
(v) which finances a new medium or heavy-duty truck, bus or trailer produced
by or for a member of the Navistar Group or an OEM Supplier or a used medium
or heavy-duty truck, bus or trailer.
CERTAIN REPRESENTATIONS AND WARRANTIES; INELIGIBLE DEALER NOTES; PURCHASE OF
CERTIFICATEHOLDERS' INTEREST
The Seller has made and will make certain representations and warranties to
the Active Trust (as of the date of the Applicable Agreement, as of the Closing
Date, and as of the date of any Acquisition or Assignment, as the case may be)
relating to the Applicable Agreement and the Dealer Notes to the effect, among
other things, that (a) each Dealer Note existing on the date of any Acquisition
or Assignment was or will have been conveyed to the Active Trust free and clear
of any lien (excluding certain permitted liens), (b) all appropriate consents
and governmental authorizations required to be obtained by the Seller in
connection with the transfer of such Dealer Notes to the Active Trust have been
obtained, (c) the Applicable Agreement or the Acquisition or Assignment, as the
case may be, constitutes either a valid transfer and assignment of the Seller's
right, title, and interest in the Dealer Notes and the proceeds thereof, or a
grant of a first priority perfected "security interest" (as such term is defined
in the Uniform Commercial Code) in such property to the Active Trust and (d) as
of the date of any Acquisition or Assignment, the Seller is not insolvent. The
Seller will not be required to remake such representations and warranties on the
1990 Trust Termination Date with respect to Dealer Notes previously transferred
to the 1990 Trust, but any repurchase obligations under the 1990 Trust Agreement
with respect to any such Dealer Notes will survive for the benefit of the Master
Trust.
These representations and warranties survive the transfer of the Dealer
Notes to the Active Trust. In the event of a breach with respect to a Dealer
Note of any representations and warranties set forth in (a) above or in the
event that any Dealer Note is not an Eligible Dealer Note as a result of the
failure to satisfy certain eligibility requirements (as specified in the
Applicable Agreement), each such Dealer Note will be automatically removed from
the Active Trust on the terms and conditions described in the following
paragraph. In the event of a breach of any representations and warranties
described in (b), (c) or (d) in the preceding paragraph or in the event that any
Dealer Note is an not an Eligible Dealer Note as a result of the failure to
satisfy certain other eligibility requirements (as specified in the Applicable
Agreement), and as a result of such breach or event the Active Trust's rights to
such Dealer Notes are impaired, then in the event such breach or event is not
cured within a specified period, each such Dealer Note will be removed from the
Active Trust on the terms and conditions described in the following paragraph.
When removal of Dealer Note required pursuant to the terms described in the
preceding paragraph (any such Dealer Note being an "Ineligible Dealer Note"),
such Ineligible Dealer Note will be automatically removed from the Active Trust
and the principal balance of such Ineligible Dealer Note will be duducted from
the prior principal balance of Dealer Notes in the Active Trust. The Seller will
deposit in the Collections Account within two business days of its removal an
amount equal to the principal amount of such Ineligible Dealer Note plus accrued
but unpaid finance charges thereon. Such deposit will be considered a payment in
full of the Ineligible Dealer Note and will be applied as Principal thereon.
Such deposit will be considered a payment in full of the Ineligible Dealer Note
and will be applied as Principal Collections. Upon each removal of an Ineligible
Dealer Note from the Active Trust, the Active Trustee will be deemed to transfer
to the Seller, without recourse, representation or warranty (except for the
warranty that since the date of
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transfer by the Seller under the Applicable Agreement the Active Trustee has not
sold, transferred, or encumbered such Ineligible Dealer Note), all right, title,
and interest of the Master Trust in and to such Ineligible Dealer Note and all
proceeds thereof. The provisions described in this paragraph and the immediately
preceding paragraph will constitute the sole remedy for any breach of the
representations and warranties described above.
The Seller also has made and will make representations and warranties to the
1990 Trust and the Master Trust to the effect, among other things, that as of
the date of the Applicable Agreement and any Supplement (including the date of
the Supplement for the Offered Series), and the date of any Acquisition or
Assignment (including the 1990 Trust Termination Date), as the case may be, (a)
the 1990 Trust Agreement (and any Supplement thereto) constitutes a legal, valid
and binding obligation of the Seller (but only to the extent that the date of
any such representation and warranty occurs prior to the 1990 Trust Termination
Date), (b) the Pooling and Servicing Agreement and any Supplement (including the
Offered Series Supplement) constitutes a legal, valid and binding obligation of
the Seller, (c) each Acquisition and Assignment constitutes a legal, valid and
binding obligation of the Seller and (d) Schedule 1 or any update thereto, as
the case may be, is and will be an accurate and complete listing in all material
respects of all Dealer Notes as of the Closing Date, each Series Issuance Date,
the 1990 Trust Termination Date, and the date of Acquisition or Assignment, as
the case may be. Each such representation and warranty survives the transfer of
the Dealer Notes to the Active Trust.
In the event of any breach of any of the representations and warranties
described in the immediately preceding paragraph or if a material amount of
Dealer Notes are Ineligible Dealer Notes, and (i) prior to the 1990 Trust
Termination Date such event has a material adverse effect on the holders of 1990
Trust Investor Certificates (including the Master Trust as holder of the Related
1990 Certificate), either the 1990 Trust Trustee, or the holders of 1990 Trust
Investor Certificates evidencing fractional undivided interests aggregating more
than 50% of sum of the Class Investor Interest of all outstanding classes of
1990 Trust Investor Certificates (the "1990 Trust Total Investor Interest"), by
written notice to the Seller (and to the 1990 Trust Trustee and the Servicer if
given by the holders of 1990 Trust Investor Certificates), may direct the Seller
to purchase all outstanding classes of 1990 Trust Investor Certificates within
60 days of such notice, or within such longer period as may be specified in such
notice or (ii) after the 1990 Trust Termination Date such event has a material
adverse effect on the Certificateholders, either the Master Trust Trustee or
Certificateholders evidencing not less than a majority of the series invested
amount for all outstanding Series, by written notice to the Seller (and to the
Master Trust Trustee and the Servicer if given by the Certificateholders), may
direct the Seller to purchase the Certificateholders' Interest within 60 days of
such notice, or within such longer period as may be specified in such notice in
each case. The Seller will be obligated to make such purchase on a Distribution
Date occurring within such period on the terms and conditions described below.
Prior to the 1990 Trust Termination Date, the Seller will deposit in the
1990 Trust Collections Account on a Transfer Date occurring within such period
the purchase price for the 1990 Trust Investor Certificates, which will equal
the 1990 Trust Total Investor Interest preceding the date such deposit is made
plus an amount equal to all accrued but unpaid 1990 Trust Investor Certificate
Interest. Payment of such purchase price will be considered a prepayment in full
of the Dealer Notes in the 1990 Trust. If the 1990 Trust Trustee or the holders
of 1990 Trust Investor Certificates give notice directing the Seller to purchase
the 1990 Trust Investor Certificates as provided above, the obligation of the
Seller to purchase the 1990 Trust Investor Certificates pursuant to this
paragraph will constitute the sole remedy respecting an event of the type
specified in the first sentence of the preceding paragraph available to the
holders of 1990 Trust Investor Certificates (including the Master Trust as
holder of the Related 1990 Certificate), and an Investment Event or Early
Amortization Event would occur under the Master Trust.
After the 1990 Trust Termination Date, in the event of any such breach, an
Investment Event or Early Amortization Event will occur and, upon receipt of the
notice described above, the Seller will deposit in the Collections Account on a
Transfer Date occurring within such period the purchase price for each
outstanding Series of certificates, which, with respect to the Offered Series,
will equal the Invested Amount plus all accrued interest thereon. The purchase
price payable with respect to the Offered Certificates will be allocated to the
Offered Series and deposited in and held in the Series Principal Account until
the Expected Payment Date in the case of an Investment Event or distributed to
the Offered Certificateholders on the following Distribution Date in the case of
an Early Amortization Event. See "Description of the Offered Certificates
Investment Events" and "-- Early Amortization Events."
Notwithstanding the foregoing, no purchase pursuant to the provisions
described above will be required, and no Investment Event or Early Amortization
Event will occur under the Master Trust, if during such period the
representations and warranties described above shall be satisfied in all
material respects or there shall no longer be a
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material amount of Ineligible Dealer Notes, as the case may be, and any material
adverse effect on the holders of 1990 Trust Investor Certificates or the
Certificateholders, as the case may be, caused thereby shall have been cured.
If an insolvency event occurs with respect to the Seller, NITC, NIC or NFC,
on the day of such insolvency event, the Seller will (subject to the actions of
the Certificateholders) immediately cease to transfer Dealer Notes to the Active
Trust and promptly give notice to the Master Trust Trustee of such insolvency
event. Under the terms of the Pooling and Servicing Agreement, if an insolvency
event occurs with respect to the Seller after the 1990 Trust Termination Date
but prior to the date on which the Series 1995-1 investor certificates issued by
the Master Trust have been paid in full, then within 15 days the Master Trust
Trustee will publish a notice of such insolvency event stating that the Master
Trust Trustee intends to sell, liquidate or otherwise dispose of the Dealer
Notes in a commercially reasonable manner and on commercially reasonable terms,
unless within a specified period of time Certificateholders representing more
than 50% of the aggregate series invested amount of the certificates of each
such Series and each person holding a Supplemental Certificate, instruct the
Master Trust Trustee not to sell, dispose of or otherwise liquidate the Dealer
Notes and to continue transferring Dealer Notes as before such insolvency event.
If the portion of such proceeds allocated to the Offered Certificateholders'
Interest and the proceeds of any collections on the Dealer Notes in the
Collections Account allocable to the Offered Certificateholders' Interest are
not sufficient to pay the unpaid Invested Amount in full plus accrued and unpaid
interest thereon, Offered Certificateholders will incur a loss.
Neither the 1990 Trust Trustee or the Master Trust Trustee has made, nor is
it required or anticipated that the Active Trustee will make, any initial or
periodic general examination of the Dealer Notes or any records relating to the
Dealer Notes for the purpose of establishing the presence or absence of defects,
compliance with representations and warranties of the Seller or for any other
purpose. In addition, neither the 1990 Trust Trustee or the Master Trust Trustee
has made, nor is it anticipated or required that the Active Trustee will make,
any initial or periodic general examination of the Servicer for the purpose of
establishing the compliance by the Servicer with its representations or
warranties, the observation of its obligations under the 1990 Trust Agreement or
the Pooling and Servicing Agreement, or for any other purpose.
DUE PERIODS; DISTRIBUTION PERIODS
Each Applicable Agreement uses the related concepts of "Due Periods" and
"Distribution Periods" as units of time. Each "Due Period" is a calendar month,
beginning on the first day of such month and ending on the last day of such
month. Each Due Period has a related Distribution Date and Distribution Period.
The "Distribution Date" related to a Due Period is the twenty-fifth day of the
calendar month (or, if such day is not a business day, the next business day
thereafter) next following the end of such Due Period. The "Distribution Period"
related to a Due Period is generally the approximate one-month period which
begins on the preceding Distribution Date and ends on and includes the day
immediately preceding the Distribution Date for such Due Period. Thus, for
example, the Due Period running from July 1, 1998 through July 31, 1998 will
have a related Distribution Date of August 25, 1998 and a related Distribution
Period running from July 27, 1998 through but excluding August 25, 1998. The
length of the initial Distribution Period may be longer or shorter than a normal
Distribution Period and will be set forth in the applicable Prospectus
Supplement.
Finance Charges accrue and are collected with respect to Due Periods.
Interest on each Related 1990 Certificate and Monthly Interest, by contrast,
accrue and are paid with respect to the related Distribution Period. NFC
establishes the interest rate on Dealer Notes for a Due Period on the third
Monday of the preceding month. The rate at which interest accrues on the Related
1990 Certificate, however, is established as of the day which is two London
business days prior to the start of the Distribution Period related to such Due
Period. Similarly, the Applicable Floating Rate payable by the Master Trust to
the Swap Counterparty or the Offered Certificateholders is established as of the
day which is two London business days prior to the start of the Distribution
Period related to such Due Period. As the Distribution Period does not begin
until the twenty-fifth day of the related Due Period, the result is that the
interest rate for Dealer Notes is established more than five weeks prior to the
determination of the interest rate on the Related 1990 Certificate and the
Applicable Floating Rate.
"Finance Charges" means, with respect to any Due Period, Dealer Finance
Charges and NITC Finance Charges for such Due Period.
"Dealer Finance Charges" means, with respect to any Due Period, the
interest and other finance charges accrued with respect to the Dealer Notes
during such Due Period and billed by the Servicer on a monthly basis to
Dealers. Dealer Finance Charges do not include NITC Finance Charges.
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"NITC Finance Charges" means, with respect to any Due Period, the sum of
(a) the amount of Up-Front Interest Credit granted by NITC during such Due
Period and (b) the amount of Aggregate NITC Earned Interest accrued during
such Due Period.
"Aggregate NITC Earned Interest" means, with respect to any Due Period,
the aggregate amount of NITC Earned Interest on all Non-Interest Bearing
Dealer Notes accrued during such Due Period.
ADVANCES
For any Due Period, the Servicer will make an advance (an "Advance") to the
1990 Trust Collections Account or the Collections Account, as the case may be,
of an amount equal to all Dealer Finance Charges for such Due Period which have
not been paid by the Transfer Date (other than Uncollectible Finance Charges)
("Unpaid Dealer Finance Charges"). Once any previously Unpaid Dealer Finance
Charges are paid on the Dealer Notes to which any portion of an Advance relates,
or when the Servicer determines that it will be unable to recover such Unpaid
Dealer Finance Charges on the Dealer Notes to which the portion of the Advance
relates, the Servicer will be reimbursed in an amount equal to such portion of
the Advance.
"Uncollectible Finance Charges" means, with respect to any Due Period,
the amount of Dealer Finance Charges that the Servicer, on or before the
related Determination Date, determines in its sole discretion will be
uncollectible.
The reimbursement by the Active Trust to the Servicer of an Advance is
referred to herein as an "Advance Reimbursement." Prior to the 1990 Trust
Termination Date, Advance Reimbursements are funded from Dealer Finance Charge
Collections and NITC Finance Charges before they are allocated for the payment
of 1990 Trust Investor Certificate Interest. After the 1990 Trust Termination
Date, Advance Reimbursements will be funded on each Transfer Date from Dealer
Finance Charge Collections and NITC Finance Charges before Finance Charge
Collections are allocated among the outstanding Series.
"Dealer Finance Charge Collections" means with respect to any Due Period
the amount of Dealer Finance Charges received from Dealers plus Advances for
the current Due Period and any Unpaid Dealer Finance Charges or
Uncollectible Finance Charges from prior Due Periods actually collected by
the Transfer Date related to such Due Period.
THE SERVICER
General. Pursuant to the terms of the Applicable Agreement, the Servicer is
authorized to service and administer the Dealer Notes and collect payments due
under the Dealer Notes in accordance with its customary and usual servicing
procedures. See "The Navistar Financial Dealer Floor Plan Financing Business"
for a description of NFC's customary and usual servicing procedures. In
addition, under each of the 1990 Trust Agreement and the Pooling and Servicing
Agreement (collectively, the "Agreements"), the Servicer is also authorized to
make withdrawals and payments from the various trust accounts under the 1990
Trust and the Master Trust (collectively the "Trusts"). Servicing activities
performed by the Servicer include collecting and recording payments,
communicating with Dealers, monitoring Dealer inventory, investigating payment
delinquencies and maintaining internal records with respect to each Dealer Note.
Managerial and custodial services performed by the Servicer include providing
assistance in any inspections of the documents and records relating to the
Dealer Notes, maintaining the agreements, documents, and files relating to the
Dealer Notes as custodian for the Active Trust, and providing related data
processing and reporting services for holders of 1990 Trust Investor
Certificates (including the Master Trust as holder of the Related 1990
Certificate), the Offered Certificateholders and on behalf of each of the 1990
Trust Trustee and the Master Trust Trustee.
Servicing Compensation and Payment of Expenses. As compensation for its
servicing activities and reimbursement for its expenses under the 1990 Trust
Agreement, the Servicer will be entitled to receive a servicing fee payable in
arrears equal to 1.0% per annum (calculated on the basis of a 360-day year and
twelve 30-day months) of the daily average principal amount of Dealer Notes,
which will be payable by the 1990 Trust monthly in respect of any Due Period on
each Distribution Date (the "1990 Trust Monthly Servicing Fee"). The 1990 Trust
Monthly Servicing Fee is allocable to the holders of 1990 Trust Investor
Certificates for such Due Period in an amount equal to the product of the 1990
Trust
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Monthly Servicing Fee for the related Due Period and the 1990 Trust Total
Investor Percentage for such Due Period, and the remaining portion of the 1990
Trust Monthly Servicing Fee will be allocable to the 1990 Trust Seller Interest.
"1990 Trust Total Investor Percentage" means, with respect to any Due
Period, the percentage equivalent of a fraction the numerator of which is
the 1990 Trust Total Investor Interest at the beginning of such Due Period,
and the denominator of which is the sum of the 1990 Trust Total Investor
Interest at the beginning of such Due Period plus a number equal to the
average daily 1990 Trust Seller Interest calculated for such Due Period.
With respect to each Due Period commencing after the 1990 Trust Termination
Date, the Servicer will be entitled to receive a servicing fee in respect of
each day prior to the termination of the Master Trust, payable in arrears, on
the related Distribution Date. The "Servicing Fee" shall be the aggregate of the
fees payable with respect to all outstanding Series (including the Offered
Series). The portion of the Servicing Fee payable with respect to the Offered
Series will be set forth in the Prospectus Supplement (the "Series Allocable
Servicing Fee"). Unless otherwise specified in the Prospectus Supplement, the
Series Allocable Servicing Fee will be allocated to the Offered
Certificateholders based on the Floating Allocation Percentage (such allocated
portion being referred to herein as the "Offered Series Servicing Fee"); the
remainder of the Series Allocable Servicing Fee will be allocated to the holders
of the Master Trust Seller's Certificates. See "Description of Offered
Certificates -- Allocation of Collections After the 1990 Trust Termination
Date."
The Servicer is obligated to pay certain expenses incurred in connection
with servicing the Dealer Notes, including expenses related to the payment of
fees and disbursements of the 1990 Trust Trustee and the Master Trust Trustee
(collectively, the "Trustees"), the Special Servicer Agent and independent
accountants and all other fees and expenses of the Trusts not expressly stated
in the Agreements to be for the account of the holders of certificates issued by
the Trusts, other than federal, state, or local income or franchise taxes, if
any, of the Trusts, the Trustees, or such holders. The Servicer will be required
to pay such expenses for its own account and will not be entitled to any payment
therefor other than the 1990 Trust Monthly Servicing Fee or the Servicing Fee,
as the case may be.
Servicer Covenants. Under the terms of the Applicable Agreement, the
Servicer covenants, among other things, that (a) it will not change the Credit
Guidelines, nor will it change its current practices with respect to the
recognition of estimated or actual loss on Dealer Notes (subject in each case to
certain materiality standards), (b) so long as any Series or 1990 Trust Investor
Certificate is outstanding, it will maintain casualty loss insurance on the
Financed Vehicles substantially similar to that maintained by the Servicer on
the Closing Date for the Offered Series and (c) if required to select certain
Dealer Notes from the Dealer Notes issued by a particular Dealer in order to
satisfy the Concentration Limit, it will select such Dealer Notes in a manner
that will not be adverse to the rights of the holders of certificates issued by
the Active Trust.
Certain Matters Regarding the Servicer. NFC may not resign from its
obligations and duties as Servicer under the Agreements, except upon a
determination that such duties are no longer permissible under applicable law.
No such resignation will become effective until the Trustees or a successor
Servicer has assumed the Servicer's responsibilities and obligations under the
Agreements.
Any person into which, in accordance with the Agreements, NFC may be merged
or consolidated or any person resulting from any merger or consolidation to
which NFC is a party, or any person succeeding to the business of NFC, upon
execution of a supplement to each of the Agreements (pursuant to which such
person will assume the rights and obligations of the Servicer under the
Agreements) will be the successor to NFC as the Servicer under the Agreements.
1990 Trust Servicer Termination Event. Prior to the 1990 Trust Termination
Date, in the event of any 1990 Trust Servicer Termination Event and so long as
the 1990 Trust Servicer Termination Event shall not have been remedied, either
the 1990 Trust Trustee or holders of 1990 Trust Investor Certificates evidencing
fractional undivided interests aggregating not less than 51% of the sum of the
Class Invested Amounts for each class of 1990 Trust Investor Certificates
outstanding during the Distribution Period calculated as of the beginning of the
Distribution Period (the "1990 Trust Total Invested Amount"), by written notice
to NFC as Servicer (and to the 1990 Trust Trustee if given by the holders of
1990 Trust Investor Certificates), may terminate all of the rights and
obligations of NFC as Servicer under the 1990 Trust Agreement. If NFC is
terminated as Servicer under the terms of the 1990 Trust Agreement, then NFC
shall automatically be terminated under the Pooling and Servicing Agreement
without any action on the part of the Master Trust Trustee or the
Certificateholders.
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After the 1990 Trust Termination Date, in the event of any Master Trust
Servicer Termination Event and for so long as the Master Trust Servicer
Termination Event shall not have been remedied, the Master Trust Trustee, by
written notice to the Servicer, may terminate all of the rights and obligations
of NFC as Servicer under the Pooling and Servicing Agreement.
Upon the occurrence of any such event, the Active Trustee will as promptly
as possible appoint a successor Servicer (to whom all authority and power of the
Servicer under each of the Agreements will pass and be vested in), and, if no
successor Servicer has been appointed by the Active Trustee and accepted its
appointment by the time NFC ceases to act as Servicer, all authority, power, and
obligations of NFC as Servicer under the Agreements will pass to and be vested
in the 1990 Trust Trustee with respect to the 1990 Trust and the Master Trust
Trustee with respect to the Master Trust.
A "1990 Trust Servicer Termination Event" refers to any of the following
events which shall occur:
(a) failure by NFC as Servicer to make any payment, transfer or deposit,
or failure to give instructions to the 1990 Trust Trustee regarding the
same, on the date it is required to do so under the 1990 Trust Agreement (or
within five business days thereafter);
(b) failure on the part of NFC as Servicer duly to observe or perform in
any material respect any other covenants or material agreements of the
Servicer set forth in the 1990 Trust Agreement which continues unremedied
for a period of 60 days after written notice is received by the Servicer
from the 1990 Trust Trustee or by the Servicer and the 1990 Trust Trustee
from the holders of 1990 Trust Investor Certificates evidencing fractional
undivided interests aggregating not less than 25% of the 1990 Trust Total
Invested Amount;
(c) any representation, warranty or certification made by NFC as
Servicer in the 1990 Trust Agreement or in any certificate delivered
pursuant to the 1990 Trust Agreement proves to have been incorrect when
made, which has a material adverse effect on the rights of the holders of
1990 Trust Investor Certificates, and which representation, warranty or
certification, or the circumstances or condition which caused such
representation, warranty or certification to be incorrect, continues to be
incorrect or uncured in any material respect for a period of 60 days after
written notice is received by the Servicer from the 1990 Trust Trustee or by
the Servicer and the 1990 Trust Trustee from the holders of 1990 Trust
Investor Certificates evidencing fractional undivided interests aggregating
not less than 25% of the 1990 Trust Total Invested Amount; or
(d) the occurrence of certain events of bankruptcy, insolvency or
receivership of NFC while acting as Servicer under the 1990 Trust Agreement.
A "Master Trust Servicer Termination Event" refers to any of the following
events which shall occur:
(a) failure by NFC as Servicer to make any payment, transfer or deposit,
or failure to give instructions to the Master Trust Trustee regarding the
same, on the date it is required to do so under the Pooling and Servicing
Agreement (or within five business days thereafter);
(b) failure on the part of NFC as Servicer duly to observe or perform in
any material respect any other covenants or material agreements of the
Servicer set forth in the Pooling and Servicing Agreement which continues
unremedied for a period of 60 days after written notice is received by the
Servicer from the Master Trust Trustee;
(c) any representation, warranty or certification made by NFC as
Servicer in the Pooling and Servicing Agreement or in any certificate
delivered pursuant to the Pooling and Servicing Agreement proves to have
been incorrect when made, which has a material adverse effect on the rights
of the holders of investor certificates, and which representation, warranty
or certification, or the circumstances or condition which caused such
representation, warranty or certification to be incorrect, continues to be
incorrect or uncured in any material respect for a period of 60 days after
written notice is received by the Servicer from the Master Trust Trustee; or
(d) the occurrence of certain events of bankruptcy, insolvency or
receivership of NFC while acting as Servicer under the Pooling and Servicing
Agreement.
Upon the occurrence of any 1990 Trust Servicer Termination Event, the
Servicer will give prompt written notice thereof to the 1990 Trust Trustee, and
the 1990 Trust Trustee will give notice to the holders of the 1990 Trust
Investor
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Certificates. If the Master Trust Trustee receives any such notice in respect of
any 1990 Trust Investor Certificate issued to the Master Trust (including the
Related 1990 Certificate), the Master Trust Trustee will give notice to the
Certificateholders (including the Offered Certificateholders) and to any
Enhancement Provider. Upon any termination or appointment of a successor
Servicer under the 1990 Trust, the 1990 Trust Trustee will give prompt written
notice thereof to the Rating Agencies and to holders of 1990 Trust Investor
Certificates. If the Master Trust Trustee receives any such notice in respect of
any 1990 Trust Investor Certificate issued to the Master Trust (including the
Related 1990 Certificate), the Master Trust Trustee will give notice to the
Certificateholders (including the Offered Certificateholders, the Rating
Agencies then rating such certificates and any Enhancement Provider). Under the
1990 Trust Agreement, the holders of 1990 Trust Investor Certificates evidencing
fractional undivided interests aggregating not less than 51% of the 1990 Trust
Total Invested Amount may, on behalf of all holders of 1990 Trust Investor
Certificates, waive the effect of any 1990 Trust Servicer Termination Event
occurring during such period, except for the failure to make any required
deposits or payments in accordance with the 1990 Trust Agreement.
Upon the occurrence of a Master Trust Servicer Termination Event, the
Servicer will give prompt written notice thereof to the Master Trust Trustee,
and the Master Trust Trustee will give notice to the Certificateholders and to
any Enhancement Provider. Upon any termination or appointment of a successor
Servicer under the Master Trust, the Master Trust Trustee will give prompt
written notice thereof to the Rating Agencies, the Certificateholders, and any
Enhancement Provider. In addition, under the Pooling and Servicing Agreement,
delays in performance for 10 business days with respect to clause (a) above or
60 business days with respect to clauses (b) and (c) above will not constitute a
Master Trust Servicer Termination Event with respect to the Master Trust if such
delay or failure could not be prevented by the exercise of reasonable diligence
by the Servicer and such delay or failure was caused by an act of God or the
public enemy, acts of declared or undeclared war, public disorder, rebellion or
sabotage, epidemics, landslides, lightning, fire, hurricanes, earthquakes,
floods or similar causes. Under the Pooling and Servicing Agreement, the holders
of 1990 Trust Investor Certificates evidencing fractional undivided interests in
the Master Trust aggregating not less than 51% of the Trust Invested Amount may,
on behalf of all holders of Investor Certificates, waive the effect of any
Master Trust Servicer Termination Event occurring during such period, except for
the failure to make any required deposits or payments in accordance with the
Pooling and Servicing Agreement.
Special Servicer Agent. During any Investment Period, funds on deposit in
the Series Principal Account, the Distribution Account, the Liquidity Reserve
Account, the Negative Carry Reserve Fund and the Spread Account will be invested
at the direction of an agent selected by the Servicer, which initially will be
the Master Trust Trustee (the "Special Servicer Agent"), in Eligible Investments
selected by the Special Servicer Agent. The Special Servicer Agent will be
compensated by the Servicer.
The Special Servicer Agent may be removed at any time by the Servicer;
provided that no removal of the Special Servicer Agent shall be effective until
a successor person meeting the criteria and approved as described above shall
have been appointed as the Special Servicer Agent and shall have accepted its
appointment as such and the Rating Agency Condition for the Offered Series shall
have been satisfied.
MASTER TRUST ACCOUNTS; OTHER ACCOUNTS FOR THE OFFERED SERIES
The Master Trust Trustee will establish and will maintain two Eligible
Deposit Accounts in the name of the Master Trust Trustee for the benefit of the
Certificateholders, including the Offered Certificateholders (one of which will
be the "Collections Account" and the other of which will be the "Excess Funding
Account"). The Master Trust Trustee will also establish and maintain in the name
of the Master Trust Trustee for the benefit of the Offered Certificateholders
the Series Principal Account, the Spread Account and an Eligible Deposit Account
known as the "Distribution Account" from which distributions to the Offered
Certificateholders will be made.
"Eligible Deposit Account" means either (a) a segregated account with an
Eligible Institution or (b) a segregated trust account with the corporate
trust department of a depository institution organized under the laws of the
United States or any one of the states thereof (or any domestic branch of a
foreign bank), having corporate trust powers and acting as trustee for funds
deposited in such account, so long as any of the securities of such
depository institution has a credit rating from each Rating Agency in one of
its generic rating categories which signifies investment grade.
"Eligible Institution" means (a) the corporate trust department of the
Master Trust Trustee or (b) a depository institution organized under the
laws of the United States or any one of the states thereof, or the District
of Columbia (or a domestic branch of a foreign bank), which at all times (i)
has either (x) a long-term unsecured debt rating
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acceptable to the Rating Agencies or (y) a short-term unsecured debt rating
or certificate of deposit rating acceptable to the Rating Agencies and (ii)
whose deposits are insured by the FDIC.
Funds in the Collections Account, the Excess Funding Account, the
Distribution Account, the Series Principal Account, the Liquidity Reserve
Account and the Spread Account generally will be invested in Eligible
Investments. The Distribution Account, the Series Principal Account, the Spread
Account, the Negative Carry Reserve Fund and the Liquidity Reserve Account are
referred to herein as the "Series Accounts."
The following investments are "Eligible Investments" (except that Eligible
Investments shall not include investments in securities, instruments or
obligations of the Seller, NITC or the Servicer or any of their affiliates,
except as permitted by the Rating Agencies):
(a) book-entry securities, negotiable instruments or securities
represented by instruments in bearer or registered form having (except in
the case of clause (iv) below) remaining maturities occurring not later than
the Distribution Date next succeeding the Master Trust Trustee's acquisition
thereof, except as otherwise described herein, which evidence:
(i) direct obligations of, and obligations fully guaranteed as to timely
payment by, the United States of America;
(ii) demand deposits, time deposits or certificates of deposit of, or
bankers' acceptances issued by, any depositary institution or trust company
incorporated under the laws of the United States of America or any state
thereof (or any domestic branch of a foreign bank) and subject to
supervision and examination by federal or state banking or depository
institution authorities; provided, however, that at the time of the Master
Trust's investment or contractual commitment to invest therein, the
commercial paper or other short-term unsecured debt obligations (other than
such obligations the rating of which is based on the credit of a person or
entity other than such depository institution or trust company) thereof
shall have a credit rating from each of the Rating Agencies in the highest
investment category granted thereby;
(iii) commercial paper having, at the time of the Master Trust's
investment or contractual commitment to invest therein, a rating from each
of the Rating Agencies in the highest investment category granted thereby;
(iv) except during an Investment Period, investments in money market
funds having a rating from each of the Rating Agencies in the highest
investment category granted thereby or otherwise approved in writing
thereby;
(v) repurchase obligations (x) with respect to any security that is a
direct obligation of, or fully guaranteed by, the United States of America
or any agency or instrumentality thereof the obligations of which are backed
by the full faith and credit of the United States of America, in either case
entered into with (A) a depository institution or trust company (acting as
principal) described in clause (ii) or (B) a depository institution or trust
company the deposits of which are insured by FDIC or (y) the counterparty
for which has a rating from each of the Rating Agencies in the highest
investment category for short-term unsecured debt obligations, the
collateral for which is held by a custodial bank for the benefit of the
Trust or the Indenture Trustee, is marked to market daily and is maintained
in an amount that exceeds the amounts of such repurchase obligation, and
which requires liquidation of the collateral immediately upon the amount of
such collateral being less than the amount of such repurchase obligation
(unless the counterparty immediately satisfies the repurchase obligation
upon being notified of such shortfall); or
(vi) commercial paper master notes where the issuer has, at the time of
the Master Trust's investment or contractual commitment to invest therein, a
rating from each of the Rating Agencies in the highest investment category
for short-term unsecured debt obligations; and
(b) any other investment consisting of a financial asset that by its
terms converts to cash within a finite period of time, provided that the
Rating Agency Condition is satisfied.
Except as otherwise permitted by the Rating Agencies or as set forth in the
applicable Prospectus Supplement, Eligible Investments of funds in the Series
Principal Account, the Excess Funding Account, the Negative Carry Reserve Fund
and the Liquidity Reserve Account will be subject to the following additional
restrictions: (x) no more than the greater of (A) $1,000,000 and (B) 20% of the
aggregate Eligible Investments in all of such accounts collectively shall be
obligations of or investments in any single issuer (except that such 20%
limitation shall not apply to Eligible
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Investments of the type specified in clause (a)(i) or, with respect to the
Excess Funding Account, Eligible Investments of the type specified in clause
(a)(iv)) and (y) each Eligible Investment shall be denominated and be payable
solely in U.S. dollars, shall bear interest at a specified rate that is, or is
based upon, London interbank offered rate or a commercial paper rate, shall
entitle the holder to a fixed principal amount at maturity and shall have a
yield that is not inversely or disproportionately affected by changes in
interest rates.
"Rating Agency Condition" means, with respect to any proposed action and
any outstanding Series, that the Rating Agencies have been informed of such
proposed action and have notified the Seller and the Master Trust Trustee
that such action will not result in a reduction or withdrawal of their then
existing rating of such Series.
"Rating Agencies" means, with respect to any outstanding Series, any
nationally recognized statistical rating organization then maintaining a
rating of such Series at the request of the Seller.
Any earnings (net of losses and investment expenses) on funds in the
Collections Account or the Excess Funding Account will be credited to the
Collections Account or the Excess Funding Account, respectively.
The Servicer will have the power to designate specific investments as well
as the revocable power to instruct the Master Trust Trustee to (1) make
withdrawals and payments from the Collections Account and the Excess Funding
Account, (2) make withdrawals from the Series Principal Account and the Spread
Account (and, in accordance with instructions from the Servicer, make deposits
of funds so withdrawn into the Distribution Account or otherwise apply such
funds in accordance with such instructions), and (3) make withdrawals and
distributions from the Distribution Account, in each case for the purpose of
carrying out its duties under the Pooling and Servicing Agreement. The Servicer
may select an appropriate agent as representative of the Servicer for the
purpose of designating such investments. The Servicer is not required to
reimburse the Master Trust for any losses occurring on Eligible Investments.
EXCESS FUNDING ACCOUNT
On each business day after the 1990 Trust Termination Date and prior to the
Fully Funded Date, Principal Collections not used for other purposes will be
retained in the Excess Funding Account to the extent necessary to maintain the
Master Trust Seller's Interest at an amount equal to (or, in the discretion of
the Seller, greater than) the Minimum Master Trust Seller's Interest. Funds on
deposit in the Excess Funding Account will be invested in Eligible Investments.
Upon the maturity of Eligible Investments, the proceeds thereof in the Excess
Funding Account shall be treated as Principal Collections.
"Master Trust Seller's Interest" with respect to any business day prior
to the 1990 Trust Termination Date, the interest of the Seller in the Master
Trust, and with respect to any business day after the 1990 Trust Termination
Date will equal the aggregate principal amount of Dealer Notes plus the
aggregate amount of funds in the Excess Funding Account, plus the aggregate
amount of funds in all series principal accounts (and funds being held for
deposit therein), including the Series Principal Account, each as of such
day, minus the Master Trust Invested Amount on such day (or as of the
Distribution Date on or immediately preceding such business day).
"Minimum Master Trust Seller's Interest" with respect to any business
day after the 1990 Trust Termination Date will equal the aggregate of the
minimum series seller's interest for each outstanding Series. The minimum
series seller's interest for the Offered Series (the "Minimum Series
Seller's Interest") will be set forth in the Prospectus Supplement.
NEGATIVE CARRY RESERVE FUND
If and to the extent specified in the Prospectus Supplement, the Master
Trust Trustee will establish and maintain in the name of the Master Trust
Trustee an Eligible Deposit Account for the benefit of the Offered
Certificateholders and the Swap Counterparty (the "Negative Carry Reserve
Fund"). Funds in the Negative Carry Reserve Fund will be invested in Eligible
Investments. On each Transfer Date related to a Due Period commencing prior to
the 1990 Trust Termination Date and occurring during any Investment Period or
any Early Amortization Period, Related 1990 Certificate Collections, Investment
Income and Net Swap Receipts will be deposited in the Negative Carry Reserve
Fund to the extent of the Negative Carry Reserve Fund Deposit Amount as provided
under "-- Allocation of Collections Prior to the 1990 Trust Termination Date."
After the 1990 Trust Termination Date and during the Accumulation Period, any
Investment Period
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or any Early Amortization Period, Available Seller's Finance Charge Collections
and Available Seller's Principal Collections will be deposited in the Negative
Carry Reserve Fund to the extent of the Negative Carry Reserve Fund Deposit
Amount as provided under "-- Allocation of Collections After the 1990 Trust
Termination Date."
The "Negative Carry Reserve Fund Required Amount" equals (a) for any
Transfer Date prior to the Fully Funded Date, the amount designated in the
Prospectus Supplement and (b) for each Transfer Date after the Fully Funded
Date, zero.
The "Negative Carry Reserve Fund Deposit Amount" equals, for any
Transfer Date, the excess, if any, of (a) the lesser of (i) the Negative
Carry Reserve Fund Required Amount for such Transfer Date and (ii) the
result of (A) the Negative Carry Subordinated Amount as of the end of the
preceding Transfer Date divided by (B) 1.00 plus the Subordinated Percentage
over (b) the amount of funds on deposit in the Negative Carry Reserve Fund
on such Transfer Date (after giving effect to any withdrawals therefrom on
such date).
The Prospectus Supplement for the Offered Series will specify whether the
terms of the Offered Series will include a Negative Carry Reserve Fund, Negative
Carry Reserve Fund Deposit Amount, Negative Carry Reserve Fund Required Amount
or Negative Carry Subordinated Amount.
Offered Certificateholders will not have any rights to amounts on deposit in
the Negative Carry Reserve Fund or interest income thereon, except as described
herein. Upon the payment in full of the Invested Amount, any funds remaining on
deposit in the Negative Carry Reserve Fund will be paid to the Seller.
INTEREST RATE SWAP
In connection with the issuance of the Offered Certificates, the Master
Trust may enter into an Interest Rate Swap with the Swap Counterparty. The "Swap
Counterparty" and other terms relating to the Interest Rate Swap will be more
fully described in the Prospectus Supplement. If the Master Trust does enter
into an Interest Rate Swap, all terms and provisions described herein relating
to the Interest Rate Swap, including the defined terms "Swap Counterparty,"
"Swap Fixed Rate," "Swap Floating Rate," "Swap Receipt," "Swap Payment," "Net
Swap Receipt" and "Net Swap Payment," will apply and be operative. If the Master
Trust does not enter into an Interest Rate Swap, such terms and provisions, as
well as paragraphs (x) and (y) under " --Allocation of Collections After the
1990 Trust Termination Date --Available Certificateholder Interest Collections,"
will not be operative (unless otherwise specified in the Prospectus Supplement
for the Offered Series).
In accordance with the terms of the Interest Rate Swap, the Swap
Counterparty will be obligated to pay to the Master Trust, not later than each
Distribution Date, interest at a fixed rate per annum (the "Swap Fixed Rate") on
the Invested Amount as of the preceding Distribution Date (after giving effect
to all distributions on such date). In exchange for such payments, the Master
Trust will be obligated to pay to the Swap Counterparty, on each Distribution
Date, interest at a floating rate per annum based on LIBOR (the "Swap Floating
Rate") on the Invested Amount as of the preceding Distribution Date (after
giving effect to all distributions on such date). Under the Interest Rate Swap,
the amount the Master Trust is obligated to pay will be netted against the
amount the Swap Counterparty is obligated to pay such that only the Net Swap
Payment will be due from the Master Trust or the Net Swap Receipt will be due
from the Swap Counterparty, as the case may be. Net Swap Receipts (money owed by
the Swap Counterparty) will be paid to the Collections Account not later than
each Distribution Date and distributed in the same manner as Related 1990
Certificate Interest Collections on each Distribution Date related to a Due
Period commencing prior to the 1990 Trust Termination Date, and on each
Distribution Date thereafter in the same manner as Offered Series Finance Charge
Collections, except as otherwise described herein, and Net Swap Payments (money
owed to the Swap Counterparty) will be paid not later than each Distribution
Date out of Related 1990 Certificate Interest Collections and Investment Income
prior to the 1990 Trust Termination Date, and thereafter out of Available
Certificateholder Interest Collections, excess interest collections from other
Series allocable to the Offered Series, Available Draw Funds and withdrawals
from the Negative Carry Reserve Fund to the extent described herein. Net Swap
Payments and Monthly Interest on the Offered Certificates will be paid on a pari
passu basis as described under "--Distributions to Offered Certificateholders
and the Swap Counterparty." The notional principal amount of the Interest Rate
Swap will be equal to the Invested Amount.
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1990 TRUST TERMINATION DATE
Prior to the 1990 Trust Termination Date, the principal assets held by the
Master Trust will be the Class A-4 and Class A-5 Investor Certificates, each
Related 1990 Certificate, any Subsequent 1990 Trust Investor Certificate, any
associated Interest Rate Swap and the 1990 Trust Seller Certificate. Each
Related 1990 Certificate will bear interest at a rate intended to provide
sufficient cash flows to make required payments of interest on the Offered
Certificates or on an associated Interest Rate Swap and will have an invested
amount intended to be sufficient, in the event of early amortization of the 1990
Trust, to repay the Invested Amount on the Offered Certificates or, in the event
that such amortization event constitutes an Investment Period with respect to
the Offered Certificates, to fund the Series Principal Account and the Negative
Carry Reserve Fund. As described in more detail herein, prior to the 1990 Trust
Termination Date the 1990 Trust will be the Active Trust and will hold the
Dealer Notes and certain related assets and receive and allocate the collections
and losses thereon to holders of the 1990 Trust Investor Certificates, including
the Master Trust as holder of each Related 1990 Certificate. During this time,
the Master Trust will be essentially a passive entity in which Collections
received on each Related 1990 Certificate and Net Swap Receipts will be used to
make Net Swap Payments and payments to Certificateholders, including the Offered
Certificateholders.
Following the 1990 Trust Termination Date, the Master Trust will become the
Active Trust. As described in more detail herein, the Dealer Notes and other
assets held by the 1990 Trust will be transferred to the Master Trust, and the
Master Trust will thereafter receive and allocate the Collections thereon to
Certificateholders, including Offered Certificateholders.
"1990 Trust Termination Date" means the close of business on the date,
which will be given retroactive effect, which is the last day of the Due
Period related to the Distribution Date on which the Class Invested Amount
of each of the Class A-1, A-2 and A-3 Investor Certificates is reduced to
zero. In the absence of a 1990 Trust Amortization Event, the 1990 Trust
Termination Date will occur following the repayment of the Class Invested
Amount for the Class A-3 Investor Certificates issued by the 1990 Trust,
which repayment will commence on the first Distribution Date following the
Due Period commencing December 1, 1998, which is the Scheduled Class
Amortization Date for the Class A-3 Investor Certificates.
ALLOCATION OF COLLECTIONS PRIOR TO THE 1990 TRUST TERMINATION DATE
Collections. On each Distribution Date related to a Due Period commencing
prior to the 1990 Trust Termination Date, the Servicer will deposit, or direct
the 1990 Trust Trustee to deposit, all Related 1990 Certificate Collections due
to the Master Trust as holder of the Related 1990 Certificate into the
Collections Account but only to the extent of the aggregate amount of
Collections required to be deposited into each Series Account or, without
duplication, distributed on such Distribution Date to Certificateholders, to any
Swap Counterparty or to any other Enhancement Provider pursuant to the terms of
any Supplement or any agreement governing the terms of any Enhancement (an
"Enhancement Agreement"). If at any time prior to such Distribution Date the
amount of Collections deposited in the Collections Account exceeds the amount
required to be deposited, the Servicer will be permitted to withdraw the excess
from the Collections Account.
"Collections" shall mean (a) prior to the 1990 Trust Termination Date,
amounts distributed by the 1990 Trust to the Master Trust as holder of any
1990 Trust Investor Certificate issued to and held by the Master Trust and
(b) after the 1990 Trust Termination Date, NITC Finance Charges, Dealer
Finance Charge Collections and Principal Collections.
Allocations. On each Distribution Date related to a Due Period commencing
prior to the 1990 Trust Termination Date, all Related 1990 Certificate
Collections and Investment Income will be allocated to the Offered Series.
"Investment Income" means, for any Distribution Period, the sum of (a)
income from the investment of funds on deposit in the Series Principal
Account, the Spread Account, the Distribution Account and the Negative Carry
Reserve Fund and (b) the Series Allocation Percentage of income from the
investment of funds on deposit in the Collections Account and the Excess
Funding Account.
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On each Transfer Date related to a Due Period commencing prior to the 1990
Trust Termination Date, Related 1990 Certificate Interest Collections for such
Due Period and Investment Income and any Net Swap Receipts for the related
Distribution Period will be applied in the following amounts and in the
following order of priority:
(a) On a pro rata basis between clauses (i) and (ii), (i) an amount
equal to (A) Monthly Interest for such Distribution Period, plus (B) Monthly
Interest for any prior Distribution Period to the extent that such amount
has not previously been distributed to the Offered Certificateholders on a
prior Distribution Date, plus (C) to the extent permitted by law, additional
interest at the Offered Certificate Rate for such Distribution Period that
has accrued on the aggregate of any Monthly Interest previously due but not
distributed and (ii) an amount equal to the Net Swap Payment, if any, for
such Distribution Period (plus any Net Swap Payments for any prior
Distribution Period, and interest thereon, to the extent that such amount
has not been previously distributed to the Swap Counterparty on a prior
Distribution Date), will be deposited into the Distribution Account.
(b) During any Early Amortization Period or any Investment Period, an
amount equal to the Negative Carry Reserve Fund Deposit Amount shall be
deposited in the Negative Carry Reserve Fund.
Any Related 1990 Certificate Interest Collections, Investment Income or Net
Swap Receipts remaining after the applications described in paragraphs (a) and
(b) above shall be allocated and paid to the Seller.
If, during any Investment Period or Early Amortization Period prior to the
1990 Trust Termination Date, Related 1990 Certificate Interest Collections for
such Due Period and Investment Income and Net Swap Receipts for the related
Distribution Period are insufficient to make the applications described in
clause (a) above, the Master Trust Trustee shall withdraw funds from the
Negative Carry Reserve Fund and apply such funds in the same manner as Related
1990 Certificate Interest Collections pursuant to clause (a) above. The Negative
Carry Subordinated Amount shall be reduced by the product of (i) the amount so
applied and (ii) 1.00 plus the Subordinated Percentage.
On each Transfer Date related to a Due Period commencing prior to the 1990
Trust Termination Date and occurring during a Class Amortization Period with
respect to the Related 1990 Certificate (which will result in the occurrence of
either an Early Amortization Event or an Investment Event as described herein),
Related 1990 Certificate Principal Collections for such Due Period will be
allocated pro rata between the Series Principal Account to the extent of the
Invested Amount and the Negative Carry Reserve Fund to the extent of the
Negative Carry Reserve Fund Deposit Amount. Any remaining Related 1990
Certificate Principal Collections shall be paid to the Seller.
ALLOCATION OF COLLECTIONS AFTER THE 1990 TRUST TERMINATION DATE
Collections. After the 1990 Trust Termination Date, the Servicer will
deposit all Principal Collections into the Collections Account within two
business days of receipt thereof. With respect to each Due Period commencing
after the 1990 Trust Termination Date, on a business day no earlier than the
second business day following the end of that Due Period but no later than the
fifth business day following the end of that Due Period (each a "NITC Interest
Transfer Date"), the Servicer will direct the Master Trust Trustee to withdraw
from the Interest Deposit Account and deposit in the Collections Account an
amount equal to the NITC Finance Charges for the immediately preceding Due
Period (see "Relationship with NITC -- Interest Deposit Agreements and Interest
Deposit Accounts"). In addition, the Servicer will deposit all Dealer Finance
Charge Collections in the Collections Account within two business days of
receipt thereof, net of any Dealer Finance Charge Collections that represent
Advance Reimbursements. Finally, the Servicer will deposit any Advance for the
Due Period in the Collections Account on or before the Transfer Date (see "--
Advances").
Notwithstanding the foregoing, if NFC achieves and maintains an acceptable
short term rating from the Rating Agencies then rating each outstanding Series
or if the Rating Agency Condition with respect to each outstanding Series has
been satisfied, the Servicer may make a single deposit in the Collections
Account in same-day or next-day funds not later than 12:00 noon, New York City
time, on the Transfer Date in a net amount equal to the amount which would have
been on deposit with respect to the immediately preceding Due Period in the
Collections Account. In addition, the Servicer will only be required to deposit
Collections into the Collections Account up to the aggregate amount of
Collections required to be deposited into each Series Account or, without
duplication, distributed on the related Distribution Date to Certificateholders
or to any Swap Counterparty or any person providing any other Enhancement (other
than the Certificateholders or the holders of any Master Trust Seller's
Certificates) (an "Enhancement Provider") pursuant to the terms of any
Supplement or Enhancement Agreement, and if at any time prior to such
Distribution Date
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the amount of Collections deposited in the Collections Account exceeds the
amount required to be deposited the Servicer will be permitted to withdraw the
excess from the Collections Account.
Allocations Among Series--Principal Collections. On each business day prior
to the Fully Funded Date, the Servicer will allocate to each outstanding Series,
including the Offered Series, its share of Principal Collections. Allocations to
the Offered Series will be made in amounts equal to the product of the Series
Allocation Percentage for the Due Period in which such business day occurs and
the amount of Principal Collections for such business day (referred to herein as
"Series Allocable Principal Collections").
"Principal Collections" means, with respect to any business day the sum
of (a) Dealer Note Collections for such business day, (b) amounts deposited
by the Seller on such business day in respect of Ineligible Dealer Notes as
described in "-- Certain Representations and Warranties; Ineligible Dealer
Notes; Purchase of Certificateholders' Interest" and (c) prior to the 1990
Trust Termination Date, the aggregate principal amount of proceeds of
maturing 1990 Trust Investment Securities and, after the 1990 Trust
Termination Date, the aggregate principal amount of Eligible Investments in
the Excess Funding Account maturing on such business day.
"Dealer Note Collections" means, with respect to each business day, (a)
all payments including Insurance Proceeds, if any, received by the Servicer
from persons other than NFC in respect of repayment of principal of the
Dealer Notes at one of its administrative units charged with processing
funds and recording them in the Servicer's records, in the form of cash,
checks, wire transfers or other forms of payment in accordance with the
Dealer Agreement in effect from time to time, (b) all cash payments made by
NFC or NITC in respect of non-cash proceeds received from Dealers or credits
granted to Dealers by NITC with respect to the repayment of principal of the
Dealer Notes and (c) recoveries made by the Servicer allocable to the Dealer
Notes, in each case as deposited in the Collections Account on such business
day.
The "Series Allocation Percentage" for the Offered Series for any Due
Period commencing after the 1990 Trust Termination Date is equal to the
percentage equivalent of a fraction, the numerator of which is the Adjusted
Invested Amount and the denominator of which is the Master Trust Adjusted
Invested Amount, in each case as of the end of the Distribution Date
preceding such Due Period (after giving effect to all payments made on such
Distribution Date).
"Invested Amount" means, with respect to any Distribution Date, the
Initial Invested Amount minus the sum of (a) the aggregate amount of
payments of principal in respect of the Offered Certificates paid to the
Offered Certificateholders on or prior to such Distribution Date, (b) the
aggregate amount of Certificateholder Charge-Offs not reimbursed on or prior
to such Distribution Date, (c) the aggregate amount of Series Principal
Account Losses on or prior to such Distribution Date and (d) the aggregate
Early Distribution Amounts made on or prior to such Distribution Date.
"Adjusted Invested Amount" means, with respect to any Distribution Date,
the Initial Invested Amount, plus the Available Subordinated Amount as of
the end of the related Transfer Date, plus the Negative Carry Subordinated
Amount as of the end of such Transfer Date, minus the product of (i) the
amount, if any, of funds on deposit in the Negative Carry Reserve Fund at
the end of such Transfer Date and (ii) 1.00 plus the Subordinated
Percentage, minus the aggregate amount of Certificateholder Charge-Offs not
reimbursed on or prior to such Distribution Date, minus the aggregate Early
Distribution Amounts made on or prior to such Distribution Date.
"Series Principal Account Losses" means losses of principal on
investment of funds in the Series Principal Account.
The "Master Trust Invested Amount" is equal to the sum of the invested
amounts for all outstanding Series.
The "Master Trust Adjusted Investment Amount" is equal to the sum of the
adjusted invested amounts for all outstanding Series.
Allocations Among Series -- Finance Charge Collections and Dealer Note
Losses. Pursuant to the Pooling and Servicing Agreement, on each Transfer Date
related to a Due Period commencing after the 1990 Trust Termination Date and
occurring prior to the Fully Funded Date, the Servicer will allocate to each
outstanding Series, including the Offered Series, its share of Finance Charge
Collections and Dealer Note Losses for such Due Period. Allocations to the
Offered Series will be made in amounts equal to the product of the Series
Allocation Percentage and the amount of Finance
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Charge Collections and Dealer Note Losses for such Due Period (referred to
herein as "Series Allocable Finance Charge Collections" and "Series Allocable
Dealer Note Losses," respectively).
"Dealer Note Losses" means, with respect to any Due Period commencing
after the 1990 Trust Termination Date, the aggregate face amount of Dealer
Notes written off as uncollectible by the Servicer during such Due Period
minus any recoveries made during such Due Period on Dealer Notes previously
written off as uncollectible.
"Finance Charge Collections" shall mean, with respect to any Due Period,
the positive amount, if any, by which the sum of Dealer Finance Charge
Collections and NITC Finance Charges exceeds Advance Reimbursements during
such Due Period.
Allocation Between the Offered Certificateholders and the Seller --
Principal Collections. After allocating amounts among the Series, on each
business day after the 1990 Trust Termination Date the Servicer will
allocate to the Offered Certificateholders the Floating Allocation Percentage
of Series Allocable Principal Collections for such business day during the
Revolving Period or the Principal Allocation Percentage of Series Allocable
Principal Collections for such business day during the Accumulation Period, any
Early Amortization Period or any Investment Period (such amount on each such
business day, together with any Available Certificateholder Interest
Collections and Net Swap Receipts treated as Offered Series Principal
Collections on such business day as described in paragraph (d) of "-- Available
Certificateholder Interest Collections" below, being "Offered Series Principal
Collections").
Amounts allocated to the Offered Series but not allocated to the Offered
Certificateholders as described above will be allocated to the Seller, as the
holder of the Master Trust Seller's Certificates. As described below, a portion
of the amount allocated to the Seller is subordinated to the Offered
Certificateholders' Interest and is generally drawn from Available Seller's
Principal Collections.
The "Floating Allocation Percentage" for the Offered Series for any Due
Period commencing after the 1990 Trust Termination Date is equal to the
percentage equivalent (which shall not exceed 100%) of a fraction, the
numerator of which is the Invested Amount as of the immediately preceding
Distribution Date and the denominator of which is the product of (a) the sum
of the aggregate principal amount of Dealer Notes in the Master Trust and
the aggregate principal amount of funds in the Excess Funding Account as of
the end of the preceding Due Period and (b) the Series Allocation Percentage
for the Due Period for which the Floating Allocation Percentage is being
calculated.
The "Principal Allocation Percentage" for the Offered Series for any Due
Period commencing after the 1990 Trust Termination Date and occurring during
the Accumulation Period, any Investment Period, or any Early Amortization
Period is equal to the percentage equivalent of a fraction, the numerator of
which is the Invested Amount at the end of the last day of the Revolving
Period and the denominator of which is equal to the product of (a) the sum
of the aggregate amount of Dealer Notes in the Master Trust and the
aggregate principal amount of funds in the Excess Funding Account as of the
end of the last day of the Revolving Period and (b) the Series Allocation
Percentage for the Due Period for which the Principal Allocation Percentage
is being calculated.
Allocation Between the Offered Certificateholders and the Seller -- Finance
Charge Collections and Dealer Note Losses. On each Transfer Date related to a
Due Period commencing after the 1990 Trust Termination Date, the Servicer will
allocate to the Offered Certificateholders, from the amount allocated to the
Offered Series for such Transfer Date, the following amounts:
(a) the Floating Allocation Percentage of Series Allocable Finance
Charge Collections for such Due Period (the "Offered Series Finance Charge
Collections"); and
(b) the Floating Allocation Percentage of Series Allocable Dealer Note
Losses for such Due Period ("Offered Series Dealer Note Losses").
Amounts allocated to the Offered Series but not allocated to the Offered
Certificateholders as described above will be allocated to the Seller, as the
holder of the Master Trust Seller's Certificates. As described below, a portion
of the amount allocated to the Seller is subordinated to the Offered
Certificateholders' Interest and is generally drawn from Available Seller's
Finance Charge Collections.
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"Available Seller's Finance Charge Collections" for any Due Period
commencing after the 1990 Trust Termination Date means an amount equal to
the product of (a) the excess of (i) the Seller's Percentage for such Due
Period over (ii) the result of the Excess Seller's Percentage for such Due
Period minus the Required Excess Seller Interest Percentage and (b) Series
Allocable Finance Charge Collections for such Due Period, except that
Available Seller's Finance Charge Collections shall be zero for any Due
Period to the extent the Available Subordinated Amount and the Negative
Carry Subordinated Amount (minus the product of (i) the amount of funds on
deposit in the Negative Carry Reserve Fund and (ii) 1.00 plus the
Subordinated Percentage) equals or is reduced to zero on the Transfer Date
related to such Due Period.
"Available Seller's Principal Collections" for any business day after
the 1990 Trust Termination Date means an amount equal to the product of (a)
the excess of (i) the Seller's Percentage for the Due Period in which such
business day occurs over (ii) the Excess Seller's Percentage for such Due
Period and (b) Series Allocable Principal Collections for such Due Period,
except that Available Seller's Principal Collections shall be zero for any
business day to the extent the Available Subordinated Amount and the
Negative Carry Subordinated Amount (minus the product of (i) the amount of
funds on deposit in the Negative Carry Reserve Fund and (ii) 1.00 plus the
Subordinated Percentage) equals or is reduced to zero on the Transfer Date
immediately preceding such business day.
"Excess Seller's Percentage" for any Due Period commencing after the
1990 Trust Termination Date means a percentage (not less than 0% nor more
than 100%) equal to the Seller's Percentage minus the percentage equivalent
(not less than 0% nor more than 100%) of a fraction, the numerator of which
is the sum of the (a) Available Subordinated Amount as of the end of the
related Transfer Date and (b) the Negative Carry Subordinated Amount (minus
the product of (i) the amount of funds on deposit in the Negative Carry
Reserve Fund and (ii) 1.00 plus the Subordinated Percentage), and the
denominator of which is the product of (x) the sum of the aggregate
principal amount of Dealer Notes and aggregate principal amount of funds on
deposit in the Excess Funding Account as of the end of the immediately
preceding Due Period and (y) the Series Allocation Percentage for the Due
Period for which the Excess Seller's Percentage is being calculated.
"Excess Seller's Principal Collections" for any business day during a
Due Period commencing after the 1990 Trust Termination Date means the
product of (a) Series Allocable Principal Collections for such business day
and (b) the Excess Seller's Percentage for such Due Period.
"Seller's Percentage" for any Due Period commencing after the 1990 Trust
Termination Date means 100% minus (a) the Floating Allocation Percentage for
such Due Period, when used with respect to Finance Charge Collections and
Dealer Note Losses at all times and Principal Collections during the
Revolving Period, or (b) the Principal Allocation Percentage for such Due
Period, when used with respect to Principal Collections during the
Accumulation Period, any Investment Period or Early Amortization Period.
"Seller's Principal Collections" for any business day after the 1990
Trust Termination Date means an amount equal to the sum of (a) Available
Seller's Principal Collections for such business day and (b) Excess Seller's
Principal Collections for such business day.
"Required Excess Seller Interest Percentage" shall be set forth in the
Prospectus Supplement for the Offered Series.
Available Certificateholder Interest Collections. On each Transfer Date
related to a Due Period commencing after the 1990 Trust Termination Date but
ending prior to the Fully Funded Date, Offered Series Finance Charge Collections
for such Due Period together with other amounts comprising Investment Income for
the related Distribution Period (collectively, "Available Certificateholder
Interest Collections"), and Net Swap Receipts for the related Distribution
Period, if any, will be applied in the following amounts and in the following
order of priority:
(a) An amount equal to the Offered Series Servicing Fee for such Due
Period (unless such amount has been netted against deposits to the
Collections Account or waived) will be retained (or deposited) in the
Collections Account and allocated to the Servicer.
(b) On a pro rata basis between clauses (i) and (ii), (i) an amount
equal to (A) Monthly Interest for such Distribution Period, plus (B) Monthly
Interest for any prior Distribution Period to the extent that such amount
has not previously been distributed to the Offered Certificateholders on a
prior Distribution Date, plus (C) to the extent
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permitted by law, additional interest at the Offered Certificate Rate for
such Distribution Period that has accrued on the aggregate of any Monthly
Interest previously due but not distributed and (ii) an amount equal to the
Net Swap Payment, if any, for such Distribution Period (plus any Net Swap
Payments for any prior Distribution Period, and interest thereon, to the
extent that such amount has not been previously distributed to the Swap
Counterparty on a prior Distribution Date), will be deposited into the
Distribution Account.
(c) An amount equal to any Offered Series Dealer Note Losses, if any,
for such Due Period will be reimbursed by being treated as Offered Series
Principal Collections for such Transfer Date.
(d) An amount equal to the aggregate amount of unreimbursed
Certificateholder Charge-Offs, if any, for such Due Period will be
reimbursed by being treated as Offered Series Principal Collections for such
Transfer Date and will reimburse such Certificateholder Charge-Offs.
(e) An amount equal to any Spread Account Deposit Amount, if any, for
such Due Period will be deposited into the Spread Account.
(f) An amount equal to the aggregate outstanding amounts of the Offered
Series Servicing Fee which have been previously waived (unless such amount
has been waived again) shall be allocated and paid to the Servicer.
(g) An amount equal to the excess, if any, of the Maximum Subordinated
Amount as of the end of the preceding Transfer Date over the Available
Subordinated Amount as of the end of the preceding Transfer Date shall be
(i) during the Revolving Period or the Accumulation Period, allocated and
paid to the Seller or (ii) during an Investment Period or an Early
Amortization Period, deposited in the Liquidity Reserve Account, and in
either case (i) or (ii) the Available Subordinated Amount shall be
reinstated by the amount of such payment or deposit.
Any Available Certificateholder Interest Collections and Net Swap Receipts
not used as described above (or to pay amounts owing to a present or former Swap
Counterparty in connection with certain swap termination events) will constitute
"Excess Interest Collections" and will be available for allocation to other
Series to the extent of shortfalls and otherwise will be allocated to the
Seller. By contrast, if Available Certificateholder Interest Collections and Net
Swap Receipts are not sufficient to satisfy each of the applications described
above on any Transfer Date, then excess interest collections from other Series
allocable to the Offered Series will be applied as Available Certificateholder
Interest Collections in the priority and the manner described in clauses (a)
through (g) above. If Excess Interest Collections for all Series are less than
the shortfalls for all Series that provide for allocations of excess interest
collections from other Series, such excess interest collections from other
Series will be allocable to shortfalls for the Offered Series and any other
Series that so provides pro rata based on the relative amounts of each Series'
shortfall.
If Available Certificateholder Interest Collections, Net Swap Receipts and
excess interest collections from other Series allocated to the Offered Series
are insufficient to make all of the applications described in clauses (a), (b),
(c) and (d) above, there will be a "Deficiency Amount," which will equal the
aggregate amount of such insufficiency. Funds from, but only to the extent of,
the following sources and in the following order of priority will be applied, in
the same fashion as Available Certificateholder Interest Collections and
pursuant to the clauses and in the priorities set forth above, to reduce a
Deficiency Amount:
(x) under the circumstances specified in clause (b) of the definition of
Early Amortization Event, the amount of Available Seller's Finance Charge
Collections or other funds which the Seller elects to use thereunder;
(y) on any Transfer Date during an Early Amortization Period caused by a
payment default by the Swap Counterparty, Available Seller's Finance Charge
Collections in an amount equal to the least of (i) the Deficiency Amount,
(ii) the portion of the Net Swap Receipt that was not received for the
related Distribution Period and (iii) the Negative Carry Subordinated
Amount;
(z) Available Draw Funds, in an amount not to exceed the Draw Amount.
The Negative Carry Subordinated Amount will be reduced by the product of (i)
the amount of any application of Available Seller's Finance Charge Collections
pursuant to clause (y) above and (ii) 1.00 plus the Subordinated Percentage. The
Available Subordinated Amount will be reduced by the amount of any Available
Draw Funds applied pursuant to clause (z) above.
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"Available Draw Funds" for any Transfer Date means funds which shall be
drawn from the following sources in the following order of priority:
(i) Available Seller's Finance Charge Collections remaining after the
applications specified in clauses (x) and (y) above;
(ii) the Spread Account; and
(iii) for any Transfer Date occurring during any Investment Period or
Early Amortization Period, the Liquidity Reserve Account.
"Draw Amount" means the least of (a) the Deficiency Amount, (b) the
Available Subordinated Amount as of the end of the preceding Transfer Date
and (c) Available Draw Funds for such Transfer Date.
If all of the amounts applied above are insufficient to make the entire
application described in clause (c) above, the Available Subordinated Amount
shall be reduced (but not below zero) by the amount of such insufficiency and
the Offered Series Dealer Note Losses will be deemed reimbursed by the amount of
such reduction.
If during the Accumulation Period, any Investment Period or any Early
Amortization Period, Available Certificateholder Interest Collections, Net Swap
Receipts, excess interest collections from other Series and Available Draw Funds
applied above are insufficient to make all the applications described in clause
(b) above, the Master Trust Trustee shall withdraw funds from the Negative Carry
Reserve Fund and apply such funds in the same manner as Available
Certificateholder Interest Collections pursuant to clause (b) above. The
Deficiency Amount will be reduced by the amount so applied and the Negative
Carry Subordinated Amount will be reduced by the product of (i) the amount so
applied and (ii) 1.00 plus the Subordinated Percentage.
On each Transfer Date related to a Due Period occurring during an Investment
Period or during the Accumulation Period, any remaining Available Seller's
Finance Charge Collections not used as Available Draw Funds will be deposited in
the Negative Carry Reserve Fund to the extent of the Negative Carry Reserve Fund
Deposit Amount. On each Transfer Date related to a Due Period occurring during
an Investment Period or an Early Amortization Period, any remaining Available
Seller's Finance Charge Collections not used as Available Draw Funds or
deposited in the Negative Carry Reserve Fund (to the extent required as
described in the preceding sentence) will be deposited in the Liquidity Reserve
Account to the extent that the Available Subordinated Amount as of the end of
the preceding Transfer Date exceeds the aggregate amount of funds on deposit in
the Liquidity Reserve Account and the Spread Account, and then, to the extent of
any remaining Negative Carry Reserve Fund Deposit Amount, shall be deposited in
the Negative Carry Reserve Fund. Available Seller's Finance Charge Collections
remaining after the applications described in the preceding sentence shall, to
the extent of any remaining shortfall in the application described in clause (e)
above (or, if less, the amount of remaining Available Seller's Finance Charge
Collections), be applied in accordance with such clause.
On each Transfer Date related to a Due Period commencing after the Due
Period related to the Fully Funded Date, Available Certificateholder Interest
Collections for such Due Period and Net Swap Receipts for the related
Distribution Period, if any, will be applied on a pari passu basis in an amount
equal to (A) Monthly Interest for the Distribution Period (including any
previously due but unpaid Monthly Interest, and interest thereon) and (B) the
Net Swap Payment, if any, for the related Distribution Period (including any
previously due but unpaid Net Swap Payments, and interest thereon). If such
amounts are insufficient to pay Monthly Interest and Net Swap Payments, then
funds up to such insufficiency will be withdrawn from the Negative Carry Reserve
Fund and applied for such purposes. The Negative Carry Subordinated Amount shall
be reduced by the product of (i) the amount so applied and (ii) 1.00 plus the
Subordinated Percentage.
Principal Collections. On each business day, Offered Series Principal
Collections will be applied in the following priority:
(a) Offered Series Principal Collections will first be deposited in the
Series Principal Account to the extent required to make principal
distributions to the Offered Certificateholders. No amount is required to be
set aside for such purpose during the Revolving Period. On each business day
during any Investment Period or any Early Amortization Period, Offered
Series Principal Collections will be allocated to the Offered
Certificateholders and
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deposited in the Series Principal Account to the extent the Invested Amount
as of the preceding Distribution Date exceeds the amount of funds on deposit
in the Series Principal Account on such business day. On each business day
during the Accumulation Period (but not during any Early Amortization Period
or Investment Period), Offered Series Principal Collections will be
allocated to the Offered Certificateholders and deposited in the Series
Principal Account in an amount which, when added to the amount of Offered
Series Principal Collections previously deposited in the Series Principal
Account during the Due Period in which such business day occurs, shall not
exceed the Controlled Deposit Amount for such Due Period.
(b) Shared Principal Collections, if any, will be determined and
allocated to other Series that so provide to the extent of any principal
shortfalls with respect thereto and otherwise will be deposited in the
Excess Funding Account to the extent necessary to maintain the Master Trust
Seller's Interest at an amount equal to (or, in the discretion of the
Seller, greater than) the Minimum Master Trust Seller's Interest or
allocated to the Seller. Shared principal collections for all other Series
will be determined on each business day and allocated to the Offered Series
to the extent of any Principal Shortfall. If shared principal collections
for all Series are less than the principal shortfalls for all Series that
provide for allocations of shared principal collections from other Series,
such shared principal collections from other Series will be allocable to
shortfalls for the Offered Series and any other Series that so provides pro
rata based on the relative amounts of each such Series' principal shortfall.
"Controlled Deposit Amount" for any Due Period occurring during the
Accumulation Period means the excess, if any, of (a) the product of the
Controlled Amortization Amount and the number of Due Periods that have
occurred with respect to the Accumulation Period through and including such
Due Period (but not in excess of the Accumulation Period Length) over (b)
the amount on deposit in the Series Principal Account at the end of the
preceding Due Period, except that, notwithstanding the foregoing, the Seller
may, in its sole discretion, increase the Controlled Deposit Amount at any
time and from time to time.
"Controlled Amortization Amount" means an amount equal to the Invested
Amount as of the Distribution Date preceding the Accumulation Period
Commencement Date divided by the Accumulation Period Length.
The portion of Offered Series Principal Collections in excess of the amount
required to be allocated to the Series Principal Account to be available for
required principal distributions on the Offered Certificates as described herein
is referred to as "Shared Principal Collections." Thus, Shared Principal
Collections for any business day during the Revolving Period will equal Offered
Series Principal Collections (because no amounts are then required to be set
aside for distributions of principal on the Offered Certificates), and for any
Due Period during the Accumulation Period, any Early Amortization Period or any
Investment Period, will equal the excess, if any, of Offered Series Principal
Collections over the amount deposited in the Series Principal Account pursuant
to paragraph (a) above.
The extent to which Offered Series Principal Collections for a business day
are insufficient to make the required allocations to the Series Principal
Account is referred to as the "Principal Shortfall." Thus, the Principal
Shortfall for any business day during the Accumulation Period (an "Accumulation
Period Principal Shortfall") will equal the excess, if any, of the Controlled
Deposit Amount over the amount of Offered Series Principal Collections deposited
in the Series Principal Account on such business day when added to the amount of
Offered Series Principal Collections previously deposited in the Series
Principal Account during such Due Period, or during any Early Amortization
Period or Investment Period will equal the excess, if any, of the Invested
Amount (reduced by amounts on deposit in the Series Principal Account and the
aggregate amount of Series Principal Account Losses for the Distribution Period
in which such business day occurs) over Offered Series Principal Collections.
On each business day (A) during the Accumulation Period, Available Seller's
Principal Collections will be deposited in the Negative Carry Reserve Fund in an
amount equal to the Negative Carry Reserve Fund Deposit Amount, and (B) during
an Early Amortization Period or Investment Period (prior to the Fully Funded
Date), Available Seller's Principal Collections will be, on a pro rata basis
between clauses (i) and (ii) based on the respective amounts owed, (i) deposited
in the Liquidity Reserve Account to the extent the Available Subordinated Amount
as of the end of the immediately preceding Transfer Date exceeds the amount of
funds on deposit in the Liquidity Reserve Account and (ii) deposited in the
Negative Carry Reserve Fund in an amount equal to the Negative Carry Reserve
Fund Deposit Amount. The amounts required to be deposited pursuant to the
preceding sentence shall be reduced by the amount of Available Seller's Finance
Charge Collections deposited in the Negative Carry Reserve Fund or the Liquidity
Reserve Account, as applicable, on such business day. Any remaining Available
Seller's Principal Collections shall be deemed "Remaining Available Seller's
Principal Collections" and included in Shared Seller Principal Collections as
provided below.
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On each business day during the Revolving Period or the Accumulation Period,
Shared Seller Principal Collections, if any, and shared seller principal
collections for any other Series that provides for shared seller principal
collections shall be determined on each business day and allocated in the
following priority: (i) to the Offered Series to the extent of any Accumulation
Period Principal Shortfall and to any other Series to the extent such Series
provides for the use of shared seller principal collections in respect of
principal shortfalls, (ii) to the Excess Funding Account to the extent necessary
to maintain the Master Trust Seller's Interest at an amount equal to (or, in the
discretion of the Seller, greater than) the Minimum Master Trust Seller's
Interest and (iii) to the Seller. If shared seller principal collections for all
Series, including Shared Seller Principal Collections, are less than the
shortfalls for which shared seller principal collections may be used, including
any Accumulation Period Principal Shortfall, then such shared seller principal
collections will be allocated to all such shortfalls, including any Accumulation
Period Principal Shortfall, pro rata based on the relative amounts of each such
shortfall.
"Shared Seller Principal Collections" means on each business day (i)
during a Revolving Period, all Available Seller's Principal Collections and
all Excess Seller's Principal Collections and (ii) during an Accumulation
Period, all Remaining Available Seller's Principal Collections and all
Excess Seller's Principal Collections. There shall be no Shared Seller
Principal Collections during any Investment Period or Early Amortization
Period.
On each business day during any Investment Period or any Early Amortization
Period, all Excess Seller's Principal Collections, all Remaining Available
Seller's Principal Collections and all shared principal collections not
allocated in respect of principal shortfalls shall be allocated and paid to the
Seller or deposited in the Excess Funding Account to the extent necessary to
maintain the Master Trust Seller's Interest at an amount equal to (or, in the
Seller's discretion, greater than) the Minimum Master Trust Seller's Interest.
If on any Distribution Date during an Investment Period after the
application of all funds to be allocated or distributed on such date the excess,
if any, of (a) the Invested Amount over (b) the amount in the Series Principal
Account (the "Investment Period Shortfall Amount") is less than or equal to the
aggregate amount of funds contained in the Liquidity Reserve Account, then funds
shall be withdrawn from the Liquidity Reserve Account in an amount equal to the
Investment Period Shortfall Amount and shall be deposited in the Series
Principal Account. If on any Distribution Date during an Early Amortization
Period after the application of all funds to be allocated or distributed on such
date the excess, if any, of (x) the Invested Amount over (y) the amount in the
Series Principal Account (the "Early Amortization Period Shortfall Amount") is
less than or equal to the aggregate amount of funds contained in the Negative
Carry Reserve Fund and the Liquidity Reserve Account, then funds shall be
withdrawn first from the Negative Carry Reserve Fund and then from the Liquidity
Reserve Account in an amount equal to the Early Amortization Period Shortfall
Amount and shall be deposited in the Series Principal Account.
Limited Subordination of Master Trust Seller's Interest; Spread Account;
Liquidity Reserve Account. After the 1990 Trust Termination Date, a portion of
the Master Trust Seller's Interest will be subordinated to the Offered
Certificateholders' Interest to the extent of the Available Subordinated Amount
and, under certain circumstances, the Negative Carry Subordinated Amount.
The "Available Subordinated Amount" for the Offered Series will be zero
for each Transfer Date relating to a Due Period commencing prior to the 1990
Trust Termination Date and on the Transfer Date related to the first Due
Period after the 1990 Trust Termination Date will equal the product of the
Subordinated Percentage and the Invested Amount, and for each Transfer Date
thereafter will equal the lesser of: (a) the Maximum Subordinated Amount for
the Offered Series and (b) the Available Subordinated Amount for the Offered
Series as of the end of the preceding Transfer Date (after giving effect to
all adjustments thereto on such Transfer Date).
The "Maximum Subordinated Amount" for the Offered Series means the
product of (a) the Invested Amount and (b) the Subordinated Percentage,
except that upon the occurrence of an Investment Event or an Early
Amortization Event, the Maximum Subordinated Amount shall not decline until
the Invested Amount equals the Maximum Subordinated Amount, and thereafter
the Maximum Subordinated Amount will equal the Invested Amount.
The "Subordinated Percentage" with respect to the Offered Certificates will
be set forth in the Prospectus Supplement.
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If the Available Subordinated Amount falls below the Required Subordinated
Amount for any Transfer Date, an Investment Event or Early Amortization Event
will occur. The "Required Subordinated Amount" will be set forth in the
Prospectus Supplement.
"Negative Carry Subordinated Amount" shall mean, (a) on any Transfer
Date related to a Due Period occurring prior to the commencement of the
Accumulation Period, any Early Amortization Period or any Investment Period,
an amount equal to the product of (i) the Negative Carry Reserve Fund
Required Amount and (ii) 1.00 plus the Subordinated Percentage and (b) at
the beginning of each Transfer Date thereafter, an amount equal to the
Negative Carry Subordinated Amount as of the end of the immediately
preceding Transfer Date (after giving effect to all reductions in the
Negative Carry Subordinated Amount on such preceding Transfer Date).
The Spread Account will be an Eligible Deposit Account established and
maintained prior to the 1990 Trust Termination Date in the name of the Master
Trust Trustee for the benefit of the Offered Certificateholders. As described
above, the Spread Account is available to supplement Available Certificateholder
Interest Collections, Net Swap Receipts, excess interest collections from other
Series allocable to the Offered Series and Available Seller's Finance Charge
Collections. Monies in the Spread Account will be invested in Eligible
Investments. After the earliest of (a) the payment in full of the Invested
Amount, (b) the Fully Funded Date and (c) the Series Termination Date, any funds
remaining on deposit in the Spread Account will be distributed to the Seller. On
any Transfer Date after the 1990 Trust Termination Date and prior to the Fully
Funded Date, if the amount in the Spread Account is less than the Projected
Spread, the Master Trust Trustee will deposit the amount of such deficiency (the
"Spread Account Deposit Amount"), to the extent available from Available
Certificateholder Interest Collections, Net Swap Receipts, excess interest
collections from Offered Series and Available Seller's Finance Charge
Collections, in the Spread Account as described above in "Available
Certificateholder Interest Collections." The Spread Account will initially be
funded with an amount up to the Projected Spread from funds on deposit in the
1990 Trust Spread Account and allocated to the Offered Series. See "Navistar
Financial Securities Corporation and the Master Trust -- The Master Trust." The
"Projected Spread" will be set forth in the Prospectus Supplement. During an
Investment Period or an Early Amortization Period, the Master Trust Trustee will
deposit all Spread Account funds in the Liquidity Reserve Account.
The Liquidity Reserve Account will be an Eligible Deposit Account
established and maintained on or prior to the commencement of an Early
Amortization Period or an Investment Period in the name of the Master Trust for
the benefit of the Seller. After the 1990 Trust Termination Date and after the
commencement of an Investment Period or an Early Amortization Period, Available
Seller's Principal Collections that would otherwise be paid to the Seller will
be deposited in the Liquidity Reserve Account, to the extent described herein,
until such time as the amount on deposit is equal to the Available Subordinated
Amount, in order to assure a source of funds for payment with respect thereto.
The Seller will possess all right, title and interest in all funds on deposit in
the Liquidity Reserve Account, except that no such funds will be paid to the
Seller during an Investment Period or Early Amortization Period if such payment
would reduce the funds in the Liquidity Reserve Account below an amount equal to
the Available Subordinated Amount.
CERTIFICATEHOLDER CHARGE-OFFS
If, for any Transfer Date, the Available Subordinated Amount equals or is
reduced to zero (after giving effect to the allocations, distributions,
withdrawals and deposits to be made on such Transfer Date) and the Deficiency
Amount is greater than zero (as reduced by all the allocations, distributions,
withdrawals and deposits to be made on such Transfer Date), the Invested Amount
will be reduced by such Deficiency Amount, but not by more than the Offered
Series Dealer Note Losses for the related Due Period remaining unreimbursed
after all applications of funds or reductions of the Available Subordinated
Amount described herein (a "Certificateholder Charge-Off"). As of any Transfer
Date, Certificateholder Charge-Offs for all prior Transfer Dates will be
considered unreimbursed unless such amounts are reimbursed (and to the extent
not reimbursed). Unreimbursed Certificateholder Charge-Offs will be reimbursed
on any subsequent Transfer Date out of Available Certificateholder Interest
Collections, Net Swap Receipts, excess interest collections from other Series
allocable to the Offered Series and, to the extent available therefor, Available
Draw Funds and, in certain circumstances, funds on deposit in the Negative Carry
Reserve Fund. To the extent so reimbursed, Certificateholder Charge-offs will no
longer be considered unreimbursed, and the Invested Amount will be reinstated to
the extent any Certificateholder Charge-Offs are reimbursed. See "Description of
Offered Certificates -- Allocation of Collections After the 1990 Trust
Termination -- Date Available Certificateholder Interest Collections."
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DISTRIBUTIONS TO OFFERED CERTIFICATEHOLDERS AND THE SWAP COUNTERPARTY
On the business day immediately preceding each Distribution Date (the
"Transfer Date"), the Servicer will instruct the Master Trust Trustee to
transfer to the Distribution Account the funds on deposit in the Series
Principal Account and, to the extent provided herein, the Collections Account,
and the Servicer will instruct the Master Trust Trustee to make, without
duplication, the following distributions from the Distribution Account. All such
transfers and distributions will be made after allocations, if any, to the
Series Principal Account for such Distribution Date have been made.
(a) Interest Distributions and Net Swap Payments. On each Distribution
Date (including the Expected Payment Date), Monthly Interest will be
distributed to the Offered Certificateholders as accrued interest on the
Offered Certificates. To the extent any interest is due but not distributed
on any such Distribution Date, such amount will be distributed on the
following Distribution Date, along with, to the extent permitted by law,
interest at the Offered Certificate Rate on such amount. In addition, Net
Swap Payments, if any, (including any previously due but unpaid Net Swap
Payments and interest thereon) will be made to the Swap Counterparty. If
funds are inadequate to pay the aggregate amount of Monthly Interest and Net
Swap Payments, such payments will be made to the extent of funds available
pro rata based on the relative amounts due.
(b) Expected Payment Date. On the Expected Payment Date, in addition to
the amount described in (a) above, amounts on deposit in the Series
Principal Account will be distributed as principal (up to a maximum of the
Invested Amount on such Distribution Date) on the Offered Certificates.
(c) Early Amortization Period. Except as otherwise provided in the
Prospectus Supplement, on each Distribution Date related to a Due Period
occurring during an Early Amortization Period, in addition to the amount
described in (a) above, amounts on deposit in the Series Principal Account
will be distributed as principal (up to a maximum of the Invested Amount on
such Distribution Date) on the Offered Certificates.
(d) Early Distributions. On any Early Distribution Date, the amount on
deposit in the Series Principal Account treated as Early Distribution
Amounts will be distributed as principal on the Offered Certificates for
which an Early Distribution election has been made.
INVESTMENT EVENTS
If an Investment Event occurs prior to the 1990 Trust Termination Date, the
Related 1990 Certificate will begin to amortize and Related 1990 Certificate
Principal Collections will be deposited into the Series Principal Account on
each day such Related 1990 Certificate Principal Collections are paid to the
Master Trust by, or on behalf of, the 1990 Trust (in an amount not to exceed, in
the aggregate, the Invested Amount). If an Investment Event occurs after the
1990 Trust Termination Date, commencing on the first business day following the
Investment Period Commencement Date, Series Allocable Principal Collections will
no longer be paid to the Seller or allocated to any other Series but instead
will be deposited in the Series Principal Account on each business day (in an
amount not to exceed, in the aggregate, the Invested Amount), except as
described below, and the Controlled Deposit Amount will no longer apply to
allocations of principal in respect of the Offered Certificates.
The "Investment Events," if any, with respect to the Offered Series will be
specified in the Prospectus Supplement.
An Investment Period will commence as of the close of business on the
business day immediately preceding the day on which the Investment Event is
deemed to have occurred (the "Investment Period Commencement Date"). Deposits of
principal to the Series Principal Account on each business day will begin on the
first business day following the Investment Period Commencement Date.
In connection with the issuance of the Offered Certificates, the Prospectus
Supplement may provide for Early Distributions of principal to certain Offered
Certificateholders on the Early Distribution Date. In such case, the terms
"Early Distribution," "Early Distribution Amount" and "Early Distribution Date"
will be defined in the Prospectus Supplement. If the Prospectus Supplement does
not provide for Early Distributions, such terms will not be operative.
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EARLY AMORTIZATION EVENTS
If an Early Amortization Event occurs prior to the 1990 Trust Termination
Date, the Related 1990 Certificate will begin to amortize and Related 1990
Certificate Principal Collections will be deposited into the Series Principal
Account on each day such Related 1990 Certificate Principal Collections are paid
to the Master Trust by, or on behalf of, the 1990 Trust (in an amount not to
exceed, in the aggregate, the Invested Amount). If an Early Amortization Event
occurs after the 1990 Trust Termination Date, commencing on the first business
day following the Early Amortization Period Commencement Date, Offered Series
Principal Collections will no longer be paid to the Seller, allocated to any
other Series or retained in the Excess Funding Account for the benefit of the
Offered Series but instead will be deposited into the Series Principal Account
(in an amount not to exceed, in the aggregate, the Invested Amount) to be
distributed to Offered Certificateholders monthly on each Distribution Date. The
Controlled Deposit Amount will not apply to allocations in respect of the
Offered Certificates. Unless the Prospectus Supplement with respect to an
Offered Series otherwise specifies, an "Early Amortization Event" refers to any
of the following events:
(a) the Master Trust becomes an "investment company" within the meaning
of the Investment Company Act of 1940, as amended, and is not exempt from
compliance with such Act;
(b) the failure of the Swap Counterparty to make any payment under the
Interest Rate Swap within one day after the date such payment was due (after
taking into account any applicable grace period under the Interest Rate
Swap) unless (i) the Seller causes Available Seller's Finance Charge
Collections or other funds to be applied to make such payment and (ii) the
Servicer engages a replacement Swap Counterparty (which may be itself) prior
to the next Transfer Date and the Rating Agency Condition is satisfied;
(c) the Invested Amount is not reduced to zero by the Expected Payment
Date (other than after the Fully Funded Date);
(d) the United States government or any agency or instrumentality
thereof files a notice of a lien on the assets of NFC or NFSC under Internal
Revenue Code Section 6323 or any similar statutory provision (including,
but not limited to, Section 302(f) or Section 4068 of ERISA) which is or may
in the future be prior to the lien of the Master Trust Trustee on the
assets of the Master Trust (including without limitation proceeds of the
Dealer Notes); and
(e) any other event specified in the Prospectus Supplement with respect
to an Offered Series.
Upon the occurrence of any event described above, an Early Amortization
Event will be deemed to have occurred without any notice or other action on the
part of any other party immediately upon the occurrence of such event. The Early
Amortization Period will commence as of the close of business on the business
day immediately preceding the day on which the Early Amortization Event is
deemed to have occurred (the "Early Amortization Period Commencement Date").
Except as otherwise provided in the Prospectus Supplement, monthly distributions
in respect of the Invested Amount will begin on the first Distribution Date
following the Due Period in which an Early Amortization Period has commenced.
"Early Amortization Period" means the period beginning on the Early
Amortization Period Commencement Date and ending upon the first to occur of
(a) the payment in full to the Offered Certificateholders of the Invested
Amount and (b) the Series Termination Date.
TERMINATION; FULLY FUNDED DATE
Termination. The Master Trust will terminate on the first to occur of (a)
the day following the Distribution Date on which the aggregate series invested
amounts for all Series is zero and no Series of variable funding certificates is
outstanding or, if later, the date on which the final distribution has been made
or provided for with respect to the Offered Certificates and each other Series
of certificates (it being understood that no distribution on any variable
funding certificate shall be final while such variable funding certificate
remains outstanding), (b) the date on which proceeds from the sale, disposal or
other liquidation of the Dealer Notes are distributed to the Certificateholders
following an insolvency event with respect to the Seller, as provided in the
Pooling and Servicing Agreement and (c) a day which is 21 years less one day
after the death of the officers and the last survivor of all the lineal
descendants of every officer of the Master Trust Trustee who are living on the
date hereof except that if at any time any of the obligations and
responsibilities of
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the Seller, the Servicer and the Master Trust Trustee under the Pooling and
Servicing Agreement shall be or become valid under applicable law for a period
subsequent to the 21st anniversary of the death of such last survivor (or,
without limiting the generality of the foregoing, if legislation shall become
effective providing for the validity or permitting the effective grant of
responsibilities and obligations for a period in gross, exceeding the period for
which such responsibilities and obligations are hereinabove stated to extend and
be valid), then such responsibilities and obligations shall not terminate as
aforesaid but shall extend to and continue in effect, but only if such
nontermination and extension shall then be valid under applicable law, until one
day prior to such time as the same shall, under applicable law, cease to be
valid. Upon termination of the Master Trust, all right, title and interest in
the 1990 Trust Seller Certificate and any 1990 Trust Investor Certificate held
by the Master Trust or the Dealer Notes, as the case may be, and other funds of
the Master Trust (other than amounts in the Collections Account, the Excess
Funding Account, any series principal account or distribution account for the
final distribution of principal and interest to Certificateholders, Swap
Counterparties and other Enhancement Providers) will be conveyed and transferred
to the Seller.
In any event, the last payment of principal and interest on the Offered
Certificates will be due and payable no later than the "Series Termination Date"
which will be set forth in the Prospectus Supplement. In the event that the
Invested Amount is greater than zero on the Series Termination Date (after
giving effect to deposits and distributions otherwise to be made on such Series
Termination Date), the Master Trust Trustee will sell or cause to be sold (and
apply the proceeds to the extent necessary to pay such remaining amounts to all
Offered Certificateholders) an interest in the Dealer Notes in an amount equal
to 110% of the Invested Amount on such Series Termination Date (after giving
effect to such deposits and distributions) except that in no event shall such
amount exceed the Series Allocation Percentage (for the Due Period in which such
Series Termination Date occurs) of Dealer Notes and amounts on deposit in the
Excess Funding Account held by the Master Trust on such Series Termination Date.
The net proceeds of such sale and any collections on the Dealer Notes will be
paid pro rata to Offered Certificateholders on the Series Termination Date as
the final payment on the Offered Certificates. Any excess will be distributed
(i) first, to pay any amounts owing by the Master Trust to the Swap Counterparty
pursuant to the Interest Rate Swap to such Swap Counterparty and (ii) second, to
the Seller.
Fully Funded Date. Following the occurrence of the Fully Funded Date,
Offered Certificateholders will no longer have any interest in the Related 1990
Certificate or the Dealer Notes, as the case may be, and all the representations
and covenants of the Seller and the Servicer relating to the Dealer Notes as
well as certain other provisions of the Pooling and Servicing Agreement and all
remedies for breach thereof, will no longer accrue to the benefit of the Offered
Certificateholders. In addition, upon the occurrence of the Fully Funded Date,
(i) neither Related 1990 Certificate Collections nor Finance Charge Collections,
Principal Collections or Dealer Notes Losses, as the case may be, will be
allocated to the Offered Series and (ii) if the final distribution has been made
with respect to each other Series of investor certificates or the Fully Funded
Date has occurred with respect thereto, all right, title and interest in the
Related 1990 Certificate or Dealer Notes (and related assets held by the Master
Trust), as the case may be, will be conveyed and transferred to the Seller.
REPORTS TO OFFERED CERTIFICATEHOLDERS
On each Distribution Date related to a Due Period commencing prior to the
1990 Trust Termination Date, the paying agent will forward to each holder of
1990 Trust Investor Certificates (including the Master Trust as holder of the
Related 1990 Certificate) a statement prepared by the Servicer and delivered to
the 1990 Trust Trustee based on information provided by the Servicer setting
forth the following information (which, in the case of (a), (b), (c), (h) and
(i) below, will be stated for each class of 1990 Trust Investor Certificates on
the basis of an original principal amount of $1,000 per certificate and, in the
case of (h) and (i), will also be stated on an aggregate basis):
(a) the total amount of payments;
(b) the principal amount of such payment allocable to principal payable
in respect of the 1990 Trust Investor Certificates ("Certificate
Principal");
(c) the amount of such payment allocable to 1990 Trust Investor
Certificate Interest;
(d) the aggregate amount of Principal Collections processed during the
related Due Period, and the amount of such Principal Collections which were
allocated to each class for which a Class Amortization Date has occurred (an
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"Amortizing Class"), if any, deposited in the 1990 Trust Spread Account or
the Liquidity Reserve Account, used to purchase New Dealer Notes or 1990
Trust Investment Securities or paid to the Seller;
(e) the aggregate amount of Dealer Finance Charges and NITC Finance
Charges for the Due Period;
(f) the aggregate amount of Dealer Notes and 1990 Trust Investment
Securities, the 1990 Trust Total Investor Interest as a percentage of the
aggregate amount of the Dealer Notes and 1990 Trust Investment Securities as
of the end of the day on the last day of the related Due Period (after
giving effect to payments and adjustments made pursuant to the 1990 Trust
Agreement);
(g) the Class Charged-Off Amount for each class of 1990 Trust Investor
Certificates for such Distribution Date after giving effect to payments and
adjustments made pursuant to the 1990 Trust Agreement;
(h) an amount equal to the product of 1990 Trust Principal Losses and
the 1990 Trust Total Investor Percentage (the "Investor Loss Amount") and
Class Loss Amounts and the amount by which the Investor Loss Amount and
Class Loss Amounts have been reduced on the Transfer Date;
(i) the amount of the 1990 Trust Monthly Servicing Fee and the amount of
the 1990 Trust Monthly Servicing Fee allocable to the 1990 Trust Investor
Certificates for the related Due Period;
(j) the 1990 Trust Available Subordinated Amount and the 1990 Trust
Seller Interest;
(k) the amount of Principal Collections on deposit in the 1990 Trust
Collections Account and the share thereof allocable to each Amortizing
Class;
(l) the sum of (i) income from 1990 Trust Investment Securities, and
(ii) income form the investment of funds in the Certificate Series Principal
Account, the 1990 Trust Distribution Account and the 1990 Trust Collections
Account, each during such Due Period (the "1990 Trust Investment Income")
for the Due Period;
(m) the 1990 Trust Deficiency Amount for such Distribution Date after
giving effect to payments and adjustments made pursuant the 1990 Trust
Agreement;
(n) the amount by which (i) the sum of (a) Investor Certificate Interest
for such Distribution Date and (b) the Deficiency Amount immediately prior
to such date exceeds (ii) the amount to be paid to the Distribution Account
(after giving effect to the payments and adjustments described herein (the
"1990 Trust Deficiency Amount") from the preceding Distribution Date being
reimbursed on the Distribution Date;
(o) the total amount to be deposited in the 1990 Trust Distribution
Account in respect of 1990 Trust Investor Certificate Interest on such
Distribution Date;
(p) each Class Invested Amount and Class Investor Interest after giving
effect to payments and adjustments made pursuant to the 1990 Trust
Agreement;
(q) the 1990 Trust Minimum Seller Interest after giving effect to
payments and adjustments made pursuant to the Agreement;
(r) during any 1990 Trust Amortization Term and with respect to any
Amortizing Class, the percentage equivalent of a fraction the numerator of
which is the Class Investor Interest for such Class and the denominator of
which is the sum of the 1990 Trust Total Investor Interest and the 1990
Trust Seller Interest, each as of the Class Amortization Date (the "Class
Amortization Percentages"); and
(s) with respect to Investment Securities in the Collection Account and
Eligible Investments in the Liquidity Reserve Account, a listing of all such
investments as of the last day of the Due Period, including specified
information with respect thereto.
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Upon receipt of any such statement in respect of the Related 1990
Certificate, the Master Trust Trustee will forward, or will cause the Servicer
to forward, a copy of such statement to each Offered Certificateholder (which is
expected to be Cede as nominee for DTC unless Definitive Certificates are
issued).
On each Distribution Date, the paying agent will forward to each Offered
Certificateholder (which is expected to be Cede as nominee for DTC unless
Definitive Certificates are issued) a statement prepared by the Servicer and
delivered to the Master Trust Trustee based on information provided by the
Servicer setting forth, among other things, the following information (which,
prior to the 1990 Trust Termination Date, will include only the amounts referred
to in (c), (d) and (e) below and which, in the case of (a), (b), (c), (h) and
(i) below, will be stated on the basis of an original principal amount of $1,000
per Offered Certificate):
(a) the aggregate amount of Collections, including the aggregate amount
of Finance Charge Collections and the aggregate amount of Principal
Collections for the related Due Period;
(b) the Series Allocation Percentage, the Floating Allocation Percentage
and the Principal Allocation Percentage (if applicable) for the related Due
Period;
(c) the total amount, if any, to be distributed on the Offered
Certificates on such Distribution Date;
(d) the amount, if any, of such distribution allocable to the Invested
Amount;
(e) the amount, if any, of such distribution allocable to interest on
the Offered Certificates;
(f) Dealer Note Losses for the related Due Period;
(g) the Draw Amount as of the related Transfer Date, if any;
(h) the amount of the Certificateholder Charge-Offs and the amount of
reimbursements thereof as of the related Transfer Date;
(i) the amount of the Offered Series Servicing Fee to be paid on such
Distribution Date;
(j) the Controlled Deposit Amount for the related Due Period (if
applicable);
(k) the Invested Amount (after giving effect to all distributions that
will occur on such Distribution Date);
(l) the aggregate amount of Dealer Notes and funds on deposit in the
Excess Funding Account as of the end of the last day of the related Due
Period (after giving effect to payments and adjustments made pursuant to the
Pooling and Servicing Agreement);
(m) the Available Subordinated Amount and the Negative Carry
Subordinated Amount (after giving effect to draws thereon on such
Distribution Date);
(n) with respect to Eligible Investments in the Series Principal
Account, the Excess Funding Account, the Negative Carry Reserve Fund and the
Liquidity Reserve Account, a listing of all such investments as of the last
day of the Due Period, including specified information with respect thereto;
and
(o) the amount of Remaining Available Seller's Principal Collections,
the aggregate amount of Excess Seller's Principal Collections and Remaining
Available Seller's Principal Collections treated as Shared Seller Principal
Collections, the aggregate amount of shared seller principal collections
from other Series, and the amount of shared seller principal collections
allocated to the Offered Certificates and to other Series.
In addition, on or about January 31 of each calendar year (beginning in 1998
with respect to the Offered Certificateholders), the Master Trust Trustee will
furnish to the Servicer and the paying agent a list of each person who at any
time during the preceding calendar year was an Offered Certificateholder and
received any payment thereon and the dates such person held an Offered
Certificate, and the paying agent will furnish to each such Offered
Certificateholder a statement prepared by the paying agent containing the
information required to be provided by an
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issuer of indebtedness under the Code for such preceding calendar year or the
applicable portion thereof during which such person was an Offered
Certificateholder, together with such other customary information as is
necessary or desirable to enable the Offered Certificateholders to prepare their
tax returns. As long as the holder of record of the Offered Certificates is
Cede, as nominee of DTC, beneficial owners of Offered Certificates will receive
tax and other information from Participants and Indirect Participants rather
than from the Master Trust Trustee or the Servicer.
EVIDENCE AS TO COMPLIANCE
Pursuant to the Applicable Agreement, on or about April 15 of each calendar
year, beginning in April, 1992, the Servicer has caused and will continue to
cause a firm of nationally recognized independent public accountants (who may
also render other services to the Servicer or the Seller) to furnish a report to
the Active Trustee to the effect that they have compared the mathematical
calculations of each amount set forth in each of the monthly certificates
forwarded by the Servicer to the Seller, the Active Trustee and the paying agent
(as required under the Applicable Agreement) during the preceding calendar year
with the computer reports of the Servicer and such accountants are of the
opinion that such amounts are in agreement, except for such exceptions as shall
be set forth in such report. In addition, such a firm has furnished and will
continue to furnish a report to the Active Trustee and the Servicer to the
effect that such firm is of the opinion that the system of internal accounting
controls in effect on the date of such statement relating to the servicing
procedures performed by the Servicer under the Applicable Agreement, taken as a
whole, was sufficient for the prevention and detection of errors and
irregularities which would be material to the assets of the Active Trust and
that nothing has come to their attention that would cause them to believe that
such servicing has not been conducted in compliance with the Applicable
Agreement, except for such exceptions as shall be set forth in such report. The
procedures to be followed by such accountants will not constitute an audit
conducted in accordance with generally accepted auditing standards.
Each of the 1990 Trust Agreement and the Pooling and Servicing Agreement
also requires the Servicer to have delivered to the trustee thereunder, the
Seller and the Rating Agencies, on or about April 15 of each calendar year,
beginning in April, 1992, and within ten business days of the Servicer's
discovery of a Servicer Termination Event, an officer's certificate stating that
(a) in the course of such officer's duties as an officer of the Servicer such
officer would normally obtain knowledge of any Servicer Termination Event and
(b) whether such officer has obtained knowledge of any such Servicer Termination
Event, and, if so, specifying each Servicer Termination Event of which the
signing officer has knowledge and the nature of the Servicer Termination Event.
The Pooling and Servicing Agreement requires the Seller to have delivered to
the Master Trust Trustee, the Servicer and the Rating Agencies, on or about
April 15 of each calendar year, and within ten business days after the Seller
has knowledge of any event discussed below, an officer's certificate stating
that (a) in the course of such officer's duties as an officer of the Seller such
officer would normally obtain knowledge of any 1990 Trust Amortization Event, an
Investment Event or an Early Amortization Event or any breach of the Seller's
covenants in the Pooling and Servicing Agreement and (b) whether such officer
has obtained knowledge of any such 1990 Trust Amortization Event, Investment
Event or Early Amortization Event or breach of covenant, and, if so, specifying
such 1990 Trust Amortization Event, Investment Event or Early Amortization Event
or breach of covenant of which the signing officer has knowledge and the nature
thereof.
The Servicer will give the Master Trust Trustee copies of all statements,
certificates and reports furnished to the 1990 Trust Trustee, and copies
thereof, as well as copies of any statements, certificates, and reports
furnished directly to the Master Trust Trustee, may be obtained by a request in
writing to the Master Trust Trustee addressed to the Corporate Trust Office.
INDEMNIFICATION OF MASTER TRUST AND MASTER TRUST TRUSTEE; LIMITATION ON
LIABILITY OF CERTAIN PERSONS
Pursuant to the terms of the Pooling and Servicing Agreement, the Seller and
NFC will indemnify and hold harmless the Master Trust and the Master Trust
Trustee from and against any loss, liability, expense, damage or injury suffered
arising out of the activities of the Master Trust or the Master Trust Trustee,
except that (i) the Seller and NFC will not indemnify the Master Trust or the
Offered Certificateholders for liabilities arising from actions taken by the
Master Trust Trustee at the request of Offered Certificateholders, (ii) the
Seller and NFC will not indemnify the Master Trust or the Master Trust Trustee
for any liability, costs, or expenses of the Master Trust or the Master Trust
Trustee resulting from the Master Trust Trustee's own negligent action, its own
negligent failure to act, or its own misconduct and (iii) the Seller
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and NFC will not indemnify the Master Trust or the Offered Certificateholders
with respect to any federal, state, or local income or franchise taxes (or any
interest or penalties with respect thereto) required to be paid by the Offered
Certificateholders. Generally, the 1990 Trust and the 1990 Trust Trustee are
similarly indemnified and held harmless under the 1990 Trust Agreement.
The Agreements provide that no recourse under any obligation or covenant of
the Agreements, or for any claim based thereon, may be had against any
incorporator, director, officer, or stockholder of the Seller or the Servicer.
The Servicer will be under no obligation to appear in, prosecute, or defend any
legal action which is not incidental to its duties under the Agreements which in
the Servicer's reasonable opinion may involve it in any expense or liability.
THE MASTER TRUST TRUSTEE
The Prospectus Supplement with respect to each Offered Series will specify
the entity that will act as the Master Trust Trustee under the Pooling and
Servicing Agreement, including the location of its principal office for the
conduct of its corporate trust business (the "Corporate Trust Office") as of the
date of this Prospectus. NFC and its affiliates (other than the Seller) may from
time to time enter into normal banking and trustee relationships with the Master
Trust Trustee. The Master Trust Trustee may not hold certificates issued under
the Master Trust in its own name (but may do so in a fiduciary capacity). In
addition, for purposes of meeting the legal requirements of certain local
jurisdictions, the Master Trust Trustee will have the power to appoint a
co-trustee or separate trustees of all or any part of the Master Trust. In the
event of such appointment, all rights, powers, duties and obligations conferred
or imposed upon the Master Trust Trustee by the Pooling and Servicing Agreement
will be conferred or imposed upon the Master Trust Trustee and such separate
trustee or co-trustee jointly, or, in any jurisdiction in which the Master Trust
Trustee shall be incompetent or unqualified to perform certain acts, singly upon
such separate trustee or co-trustee who will exercise and perform such rights,
powers, duties and obligations solely at the direction of the Master Trust
Trustee.
The Master Trust Trustee may resign at any time upon written notice to the
Seller and the appointment of a successor Master Trust Trustee. In addition, the
Seller may remove the Master Trust Trustee if the Master Trust Trustee ceases to
be eligible to continue as such under the Pooling and Servicing Agreement or if
the Master Trust Trustee becomes insolvent. In such circumstances, the Seller
will be obligated to appoint a successor Master Trust Trustee. Any resignation
or removal of the Master Trust Trustee and appointment of a successor Master
Trust Trustee does not become effective until acceptance of the appointment by
the successor Master Trust Trustee.
AMENDMENTS
The Pooling and Servicing Agreement or any Supplement may be amended by the
Seller, the Servicer and the Master Trust Trustee without the consent of the
Certificateholders of any Series, provided such action will not, as evidenced by
an officer's certificate of the Servicer, have a material adverse effect on the
interests of the Certificateholders of such Series.
The Pooling and Servicing Agreement or Supplement may also be amended by the
Seller, the Servicer and the Master Trust Trustee with the consent of the
holders of certificates evidencing not less than 66 2/3% of the aggregate series
invested amounts of the certificates of each adversely affected Series for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of the Pooling and Servicing Agreement or of modifying in any
manner the rights of Certificateholders. No such amendment, however, may (a)
reduce in any manner the stated amount of, or delay the stated timing of,
distributions required to be made on any certificate or the stated amount
available under any Enhancement without the consent of the holder of such
certificate, (b) change the manner of calculating the Certificateholder's
Interest of any Series without the consent of all Certificateholders of the
adversely affected Series, (c) adversely affect the rating of any Series or
class of any Rating Agency without the consent of two-thirds of the voting
interests of such Series or class or (d) reduce the aforesaid percentages of the
voting interests required to consent to such amendment without the consent of
each Certificateholder. Promptly following the execution of an amendment
described in this paragraph, the Master Trust Trustee will furnish written
notice of the substance of such amendment to each Certificateholder.
The 1990 Trust Agreement may be amended by NFC, the Seller and the 1990
Trust Trustee, without consent of the holders of the 1990 Trust Investor
Certificates, to cure any ambiguity or to correct or supplement any defective or
inconsistent provision therein or to add any other provisions with respect to
matters or questions arising under the
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Agreement which are not inconsistent with the provisions of the 1990 Trust
Agreement. No such amendment, however, may adversely affect in any material
respect the interest of the holders of the 1990 Trust Investor Certificates.
The 1990 Trust Agreement may also be amended by NFC, the Seller and the 1990
Trust Trustee with the consent of the holders of 1990 Trust Investor
Certificates evidencing fractional undivided interests aggregating not less than
66 2/3% of the 1990 Trust Total Invested Amount for the purpose of adding any
provisions to, changing in any manner, or eliminating any of the provisions of
the Agreement or modifying in any manner the rights of holders of 1990 Trust
Investor Certificates. No such amendment, however, may (a) reduce in any manner
the amount of, or delay the timing of, distributions required to be made on any
1990 Trust Investor Certificate, (b) change the definition of or the manner of
calculating the Class Investor Interest, the 1990 Trust Total Investor Interest,
the Class Invested Amount, the 1990 Trust Total Invested Amount, the 1990 Trust
Total Investor Percentage, the Class Amortization Percentage, the Class Charged-
Off Amount, the Class Loss Amount, the 1990 Trust Investor Loss Amount, or the
1990 Trust Minimum Seller Interest or (c) reduce the aforesaid percentage
required to consent to any such amendment, in each case without the consent of
each holder of a 1990 Trust Investor Certificate. Promptly following the
execution of any amendment to the 1990 Trust Agreement, the 1990 Trust Trustee
will furnish written notice of the substance of such amendment to each holder of
a 1990 Trust Investor Certificate.
VOTING OF THE MASTER TRUST'S INTERESTS IN THE 1990 TRUST
The Master Trust Trustee will have the right, without the consent of the
Certificateholders, to vote, or to consent or withhold consent with respect to,
the Class A-4 and Class A-5 Investor Certificates and any Related 1990
Certificate on any matter for which votes or consents are solicited under the
1990 Agreement, provided that such action will not, as evidenced by an officer's
certificate of the Servicer, have a material adverse effect on the
Certificateholders of any Series.
The Master Trust Trustee will also have the right, with the consent of the
Applicable Voting Percentage of the Certificateholders, to vote, or to consent
or withhold consent, with respect to the Class A-4 and Class A-5 Investor
Certificates and any Related 1990 Certificate on any matter for which votes or
consents are solicited under the 1990 Agreement.
"Applicable Voting Percentage" means, with respect to any matter for
which votes or consents are solicited under the 1990 Agreement, the
percentage of votes or consents of the 1990 Trust Investor Certificates
needed to pass the proposed matter.
AMENDMENT TO SELLER CERTIFICATE OF INCORPORATION
The Pooling and Servicing Agreement authorizes the Seller to amend and
restate its Certificate of Incorporation to allow it greater flexibility in
certain respects than it now enjoys. The amended and restated Certificate of
Incorporation will clarify the degree to which the Seller may incur additional
indebtedness, will provide that further amendments to the amended and restated
Certificate of Incorporation may be effected upon satisfaction of the Rating
Agency Condition with respect to all outstanding rated securities, and will
expand in limited respects the types of securitization transactions in which the
Seller may engage. The Seller intends to file the amended and restated
Certificate of Incorporation no later than the Distribution Date following the
1990 Trust Termination Date. The Seller believes that each of these provisions
is consistent with the establishment of NFSC as a limited purpose corporation.
The amended and restated Certificate of Incorporation will be substantially in
the form of an exhibit to the Pooling and Servicing Agreement, a copy of which
may be obtained from the Master Trust Trustee upon request.
LIST OF CERTIFICATEHOLDERS
In the event that Definitive Certificates are issued, upon written request
of three or more Certificateholders of record, and after having been adequately
indemnified by such Certificateholders for its costs and expenses, the Master
Trust Trustee will afford such Certificateholders access, during normal business
hours, to the current list of Certificateholders for purposes of communicating
with other Certificateholders with respect to their rights under the Pooling and
Servicing Agreement.
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SELLER AUTHORIZED TO FILE REPORTS PURSUANT TO SECURITIES EXCHANGE ACT
The Seller is authorized to file on behalf of the Master Trust all reports
required to be filed with the Commission or any exchange or association of
securities dealers pursuant to the Exchange Act, or any rules or regulations
thereunder. The Seller does not intend to maintain registration of the Offered
Certificates under the Exchange Act if it becomes unnecessary to do so.
CERTAIN LIMITATIONS ON RIGHTS OF CERTIFICATEHOLDERS
Except as otherwise described in "Amendments," no Certificateholder will
have any right to vote or control in any manner the operation and management of
the Master Trust, or the obligations of the parties thereto. The Pooling and
Servicing Agreement does not provide for any annual or other meeting of the
Certificateholders.
GOVERNING LAW
The Master Trust will be administered by the Master Trust Trustee in
accordance with the internal laws of the State of Illinois, without reference to
its conflict of law provisions.
TERMS OF THE 1990 TRUST INVESTOR CERTIFICATES
Pursuant to the terms of the 1990 Trust Agreement, each 1990 Trust Investor
Certificate represents a fractional undivided interest in the 1990 Trust,
including the right to receive a floating percentage of NITC Finance Charges,
Dealer Finance Charge Collections, and, with respect to any Amortizing Class, a
fixed percentage of Principal Collections. The 1990 Trust assets include the
Eligible Dealer Notes existing as of the associated Closing Date, any Eligible
Dealer Notes subsequently transferred to the 1990 Trust and all monies due or to
become due with respect thereto, the interest of the Seller in the security
interests in the related Financed Vehicles, all proceeds of the Dealer Notes
(including Insurance Proceeds), the 1990 Trust Investment Securities and such
funds as from time to time are deposited in certain accounts.
The 1990 Trust Seller Certificate represents the 1990 Trust Seller Interest.
The 1990 Trust Seller Interest represents that fractional undivided interest in
the 1990 Trust which is not represented by the 1990 Trust Investor Certificates,
including the right to receive a floating percentage of NITC Finance Charges,
Dealer Finance Charge Collections and, upon amortization, Principal Collections,
subject to the subordination of a portion of its interest to the interests of
the holders of 1990 Trust Investor Certificates.
1990 Trust Investor Certificate Interest on the 1990 Trust Investor
Certificates will be paid on the twenty-fifth day of each month, or if such
twenty-fifth day is not a Business Day, the next Business Day thereafter.
Interest accrues on the unpaid principal amount of each class of 1990 Trust
Investor Certificates at a per annum rate equal to LIBOR plus the "Class
Certificate Margin" (which is set forth in the Prospectus Supplement) (the
"Class Certificate Rate") for such class (calculated on the basis of a 360-day
year of twelve 30-day months).
The Class Amortization Date for any class of 1990 Trust Investor
Certificates (on which date the 1990 Trust related Amortization Period will
commence) is the earlier of (i) the Scheduled Class Amortization Date for such
class or (ii) the date on which a 1990 Trust Amortization Event occurs. Once an
Amortization Period has commenced for any class of 1990 Trust Investor
Certificates, monthly principal payments to holders of such class will begin on
the Distribution Date related to the Due Period in which the Class Amortization
Date occurred. Principal payments on the Class A-1 and Class A-2 Investor
Certificates began on January 27, 1997 and January 26, 1998, respectively, and
the Class A-1 and Class A-2 Investor Certificates have been paid in full.
Principal payments with respect to the Class A-3 Investor Certificates are
scheduled to begin on January 25, 1999. Because the 1990 Trust Termination Date
is expected to occur prior to the Class Amortization Dates for the Class A-4 and
Class A-5 Investor Certificates or the Related 1990 Certificates, no scheduled
principal payments are expected to be made on the Class A-4 and Class A-5
Investor Certificates or the Related 1990 Certificates.
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TRUST ACCOUNTS
General. Pursuant to the terms of the 1990 Trust Agreement and the 1990
Trust Interest Deposit Agreement, the 1990 Trust Trustee has established or will
establish six different trust accounts (collectively, the "Trust Accounts"),
each as further described below for the benefit of each class of 1990 Trust
Investor Certificates. Each Trust Account will be a non-interest bearing
segregated account established with the trust department of the 1990 Trust
Trustee or with an office or branch of a depository institution organized under
the laws of the United States of America or any one of the states thereof which
at all times has a short-term certificate of deposit rating of A-1+/P-1 or
better by Standard & Poor's Ratings Group and Moody's Investors Service, Inc.,
respectively, and whose deposits are insured by the Federal Deposit Insurance
Corporation, acting through either the Savings Association Insurance Fund or the
Bank Insurance Fund or any fund established by a United States government
regulatory body or agency succeeding to the function thereof (the "FDIC"), or
any successor thereto (a "Qualified Institution") (which Qualified Institution
may be the 1990 Trust Trustee). The Servicer will have the revocable power to
instruct the 1990 Trust Trustee to withdraw funds from the Trust Accounts for
the purpose of carrying out its duties under the 1990 Trust Agreement and the
1990 Trust Interest Deposit Agreement. Funds on deposit overnight or for a
longer period in a Trust Account will be invested in Eligible Investments with a
stated maturity, if any, within a period from the date of issuance thereof
approved by the Rating Agencies on or prior to the Transfer Date on which the
funds represented thereby are to be deposited in the 1990 Trust Distribution
Account pursuant to the 1990 Trust Agreement, except that with respect to any
funds on deposit in the 1990 Trust Interest Deposit Account, any Eligible
Investment must mature no later than two business days after the end of each Due
Period. (Funds on deposit in the 1990 Trust Interest Deposit Account are subject
to certain other restrictions as specified in the 1990 Trust Interest Deposit
Agreement). Net interest and earnings (less investment expenses) on all such
deposited funds will be included in the calculation of 1990 Trust Investment
Income for the relevant Due Period, except that with respect to the 1990 Trust
Spread Account and the 1990 Trust Interest Deposit Account, all such interest
and earnings will be added to the amounts on deposit in each of the 1990 Trust
Spread Account and the 1990 Trust Interest Deposit Account, respectively.
1990 Trust Distribution Account, Collections Account, and Certificate
Principal Account. The 1990 Trust Trustee has established and will maintain in
the name of the 1990 Trust (a) for the benefit of the holders of 1990 Trust
Investor Certificates, (i) a "1990 Trust Distribution Account," from which all
payments to holders of 1990 Trust Investor Certificates will be made and (ii) a
"Certificate Principal Account," which account will serve as the depository for
all Principal Collections allocated to an Amortizing Class until otherwise
transferred to the 1990 Trust Distribution Account on the Transfer Date and (b)
for the benefit of the holders of 1990 Trust Investor Certificates, a "1990
Trust Collections Account," which will serve as the initial depository for all
NITC Finance Charges, Dealer Finance Charge Collections and 1990 Trust Principal
Collections (collectively, the "1990 Trust Collections").
1990 Trust Liquidity Reserve Account. The 1990 Trust Trustee, for the
benefit of the Seller, will establish (on or prior to the commencement of a 1990
Trust Early Amortization Period) and maintain in the name of the 1990 Trust a
"1990 Trust Liquidity Reserve Account." During a 1990 Trust Early Amortization
Period, all Principal Collections that would otherwise be used for Acquisitions
or paid to the Seller will be deposited in the 1990 Trust Liquidity Reserve
Account until such time as the amount on deposit is equal to the 1990 Trust
Available Subordinated Amount, in order to assure a source of funds for credit
enhancement on the 1990 Trust Investor Certificates. The Seller will possess all
right, title and interest in all funds on deposit in the 1990 Trust Liquidity
Reserve Account, except that no funds on deposit will be paid to the Seller
during a 1990 Trust Early Amortization Period if such payment would reduce the
funds in the 1990 Trust Liquidity Reserve Account below an amount equal to the
1990 Trust Available Subordinated Amount (see " -- Limited Subordination of the
1990 Trust Seller Interest; 1990 Trust Available Subordinated Amount" and " --
1990 Trust Amortization Events").
1990 Trust Spread Account. The 1990 Trust Trustee has established and will
maintain in the name of the 1990 Trust, for the benefit of the holders of the
1990 Trust Investor Certificates, a "1990 Trust Spread Account," which account
will be funded at all times with an amount equal to at least 1.25% of the 1990
Trust Total Invested Amount. The funds on deposit will be increased if, as of
the first day of the calendar month in which the Distribution Date occurs or, if
such first day is not a business day, the next business day thereafter, the sum
of the aggregate 1990 Trust Investor Certificate Interest for each class of 1990
Trust Investor Certificates and the 1990 Trust Servicing Fee, in each case as
projected for all classes of 1990 Investor Certificates for the Distribution
Period, and the product of (a) 1.0% per annum calculated on the basis of a
360-day year and twelve 30-day months and (b) the principal amount of Dealer
Notes outstanding exceeds the projected income from the 1990 Trust's portfolio
of Dealer Notes for the related Due Period. The "1990 Trust Projected Spread" is
equal to any such excess plus 1.25% of the 1990 Trust Total Invested Amount. If
the 1990 Trust
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Projected Spread is greater than the amount on deposit in the 1990 Trust Spread
Account (the "1990 Trust Spread Account Deposit"), the Servicer will withdraw
from the 1990 Trust Collections Account all Principal Collections remaining
after deposits in the Certificate Principal Account of Principal Collections
allocable to any Amortizing Class and deposit such Principal Collections in the
1990 Trust Spread Account until the amount of the 1990 Trust Spread Account
Deposit equals the 1990 Trust Projected Spread; however, if the 1990 Trust
Spread Account Deposit is greater than the 1990 Trust Projected Spread, the
Servicer will withdraw the amount of such excess from the 1990 Trust Spread
Account, deposit such excess in the 1990 Trust Collections Account, and apply it
as Principal Collections for the current Due Period in accordance with the 1990
Trust Agreement. See "Terms of the 1990 Trust Investor Certificates --
Application of Collections."
1990 TRUST AMORTIZATION EVENTS
The occurrence of a 1990 Trust Amortization Event is the only circumstance
under which a 1990 Trust Amortization Term will commence prior to a Scheduled
Class Amortization Date. The "Scheduled Class Amortization Date" for the Class
A-3 Investor Certificates is December 1, 1998, for the Class A-4 Investor
Certificate, the earlier of (a) August 25, 2004 and (b) the date on which there
occurs any Early Amortization Event or Investment Event with respect to the
Series of certificates issued by the Master Trust related to the Class A-4
Investor Certificate, for the Class A-5 Investor Certificates, the earlier of
(a) August 25, 2003 and (b) the date on which there occurs any Early
Amortization Event or Investment Event with respect to the Series of
certificates issued by the Master Trust related to the Class A-5 Investor
Certificates, and, for a Related 1990 Certificate and for any other class of
1990 Trust Investor Certificates issued to the Master Trust, will be set forth
in the Prospectus Supplement. The Scheduled Class Amortization Date for the
Class A-1 and Class A-2 Investor Certificates occurred on December 1, 1996 and
December 1, 1997, respectively, and such certificates have been paid in full.
The first Distribution Date of a 1990 Trust Early Amortization Period will be
the Distribution Date related to the Due Period in which the 1990 Trust
Amortization Event takes place. During a 1990 Trust Early Amortization Period,
all Principal Collections that would otherwise be paid to the Seller pursuant to
the 1990 Trust Agreement will instead be deposited in the 1990 Trust Liquidity
Reserve Account until such time as the amount on deposit in the 1990 Trust
Liquidity Reserve Account is equal to the 1990 Trust Available Subordinated
Amount.
A "1990 Trust Amortization Event" is defined under the 1990 Trust Agreement
as any one of the following events occurring prior to the 1990 Trust Termination
Date:
(a) failure on the part of the Seller (i) to make any payment,
distribution or deposit required under the 1990 Trust Agreement (or within
five business days thereafter) or (ii) to observe or perform in any material
respect any other material covenants or agreements of the Seller, which
continues unremedied for a period of 60 days after written notice of such
failure shall have been given to the Seller;
(b) any representation or warranty made by the Seller pursuant to the
1990 Trust Agreement or any information contained in the schedule of Dealer
Notes delivered thereunder (or any supplement thereto) shall prove to have
been incorrect in any material respect when made or when delivered, which
representation, warranty or schedule, or the circumstances or condition that
caused such representation, warranty or schedule to be incorrect, continues
to be incorrect or uncured in any material respect for a period of 60 days
after written notice of such incorrectness shall have been given to the
Seller;
(c) certain events of bankruptcy, insolvency or receivership involving
any of the Seller, NFC, NITC or NIC;
(d) the Seller shall become legally unable for any reason to transfer
Dealer Notes to the 1990 Trust in accordance with the provisions of the 1990
Trust Agreement;
(e) the 1990 Trust Available Subordinated Amount is reduced to less than
87.1% of the 1990 Trust Maximum Subordinated Amount;
(f) the 1990 Trust becomes an "investment company" within the meaning of
the Investment Company Act of 1940, as amended, and shall not be exempt from
compliance with such Act;
(g) any 1990 Trust Servicer Termination Event shall occur (i) which
would have a material adverse effect on the holders of 1990 Trust Investor
Certificates and (ii) for which the Servicer has received a notice of
termination;
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(h) at the end of any Due Period the 1990 Trust Seller Interest is
reduced to an amount less than the 1990 Trust Minimum Seller Interest and
the Seller has failed to assign additional Dealer Notes to the 1990 Trust in
the amount of such deficiency within ten business days following the end of
such Due Period;
(i) on three consecutive Determination Dates, the "Average Coverage
Differential" (defined as the average of the highest three of the four most
recent Coverage Differentials (defined generally as the difference between
the annualized percentage yield on the Dealer Notes and the sum of 1.00% and
the weighted average interest rate on all outstanding classes of 1990 Trust
Investor Certificates for the related Due Period)) shall be equal to or less
than negative two percent (-2.00%);
(j) on any Determination Date, the result of (i) the product of (A) the
sum of Dealer Note Collections for each of the related Due Period and for
the two immediately preceding Due Periods and (B) four divided by (ii) the
daily average principal amount of Dealer Notes outstanding during such Due
Periods ("Turnover") is less than 1.7;
(k) on any Determination Date, the quotient of (i) the sum of 1990 Trust
Dealer Note Losses for each of the related Due Period and the five
immediately preceding Due Periods and (ii) the sum of Principal Collections
for each of the related Due Period and the five immediately preceding Due
Periods, is greater than or equal to 1%; or
(l) failure on the part of NITC to make a deposit in the 1990 Trust
Interest Deposit Account required by the terms of the 1990 Trust Interest
Deposit Agreement on or before the date occurring five business days after
the date such deposit is required by the 1990 Trust Interest Deposit
Agreement to be made.
In the case of any event described in clause (a) or (b) above, a 1990 Trust
Amortization Event will be deemed to have occurred only if, after the applicable
grace period expires, either the 1990 Trust Trustee or holders of 1990 Trust
Investor Certificates evidencing fractional undivided interests aggregating not
less than 51% of the 1990 Trust Total Invested Amount by written notice to the
Seller and the Servicer (and to the 1990 Trust Trustee if given by the holders
of 1990 Trust Investor Certificates), declare that a 1990 Trust Amortization
Event has occurred as of the date of such notice, and in the case of any other
event described above, a 1990 Trust Amortization Event will be deemed to have
occurred without any notice or other action on the part of the 1990 Trust
Trustee or the holders of 1990 Trust Investor Certificates immediately upon the
occurrence of such event. Upon the occurrence of a 1990 Trust Amortization
Event, a "1990 Trust Early Amortization Period" will commence.
LIMITED SUBORDINATION OF THE 1990 TRUST SELLER INTEREST; 1990 TRUST AVAILABLE
SUBORDINATED AMOUNT
The right of the holder of the 1990 Trust Seller Certificate to receive
payments in respect of the 1990 Trust Seller Interest is subordinated to the
interests of holders of the 1990 Trust Investor Certificates to the extent of
the 1990 Trust Available Subordinated Amount. The "1990 Trust Available
Subordinated Amount" for the Distribution Date immediately preceding the related
Closing Date will be set forth in the Prospectus Supplement. As amounts are made
available for the benefit of the holders of the 1990 Trust Investor Certificates
from the subordinated portion of the 1990 Trust Seller Interest, the 1990 Trust
Available Subordinated Amount and, in certain circumstances, the 1990 Trust
Seller Interest, will be reduced. In subsequent Due Periods, the 1990 Trust
Available Subordinated Amount may be reinstated by payments of 1990 Trust Excess
Servicing to the holder of the 1990 Trust Seller Certificate (but in no event to
exceed the 1990 Trust Maximum Subordinated Amount).
As further protection for the holders of the 1990 Trust Investor
Certificates, the 1990 Trust Agreement requires the 1990 Trust Seller Interest
to be maintained at an amount equal to (a) the greater of (i) 118.5% of the sum
of the Class Initial Invested Amounts for all outstanding classes of 1990 Trust
Investor Certificates and (ii) after the earlier of the Scheduled Class
Amortization Date for such class and the date on which a 1990 Trust Amortization
Event occurs (the "Class Amortization Date"), 90% of the sum of the 1990 Trust
Total Invested Amount and the 1990 Trust Seller Interest as of such Class
Amortization Date, minus (b) the 1990 Trust Total Invested Amount (the "1990
Trust Minimum Seller Interest"). Therefore, if any payment to the Seller
pursuant to the 1990 Trust Agreement would reduce the 1990 Trust Seller Interest
to an amount below the 1990 Trust Minimum Seller Interest, rather than making
such payment to the holder of the 1990 Trust Seller Certificate, such payment
will instead, to the extent necessary to maintain the 1990 Trust Seller Interest
at an amount equal to the 1990 Trust Minimum Seller Interest, be invested by the
1990 Trust Trustee in 1990 Trust Investment Securities.
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"1990 Trust Investment Securities" means investments of Principal
Collections in Eligible Investments necessary in order to maintain the 1990
Trust Seller Interest at an amount not less than the 1990 Trust Minimum
Seller Interest.
Generally, the maximum 1990 Trust Available Subordinated Amount (the "1990
Trust Maximum Subordinated Amount") will equal 15.5% of the 1990 Trust Total
Invested Amount. Therefore, as Principal Collections during a 1990 Trust
Amortization Term reduce the 1990 Trust Total Invested Amount, the 1990 Trust
Maximum Subordinated Amount will be proportionately reduced. However, if on any
date (a) the sum of (i) the difference between the 1990 Trust Maximum
Subordinated Amount and the 1990 Trust Available Subordinated Amount, each as of
such Class Amortization Date, and (ii) the aggregate amount of reductions to the
1990 Trust Available Subordinated Amount due to principal losses or interest
deficiencies after such Class Amortization Date exceeds (b) 2% of the 1990 Trust
Total Invested Amount as of such date, the 1990 Trust Maximum Subordinated
Amount will not decline until the 1990 Trust Total Invested Amount equals the
1990 Trust Maximum Subordinated Amount, and thereafter the 1990 Trust Maximum
Subordinated Amount will equal the 1990 Trust Total Invested Amount. In
addition, if only one class of 1990 Trust Investor Certificates is outstanding,
the 1990 Trust Maximum Subordinated Amount will not be reduced below the 1990
Trust Minimum Subordinated Amount until the 1990 Trust Total Invested Amount
equals such 1990 Trust Minimum Subordinated Amount, and thereafter the 1990
Trust Maximum Subordinated Amount will decline dollar for dollar with the 1990
Trust Total Invested Amount. The "1990 Trust Minimum Subordinated Amount" will
equal 6% of the Class Initial Invested Amount of such outstanding class.
Notwithstanding the foregoing, if a 1990 Trust Amortization Event occurs,
the 1990 Trust Maximum Subordinated Amount will remain at its then current level
until the 1990 Trust Total Invested Amount is reduced to such level, whereupon
the 1990 Trust Maximum Subordinated Amount will decline dollar for dollar with
the 1990 Trust Total Invested Amount.
For any Due Period, the 1990 Trust Available Subordinated Amount will be the
lesser of (a) the 1990 Trust Maximum Subordinated Amount at the end of the
immediately preceding Due Period and (b) the 1990 Trust Available Subordinated
Amount at the end of the immediately preceding Due Period after adjusting for
any payments by the 1990 Trust described herein.
NON-AMORTIZATION PERIOD; AMORTIZATION TERM
During any period in which no class of 1990 Trust Investor Certificates is
amortizing (a "Non-Amortization Period"), all Dealer Notes and 1990 Trust
Investment Securities will be treated alike, and there will be no principal
payments made with respect to any class. Upon the occurrence of any Scheduled
Class Amortization Date or, if earlier, a 1990 Trust Amortization Event, a 1990
Trust Amortization Term will commence, and each Amortizing Class will begin to
receive monthly payments of principal in addition to interest. If the 1990 Trust
Amortization Event has commenced by reason of a Scheduled Class Amortization
Date, the remaining classes (each a "Non-Amortizing Class") will continue to
receive monthly payments of interest, without payment of principal. A 1990 Trust
Amortization Term will end on the date on which the final distribution to the
holders of the 1990 Trust Investor Certificates of any Amortizing Class is made.
COLLECTIONS
NITC Finance Charges; Dealer Finance Charge Collections. On the NITC
Interest Transfer Date, the Servicer will direct the 1990 Trust Trustee to
withdraw from the 1990 Trust Interest Deposit Account and deposit in the 1990
Trust Collections Account an amount equal to the NITC Finance Charges for the
immediately preceding Due Period. In addition, the Servicer will deposit all
Dealer Finance Charge Collections in the 1990 Trust Collections Account within
two business days of receipt thereof, net of any Dealer Finance Charge
Collections that represent Advance Reimbursements. Finally, the Servicer will
deposit any Advance for the Due Period in the 1990 Trust Collections Account on
the Transfer Date.
Principal Collections. Each business day during the Non-Amortization Period,
the Servicer will deposit all Principal Collections in the 1990 Trust
Collections Account within two business days of receipt thereof. The Servicer
will first utilize such Principal Collections to make any necessary payments to
the 1990 Trust Spread Account. To the extent available, the Servicer will next
utilize Principal Collections to acquire all available Dealer Notes from the
Seller. Finally, the Principal Collections remaining in the 1990 Trust
Collections Account after giving effect to all payments and adjustments
described in this paragraph will be paid to the Seller and the 1990 Trust Seller
Interest will be reduced
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by the amount of such payment, except that if the 1990 Trust Seller Interest is
reduced to an amount equal to the 1990 Trust Minimum Seller Interest, any
remaining Principal Collections in the 1990 Trust Collections Account will be
held as 1990 Trust Investment Securities (which 1990 Trust Investment Securities
will mature on or prior to the Transfer Date related to the Due Period in which
they are acquired).
Each business day during an Amortization Term, the Servicer will deposit all
Principal Collections in the 1990 Trust Collections Account within two business
days of receipt thereof. For each Amortizing Class, the Servicer will direct the
1990 Trust Trustee to withdraw from the 1990 Trust Collections Account and
deposit in the Certificate Principal Account an amount equal to the product of
the amount of Dealer Note Collections deposited in the 1990 Trust Collections
Account since the preceding business day and the Class Amortization Percentage
for such Amortizing Class. Except as provided below, the remaining Principal
Collections in the 1990 Trust Collections Account will be (a) first, deposited
in the 1990 Trust Spread Account if any payment to the 1990 Spread Account is
necessary pursuant to the terms of the 1990 Trust Agreement, (b) second (except
in certain limited circumstances), used to acquire Dealer Notes and (c) third,
paid to the Seller (subject to the terms and conditions described in the
preceding paragraph). During a 1990 Trust Early Amortization Period, any amount
that would otherwise be used for Acquisitions or paid to the Seller will instead
be deposited in the 1990 Trust Liquidity Reserve Account, until the amount of
funds in such Account equals the 1990 Trust Available Subordinated Amount.
On each Transfer Date during a 1990 Trust Amortization Term, for each
Amortizing Class, the Servicer will direct the 1990 Trust Trustee to deposit in
the Certificate Principal Account an amount equal to the product of the
principal amount of the proceeds of 1990 Trust Investment Securities maturing on
such Transfer Date (after giving effect to any payments made for the benefit of
holders of 1990 Trust Investor Certificates) and the Class Amortization
Percentage for such Amortizing Class, except that the Servicer will not direct
the 1990 Trust Trustee to make such a transfer if, after giving effect to such
transfer, the 1990 Trust Seller Interest would be reduced to less than the 1990
Trust Minimum Seller Interest. The remaining proceeds will be deposited in the
1990 Trust Spread Account, used to acquire Dealer Notes or paid to the Seller in
accordance with the 1990 Trust Agreement.
APPLICATION OF COLLECTIONS
1990 Trust Monthly Servicing Fee; Advance Reimbursements. On each Transfer
Date, prior to making any payments in accordance with the terms and conditions
described in this section, the 1990 Trust Monthly Servicing Fee for the Due
Period and any unpaid Advance Reimbursements will be paid to the Servicer (such
payment will be paid from NITC Finance Charges and Dealer Finance Charge
Collections).
1990 Trust Investor Certificate Interest. The primary source for the payment
of 1990 Trust Investor Certificate Interest, with respect to any Due Period,
will be "1990 Trust Investor Interest Income," which will equal the product of
(a) the amount by which 1990 Trust Interest Income exceeds the sum of the 1990
Trust Monthly Servicing Fee, Advance Reimbursements and 1990 Trust Excess
Servicing as of the related Determination Date and (b) the 1990 Trust Total
Investor Percentage. If the amount of 1990 Trust Investor Interest Income to be
deposited in the 1990 Trust Distribution Account on any Transfer Date is less
than accrued and unpaid 1990 Trust Investor Certificate Interest, funds from the
following sources will be paid to the 1990 Trust Distribution Account for the
benefit of the holders of 1990 Trust Investor Certificates up to the amount of
the 1990 Trust Available Subordinated Amount (and in each case such payment to
the 1990 Trust Distribution Account will be made only to the extent of the
remaining deficiency and in no event will such payment exceed the remaining 1990
Trust Available Subordinated Amount, which will be reduced by the amount of any
such payment): (i) first, from 1990 Trust Seller Interest Income, if any, (ii)
second, through a cash withdrawal from the 1990 Trust Spread Account, (iii)
third, from the proceeds of 1990 Trust Investment Securities maturing on the
Transfer Date and (iv) fourth, during a 1990 Trust Amortization Term, through a
cash withdrawal from the 1990 Trust Liquidity Reserve Account (and each payment
pursuant to clauses (ii), (iii) and (iv) will reduce the 1990 Trust Seller
Interest by the amount of such payment).
1990 Trust Deficiency Amounts. If on any Transfer Date there is a previously
existing 1990 Trust Deficiency Amount and the amount deposited in the 1990 Trust
Distribution Account pursuant to the preceding paragraph is equal to 1990 Trust
Investor Certificate Interest for the Distribution Period, then 1990 Trust
Excess Servicing will be used to reduce the 1990 Trust Deficiency Amount. If a
deficiency remains, funds from the following sources will be paid to the 1990
Trust Distribution Account for the benefit of the holders of 1990 Trust Investor
Certificates, up to the amount of the 1990 Trust Available Subordinated Amount
(and in each case such payment to the 1990 Trust Distribution Account will be
made only to the extent of the remaining deficiency and in no event will such
payment exceed the remaining 1990 Trust
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Available Subordinated Amount, which will be reduced by the amount of any such
payment): (a) first, from 1990 Trust Seller Interest Income, if any, (b) second,
through a cash withdrawal from the 1990 Trust Spread Account, (c) third, from
the proceeds of 1990 Trust Investment Securities maturing on the Transfer Date
and (d) fourth, during a 1990 Trust Amortization Term, through a cash withdrawal
from the 1990 Trust Liquidity Reserve Account (and each payment pursuant to
clauses (b), (c) and (d) will reduce the 1990 Trust Seller Interest by the
amount of such payment). Any 1990 Trust Deficiency Amount remaining after giving
effect to the payments described in this paragraph and the preceding paragraph
will be allocated among the classes of 1990 Trust Investor Certificates pro rata
according to Class Investor Interests as of the beginning of the Due Period and
each class of 1990 Trust Investor Certificates' pro rata share of the 1990 Trust
Deficiency Amount will not be available for distribution to such class.
"Class Investor Interest" means, on any date during any Due Period with
respect to any class of 1990 Trust Investor Certificates, an amount equal to
the related Class Initial Invested Amount minus the sum of (a) the aggregate
amount on deposit in the Certificate Principal Account allocable to the
holders of such class on such date, (b) the aggregate amount of payments of
Certificate Principal paid to such class prior to such Due Period, (c) the
aggregate amount of Class Charged-off Amounts not reimbursed prior to such
Due Period (after giving effect to the payments and adjustments described
herein), and (d) the aggregate amount of Certificate Principal Account
Losses, allocable to the respective class of 1990 Trust Investor
Certificates.
"Certificate Principal Account Losses" means losses of principal on
investments of funds on deposit in the Certificate Principal Account. If
there is more than one Amortizing Class during any Due Period, Certificate
Principal Account Losses will be allocated pro rata on the basis of Class
Investor Interests.
1990 Trust Principal Losses -- 1990 Trust Non-Amortization Period. On each
Transfer Date during which a 1990 Trust Amortization Period is not occurring
(the "1990 Trust Non-Amortization Period") the Servicer will determine the
amount of 1990 Trust Principal Losses allocable to the holders of 1990 Trust
Investor Certificates on the basis of the 1990 Trust Total Investor Percentage
(the "1990 Trust Investor Loss Amount").
"1990 Trust Principal Losses" means, with respect to any Due Period, the
sum of (a) the Dealer Note Losses and (b) the aggregate amount of losses on
the sale of 1990 Trust Investment Securities; provided, however, the 1990
Trust Principal Losses will not include Certificate Principal Account
Losses.
"1990 Trust Amortization Period" means, for a class of 1990 Trust
Investor Certificates, the period during which such class is amortizing.
Any such 1990 Trust Investor Loss Amount will be allocated to the Seller
through a payment to the Seller of an amount of 1990 Trust Excess Servicing, if
any remains after giving effect to the payments described above, equal to the
1990 Trust Investor Loss Amount, in exchange for an equal amount of the 1990
Trust Seller Interest. Both the 1990 Trust Seller Interest and the 1990 Trust
Investor Loss Amount will be reduced by the amount of such payment. If the
available 1990 Trust Excess Servicing is less than the 1990 Trust Investor Loss
Amount, the 1990 Trust Seller Interest will be further reduced by an amount
equal to the lesser of (a) the 1990 Trust Available Subordinated Amount (after
giving effect to any previous increases or decreases therein) and (b) the
remaining 1990 Trust Investor Loss Amount. The 1990 Trust Investor Loss Amount
and the 1990 Trust Available Subordinated Amount each will be reduced by the
amount of such further reduction in the 1990 Trust Seller Interest.
1990 Trust Principal Losses-Amortization Term. On each 1990 Trust Transfer
Date during any period during which a 1990 Trust Amortization Period is
occurring (a "1990 Trust Amortization Term"), an amount not to exceed the lesser
of 1990 Trust Excess Servicing (after giving effect to the payments described
above) and the 1990 Trust Investor Loss Amount, each for the related Due Period,
will be withdrawn from the 1990 Trust Collections Account and deposited in the
1990 Trust Distribution Account or paid to the Seller as described below. The
amount of 1990 Trust Excess Servicing withdrawn from the 1990 Trust Collections
Account will be allocated among the classes of 1990 Trust Investor Certificates
pro rata according to Class Investor Interests as of the beginning of the Due
Period. If 1990 Trust Excess Servicing is less than the 1990 Trust Investor Loss
Amount, the amount of such deficiency will be allocated pro rata among the
classes of 1990 Trust Investor Certificates according to Class Investor
Interests as of the beginning of the Due Period and will be added to the related
Class Loss Amounts.
The amount of 1990 Trust Excess Servicing allocable to each Non-Amortizing
Class will be paid to the Seller in exchange for an equal amount of the 1990
Trust Seller Interest, which will be reduced by the amount of any such
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payment. If a deficiency remains, the 1990 Trust Seller Interest will be further
reduced by an amount equal to the lesser of the 1990 Trust Available
Subordinated Amount (after giving effect to any previous adjustments thereof)
and the sum of the Class Loss Amounts for the Non-Amortizing Classes. The 1990
Trust Available Subordinated Amount will be reduced, and the Class Loss Amounts
for the Non-Amortizing Classes will be reduced pro rata according to Class
Investor Interests as of the beginning of the Due Period, by the amount by which
the 1990 Trust Seller Interest is further reduced. The Class Loss Amounts
remaining after the adjustments described in this paragraph will be the
respective "Class Charged-Off Amounts" for the Non-Amortizing Classes, which
will reduce the related Class Invested Amounts and Class Investor Interests.
"Class Invested Amount" means, with respect to any Distribution Period
for any class of 1990 Trust Investor Certificates, the related Class Initial
Invested Amount minus the sum of (a) the aggregate amount of payments of
Certificate Principal paid to the holders of such class on or prior to the
Distribution Date for the immediately preceding Distribution Period, (b) the
aggregate amount of Class Charged-off Amounts not reimbursed on or prior to
the Distribution Date for the immediately preceding Distribution Period and
(c) the aggregate amount of Certificate Principal Account Losses on or prior
to the Distribution Date for the immediately preceding Due Period allocable
to the respective class of 1990 Trust Investor Certificates.
"Class Loss Amount" means, with respect to any Due Period for any class
of 1990 Trust Investor Certificates, the sum of (a) such class's pro rata
share of any Investor Loss Amount (after giving effect to the payment of
1990 Trust Excess Servicing), (b) the Class Charged-Off Amount (if any) for
such class at the end of the prior Due Period (after giving effect to the
payments and adjustments described herein), and (c) the Certificate
Principal Account Losses (if any) allocable to such class for the Due
Period. The Class Loss Amount for each class of 1990 Trust Investor
Certificates shall initially be zero.
"Class Initial Invested Amount" with respect to any outstanding class of
1990 Trust Investor Certificates will be set forth in the Prospectus
Supplement.
The amount of 1990 Trust Excess Servicing allocable to an Amortizing Class
will be paid from the 1990 Trust Distribution Account to such Amortizing Class.
If any Amortizing Class has a previously existing Class Loss Amount, an amount
equal to the lesser of the Class Loss Amount for such class and any remaining
1990 Trust Excess Servicing will be deposited in the 1990 Trust Distribution
Account for payment to the holders of 1990 Trust Investor Certificates of such
Amortizing Class, and the related Class Loss Amount will be reduced by the
amount of such payment. If two or more classes of 1990 Trust Investor
Certificates are amortizing simultaneously, such payment of 1990 Trust Excess
Servicing will be allocated pro rata among such Amortizing Classes based on
Class Investor Interests as of the beginning of the Due Period. If, after giving
effect to the payments described above, a Class Loss Amount remains with respect
to an Amortizing Class, payments first, from the positive amount, if any, by
which the sum of all Dealer Finance Charges, NITC Finance Charges and 1990 Trust
Investment Income exceeds Uncollectible Finance Charges, each for such Due
Period (the "1990 Trust Seller Interest Income") and second, during a 1990 Trust
Early Amortization Period through a withdrawal from the 1990 Trust Liquidity
Reserve Account, will be made to the 1990 Trust Distribution Account for the
benefit of such Amortizing Class to the extent of the 1990 Trust Available
Subordinated Amount, which will be reduced by the amount of such payment. Each
payment described in the preceding sentence will be allocated pro rata among all
Amortizing Classes that have Class Loss Amounts based on Class Investor
Interests as of the beginning of the Due Period and will be made only to the
extent of the remaining Class Loss Amounts for such classes and in no event in
excess of the 1990 Trust Available Subordinated Amount. If the aggregate amount
deposited in the 1990 Trust Distribution Account for the benefit of an
Amortizing Class pursuant to the provisions described in this paragraph is less
than the Class Loss Amount for such class, the 1990 Trust Seller Interest and
the Class Loss Amount each will be reduced by the amount of such remaining
deficiency to the extent of the 1990 Trust Available Subordinated Amount (after
giving effect to any previous adjustments thereof). The Class Loss Amount for an
Amortizing Class remaining after giving effect to the payments and adjustments
described in this paragraph is the Class Charged-Off Amount for such class for
the Due Period. The related Class Invested Amount and Class Investor Interest
will be increased or reduced, as the case may be, by an amount equal to the
difference between (a) the Class Charged-Off Amount for the immediately
preceding Due Period and (b) the Class Charged-Off Amount for the Due Period.
All payments to an Amortizing Class described in this paragraph will be treated
as payments of Certificate Principal and will therefore reduce the related Class
Invested Amount and Class Investor Interest by the amount of such payments.
If the sum of the Class Loss Amounts for all outstanding classes of 1990
Trust Investor Certificates (after the application of 1990 Trust Excess
Servicing) exceeds the 1990 Trust Available Subordinated Amount (after giving
effect
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to all previous adjustments thereof), the 1990 Trust Available Subordinated
Amount will be allocated pro rata among the classes of 1990 Trust Investor
Certificates according to Class Investor Interests as of the beginning of the
Due Period and each class of 1990 Trust Investor Certificates will only have
available such class' pro rata share of the 1990 Trust Available Subordinated
Amount.
DISTRIBUTIONS
General. During the term of the 1990 Trust, the amounts to be paid to the
holders of 1990 Trust Investor Certificates will be (unless otherwise specified)
withdrawn from the 1990 Trust Collections Account and deposited in the 1990
Trust Distribution Account on each Transfer Date. On each Distribution Date, the
1990 Trust Trustee will instruct the paying agent how to distribute the amounts
on deposit in the 1990 Trust Distribution Account to the holders of 1990 Trust
Investor Certificates. Payments made in respect of a Related 1990 Certificate
will be made by wire transfer to such account as the 1990 Trust Trustee shall
designate. The 1990 Trust Trustee is acting as the paying agent. The 1990 Trust
Trustee will be permitted to resign as paying agent upon 30 days prior written
notice and upon the appointment of a successor thereto. Any paying agent will
have the revocable power to withdraw funds from the 1990 Trust Distribution
Account for the purpose of making the distributions referred to above.
Investor Certificateholders. On each Distribution Date during the 1990 Trust
Non-Amortization Period, the Servicer will direct the 1990 Trust Trustee to
withdraw and cause the paying agent to pay funds from the 1990 Trust
Distribution Account to the holders of 1990 Trust Investor Certificates in an
amount equal to the 1990 Trust Investor Certificate Interest plus the 1990 Trust
Deficiency Amount as of the immediately preceding Distribution Date.
"1990 Trust Investor Certificate Interest" means, with respect to any
Distribution Period, an amount equal to interest at one-twelfth of the
related Class Certificate Rate multiplied by the related Class Invested
Amount for such Distribution Period for each class of 1990 Trust Investor
Certificates outstanding during such Distribution Period.
On each Transfer Date during a 1990 Trust Amortization Term, all amounts, if
any, on deposit in the Certificate Principal Account with respect to Principal
Collections during the related Due Period will be deposited in the 1990 Trust
Distribution Account. The Servicer will then direct the 1990 Trust Trustee to
cause the paying agent to pay from funds in the Distribution Account available
therefor on each Distribution Date, first, to the holders of certificates in any
Amortizing Class, the amount of Principal Collections allocable to such class
and second, to the holders of 1990 Trust Investor Certificates (including the
Master Trust Trustee with respect to a Related 1990 Certificate), an amount
equal to 1990 Trust Investor Certificate Interest plus the 1990 Trust Deficiency
Amount as of the immediately preceding Distribution Date.
Seller. The Seller will be entitled to receive any 1990 Trust Excess
Servicing which is not needed to reimburse holders of 1990 Trust Investor
Certificates for losses suffered during any Due Period and, to the extent that
the 1990 Trust Available Subordinated Amount has been previously reduced, 1990
Trust Excess Servicing will reinstate it accordingly (but in no event in excess
of the 1990 Trust Maximum Subordinated Amount). In addition, an amount equal to
the excess of all remaining Dealer Finance Charge Collections, Advances and NITC
Finance Charges during any Due Period Over the sum of all other payments
required to be made under the 1990 Trust Agreement during such Due Period will
be paid to the Seller.
NET PAYMENT
All payments made pursuant to the 1990 Trust Agreement on any Transfer Date
on which NFC is the Servicer between the Servicer and the 1990 Trust Collections
Account may be aggregated for such Transfer Date such that NFC, acting as
Servicer, will only make one payment to such account in satisfaction of all
payments of the Servicer pursuant to the Agreement, reduced by the amount to be
received by NFC, acting as Servicer and as agent of the Seller, from the 1990
Trust Distribution Account on the related Distribution Date.
CLASS TERMINATION DATE
All principal or interest with respect to any class of 1990 Trust Investor
Certificates will be due and payable no later than January 25, 2003 for the
Class A-3 Investor Certificates, July 25, 2007 for the Class A-4 Investor
Certificate, July 25, 2006 for the Class A-5 Investor Certificates and, with
respect to any Related 1990 Certificate, such date as is set forth
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in the Prospectus Supplement (each, a "Class Termination Date"). If the Class
Investor Interest of any class of 1990 Trust Investor Certificates is greater
than zero on its Class Termination Date, the 1990 Trust Trustee will sell or
cause to be sold an amount of Dealer Notes up to 110% of the Class Investor
Interest of such class at the close of business on such date, and will pay the
proceeds to all holders of 1990 Trust Investor Certificates of such class pro
rata in final payment of all principal of and accrued interest on such 1990
Trust Investor Certificates. Any proceeds of such sale in excess of such
principal and interest paid will be paid to the Seller. Upon the Class
Termination Date with respect to any Class Investor Certificates, final payment
of all amounts allocable to any 1990 Trust Investor Certificates of such class
will be made only upon presentation and surrender of such 1990 Trust Investor
Certificates at the office or agency specified in the notice of final
distribution to the holders of 1990 Trust Investor Certificates. The 1990 Trust
Trustee will provide such notice to registered holders of 1990 Trust Investor
Certificates not later than the Determination Date of the month of such final
payment.
OPTIONAL REPURCHASE
The Seller may repurchase, at its option, all outstanding classes of 1990
Trust Investor Certificates after the Class Investor Interest for each class of
1990 Trust Investor Certificates has been reduced to an amount equal or less
than ten percent of the class Initial Investor Interest for each such class. The
Seller may effect such repurchase by depositing into the Certificate Principal
Account an amount equal to the sum of each such Class Investor Interests plus
accrued and unpaid interest thereon at the applicable class Certificate Rates.
TERMINATION OF 1990 TRUST
The 1990 Trust will terminate on the earlier to occur of (a) the day after
the day on which funds shall have been deposited in the 1990 Trust Distribution
Account sufficient to pay the Class Invested Amount plus interest accrued at the
applicable Class Certificate Rate through the last day of the Distribution
Period relating to such Distribution Date in full on each of the Class A-1, A-2,
and A-3 Investor Certificates and (b) a day which is 21 years less one day after
the death of the last survivor of all the officers and the lineal descendants of
every officer of the 1990 Trust Trustee who were living on the date of the 1990
Trust Agreement, except that if at any time any such rights, privileges, or
options shall be or become valid under applicable law for a period subsequent to
the 21st anniversary of the death of such last survivor (or, without limiting
the generality of the foregoing, if legislation shall become effective providing
for the validity or permitting the effective grant of such rights, privileges,
and options for a period in gross exceeding the period for which such rights,
privileges, and options are hereinabove stated to extend and be valid), then
such rights, privileges, or options shall not terminate as aforesaid but shall
extend to and continue in effect, but only if such not termination and extension
shall then be valid under applicable law, until on day prior to such time as the
same shall, under applicable law, cease to be valid.
If on the Distribution Date in the month immediately preceding the month in
which the termination of the 1990 Trust occurs pursuant to clause (b) above, the
Class Invested Amount of any class of 1990 Trust Investor Certificates would be
greater than zero, the Servicer will sell within 30 days of such Distribution
Date all of the Dealer Notes owned by the 1990 Trust. The proceeds of such sale
will be treated as 1990 Trust Collections and will be allocated in accordance
with the 1990 Trust Agreement.
DESCRIPTION OF THE PURCHASE AGREEMENTS
The Dealer Notes are transferred to the Active Trust by the Seller and are
acquired by the Seller from NFC (a) prior to the 1990 Trust Termination Date,
pursuant to the Purchase Agreement dated as of December 1, 1990 between NFC and
NFSC (the "1990 Trust Purchase Agreement") and (b) after the 1990 Trust
Termination Date, pursuant to the Purchase Agreement dated as of June 8, 1995
between NFC and NFSC and to be effective on the 1990 Trust Termination Date (the
"Master Trust Purchase Agreement," and together with the 1990 Trust Purchase
Agreement, the "Purchase Agreements") (the operative Purchase Agreement being
the "Active Purchase Agreement"). The following summary describes certain terms
of the Purchase Agreements and is qualified in its entirety by reference to the
Purchase Agreements.
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PRIOR SALES OR TRANSFER OF DEALER NOTES
Pursuant to the 1990 Trust Purchase Agreement, NFC has, since December 27,
1990, on each business day sold or transferred to the Seller all of its right,
title and interest in and to all of the Eligible Dealer Notes (other than Dealer
Notes contributed by NFC to NFSC (the "Contributed Dealer Notes")) owned by it
on such day, all monies due (including accrued finance charges) or to become due
with respect thereto and all proceeds (including Insurance Proceeds) thereon,
and the interest of NFC in the security interests in the Financed Vehicles
related to such Dealer Notes. The purchase price paid by the Seller for such
Dealer Notes was the principal amount thereof plus accrued finance charges
thereon. Such purchase price was paid by the Seller either in cash or by means
of a loan under the Master Revolving Credit Agreement (a "Master Loan").
Pursuant to the Contribution Agreement, on December 27, 1990, NFC transferred to
the Seller as a one-time contribution to capital the Contributed Dealer Notes,
all monies due (including accrued finance charges) or to become due with respect
thereto and all proceeds (including Insurance Proceeds) thereon, and the
interest of NFC in the security interests in the Financed Vehicles related to
such Dealer Notes.
In connection with the sales or transfers of the Dealer Notes to the Seller,
NFC indicates in its computer files that the Dealer Notes have been sold or
transferred to the Seller, and that such Dealer Notes have been transferred by
the Seller to the 1990 Trust. In addition, NFC provides to the Seller a computer
file or a microfiche list containing a true and complete list of all such Dealer
Notes, identified by Dealer Note number. The records and agreements relating to
the Dealer Notes have not been and will not be segregated by NFC from other
documents and agreements relating to other wholesale notes and have not been and
will not be stamped or marked to reflect the sale or transfer of the Dealer
Notes to the Seller, but the computer records of NFC are marked to evidence such
sale or transfer. NFC has filed Uniform Commercial Code financing statements
with respect to the Dealer Notes meeting the requirements of Illinois, New York
and Delaware state law. See "Risk Factors -- Delays or Reductions in Payments
Due to Insolvency" and "Certain Matters Relating to the Dealer Notes."
ONGOING DAILY SALES OF DEALER NOTES
The Purchase Agreements provide that on each business day during the term of
the Active Trust (except upon the occurrence of a bankruptcy event involving the
Seller, NFC , NITC or NIC), NFC will continue to sell to the Seller (each such
transaction, a "Daily Note Sale") all Eligible Dealer Notes existing and owned
by NFC as of such business day, all monies due or to become due with respect
thereto and all proceeds (including Insurance Proceeds) thereon, and the
interest of NFC in the security interests in the Financed Vehicles related to
such Dealer Notes. The Active Purchase Agreement permits NFC to adjust the
principal amount of Dealer Notes that are considered Eligible Dealer Notes (see
"Description of the Offered Certificates -- Eligible Dealer Notes").
The purchase price to be paid by the Seller for such Dealer Notes will equal
the principal amount of such Dealer Notes plus accrued finance charges thereon,
and will be paid to NFC in the form of cash or a Master Loan under the Master
Revolving Credit Agreement. However, if the amount specified above does not, in
the opinion of the Seller, approximate the fair market value of the Dealer Notes
being purchased, then such Daily Note Sale shall be on terms between NFC and the
Seller that reasonably approximate such fair market value.
In connection with each Daily Note Sale, NFC will update its computer files
to indicate that Dealer Notes have been sold to the Seller pursuant to a Daily
Note Sale and deliver to the Seller a computer file, hard copy or microfiche
list containing a true and complete list of all Dealer Notes sold to the Seller
pursuant to such Daily Note Sale, identified by Dealer Note number.
REPRESENTATIONS AND WARRANTIES
NFC has made certain representations and warranties to the Seller to the
effect that, among other things, (a) it is duly incorporated and in good
standing and that it has the authority to consummate the transactions
contemplated by the Purchase Agreements, (b) each of the Purchase Agreements is
the valid, binding and enforceable obligation of NFC, (c) that all information
furnished to the Seller is accurate in all material respects and (d) that there
are no proceedings pending or threatened against NFC that would have a material
adverse effect on the performance by NFC of its obligations under the Purchase
Agreements.
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REPURCHASE OBLIGATIONS
NFC has agreed in the Active Purchase Agreement that if the Seller is
required to repurchase the 1990 Trust Investor Certificates issued by the 1990
Trust or the Certificateholders' Interest pursuant to the Applicable Agreement,
NFC will in turn repurchase such certificates or the Certificateholders'
Interest from the Seller. The purchase price paid by NFC will be equal to the
purchase price required to be paid by the Seller pursuant to the Applicable
Agreement, and shall be paid prior to or concurrently with any corresponding
payments required to be made by the Seller pursuant to the Applicable Agreement.
NFC also has agreed in the Active Purchase Agreement that if (a) any Dealer
Note has not been sold to the Seller free and clear of any encumbrances or is
not in compliance with all legal requirements applicable to NFC, (b) NFC has not
obtained all necessary governmental consents or approvals required to be
obtained in connection with the sale of such Dealer Note to the Seller or (c)
the Seller has otherwise been required to repurchase such Dealer Note pursuant
to the Applicable Agreement, then NFC will repurchase such Dealer Note from the
Seller. The purchase price to be paid for such Dealer Note will equal the
principal amount of such Dealer Note plus accrued finance charges thereon. NFC
must pay for such Dealer Note no later than the date upon which the Seller is
obligated to make a corresponding payment to the Active Trust pursuant to the
Applicable Agreement.
CERTAIN COVENANTS
In the Active Purchase Agreement, NFC has covenanted that it will perform
its obligations under the agreements relating to the Dealer Notes in conformity
with the Credit Guidelines. NFC has further covenanted that, except for the sale
and conveyances under the Active Purchase Agreement or the Applicable Agreement,
NFC will not sell, pledge, assign or transfer any interest in the Dealer Notes
to any other person. NFC has also covenanted that it will file all necessary
documents covering the Seller's right, title and interest in the Dealer Notes.
TERMINATION
The then Active Purchase Agreement will terminate immediately after the
Master Trust terminates.
FEDERAL INCOME TAX MATTERS
GENERAL
The following discussion of anticipated material and generally applicable
U.S. federal income tax consequences of the purchase, ownership and disposition
of Offered Certificates is based on the advice of Kirkland & Ellis ("Tax
Counsel") as special tax counsel to the Seller and NFC. The discussion is based
upon current provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), existing and proposed Treasury Regulations thereunder, current
administrative rulings, judicial decisions and other applicable authorities.
There can be no assurance that the Internal Revenue Service (the "IRS") will not
challenge the conclusions reached herein, and no ruling from the IRS has been or
will be sought. Furthermore, legislative, judicial or administrative changes may
occur, perhaps with retroactive effect, that could affect the accuracy of the
statements and conclusions set forth herein as well as the tax consequences to
Offered Certificateholders.
This discussion does not purport to deal with all aspects of federal income
taxation that may be relevant to Offered Certificateholders in light of their
personal investment circumstances, nor, except for certain limited discussions
of particular topics, to certain types of holders subject to special treatment
under the federal income tax laws (e.g., financial institutions, broker-dealers,
life insurance companies, tax-exempt organizations, nonresident alien
individuals and foreign corporations). This information is directed to
prospective purchasers of Offered Certificates who purchase Offered Certificates
in the primary Offering, who are citizens or residents of the United States,
including domestic corporations and partnerships, and who hold the Offered
Certificates as "capital assets" within the meaning of Section 1221 of the Code.
THEREFORE, PROSPECTIVE INVESTORS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS AS
TO THE FEDERAL, STATE, LOCAL, FOREIGN AND ANY OTHER TAX CONSEQUENCES TO THEM OF
THE PURCHASE, OWNERSHIP AND DISPOSITION OF INVESTOR CERTIFICATES.
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CHARACTERIZATION OF THE OFFERED CERTIFICATES AS INDEBTEDNESS
The Seller, NFC and the Offered Certificateholders express in the Pooling
and Servicing Agreement and on the Offered Certificates their intent that, for
federal, state and local income and franchise tax purposes, the Offered
Certificates will be indebtedness secured by the Related 1990 Certificate prior
to the 1990 Trust Termination Date and by the Dealer Notes after the 1990 Trust
Termination Date. The Seller and each Offered Certificateholder, by acquiring an
interest in an Offered Certificate, agree to treat the Offered Certificates as
indebtedness for federal, state and local income and franchise tax purposes.
However, because different criteria are applied in determining the non-tax
accounting characterization of the transaction, the Seller will treat the
transaction for financial accounting purposes as a sale of an ownership interest
in the Dealer Notes and not as the creation of a debt obligation.
Applying current law to the facts of the transaction as set forth in the
Pooling and Servicing Agreement and other relevant documents, Tax Counsel has
advised the Seller and NFC that, in its opinion, although the matter is not free
from doubt, the Offered Certificates would be treated as indebtedness for
federal income tax purposes for the reasons set forth below.
Generally, the federal income tax characterization of a transaction depends
upon its economic substance, and the substance of the issuance of Offered
Certificates is consistent with treating the Offered Certificates as debt for
federal income tax purposes. Further, as mentioned above, the parties to the
transaction have agreed to treat the Offered Certificates as debt obligations
for tax purposes. Although certain judicial precedents hold that in appropriate
circumstances a taxpayer must treat a transaction in accordance with the form
chosen by such taxpayer, regardless of the substance of the transaction, Tax
Counsel has advised that, in its opinion, those precedents are inapplicable
here.
Although the IRS and the courts have set forth several factors to be taken
into account in determining whether the substance of a transaction is a sale of
property or a loan secured by the transferred property, the primary factors
utilized in making this determination are whether the transferee has assumed the
risk of loss or other economic burdens relating to the property and whether the
transferee has obtained the opportunity for gain or other benefits of the
ownership thereof. If such economic benefits and burdens associated with
ownership of property remain with the transferor and have not passed to the
transferee, the transaction is characterized as a financing rather than a sale.
Under the Pooling and Servicing Agreement, the Offered Certificateholders
are entitled (a) to receive Monthly Interest, and (b) subject to certain
reductions in the event of principal losses on Dealer Notes after all credit
enhancement has been exhausted, to the return of their principal investment.
Although Offered Certificateholders may benefit because floating rate
instruments such as the Dealer Notes benefit in a rising market over fixed rate
instruments, this benefit exists with many debt instruments and is entirely
unrelated to the performance of the Dealer Notes. Thus, no significant amount of
potential gain inherent in the Dealer Notes has been transferred to Offered
Certificateholders.
Similarly, the Offered Certificateholders do not bear the risk of loss which
is associated with direct ownership of the Dealer Notes. If the Offered
Certificateholders purchased Dealer Notes directly, they would incur losses if
any Dealers defaulted. The Offered Certificateholders, by contrast, are
substantially insulated from any such loss experience because of credit support
mechanisms provided in the Agreements. Any potential losses are expected to be
satisfied from, and to the extent of: credit enhancement provided prior to the
1990 Trust Termination Date under the 1990 Trust in respect of the Related 1990
Certificate, the Interest Rate Swap and, under certain circumstances, the
Negative Carry Subordinated Amount and, after the 1990 Trust Termination Date,
and to the extent provided herein, Available Seller's Collections. In part
because of the availability of these sources to satisfy any shortfalls in Dealer
payments, the Rating Agencies have given the Offered Certificates their highest
credit rating. This superior rating strongly indicates that the risk of loss to
the Offered Certificateholders is anticipated to be remote.
As Offered Certificateholders do not share significantly in either the
benefits or burdens associated with direct ownership of the Dealer Notes, the
arrangement created by the Pooling and Servicing Agreement is properly viewed
for federal income tax purposes as a financing, rather than a sale, of the
Dealer Notes. Therefore, the Offered Certificates would be treated, in economic
substance, as indebtedness for which the Related 1990 Certificate or the Dealer
Notes, as the case may be, and other assets held in the Master Trust serve as
collateral.
The above discussion is only a summary of certain aspects of the analysis
and conclusions contained in the tax opinion filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The ensuing
discussion of
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federal income tax consequences assumes that the Offered Certificates are
treated as debt for federal income tax purposes.
STATED INTEREST ON OFFERED CERTIFICATES
Interest paid on the Offered Certificates would be taxable as ordinary
income for federal income tax purposes when received or accrued by Offered
Certificateholders in accordance with their respective methods of accounting. As
discussed below, the Offered Certificates will be subject to the usual rules
applicable to bond premium and market discount. Interest received on the Offered
Certificates may also constitute "investment income" for purposes of certain
limitations of the Code concerning the deductibility of investment interest
expense.
ORIGINAL ISSUE DISCOUNT
The Offered Certificates are expected to be issued at par and, therefore, it
is not anticipated that the Offered Certificates will bear any original issue
discount ("OID"). However, because the Offered Certificates do not provide for
the payment of late penalty interest on default, the Offered Certificates may be
treated as issued with OID. In general, OID is the excess of the stated
redemption price at maturity of a debt instrument over its issue price, unless
such excess falls within a statutorily defined de minimis exception.
Nevertheless, the holder of an Offered Certificate that has de minimis OID is
required to include such de minimis OID in income as principal payments are made
in proportion to the ratio each such principal payment bears to the stated
principal amount of such Offered Certificate. Any amount of de minimis OID
includible in income under the preceding sentence is treated as gain recognized
on retirement of the debt instrument.
The OID provisions of the Code are complex, and unresolved issues abound in
the area even though final Regulations have been adopted. If, in spite of
expectations, any Offered Certificates are in fact issued with OID, the
following rules would generally apply; however, Offered Certificateholders are
urged to consult their own tax advisors with respect to the impact on them of
the matters discussed below.
Offered Certificateholders will generally be required to include OID in
income in advance of receipt of all or a portion of the cash representing such
OID, regardless of whether they otherwise report taxable income on the cash or
the accrual method. A holder of a debt instrument issued with OID must recognize
as ordinary income the amount of OID as it accrues, in accordance with a
constant yield method. The amount of OID to be included in income in any taxable
year is determined by allocating to each day during such year on which the
holder holds the instrument a pro rata portion of the OID attributable to the
"accrual period" which includes such day. Under applicable Treasury Regulations,
the Offered Certificates have a monthly accrual period.
In addition, because of the payment terms of the Offered Certificates, the
IRS could contend that interest thereon should be treated as part of the stated
redemption price at maturity. In such case, an Offered Certificateholder would
be required to recognize all interest as OID under the rules described above
(but would not recognize ordinary income upon receipt of actual payments of cash
denominated as interest). Thus, each cash payment would be treated as an amount
already included in income (to the extent OID has accrued as of the date of the
interest payment and is not allocated to prior payments), or as a repayment of
principal.
Further, under Section 1272(a)(6) of the Code, special rules apply to any
debt instrument on which payments may be accelerated due to prepayments of other
obligations securing those debt instruments. When these rules apply, the
computation of OID must be determined by taking into account both the prepayment
assumptions used in pricing the debt instrument and the actual prepayment
experience. As a result, the amount of OID on such debt instrument which will
accrue in any given accrual period may either increase or decrease, depending
upon the actual prepayment rate.
U.S. holders may generally elect to include in income all interest
(including stated interest, acquisition discount, OID, de minimis OID, market
discount, de minimis market discount, and unstated interest, as adjusted by any
amortizable bond premium or acquisition premium) that accrues on a debt
instrument by using the constant yield method applicable to OID, subject to
certain limitations and exceptions. If such election is made, amounts of de
minimis OID and de minimis market discount which otherwise would have been
treated as gain upon retirement or disposition of an Offered Certificate are
instead treated as ordinary interest income.
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Certain information must be furnished annually on the amount of OID, if any,
accruing during the year (as well as interest paid during that year) to the IRS
and to certain classes of Offered Certificateholders. Since information with
respect to OID is based upon the adjusted issue price of Offered Certificates,
any subsequent holders who purchase Offered Certificates for an amount in excess
of the adjusted issue price will be required to determine for themselves the
amount of OID (if any) that they are required to report.
TREATMENT OF MARKET DISCOUNT BY SUBSEQUENT PURCHASERS
The resale of an Offered Certificate may be affected by the market discount
provisions of the Code. Generally, if a holder of a debt instrument acquires it
at a market discount (i.e., at a price below its stated redemption price at
maturity or its adjusted issue price if it was issued with OID, subject to a
statutorily defined de minimis exception) and thereafter realizes gain upon a
disposition of the debt instrument (including a gift), the lesser of (a) such
gain (or appreciation, in the case of a gift) or (b) the portion of the market
discount that accrued while the debt instrument was held by such holder, will be
treated as ordinary interest income at the time of the disposition. In addition,
a holder who acquires a debt instrument at a market discount may be required to
defer a portion of any interest expense that otherwise may be deductible on any
indebtedness incurred or maintained to purchase or carry the debt instrument
until the holder disposes of the debt instrument in a taxable transaction.
Partial principal payments on the Offered Certificates will be made monthly
under certain circumstances. A holder who acquires an Offered Certificate at a
market discount will be required to treat as ordinary interest income the
portion of any principal payment attributable to accrued market discount on such
Offered Certificate.
A holder who acquires an Offered Certificate at a market discount may elect
to include market discount in income as the discount accrues on a constant
interest rate basis. The current inclusion election, once made, applies to all
market discount obligations acquired on or after the first day of the first
taxable year to which the election applies, and may not be revoked without the
consent of the IRS. If such election is made, the rules described in the
preceding two paragraphs (regarding recognition of ordinary income in certain
circumstances and the deferral of interest deductions) will not apply.
TREATMENT OF ACQUISITION PREMIUM AND AMORTIZABLE BOND PREMIUM
A subsequent holder who pays an "acquisition premium" for an Offered
Certificate may be entitled to reduce (but not below zero) any amount of OID
otherwise includible in such holder's income. An Offered Certificate will have
"acquisition premium" if the amount paid by a subsequent holder for an Offered
Certificate is in excess of its adjusted issue price at the time of its
acquisition. The amount of acquisition premium will equal the amount of such
excess.
A holder of an Offered Certificate who acquires such instrument (including
at its original issuance) at a price in excess of its stated redemption price at
maturity, will be exempt from the OID rules described above. Moreover, such
holder may be able to elect to amortize the excess under a constant interest
rate method as "bond premium" pursuant to Section 171 of the Code. The
legislative history to the Tax Reform Act of 1986 indicates that amortization of
bond premium on an obligation providing for partial principal payments before
maturity should be governed by rules such as those provided for the accrual of
market discount (as described above).
A holder electing to amortize bond premium must reduce his tax basis in the
obligation by the aggregate amount of deductions allowable for such premium. If
a debt instrument purchased at a premium is redeemed in full prior to maturity,
a purchaser who elects to deduct bond premium should be entitled to a deduction
for any remaining unamortized bond premium in the taxable year of redemption.
Under present law, amortizable bond premium generally offsets interest income on
the obligation rather than constituting a separate interest deduction item
subject to the investment interest limitations of the Code.
The IRS has issued final regulations with respect to amortizing bond premium
which bring the amortization rules more in line with the final OID regulations.
Under the final regulations, an election to amortize bond premium will apply to
bonds held on or after the first day of the taxable year in which the election
was made.
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SALES OF INVESTOR CERTIFICATES
In general, an Offered Certificateholder will recognize gain or loss upon
the sale, exchange, redemption or other taxable disposition of an Offered
Certificate measured by the difference between (a) the amount of cash and the
fair market value of any property received (other than amounts attributable to,
and taxable as, accrued stated interest) and (b) the Offered Certificateholder's
tax basis in the Offered Certificate (as increased by any OID or market discount
included in income and as decreased by any deduction for amortizable bond
premium previously allowed and by the amount of principal payments previously
received thereon). Subject to the OID and market discount rules discussed above,
any such gain or loss generally will be capital gain or loss if such certificate
was held as a capital asset, and generally would be long-term capital gain or
loss if such Offered Certificate was held for more than one year.
Under present law, the federal income tax rates for individuals applicable
to capital gains (20% if the Certificateholder held the Offered Certificate for
more than 18 months or 28% if the Certificateholder held the Offered Certificate
for more than one year but less than 18 months) are less than those applicable
to ordinary income (maximum 39.6%). However, these rates could be changed by
subsequent legislation. Indeed, there is a current legislative proposal to
reduce the long-term capital gain holding period to 12 months and thereby
eliminate the mid-term holding period.
FOREIGN HOLDERS
This section generally discusses the United States federal income tax
consequences of the ownership and disposition of Offered Certificates by a
holder who is not a "United States person" (a "foreign holder"). The term
"United States person" means (a) a citizen or resident of the United States, (b)
a corporation or partnership created or organized in the United States or under
the laws of the United States or of any State, (c) an estate the income of which
is subject to United States federal income taxation regardless of its source and
(d) a trust if a United States court exercises primary jurisdiction over its
administration and one or more United States persons have the authority to
control all of its substantial decisions. Some foreign holders (including
certain residents of certain United States possessions or territories) may be
subject to special rules not discussed herein.
Payments of interest (including OID, if any) made to a foreign holder which
are not effectively connected with such holder's conduct of a trade or business
within the United States generally will not be subject to United States federal
income tax or withholding tax if (a) the foreign holder is not a "10 percent
shareholder" or a "controlled foreign corporation" with respect to which the
Seller or NFC is a "related person" within the meaning of the Code and (b) the
beneficial owner (and, if relevant, a financial institution on the beneficial
owner's behalf) provides an appropriate statement, signed under penalties of
perjury, certifying that the beneficial owner of the Offered Certificate is a
foreign person and providing the beneficial owner's name and address. The
statement generally must be provided in the year a payment occurs or in either
of the two preceding years.
Any capital gain realized on the sale, exchange, redemption, retirement or
other taxable disposition of an Offered Certificate by a foreign holder
generally will not be subject to United States federal income tax or withholding
tax, provided that (a) the gain is not effectively connected with the foreign
holder's conduct of a trade or business in the United States and (b) in the case
of an individual foreign holder, (i) such holder not present in the United
States for 183 days or more in the taxable year of such disposition, or (ii)(A)
such holder does not have a "tax home" in the United States and (B) the gain is
not attributable to an office or other fixed place of business such holder
maintained in the United States.
If the interest, gain or income on an Offered Certificate held by a foreign
holder is effectively connected with such holder's conduct of a trade or
business in the United States, then the foreign holder (albeit exempt from the
withholding tax if he provides an appropriate statement) generally will be
subject to United States federal income tax on such interest, gain or income at
regular federal income tax rates. In addition, if such holder is a foreign
corporation, it may be subject to a branch profits tax equal to 30% of its
"effectively connected earnings and profits" within the meaning of the Code for
the taxable year, as adjusted for certain items, unless it qualifies for a lower
rate under an applicable tax treaty.
Provided that an Offered Certificate is treated as debt, it will be
excludable, for United States federal estate tax purposes, from the estate of an
individual who, at the time of his death, was a foreign holder if, immediately
before his death, (a) he was not a "10 percent shareholder" of the Seller or NFC
within the meaning of the Code, and (b) such Offered Certificate was not
effectively connected with his conduct of a United States trade or business.
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See also the discussion below of potential consequences to foreign holders
if the IRS were to contend successfully that the Offered Certificates do not
constitute indebtedness for federal income tax purposes.
The IRS has issued final regulations which may impose additional reporting
requirements on certain foreign holders.
THE FOREGOING DESCRIPTION OF THE POTENTIAL UNITED STATES FEDERAL TAX
CONSEQUENCES TO FOREIGN HOLDERS IS NECESSARILY INCOMPLETE. FOREIGN HOLDERS ARE
STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION
TO THEM OF THE FOREGOING MATTERS.
BACKUP WITHHOLDING
A 31% "backup" withholding tax and information reporting requirements apply
to certain payments of principal and interest (and OID, if any) on an Offered
Certificate, and to proceeds of certain sales of an Offered Certificate before
maturity, to certain nonexempt Offered Certificateholders who are United States
persons, if such holders fail to provide correct taxpayer identification numbers
and other information. The Seller, its paying agent, or a broker, as the case
may be, will be required to withhold from any payment that is subject to backup
withholding a tax equal to 31% of such payment unless the Offered
Certificateholder furnishes its taxpayer identification number in the manner
prescribed in applicable Treasury Regulations, and unless certain other
conditions are met.
In the case of payments of principal and interest (and OID, if any) on
Offered Certificates by the Seller or paying agents of the Seller to foreign
holders, current Treasury regulations provide that backup withholding and
information reporting will not apply if the holder has provided the required
certification of its status as a foreign person under penalties of perjury, or
has otherwise established an exemption (provided that neither the Seller nor its
paying agent has actual knowledge that the holder is a United States person or
that the conditions of any other exemption are not in fact satisfied). Special
rules apply if payment is collected by a foreign office of a custodian, nominee
or other agent acting on behalf of an owner of an Offered Certificate. Payments
of the proceeds of a sale of Offered Certificates to or through a broker are
also subject to special rules.
The IRS has issued new regulations governing the backup withholding and
information reporting requirements. The new regulations are generally effective
for payments made after December 31, 1999, Offered Certificateholders should
consult their own tax advisors with respect to the impact, if any, of the new
final regulations.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against an Offered Certificateholder's United States federal
income tax, provided that the required information is furnished to the IRS.
OTHER POSSIBLE CHARACTERIZATIONS OF CERTIFICATES
As noted above, Tax Counsel has opined that the Offered Certificates would
be treated as indebtedness for federal income tax purposes, and the foregoing
discussion of tax consequences assumes that this will be the case. There can be
no assurance that the IRS or the courts will agree with Tax Counsel's opinion.
If a court were to determine that the Agreement does not create a debt
obligation for federal income tax purposes, the arrangement created by the
Agreement could be classified for such purposes as, alternatively, a partnership
or a publicly traded partnership treated as a corporation. The tax consequences
to Offered Certificateholders of each such possible recharacterization are
described briefly below. Investors should consult their own tax advisors as to
the possible tax consequences to them of potential alternative treatments.
If the arrangement created by the Agreement were characterized as a
partnership among the Seller and the Offered Certificateholders, the partnership
in all likelihood would be treated as a "publicly traded partnership." If such
partnership were nevertheless not taxable as a corporation (for example, because
its income is interest not derived in the conduct of a financial business), such
partnership would not be subject to federal income tax. Rather, each item of
income, gain, loss, deduction and credit generated through the ownership of the
Dealer Notes by such a partnership would be passed through to the Seller and the
Offered Certificateholders as partners in such a partnership according to their
respective interests therein. The amount and timing of income reportable by the
Offered Certificateholders as
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partners could differ materially from the income reportable by the Offered
Certificateholders if the Offered Certificates are characterized as debt.
In addition, if such a partnership were considered to be engaged in a trade
or business within the United States, each foreign holder would be required to
file a United States income tax return and pay tax on its share of partnership
income at regular rates (including the branch profits tax in the case of a
foreign corporation). The partnership itself would be subject to a withholding
tax on distributions to (or, at its election, income allocable to) foreign
holders, and each foreign holder would be credited with his share of the
withholding tax paid by the partnership. Further, even if the partnership were
not considered to be engaged in a trade or business within the United States, it
appears that partnership withholding would be required in the case of any
foreign holder who is engaged in a trade or business within the United States to
which the Offered Certificate income is effectively connected.
Alternatively, if such a partnership is not considered to be engaged in a
trade or business within the United States and if income with respect to an
Offered Certificate is not otherwise effectively connected with a foreign
holder's conduct of a trade or business within the United States, the holder
generally would be subject to United States federal withholding tax at a rate of
30% (unless reduced by an applicable treaty) on his distributive share of the
partnership's interest income.
If the arrangement created by the Agreement were taxable as a corporation
because of being a publicly traded partnership, it would be subject to federal
income taxes (and possibly state income taxes -- see "Certain State Matters") at
corporate tax rates on its taxable income generated by ownership of the Dealer
Notes. Such a tax could result in reduced distributions to Offered
Certificateholders. In addition, if the Offered Certificates were treated as
interests in a publicly traded partnership taxable as a corporation, all or a
portion of any such distributions would, to the extent of the current and
accumulated earnings and profits of such corporation, be treated as dividend
income to the Offered Certificateholders. Such dividends, if payable to
corporate holders, would be eligible for the dividends received deduction. In
the case of foreign holders, such dividend income would generally be subject to
a 30% withholding tax unless the rate were reduced by an applicable treaty.
If the arrangement created by the Agreement were treated as a partnership
(but not as a publicly traded partnership), any income allocated to a
Certificateholder that is a tax-exempt entity likely would constitute "unrelated
business taxable income."
In the opinion of Tax Counsel, because the Offered Certificates would be
characterized as debt, no attempt will be made to comply with any IRS reporting
or tax payment requirements which might be applicable if the transaction were
treated as creating a partnership or a corporation.
CERTAIN STATE TAX MATTERS
GENERAL
Offered Certificateholders may also become liable for state income taxes in
one or more taxing jurisdictions. State income tax consequences (including local
income tax consequences) to each Offered Certificateholder depend upon the
provisions of the state tax laws to which the Investor Certificateholder is
subject. Because each state's income tax laws are different, it is impossible to
predict the income tax consequences to the Offered Certificateholders in all of
the state taxing jurisdictions in which they are already subject to tax.
ILLINOIS AND NEW YORK
Most of the activities to be undertaken by the Servicer and the Trustee will
take place in Illinois and New York. If the Offered Certificates are
characterized as indebtedness for federal income tax purposes, in the opinion of
Tax Counsel, as to Illinois and New York state tax consequences, although the
matter is not free from doubt, this treatment would also apply for purposes of
the Illinois income tax, and the New York income and corporate franchise taxes.
If the Offered Certificates are characterized as debt in the named states, the
Offered Certificateholders not otherwise subject to taxation in those states
will not, although the matter is not free from doubt, become subject to such
taxes solely because of their ownership of Offered Certificates. Offered
Certificateholders already subject to taxation in those states, however, could
be required to pay tax on or measured by interest income (including OID, if any)
generated by, and on gain from the disposition of, the Offered Certificates.
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The above discussion of state tax consequences assumes the Offered
Certificates will be characterized as debt for federal income tax purposes.
However, if the arrangement created by the Agreement were treated as a
partnership or as a publicly traded partnership taxable as a corporation, the
state income tax consequences to the Offered Certificateholders could be
materially different.
If the arrangement created by the Agreement were treated as a partnership
for Illinois and New York state tax purposes, it is possible that each state
could view the partnership as doing business in its state and, unless Offered
Certificateholders were treated as holding debt of such partnership, could treat
each Offered Certificateholder as deriving income from activities in the state.
As a result, the state might, under applicable income apportionment and sourcing
rules, treat some part of the partnership's income as allocable to such state
and then tax an Offered Certificateholder on its share of such income. Moreover,
classification of the arrangement as a "partnership" might cause an Offered
Certificateholder not otherwise subject to tax in these states to pay state tax
on income beyond that derived from the Offered Certificates. In addition, such
partnership could be subject to the Illinois personal property replacement tax,
which tax would reduce the amounts available for distribution to Offered
Certificateholders.
If the Offered Certificateholders were treated as owning interests in a
corporation for state tax purposes, then the hypothetical corporation could be
subject to Illinois income and New York income and corporate franchise taxes.
Such taxes could result in reduced distributions to Offered Certificateholders.
An Offered Certificateholder not otherwise subject to Illinois or New York state
tax law should not become subject to such tax laws solely as a result of its
ownership of Offered Certificates.
There can be no assurance that no other state will claim that activities
with respect to the Agreement have taken place in such state and therefore
subject Offered Certificateholders to taxation in such state. If any state
taxing authority were to assert such a claim successfully, the treatment of the
Offered Certificates for purposes of such state's income tax laws would be
determined thereunder, and there can be no assurance that the Offered
Certificates would be treated as indebtedness for purposes of taxation in that
state.
The foregoing description of the potential state tax consequences is
necessarily incomplete. Offered Certificateholders are urged to consult their
own tax advisors with respect to the applicability of state and local income and
franchise taxes to their investment in the Offered Certificates.
CERTAIN MATTERS RELATING TO BANKRUPTCY
The Seller's certificate of incorporation includes a provision that, under
certain circumstances, requires the Seller to designate two directors who
qualify under the certificate of incorporation as "Independent Directors." The
Seller's certificate of incorporation provides that the Seller will not file a
voluntary petition for relief under the Bankruptcy Code without the unanimous
affirmative vote of its directors. Pursuant to the Pooling and Servicing
Agreement, the Servicer, the Master Trust Trustee and each Investor
Certificateholder covenant that it will not institute against the Seller or the
Master Trust any bankruptcy, reorganization or other proceedings under any
federal or state bankruptcy law until one year and one day after all
Certificateholders have been paid in full.
The transfers of Dealer Notes from NITC to NFC, from NFC to the Seller and
from the Seller to the Active Trust have been structured as, and will be treated
by the parties as, sales. In 1993, the U.S. Court of Appeals for the Tenth
Circuit ruled that accounts sold prior to a bankruptcy should be treated as
property of the bankruptcy estate. In the event that NITC, NFC or the Seller
were to become a debtor in a bankruptcy case and a creditor or trustee in
bankruptcy of such debtor or such debtor itself were to apply this analysis or
otherwise take the position that the transfer of the Dealer Notes from such
debtor to the Seller or the Active Trust, as the case may be, should be
recharacterized as a pledge of such Dealer Notes to secure a borrowing by such
debtor, then delays in receipt of Collections on such Dealer Notes to the Active
Trust and payments on the Offered Certificates could result or, should the court
rule in favor of any creditor, trustee in bankruptcy or debtor, reductions in
the amount of such payments could result.
In addition, if NFC or the Seller were to become a debtor in a bankruptcy
case and a creditor or trustee in bankruptcy of such debtor or such debtor
itself were to request a court to order that NFC should be substantively
consolidated with the Seller, delays in payments on the Offered Certificates
could result. Should the bankruptcy court rule in favor of any such creditor,
trustee in bankruptcy or debtor, reductions in the amount of such payments could
result.
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If NIC, NITC, NFC or the Seller were to become a debtor in a bankruptcy
case, an Early Amortization Event would occur. In such event, all Series
Allocable Principal Collections would be applied to principal payments on the
Offered Certificates and Dealer Notes thereafter would no longer be sold to the
Seller and transferred to the Active Trust. The occurrence of certain events of
bankruptcy, insolvency or receivership with respect to the Servicer will also
result in a Master Trust Servicer Termination Event. A trustee in bankruptcy of
the Servicer (including the Servicer as debtor in possession) may have the power
to prevent either the Active Trustee or the holders of Certificates issued by
the Active Trust from appointing a successor Servicer.
In addition, if the Applicable Agreement is deemed an executory contract
under bankruptcy laws, a trustee in bankruptcy of any party to such agreement
(including such party as debtor in possession) may have the power to assume
(i.e., reaffirm) or reject such agreement. A party deciding whether to assume or
reject any such agreement would be given a reasonable period of time to make
such decision, perhaps even until the time of confirmation of the plan of
reorganization, which could result in delays in payments or distributions on the
related securities.
Transfers made in certain isolated transactions contemplated by the
Applicable Agreement (including payments made by NFC or the Seller with respect
to repurchases of Dealer Notes) may be recoverable by NFC or the Seller, as
debtor in possession, or by a trustee in bankruptcy of NFC or the Seller, as a
preferential transfer from NFC or the Seller if such transfers are made within
certain periods prior to the filing of a bankruptcy case in respect of NFC or
the Seller and certain other conditions are met.
In addition, application of federal bankruptcy and state debtor relief laws
to any Dealer could affect the interests of the Active Trust and the Active
Trustee in the Dealer Notes of such Dealer if the enforcement of such laws
result in any Dealer Notes conveyed to the Active Trust being written off as
uncollectible by the Servicer. Whether or not any such Dealer Notes are written
off as uncollectible, delays in payments due on such Dealer Notes could result.
CERTAIN MATTERS RELATING TO THE DEALER NOTES
The Seller has warranted in the Applicable Agreement that the transfer of
the Dealer Notes to the Active Trust is either (a) a valid transfer and
assignment of the Dealer Notes to the Active Trust or (b) a grant to the Active
Trust of a security interest in the Dealer Notes. The Seller has taken all
required actions under Illinois, New York and Delaware state law to perfect the
Active Trust's interests in such assets. In addition, the Seller has warranted
that, if the transfer of Dealer Notes by the Seller to the Active Trust is a
grant to the Active Trust of a security interest in the Dealer Notes, the Active
Trust will at all times have a first priority perfected security or ownership
interest in all Dealer Notes transferred to the Active Trust and all proceeds
thereof, except that if such a transfer is deemed to create a security interest
under the Uniform Commercial Code, certain prospective liens on the property of
the Seller may have priority over the Active Trust's interests in such Dealer
Notes. If the Seller were to become a debtor in a bankruptcy case, and a
bankruptcy trustee or the Seller as debtor in possession or a creditor of the
Seller were to take the position that the transfer of the Dealer Notes from the
Seller to the Active Trust should be recharacterized as a pledge of such Dealer
Notes, delays in distributions on the Offered Certificates or, should the
bankruptcy court rule in favor of any such trustee, debtor in possession or
creditor, reductions in such distributions could result. There is a substantial
possibility that the Active Trust may not have a perfected security interest in
any of the Dealer Notes created after the filing of a petition for relief under
the Bankruptcy Code. Nevertheless, it is anticipated that the Active Trust will
either own or have a perfected security interest in Dealer Notes existing on the
date of filing a petition under the Bankruptcy Code and will be able to make
payments in respect of principal and interest on the 1990 Trust Investor
Certificates or the Offered Certificates, as the case may be, although there can
be no assurance that all of such payments would be timely.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Code impose certain restrictions on employee benefit plans to which they
apply ("Plans") and on persons who have certain specified relationships to Plans
("parties in interest" within the meaning of ERISA and "disqualified persons"
within the meaning of the Code, referred to herein as "Parties in Interest").
ERISA also imposes certain duties on persons who are fiduciaries of Plans and
prohibits a Plan from engaging in a broad range of transactions involving "plan
assets" with Parties in Interest with respect to the Plan, unless a statutory or
administrative exemption applies. Accordingly, Plans with respect to which the
Seller, the Servicer or the Master Trust Trustee are Parties in Interest may be
prohibited from purchasing
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Offered Certificates unless such an exemption applies. (Similar rules apply to
the investment of individual retirement accounts as defined in the Code.)
Prohibited transactions may generate excise taxes and other liabilities.
If the assets of the Master Trust were deemed to be assets of Plans that are
Offered Certificateholders, a transaction involving the Master Trust's assets
might give rise to a prohibited transaction under ERISA and the Code, unless an
exemption applies. The U.S. Department of Labor ("DOL") has issued a regulation
(the "Plan Assets Regulation") concerning whether the assets of a Plan will be
deemed to include the underlying assets of an entity (such as a master trust)
when the Plan acquires an "equity" interest in the entity. An equity interest is
defined in the Plan Assets Regulation as an interest in an entity other than an
instrument which is treated as debt under applicable local law and which has no
substantial equity features. The Seller has been advised that Offered
Certificateholders will be taxed as if the Offered Certificates are debt for
federal income tax purposes. If under ERISA the Offered Certificates are deemed
to be debt, the Trust's assets will not be treated as Plan assets solely as a
result of the purchase of an Offered Certificate by a Plan. However, the tax
characterization of the Offered Certificates is not determinative of the
characterization of these securities for ERISA purposes.
Assuming that the Offered Certificates are equity interests under applicable
local law or have substantial equity features, the Plan Assets Regulation
provides that the issuer of a security is not deemed to hold "plan assets" if
the security (a) is freely transferable, (b) is held by 100 or more investors
who are independent of both the issuer and one another, and (c) satisfies
certain registration requirements under the federal securities laws. There can
be no advance assurance that the Offered Certificates will meet the criteria for
this exemption. There will be no restrictions imposed on the transfer of the
Offered Certificates, and if the 100-investor threshold is met, the Seller
intends to cause the registration requirements to be satisfied. However, it
cannot be known in advance whether the 100-investor threshold will be met by the
Offered Certificates, and the Underwriter intends not to sell Offered
Certificates to Plans unless and until it believes the Offered Certificates will
meet the 100-investor threshold.
The Plan Assets Regulation also provides an exemption from "plan assets"
treatment for securities issued by an entity if, immediately after the most
recent acquisition of any equity interest in the entity, less than 25% of the
value of each class of equity interests in the entity is held by "benefit plan
investors" (e.g., Plans, governmental plans, other benefit plans not subject to
ERISA and certain entities whose underlying assets include plan assets by reason
of a Plan's investment in the entity). Because the availability of this
exemption depends upon the identity of the Certificateholders at any time, there
can be no assurance that the Offered Certificates will qualify for this
exemption.
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. Accordingly, assets of such plans may be
invested in the Offered Certificates without regard to the ERISA restrictions
described above, subject to applicable provisions of other federal and state
laws.
In accordance with ERISA's fiduciary standards, if the Underwriter offers to
sell certificates to Plans, the Plan fiduciary should determine whether an
investment in the Offered Certificates is permitted under the documents and
instruments governing the Plan, consistent with the Plan's overall investment
policy and appropriate in view of the composition of its investment portfolio.
Any Plan fiduciary who proposes to cause a Plan to purchase Offered Certificates
should consult with its own counsel with respect to the potential consequences
under ERISA and the Code of the Plan's acquisition and ownership of Offered
Certificates. Assets of a Plan or individual retirement account should not be
invested in the Offered Certificates unless it is clear that the assets of the
Master Trust will not be plan assets and that the investment by the Plan will
not be a prohibited transaction for which no statutory or administrative
exemption applies.
PLAN OF DISTRIBUTION
Under the terms and subject to the conditions contained in an underwriting
agreement (the "Underwriting Agreement"), with respect to the Master Trust, the
Seller will agree to sell to each of the underwriters named in the related
Prospectus Supplement, and each of such underwriters will severally agree to
purchase from the Seller, the principal amount of the Offered Certificates set
forth therein and in the Prospectus Supplement.
In the Underwriting Agreement, the underwriter(s) will agree, subject to the
terms and conditions set forth therein, to purchase all the Offered Certificates
which are offered hereby and by the Prospectus Supplement if any of such Offered
Certificates are purchased. In the event of a default by any such underwriter,
the Underwriting Agreement will
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provide that, in certain circumstances, purchase commitments of the
nondefaulting underwriters, if any, may be increased or the Underwriting
Agreement may be terminated.
The Prospectus Supplement will either (i) set forth the price at which
Offered Certificates will be offered to the public and any concessions that may
be offered to certain dealers participating in the offering of such Offered
Certificates or (ii) specify that the Offered Certificates are to be resold by
the underwriter(s) in negotiated transactions at varying prices to be determined
at the time of such sale. After the initial public offering of any Offered
Certificates, the public offering price and such concessions may be changed.
The underwriter(s), may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act. Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the Offered Certificates in the open market
after the distribution has been completed in order to cover syndicate short
positions. Penalty bids permit the underwriter(s) to reclaim a selling
concession from a syndicate member when the Offered Certificates originally sold
by such syndicate member are purchased in a syndicate covering transactions and
penalty bids may cause the prices of the Offered Certificates to be higher than
they would otherwise be in the absence of such transactions. These transactions,
if commenced, may be discontinued at any time.
The Underwriting Agreement will provide that NFC and the Seller will
indemnify the underwriter(s) against certain liabilities, including liabilities
under the Securities Act.
The Master Trust Trustee may, from time to time, invest the funds acquired
from the underwriters in the Excess Funding Account in Eligible Investments.
The place and time of delivery for the Offered Certificates in respect of
which this Prospectus is delivered will be set forth in the Prospectus
Supplement.
LEGAL MATTERS
The legality of the Offered Certificates and certain legal matters regarding
tax consequences of the issuance of the Offered Certificates and creditors
rights will be passed upon for NFC and the Seller by Kirkland & Ellis, Chicago,
Illinois.
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INDEX OF TERMS
<TABLE>
<S> <C>
1990 Trust.............................................................................................................. 1
1990 Trust Agreement.................................................................................................1, 22
1990 Trust Amortization Event...........................................................................................78
1990 Trust Amortization Period..........................................................................................82
1990 Trust Amortization Term............................................................................................82
1990 Trust Available Subordinated Amount................................................................................79
1990 Trust Collections..................................................................................................77
1990 Trust Collections Account..........................................................................................77
1990 Trust Deficiency Amount............................................................................................71
1990 Trust Distribution Account.........................................................................................77
1990 Trust Early Amortization Period....................................................................................79
1990 Trust Excess Servicing.............................................................................................25
1990 Trust Interest Deposit Account.....................................................................................37
1990 Trust Interest Deposit Agreement...................................................................................36
1990 Trust Investment Income............................................................................................71
1990 Trust Investment Securities........................................................................................80
1990 Trust Investor Certificate Interest................................................................................84
1990 Trust Investor Certificates........................................................................................23
1990 Trust Investor Interest Income.....................................................................................81
1990 Trust Investor Loss Amount.........................................................................................82
1990 Trust Liquidity Reserve Account....................................................................................77
1990 Trust Maximum Subordinated Amount..................................................................................80
1990 Trust Minimum Seller Interest......................................................................................79
1990 Trust Minimum Subordinated Amount..................................................................................80
1990 Trust Monthly Servicing Fee........................................................................................51
1990 Trust Non-Amortization Period......................................................................................82
1990 Trust Principal Losses.............................................................................................82
1990 Trust Projected Spread.............................................................................................77
1990 Trust Purchase Agreement...........................................................................................85
1990 Trust Seller Collections...........................................................................................12
1990 Trust Seller Interest..............................................................................................24
1990 Trust Seller Interest Income.......................................................................................83
1990 Trust Servicer Termination Event...................................................................................53
1990 Trust Spread Account...............................................................................................77
1990 Trust Spread Account Deposit.......................................................................................78
1990 Trust Termination Date..........................................................................................5, 58
1990 Trust Total Invested Amount........................................................................................52
1990 Trust Total Investor Interest......................................................................................49
1990 Trust Total Investor Percentage....................................................................................52
1990 Trust Trustee...................................................................................................1, 22
Accumulation Period.....................................................................................................15
Accumulation Period Commencement Date...................................................................................16
Accumulation Period Length..............................................................................................16
Accumulation Period Principal Shortfall.................................................................................65
Acquisition.............................................................................................................47
Acquisition premium.....................................................................................................90
Active Interest Deposit Agreement.......................................................................................36
Active Purchase Agreement...............................................................................................85
Active Trust............................................................................................................ 7
Active Trustee..........................................................................................................47
Adjusted Invested Amount................................................................................................60
Advance.................................................................................................................51
Advance Reimbursement...................................................................................................51
Aggregate NITC Earned Interest..........................................................................................51
Agreements..............................................................................................................51
</TABLE>
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<TABLE>
<S> <C>
Amortizing Class ......................................................................................................71
Applicable Agreement.....................................................................................................7
Applicable Floating Rate................................................................................................21
Applicable Voting Percentage............................................................................................75
Assignments.............................................................................................................47
Available Certificateholder Interest Collections........................................................................62
Available Draw Funds....................................................................................................64
Available Seller's Finance Charge Collections...........................................................................62
Available Seller's Principal Collections................................................................................62
Available Subordinated Amount.......................................................................................20, 66
Average Coverage Differential...........................................................................................79
Calculation Day.........................................................................................................37
Cede.....................................................................................................................3
CEDEL...................................................................................................................43
Certificate Principal...................................................................................................70
Certificate Principal Account...........................................................................................77
Certificate Principal Account Losses....................................................................................82
Certificate Register....................................................................................................40
Certificateholder Charge-Off............................................................................................67
Certificateholders.......................................................................................................7
Certificateholders' Interest............................................................................................47
Certificates.............................................................................................................1
Citibank...........................................................................................................42, 104
Class A-1 Investor Certificates.........................................................................................23
Class A-2 Investor Certificates.........................................................................................23
Class A-3 Investor Certificates.........................................................................................23
Class A-4 Investor Certificate..........................................................................................23
Class A-5 Investor Certificates.........................................................................................23
Class Amortization Date.................................................................................................79
Class Amortization Percentages..........................................................................................71
Class Amortization Period...............................................................................................41
Class Certificate Margin................................................................................................76
Class Certificate Rate..................................................................................................76
Class Charged-Off Amounts...............................................................................................83
Class Initial Invested Amount...........................................................................................83
Class Invested Amount...................................................................................................83
Class Investor Interest.................................................................................................82
Class Loss Amount ......................................................................................................83
Class Termination Date..................................................................................................85
Closing Date.............................................................................................................8
Code....................................................................................................................87
Collections.............................................................................................................58
Collections Account.....................................................................................................54
Commission...............................................................................................................3
Concentration Limit.....................................................................................................30
Contributed Dealer Notes................................................................................................86
Controlled Amortization Amount..........................................................................................65
Controlled Deposit Amount...............................................................................................65
Cooperative.............................................................................................................44
Corporate Trust Office..................................................................................................74
Credit Guidelines.......................................................................................................33
Current Interest Rate...................................................................................................37
Daily Note Sale.........................................................................................................86
Dealer..................................................................................................................32
Dealer Agreement........................................................................................................33
Dealer Finance Charge Collections.......................................................................................51
Dealer Finance Charges..................................................................................................50
</TABLE>
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<TABLE>
<S> <C>
Dealer Note Collections.................................................................................................60
Dealer Note Losses......................................................................................................61
Dealer Notes............................................................................................................32
Deficiency Amount ......................................................................................................63
Definitive Certificates.................................................................................................44
Deposit Amount..........................................................................................................37
Determination Date......................................................................................................45
Disclosure Document.....................................................................................................30
Distribution Account....................................................................................................54
Distribution Date....................................................................................................1, 50
Distribution Period.....................................................................................................50
DOL.....................................................................................................................96
Draw Amount.............................................................................................................64
DTC......................................................................................................................2
Due Period..............................................................................................................50
Early Amortization Event................................................................................................69
Early Amortization Period...............................................................................................69
Early Amortization Period Commencement Date.............................................................................69
Early Amortization Period Shortfall Amount..............................................................................66
Early Distribution..................................................................................................15, 68
Early Distribution Amount...........................................................................................15, 68
Early Distribution Date.............................................................................................15, 68
Eligible Dealer Note....................................................................................................47
Eligible Deposit Account................................................................................................54
Eligible Institution....................................................................................................54
Eligible Investments....................................................................................................55
Enhancement.............................................................................................................46
Enhancement Agreement...................................................................................................58
Enhancement Provider....................................................................................................59
ERISA...................................................................................................................95
Euroclear...............................................................................................................44
Euroclear Operator......................................................................................................44
Euroclear Participants..................................................................................................43
Excess Funding Account..................................................................................................54
Excess Interest Collections.............................................................................................63
Excess Seller's Percentage..............................................................................................62
Excess Seller's Principal Collections...................................................................................62
Exchange Act.............................................................................................................3
Expected Payment Date...................................................................................................41
FDIC....................................................................................................................77
Finance Charge Collections..............................................................................................61
Finance Charges.........................................................................................................50
Financed Vehicles.......................................................................................................32
Flat Charge.............................................................................................................35
Floating Allocation Percentage..........................................................................................61
Foreign Agency Depositaries.............................................................................................42
foreign holder..........................................................................................................91
Fully Funded Date.......................................................................................................15
Global Securities......................................................................................................104
Harco...................................................................................................................33
Independent Directors...................................................................................................94
Indirect Participants...................................................................................................43
Ineligible Dealer Note..................................................................................................48
Initial Invested Amount..................................................................................................1
Insurance Proceeds......................................................................................................31
Interest Credit.........................................................................................................38
Interest Deposit Account................................................................................................37
</TABLE>
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<TABLE>
<S> <C>
Interest Rate Swap......................................................................................................21
Invested Amount.........................................................................................................60
Investment Events.......................................................................................................68
Investment Income.......................................................................................................58
Investment Period...................................................................................................11, 14
Investment Period Commencement Date.....................................................................................68
Investment Period Shortfall Amount......................................................................................66
Investor Loss Amount....................................................................................................71
IRS.....................................................................................................................87
LIBOR...................................................................................................................28
Liquidity Reserve Account...............................................................................................21
Master Intercompany Agreement...........................................................................................37
Master Loan.............................................................................................................86
Master Revolving Credit Agreement.......................................................................................32
Master Revolving Note...................................................................................................32
Master Trust.............................................................................................................1
Master Trust Adjusted Investment Amount.................................................................................60
Master Trust Invested Amount............................................................................................60
Master Trust Purchase Agreement.........................................................................................85
Master Trust Seller's Certificates......................................................................................45
Master Trust Seller's Interest..........................................................................................56
Master Trust Servicer Termination Event.................................................................................53
Master Trust Trustee.....................................................................................................1
Maximum Subordinated Amount.............................................................................................66
Minimum Master Trust Seller's Interest..................................................................................56
Minimum Series Seller's Interest........................................................................................56
Monthly Interest.........................................................................................................9
Morgan.................................................................................................................104
Navistar Group..........................................................................................................47
Navistar Vehicle........................................................................................................32
Negative Carry Reserve Fund.............................................................................................56
Negative Carry Reserve Fund Deposit Amount..............................................................................57
Negative Carry Reserve Fund Required Amount.............................................................................57
Negative Carry Subordinated Amount......................................................................................67
Net Swap Payment................................................................................................21, 22, 57
Net Swap Receipt................................................................................................21, 22, 57
New Issuance.............................................................................................................9
NFC......................................................................................................................1
NFSC.....................................................................................................................1
NFSC Certificate........................................................................................................45
NIC.....................................................................................................................47
NITC Earned Interest....................................................................................................37
NITC Finance Charges....................................................................................................51
NITC Future Due Interest................................................................................................37
NITC Interest Amount....................................................................................................37
NITC Interest Transfer Date.............................................................................................59
NITC Payment Date.......................................................................................................37
Non-Amortization Period.................................................................................................80
Non-Amortizing Class....................................................................................................80
Non-Interest Bearing Dealer Notes.......................................................................................36
OEM Note................................................................................................................48
OEM Supplier............................................................................................................47
OEM Vehicle.............................................................................................................32
Offered Certificate Rate................................................................................................40
Offered Certificateholders...............................................................................................2
Offered Certificateholders' Interest.....................................................................................8
Offered Certificates.....................................................................................................1
</TABLE>
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<TABLE>
<S> <C>
Offered Series...........................................................................................................1
Offered Series Dealer Note Losses.......................................................................................61
Offered Series Finance Charge Collections...............................................................................61
Offered Series Principal Collections....................................................................................61
Offered Series Servicing Fee............................................................................................52
OID.....................................................................................................................89
Open Account............................................................................................................39
Open Account Statement..................................................................................................35
Participants............................................................................................................43
Parties in Interest.....................................................................................................95
Plan Assets Regulation..................................................................................................96
Plans...................................................................................................................95
Pooling and Servicing Agreement......................................................................................1, 40
Principal Allocation Percentage.........................................................................................61
Principal Collections...................................................................................................60
Principal Shortfall.....................................................................................................65
Principal Terms.........................................................................................................46
Projected Spread........................................................................................................67
Prospectus Supplement....................................................................................................1
Purchase Agreements.....................................................................................................85
Qualified Institution...................................................................................................77
Rating Agencies.........................................................................................................56
Rating Agency Condition.................................................................................................56
Record Date.............................................................................................................41
Registration Statement...................................................................................................3
Related 1990 Certificate.................................................................................................2
Related 1990 Certificate Collections.....................................................................................8
Related 1990 Certificate Interest Collections...........................................................................40
Related 1990 Certificate Principal Collections..........................................................................41
Related 1990 Certificate Rate...........................................................................................23
Relationship With NITC..................................................................................................32
Remaining Available Seller's Principal Collections......................................................................65
Required Excess Seller Interest Percentage..............................................................................62
Required Subordinated Amount............................................................................................67
Retail SPAs.............................................................................................................38
Revolving Period........................................................................................................13
Scheduled Class Amortization Date.......................................................................................78
Securities Act...........................................................................................................3
Seller...................................................................................................................1
Seller's Percentage.....................................................................................................62
Seller's Principal Collections..........................................................................................62
Series...................................................................................................................2
Series Accounts.........................................................................................................55
Series Allocable Dealer Note Losses.....................................................................................61
Series Allocable Finance Charge Collections.............................................................................61
Series Allocable Principal Collections..................................................................................60
Series Allocable Servicing Fee..........................................................................................52
Series Allocation Percentage............................................................................................60
Series Issuance Date....................................................................................................46
Series Principal Account................................................................................................16
Series Principal Account Losses.........................................................................................60
Series Termination Date.................................................................................................70
Servicer.................................................................................................................1
Servicer Termination Event..............................................................................................44
Servicing Fee...........................................................................................................52
Shared Principal Collections............................................................................................65
Shared Seller Principal Collections.....................................................................................66
</TABLE>
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<TABLE>
<S> <C>
Special Servicer Agent..................................................................................................54
Specified Accumulation Period Commencement Date.........................................................................16
Spread Account..........................................................................................................18
Spread Account Deposit Amount...........................................................................................67
Subordinated Percentage.................................................................................................66
Subsequent 1990 Trust Investor Certificate...............................................................................2
Supplement...............................................................................................................9
Supplemental Certificate................................................................................................45
Swap Counterparty.......................................................................................................21
Swap Fixed Rate.........................................................................................................21
Swap Floating Rate......................................................................................................21
Swap Payment....................................................................................................21, 22, 57
Swap Receipt....................................................................................................21, 22, 57
Tax Counsel.............................................................................................................87
Tax Opinion.............................................................................................................46
Terms and Conditions....................................................................................................44
Transfer Date...........................................................................................................68
Trust Accounts..........................................................................................................77
Trustees................................................................................................................52
Trusts..................................................................................................................51
Turnover................................................................................................................79
Uncollectible Finance Charges...........................................................................................51
Underwriting Agreement..................................................................................................96
Uniform Commercial Code.................................................................................................27
United States person....................................................................................................91
Unpaid Dealer Finance Charges...........................................................................................51
Up-Front Interest Credit................................................................................................37
Wholesale Note and Inventory Statement..................................................................................35
</TABLE>
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ANNEX I
GLOBAL CLEARANCE, SETTLEMENT
AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally Offered Certificates
(the "Global Securities") will be available only in book-entry form. Investors
in the Global Securities may hold such Global Securities through any of DTC,
CEDEL or Euroclear. The Global Securities will be tradeable as home market
instruments in both the European and U.S. domestic markets. Initial settlement
and all secondary trades will settle in same day funds.
Secondary market trading between investors holding Global Securities through
CEDEL and Euroclear will be conducted in the ordinary way in accordance with
their normal rules and operating procedures and in accordance with conventional
eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities through
DTC will be conducted according to the rules and procedures applicable to U.S.
corporate debt obligations.
Secondary cross-marketing trading between CEDEL or Euroclear and DTC
participants holding Global Securities will be effected on a
delivery-against-payment basis through Citibank, N.A. ("Citibank") and Morgan
Guaranty Trust Company of New York ("Morgan") as the respective depositaries of
CEDEL and Euroclear and as participants in DTC.
Non-U.S. holders of Global Securities will be exempt from U.S. withholding
taxes, provided that such holders meet certain requirements and deliver
appropriate U.S. tax documents to the securities clearing organizations or their
participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede Co. as nominee of DTC. Investors' interests in the Global Securities will
be represented through financial institutions acting on their behalf as direct
and indirect participants in DTC. As a result, CEDEL and Euroclear will hold
positions on behalf of their participants through their respective depositaries,
Citibank and Morgan, which in turn will hold such positions in accounts as
participants of DTC.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to securities previously issued by the
Master Trust. Investor securities custody accounts will be credited with their
holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC participants. Secondary market trading between DTC
participants will be settled using the procedures applicable to securities
previously issued by the Master Trust in same-day funds.
Trading between CEDEL and/or participants. Secondary market trading between
CEDEL participants and/or Euroclear participants will be settled using the
procedures applicable to conventional eurobonds in same-day funds.
Finally, day traders that use CEDEL or Euroclear and that purchase Global
Securities from DTC participants for delivery to CEDEL participants or Euroclear
participants should note that these trades would automatically fail on the
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sale side unless affirmative action were taken. At least three techniques should
be readily available to eliminate this potential problem:
(1) borrowing through CEDEL or Euroclear for one day (until the purchase
side of the day trade is reflected in their CEDEL or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(2) borrowing the Global Securities in the U.S. from a DTC participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their CEDEL or Euroclear
account in order to settle the sale side of the trade; or
(3) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC participants is at
least one day prior to the value date for the sale to the CEDEL participant
or Euroclear participants.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A holder of Global Securities holding securities through CEDEL or Euroclear
(or through DTC if the holder has an address outside the U.S.) will be subject
to the 30% U.S. withholding tax that generally applies to payments of interest
(including original issue discount) on registered debt issued by U.S. persons
unless such holder takes one of the following steps to obtain an exemption or
reduced tax rate:
Exemption for non-U.S. persons with effectively connected income (Form
4224). A non-U.S. person, including a non- U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
Exemption or reduced rate for non-U.S. persons resident in treaty countries
(Form 1001). Non-U.S. persons that are beneficial owners residing in a country
that has a tax treaty with the United States can obtain an exemption or reduced
tax rate (depending on the treaty terms) by filing Form 1001 (Ownership,
Exemption or Reduced Rate Certificate). If the treaty provides only for a
reduced rate, withholding tax will be imposed at that rate unless the filer
alternatively files Form W-8. Form 1001 may be filed by the beneficial owner or
his agent.
Exemption for U.S. persons (Form W-9). U.S. persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Request for Taxpayer
Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The holder of Global Security,
or in the case of a Form 1001 or a Form 4224 filer, his agent, files by
submitting the appropriate form to the person through whom he holds (the
clearing agency, in the case of persons holding directly on the books of the
clearing agency). Form W-8 and Form 1001 are effective for three calendar years
and Form 4224 is effective for one calendar year.
This summary does not deal with all aspects of federal income tax
withholding that may be relevant to foreign holders of these Global Securities.
Investors are advised to consult their own tax advisors for specific tax advice
concerning their holding and disposing of the Global Securities.
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