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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 13, 1999
Registration No. 333-_______
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
REGISTRATION STATEMENT
ON
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
NISSAN AUTO RECEIVABLES CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 6189 33-0479655
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
990 W. 190th STREET
TORRANCE, CALIFORNIA 90502
(310) 719-8013
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
----------------------
JOY MURAKAMI CROSE, ESQ.
NISSAN AUTO RECEIVABLES CORPORATION
990 W. 190TH STREET
TORRANCE, CALIFORNIA 90502
(310) 719-8024
(Name, address, including zip code, and
telephone number, including area code, of agent for
service with respect to the Registrant)
----------------------
COPIES TO:
WARREN R. LOUI, ESQ.
O'MELVENY & MYERS LLP
400 SOUTH HOPE STREET
LOS ANGELES, CALIFORNIA 90071
(213) 430-6000
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to a dividend or interest reinvestment plan, please check the following
box. [ ]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box.[x]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration number of the earlier effective registration statement for the
same offering. [ ]___________
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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PROPOSED TITLE OF SECURITIES PROPOSED MAXIMUM PROPOSED OFFERING AMOUNT OF MAXIMUM REGISTRATION
TO BE REGISTREED AMOUNT TO BE REGISTERED PRICE PER UNIT(1) AGGREGATE OFFERING PRICE(1) FEE
- ---------------------------------- ------------------------ ------------------ --------------------------- ---------------
<S> <C> <C> <C> <C>
Asset Backed Securities $1,000,000 100% $1,000,000 $278
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee on the
basis of the proposed maximum offering price per unit.
- -------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT WHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
PROSPECTUS
The information contained in this prospectus is not complete and may be changed.
This prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where the offer or sale
is not permitted.
SUBJECT TO COMPLETION, DATED ___, 1999
NISSAN AUTO RECEIVABLES TRUSTS
ASSET BACKED NOTES
ASSET BACKED CERTIFICATES
NISSAN AUTO RECEIVABLES CORPORATION,
SELLER
NISSAN MOTOR ACCEPTANCE CORPORATION,
SERVICER
THE TRUSTS:
1. A new trust will be formed to issue each series of securities.
2. Each trust will consist of:
- a pool of retail installment sales contracts secured by new,
near-new or used automobiles and light-duty trucks; and
- other assets specified in the applicable prospectus supplement.
THE SECURITIES:
1. will be asset-backed securities sold periodically in one or more series;
2. will be paid only from the assets of the related trust;
3. will be issued as part of a designated series that may include one or more
classes;
4. will consist of:
- notes (which will be treated as indebtedness of the trust) and/or
- certificates (which will represent an undivided ownership interest
in the trust).
YOU SHOULD REVIEW CAREFULLY THE FACTORS SET FORTH UNDER "RISK FACTORS" BEGINNING
ON PAGE 15 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE SECURITIES OR DETERMINED THAT THIS
PROSPECTUS OR THE APPLICABLE PROSPECTUS SUPPLEMENT IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The amounts, prices and terms of each offering of securities will be determined
at the time of sale and will be described in a prospectus supplement that will
be attached to this prospectus.
This prospectus may be used to offer and sell any series of securities only if
accompanied by the prospectus supplement for that series.
The date of this prospectus is ___________, ____.
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT
We provide information to you about the securities in two separate
documents that progressively provide varying levels of detail: this prospectus,
which provides general information, some of which may not apply to a particular
series of securities including your series, and the accompanying prospectus
supplement, which will describe the specific terms of the offered securities.
We have started with several introductory sections describing the trust and
the securities in abbreviated form, followed by a more complete description of
the terms. The introductory sections are:
* Summary of Terms - gives a brief introduction to the securities to be
offered; and
* Risk Factors - describes briefly some of the risks to investors of a
purchase of the securities.
You can find a listing of the pages where capitalized terms used in this
prospectus are defined under the caption "Index of Terms" beginning on page 98
in this prospectus.
Whenever we use words like "intends," anticipates" or "expects" or similar
words in this prospectus, we are making a forward-looking statement, or a
projection of what we think will happen in the future. Forward-looking
statements are inherently subject to a variety of circumstances, many of which
are beyond our control and could cause actual results to differ materially from
what we anticipate. Any forward-looking statements in this prospectus speak
only as of the date of this prospectus. We do not assume any responsibility to
update or review any forward-looking statement contained in this prospectus to
reflect any change in our expectation about the subject of that forward-looking
statement or to reflect any change in events, conditions or circumstances on
which we have based any forward-looking statement.
The securities are not a suitable investment for any investor that requires
a regular or predictable schedule of payments or payment on specific dates. The
securities are complex investments. We suggest that only investors who, either
alone or with their financial, tax and legal advisors, have the expertise to
analyze the prepayment, reinvestment and default risks, the tax consequences of
the investment and the interaction of these factors should consider purchasing
the securities.
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TABLE OF CONTENTS
PAGE
----
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT.....................2
SUMMARY OF TERMS...............................................................7
Issuer....................................................................7
Seller....................................................................7
Servicer..................................................................7
Securities Offered........................................................7
The Receivables...........................................................8
The Trust Property.......................................................10
Credit And Cash Flow Enhancement.........................................10
Servicing Fee............................................................12
Advances.................................................................12
Trustee..................................................................12
Indenture Trustee........................................................12
Optional Purchase........................................................12
Tax Status...............................................................12
ERISA Considerations.....................................................13
RISK FACTORS..................................................................15
YOU MUST RELY FOR REPAYMENT ONLY UPON PAYMENTS FROM THE TRUST'S ASSETS
WHICH MAY NOT BE SUFFICIENT TO MAKE FULL PAYMENTS ON YOUR SECURITIES.....16
YOU MAY EXPERIENCE REDUCED RETURNS ON YOUR INVESTMENT RESULTING FROM
PREPAYMENTS, REPURCHASES OR EARLY TERMINATION OF THE TRUST...............16
INTERESTS OF OTHER PERSONS IN THE RECEIVABLES AND FINANCED VEHICLES
COULD BE SUPERIOR TO THE TRUST'S INTEREST, WHICH MAY RESULT IN REDUCED
PAYMENTS ON YOUR SECURITIES..............................................18
RECEIVABLES THAT FAIL TO COMPLY WITH CONSUMER PROTECTION LAWS MAY BE
UNENFORCEABLE, WHICH MAY RESULT IN LOSSES ON YOUR INVESTMENT.............18
BANKRUPTCY OF NISSAN MOTOR ACCEPTANCE CORPORATION (SERVICER) OR
NISSAN AUTO RECEIVABLES CORPORATION (SELLER) COULD RESULT IN LOSSES
OR DELAYS IN PAYMENTS ON YOUR SECURITIES.................................19
PROCEEDS OF THE SALE OF RECEIVABLES MAY NOT BE SUFFICIENT TO PAY YOUR
SECURITIES IN FULL; FAILURE TO PAY PRINCIPAL ON YOUR NOTES WILL NOT
CONSTITUTE AN EVENT OF DEFAULT UNTIL MATURITY............................20
FORMATION OF THE TRUSTS.......................................................21
PROPERTY OF THE TRUSTS........................................................21
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THE RECEIVABLES...............................................................22
Underwriting of Motor Vehicle Loans......................................23
Servicing of the Receivables.............................................24
USE OF PROCEEDS...............................................................24
THE TRUSTEE...................................................................24
THE SELLER....................................................................24
THE SERVICER..................................................................25
WHERE YOU CAN FIND MORE INFORMATION ABOUT YOUR SECURITIES.....................25
DELINQUENCIES, REPOSSESSIONS AND NET LOSSES...................................25
WEIGHTED AVERAGE LIFE OF THE SECURITIES.......................................26
POOL FACTORS AND TRADING INFORMATION..........................................26
THE NOTES.....................................................................27
General..................................................................27
Principal and Interest on the Notes......................................28
The Indenture............................................................29
THE CERTIFICATES..............................................................33
General..................................................................33
Payments of Principal and Interest.......................................34
MATERIAL INFORMATION REGARDING THE SECURITIES.................................35
Fixed Rate Securities....................................................35
Floating Rate Securities.................................................35
Indexed Securities.......................................................42
Issues Related to Year 2000 Date Conversion..............................43
Book-Entry Registration..................................................44
Definitive Securities....................................................48
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS..........................49
Sale and Assignment of Receivables.......................................50
Accounts.................................................................51
Servicing Procedures.....................................................52
Insurance on Financed Vehicles...........................................54
Collections..............................................................54
Advances.................................................................55
Servicing Compensation...................................................55
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Yield Supplement Account; Yield Supplement Agreement.....................57
Distributions on the Securities..........................................57
Credit and Cash Flow Enhancement.........................................58
Net Deposits.............................................................59
Statements to Trustees and Trust.........................................59
Statements to Securityholders............................................59
Evidence as to Compliance................................................61
Material Matters Regarding the Servicer..................................61
Servicer Default.........................................................62
Rights Upon Servicer Default.............................................63
Waiver of Past Defaults..................................................64
Amendment................................................................64
List of Securityholders..................................................65
Insolvency Event.........................................................66
Payment of Notes.........................................................66
Seller Liability.........................................................67
Termination..............................................................67
Administration Agreement.................................................68
MATERIAL LEGAL ASPECTS OF THE RECEIVABLES.....................................68
General..................................................................68
Security Interests.......................................................68
Repossession.............................................................71
Notice of Sale; Redemption Rights........................................71
Deficiency Judgments and Excess Proceeds.................................71
Material Bankruptcy Considerations.......................................72
Consumer Protection Laws.................................................73
Other Limitations........................................................74
MATERIAL INCOME TAX CONSEQUENCES..............................................75
Tax Treatment of Owner Trusts............................................76
Tax Treatment of Grantor Trusts..........................................85
Material State Tax Consequences With Respect to Owner Trusts.............93
Material State Tax Consequences With Respect to Grantor Trusts...........94
ERISA CONSIDERATIONS..........................................................95
UNDERWRITING..................................................................96
LEGAL OPINIONS................................................................97
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INDEX OF TERMS................................................................98
6
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SUMMARY OF TERMS
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS
AND PROVIDES A GENERAL OVERVIEW OF RELEVANT TERMS OF THE SECURITIES. YOU SHOULD
READ CAREFULLY THIS ENTIRE DOCUMENT AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT
TO UNDERSTAND ALL OF THE TERMS OF THE OFFERING.
ISSUER The trust to be formed for each series of
securities. If the trust issues notes and
certificates, it will be formed by a trust
agreement between the seller and the
trustee of the trust. If the trust issues
only certificates, it will be formed by a
pooling and servicing agreement among the
seller, the servicer and the trustee of
the trust.
SELLER Nissan Auto Receivables Corporation.
SERVICER Nissan Motor Acceptance Corporation.
SECURITIES OFFERED NOTES - A series of securities may include
one or more classes of notes. Notes of a
series will be issued pursuant to an
indenture.
CERTIFICATES - Each series of securities
will include one or more classes of
certificates, whether or not a class of
notes is issued as part of the series.
The applicable prospectus supplement will
describe the following:
1. if any notes are issued, the
priority of payments (a) between
the notes and certificates and (b)
among different classes of notes;
and
2. the priority of payments among
different classes of certificates.
TERMS - The terms of each class of notes
and certificates in a series described in
the applicable prospectus supplement will
include the following:
1. the stated principal amount of each
class of notes and the stated
certificate balance of each class
of certificates; and
2. the interest rate (which may be
fixed, variable, adjustable or some
combination of these rates) or
method of determining the interest
rate.
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A class of notes may differ from other
classes of notes and a class of
certificates may differ from other classes
of certificates in one or more aspects,
including:
1. timing and priority of payments;
2. seniority;
3. allocations of losses;
4. interest rate or formula;
5. amount of interest or principal
payments;
6. whether interest or principal will
be payable to holders of the class
if specified events occur; and
7. the right to receive collections
from designated portions of the
receivables owned by the trust.
THE RECEIVABLES Purchasers of Nissan and Infiniti cars and
light-duty trucks often finance their
purchases by entering into retail
installment sales contracts with Nissan
and Infiniti dealers who then resell the
contracts to Nissan Motor Acceptance
Corporation, including its Infiniti
Financial Services division. These
contracts are referred to as
"receivables," and the underlying vehicles
are referred to as the "financed
vehicles." The purchasers of the financed
vehicles are referred to as the
"obligors." The terms of the contracts
must meet specified Nissan Motor
Acceptance Corporation requirements.
On or before the date the securities of a
series are issued, Nissan Motor Acceptance
Corporation will sell a specified amount
of receivables to Nissan Auto Receivables
Corporation, the seller. The seller will
then sell those receivables to the trust.
The sale by the seller to the trust will
be documented under:
1. a pooling and servicing agreement
among the seller, the servicer and
the trustee (if the trust will be
treated as a grantor trust for
federal income tax purposes); or
2. a sale and servicing agreement
among the seller, the servicer and
the trust (if the trust will be
treated other than as a grantor
trust for federal income tax
purposes).
The receivables to be sold by Nissan Motor
Acceptance Corporation to the seller and
resold to the trust will be selected
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based on criteria specified in the pooling
and servicing agreement or the sale and
servicing agreement, whichever is
applicable. These criteria will be
described in the applicable prospectus
supplement.
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THE TRUST PROPERTY The property of each trust:
1. will be described in the prospectus
supplement;
2. will primarily be a pool of
receivables secured by new, near-
new and used financed vehicles and
amounts due or collected under the
receivables on or after a specified
cutoff date; and
3. will include related assets such
as:
- security interests in the
financed vehicles;
- proceeds from claims on related
insurance policies;
- the rights of the seller in
rebates of premiums and other
amounts relating to insurance
policies and other items
financed under the receivables;
- the rights of the seller in the
agreements identified in the
prospectus supplement; and
- amounts deposited in specified
bank accounts.
CREDIT AND CASH
FLOW ENHANCEMENT The trusts may include features designed
to provide protection to one or more
classes of securities. These features are
referred to as "credit enhancement."
Credit enhancement may include any one or
more of the following:
1. subordination of one or more other
classes of securities;
2. one or more reserve accounts;
3. over-collateralization;
4. letters of credit or other credit
facilities;
5. surety bonds;
6. guaranteed investment contracts;
7. repurchase obligations;
8. cash deposits; or
9. other agreements or arrangements
providing for other third party
payments or other support.
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In addition, the trusts may include
features designed to ensure the timely
payment of amounts owed to
securityholders. These features may
include any one or more of the following:
1. yield supplement agreements;
2. liquidity facilities;
3. cash deposits; or
4. other agreements or arrangements
providing for other third party
payments or other support.
The specific terms of any enhancement
applicable to a trust or to the securities
issued by a trust will be described in
detail in the applicable prospectus
supplement.
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SERVICING FEE Nissan Motor Acceptance Corporation will
service the receivables. In that
capacity, the servicer will handle all
collections, administer defaults and
delinquencies and otherwise service the
receivables. The trust will pay the
servicer a monthly fee equal to a
percentage of the total principal balance
of the receivables at the beginning of the
preceding month specified in the
applicable prospectus supplement. The
servicer will also receive additional
servicing compensation in the form of
investment earnings, late fees, prepayment
fees and other administrative fees and
expenses or similar charges received by
the servicer during that month.
ADVANCES The servicer will be obligated to advance
to the trust interest on the receivables
that is due but unpaid by the obligor.
The servicer will not be required to make
any advance (other than the advance of an
interest shortfall arising from a prepaid
receivable) if it determines that it will
not be able to recover an advance from an
obligor. The trust will reimburse the
servicer for those advances from excess
interest collections on the related
receivables. In addition, if a receivable
is liquidated, the amount of accrued and
unpaid interest on that receivable
(excluding the interest for the current
period) will be paid to the servicer as
reimbursement of outstanding advances.
YOU SHOULD REFER TO "DESCRIPTION OF THE
TRANSFER AND SERVICING AGREEMENTS -
ADVANCES" IN THIS PROSPECTUS FOR MORE
DETAILED INFORMATION ON ADVANCES AND
REIMBURSEMENT OF ADVANCES.
TRUSTEE The trustee for each series of securities
will be named in the prospectus supplement
for that series.
INDENTURE TRUSTEE If the trust issues notes, the trustee for
the indenture pursuant to which the notes
will be issued will be named in the
prospectus supplement for that series.
OPTIONAL PURCHASE The servicer or the seller may redeem any
outstanding securities when the
outstanding aggregate principal balance of
the receivables declines to 10% or below
of the original total principal balance of
the receivables as of the cutoff date.
YOU SHOULD REFER TO "DESCRIPTION OF THE
TRANSFER AND SERVICING AGREEMENTS -
TERMINATION" IN THIS PROSPECTUS FOR MORE
DETAILED INFORMATION ON THE OPTIONAL
PURCHASE OF SECURITIES.
TAX STATUS GRANTOR TRUSTS - The applicable prospectus
supplement will specify whether a trust
will be treated as a grantor trust for
federal income tax purposes. If a trust
is nominally referred to as a "grantor
trust" in the applicable prospectus
supplement,
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special tax counsel to the trust will be
required to deliver an opinion that:
1. the trust will be treated as a
grantor trust for federal income
and California franchise and income
tax purposes; and
2. the trust will not be subject to
federal income tax or California
franchise and income tax.
OWNER TRUSTS - If the trust is nominally
referred to as an "owner trust" in the
applicable prospectus supplement, special
tax counsel to the trust will be required
to deliver an opinion for federal income
tax purposes and California income and
franchise tax purposes:
1. as to the characterization as debt
of the notes issued by the trust;
and
2. that the trust will not be
characterized as an association (or
a publicly traded partnership)
taxable as a corporation.
If a trust is nominally referred to as an
"owner trust" in the applicable prospectus
supplement:
1. by purchasing a note, you will be
agreeing to treat the note as
indebtedness for tax purposes; and
2. by purchasing a certificate, you
will be agreeing to treat the trust
as a partnership in which you are a
partner for federal income tax
purposes and California income and
franchise tax purposes.
Applicable taxing authorities could impose
alternative tax characterizations of the
trust and the certificates. However,
these characterizations generally will not
result in material adverse tax
consequences to securityholders.
YOU SHOULD REFER TO "MATERIAL INCOME TAX
CONSEQUENCES" IN THIS PROSPECTUS AND THE
APPLICABLE PROSPECTUS SUPPLEMENT FOR MORE
DETAILED INFORMATION ON THE APPLICATION OF
FEDERAL AND CALIFORNIA TAX LAWS.
ERISA NOTES - Notes will generally be eligible
CONSIDERATIONS for purchase by employee benefit plans.
UNSUBORDINATED GRANTOR TRUST CERTIFICATES
- Certificates of a class issued by a
grantor trust that are not subordinated to
any
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other class will generally be eligible
for purchase by employee benefit plans.
OTHER CERTIFICATES - Subordinated classes
of certificates issued by a grantor trust
and certificates issued by owner trusts
will not be eligible for purchase by an
employee benefit plan or individual
retirement account.
YOU SHOULD REFER TO "ERISA CONSIDERATIONS"
IN THIS PROSPECTUS AND THE APPLICABLE
PROSPECTUS SUPPLEMENT FOR MORE DETAILED
INFORMATION REGARDING THE ERISA
ELIGIBILITY OF ANY CLASS OF SECURITIES.
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RISK FACTORS
YOU SHOULD CONSIDER THE FOLLOWING RISK FACTORS AND THE RISKS DESCRIBED IN
THE SECTION CAPTIONED "RISK FACTORS" IN THE APPLICABLE PROSPECTUS SUPPLEMENT IN
DECIDING WHETHER TO PURCHASE SECURITIES OF ANY CLASS.
[Remainder of page intentionally left blank]
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YOU MUST RELY The securities represent interests solely in the trust or
FOR REPAYMENT indebtedness of the trust and will not be insured or
ONLY UPON guaranteed by Nissan Motor Acceptance Corporation (the
PAYMENTS servicer), Nissan Auto Receivables Corporation (the seller),
FROM THE or any of their respective affiliates, or the related
TRUST'S ASSETS trustee or any other person or entity other than the trust.
WHICH MAY The only source of payment on your securities are payments
NOT BE received on the receivables and, if and to the extent
SUFFICIENT TO available, any credit enhancement for the trust, including
MAKE FULL amounts on deposit in the reserve account established for
PAYMENTS ON that trust. However, although funds in the reserve account
YOUR will be available to cover shortfalls in distributions of
SECURITIES. interest on and principal of your securities, funds to be
deposited in this account are limited. If the funds in this
account are exhausted, your securities will be paid solely
from current distributions on the receivables. SEE
"SUBORDINATION; RESERVE ACCOUNT" OR "SUBORDINATION;
SUBORDINATION SPREAD ACCOUNT" IN THE APPLICABLE PROSPECTUS
SUPPLEMENT. In limited circumstances, the trust will also
have access to the funds in the yield supplement account.
SEE "DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS -
YIELD SUPPLEMENT ACCOUNT; YIELD SUPPLEMENT AGREEMENT" IN
THIS PROSPECTUS.
The indenture authorizes the indenture trustee to sell the
receivables following an acceleration of the maturity dates
of the notes if the sale meets requirements set forth in the
indenture. However, the amount received by the indenture
trustee upon selling the receivables may be less than the
aggregate principal amount of the outstanding notes and
certificates. In that circumstance, the principal amount of
the notes and the balance of the certificates will not be
paid in full.
YOU MAY You may receive payment of principal on your securities
EXPERIENCE earlier than you expected for the reasons set forth below.
REDUCED You may not be able to reinvest the principal paid to you
RETURNS ON earlier than you expected at a rate of return that is equal
YOUR to or greater than the rate of return on your securities.
INVESTMENT
RESULTING FROM Prepayments on the receivables by the related obligors and
PREPAYMENTS, purchases of the receivables by the seller and the servicer
REPURCHASES will shorten the life of the securities to an extent that
OR EARLY cannot be fully predicted.
TERMINATION OF
THE TRUST. The seller will be required to repurchase receivables from
the trust if there is a breach of the representations and
warranties relating to those receivables that materially
adversely affects those receivables. Nissan Motor
Acceptance Corporation, as servicer, will also be required
to purchase receivables from the trust if it breaches its
servicing obligations with respect to those receivables.
The servicer or the seller also will be entitled to purchase
all remaining receivables from the trust once the aggregate
principal balance of the receivables is 10% or less of the
initial aggregate principal balance of the receivables on
the related cutoff date.
Further, the receivables included in the trust may be
prepaid, in full or
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<PAGE>
in part, voluntarily or as a result of defaults, theft of
or damage to the related vehicles or for other reasons. The
rate of prepayments on the receivables may be influenced by
a variety of economic, social and other factors in addition
to those described above. The servicer has limited
historical experience with respect to prepayments on
receivables. In addition, the servicer is not aware of
publicly available industry statistics that detail the
prepayment experience for contracts similar to the
receivables. For these reasons, the servicer cannot predict
the actual prepayment rates for the receivables. You will
bear all reinvestment risk resulting from prepayments on
the receivables and the corresponding acceleration of
payments on the securities.
The final payment of each class of securities is expected to
occur prior to its scheduled final payment date because of
the prepayment and purchase considerations described above.
If sufficient funds are not available to pay any class of
notes in full on its scheduled final payment date, an event
of default will occur and final payment of that class of
notes may occur later than that date.
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<PAGE>
INTERESTS OF Another person could acquire an interest in a receivable
OTHER PERSONS that is superior to the trust's interest in that receivable
IN THE because the receivables will not be segregated or marked as
RECEIVABLES belonging to the trust. The seller will cause financing
AND FINANCED statements to be filed with the appropriate governmental
VEHICLES COULD authorities to perfect the trust's interest in the
BE SUPERIOR TO receivables. However, the servicer will continue to hold
THE TRUST'S the receivables. If another party purchases (or takes a
INTEREST, security interest in) one or more receivables for new value
WHICH MAY in the ordinary course of business and obtains possession of
RESULT IN those receivables without actual knowledge of the trust's
REDUCED interest because of the failure to segregate or mark those
PAYMENTS ON receivables, the new purchaser (or secured party) will
YOUR acquire an interest in those receivables superior to the
SECURITIES. interest of the trust.
Another person could acquire an interest in a vehicle
financed by a receivable that is superior to the trust's
interest in the vehicle because of the failure to identify
the trust as the secured party on the related certificate of
title. While Nissan Motor Acceptance Corporation, as
originator, will assign its security interest in the
financed vehicles to the seller, and the seller will assign
to the trust its security interests in the financed
vehicles, the servicer will continue to hold the
certificates of title or ownership for the vehicles.
However, for administrative reasons, the servicer will not
endorse or otherwise amend the certificates of title or
ownership to identify the trust as the new secured party.
Because the trust will not be identified as the secured
party on any certificates of title or ownership, the
security interest of the trust in the vehicles may be
defeated through fraud, forgery, negligence or error and as
a result the trust may not have a perfected security
interest in the financed vehicles in every state.
The possibility that the trust may not have a perfected
security interest in the financed vehicles may affect the
trust's ability to repossess and sell the financed vehicles
or may limit the amount realized to less than the amount due
by the related obligors. Therefore, you may be subject to
delays in payment and may incur losses on your investment in
the securities as a result of defaults or delinquencies by
obligors and because of depreciation in the value of the
related financed vehicles. SEE "MATERIAL LEGAL ASPECTS OF
THE RECEIVABLES-SECURITY INTERESTS" IN THIS PROSPECTUS.
RECEIVABLES THAT Many federal and state consumer protection laws regulate
FAIL TO COMPLY consumer contracts such as the receivables. If any of the
WITH CONSUMER receivables do not comply with one or more of these laws,
PROTECTION LAWS the servicer may be prevented from or delayed in collecting
MAY BE amounts due on the receivables. If that happens, payments
UNENFORCEABLE, on the securities could be delayed or reduced. Each of
WHICH MAY Nissan Auto Receivables Corporation and Nissan Motor
RESULT IN LOSSES Acceptance Corporation will make representations and
ON YOUR warranties relating to the receivables' compliance with law
INVESTMENT. and the trust's ability to enforce the contracts. If Nissan
Auto Receivables Corporation or Nissan Motor
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Acceptance Corporation breaches any of these
representations or warranties, the trust's sole remedy will
be to require Nissan Auto Receivables Corporation to
repurchase the affected receivables. SEE "MATERIAL LEGAL
ASPECTS OF THE RECEIVABLES - CONSUMER PROTECTION LAWS" IN
THIS PROSPECTUS.
BANKRUPTCY OF If Nissan Motor Acceptance Corporation, the servicer, or
NISSAN MOTOR Nissan Auto Receivables Corporation, the seller, becomes
ACCEPTANCE subject to bankruptcy proceedings, you could experience
CORPORATION losses or delays in the payments on your securities. Nissan
(SERVICER) OR Motor Acceptance Corporation will sell the receivables to
NISSAN AUTO Nissan Auto Receivables Corporation, and Nissan Auto
RECEIVABLES Receivables Corporation will in turn transfer the
CORPORATION receivables to the trust. However, if Nissan Motor
(SELLER) COULD Acceptance Corporation or Nissan Auto Receivables
RESULT IN Corporation becomes subject to a bankruptcy proceeding, the
LOSSES OR court in the bankruptcy proceeding could conclude that
DELAYS IN Nissan Motor Acceptance Corporation or Nissan Auto
PAYMENTS ON Receivables Corporation still owns the receivables by
YOUR concluding that the sale to the seller or the trust was not
SECURITIES. a "true sale" or, in the case of a bankruptcy of Nissan
Motor Acceptance Corporation, that the seller should be
consolidated with Nissan Motor Acceptance Corporation for
bankruptcy purposes. If a court were to reach this
conclusion, you could experience losses or delays in
payments on the securities as a result of, among other
things:
1. the "automatic stay," which prevents secured
creditors from exercising remedies against a
debtor in bankruptcy without permission from the
court and provisions of the U.S. Bankruptcy Code
that permit substitution for collateral in limited
circumstances;
2. tax or government liens on Nissan Motor Acceptance
Corporation's or Nissan Auto Receivables
Corporation's property (that arose prior to the
transfer of a receivable to the trust) having a
prior claim on collections before the collections
are used to make payments on your securities; and
3. the trust not having a perfected security interest
in (a) one or more of the financed vehicles
securing the receivables or (b) any cash
collections held by Nissan Motor Acceptance
Corporation at the time Nissan Motor Acceptance
Corporation becomes the subject of a bankruptcy
proceeding.
The seller will take steps in structuring each transaction
described in this prospectus and the applicable prospectus
supplement to minimize the risk that a court would
consolidate the seller with Nissan Motor Acceptance
Corporation for bankruptcy purposes or conclude that the
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sale of receivables to the seller or the trust was not a
"true sale." SEE "MATERIAL LEGAL ASPECTS OF THE RECEIVABLES
- MATERIAL BANKRUPTCY CONSIDERATIONS" IN THIS PROSPECTUS.
PROCEEDS OF If so directed by the holders of the requisite percentage of
THE SALE OF outstanding notes of a series, following an acceleration of
RECEIVABLES the notes upon an event of default, the indenture trustee
MAY NOT BE will sell the receivables owned by the trust only in limited
SUFFICIENT TO circumstances. However, there is no assurance that the
PAY YOUR market value of those receivables will at any time be equal
SECURITIES IN to or greater than the aggregate principal amount of the
FULL; FAILURE TO notes or the sum of the aggregate principal amount of the
PAY PRINCIPAL notes and the aggregate principal balance the certificates.
ON YOUR NOTES Therefore, upon an event of default, there can be no
WILL NOT assurance that sufficient funds will be available to repay
CONSTITUTE AN you in full. In addition, the amount of principal required
EVENT OF to be paid to the noteholders will generally be limited to
DEFAULT UNTIL amounts available in the collection account (and the reserve
MATURITY. account, if any). Therefore, the failure to pay principal
on your notes generally will not result in the occurrence of
an event of default until the final scheduled distribution
date for your notes. SEE "THE NOTES-THE INDENTURE--EVENTS
OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT" IN THIS
PROSPECTUS.
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FORMATION OF THE TRUSTS
Nissan Auto Receivables Corporation (the "Seller") will establish each
trust (each, a "Trust") pursuant to a Trust Agreement (as amended and
supplemented from time to time, the "Trust Agreement") or a Pooling and
Servicing Agreement (as amended from time to time, the "Pooling and Servicing
Agreement"), as applicable.
The terms of each series of notes (the "Notes") or certificates (the
"Certificates" and, together with the Notes, the "Securities") issued by each
Trust (the "Issuer"), and additional information concerning the assets of each
issuer and any applicable credit enhancement will be set forth in a supplement
to this Prospectus (a "Prospectus Supplement").
PROPERTY OF THE TRUSTS
The property of each Trust will consist of a pool (each, a "Receivables
Pool") of retail installment sale contracts originated on or after [__________],
between Nissan and Infiniti dealers (the "Dealers") and retail purchasers (the
"Obligors"). These contracts are referred to as the "Receivables" and evidence
the indirect financing made available by Nissan Motor Acceptance Corporation
("NMAC") to the Obligors. The Receivables are secured by new, near-new and used
Nissan and Infiniti automobiles and light-duty trucks (the "Financed Vehicles")
and all principal and interest payments made on or after the applicable cutoff
date (each, a "Cutoff Date") and other property, all as specified in the
applicable Prospectus Supplement. "Near-new" automobiles and light-duty trucks
are pre-owned Nissan and Infiniti vehicles that are not greater than three
model-years old as of the contract origination year. "New" vehicles may include
"demonstration" vehicles, which are not titled in some states and may be
classified as new vehicles in those states.
The Receivables were originated by Dealers in accordance with NMAC's
requirements under agreements with Dealers governing the assignment of the
Receivables to NMAC, including its Infiniti Financial Services division (the
"Dealer Agreements"). NMAC will purchase the Receivables of each Receivables
Pool in the ordinary course of business pursuant to the Dealer Agreements. On
or before the date of the initial issuance of any series of Securities (each, a
"Closing Date"), NMAC will sell the Receivables to the Seller.
On the applicable Closing Date, NMAC will sell the Receivables comprising
the related Receivables Pool to the Seller, and the Seller will sell those
Receivables to the Trust pursuant to, if the trust is to be treated other than
as a grantor trust for federal income tax purposes, the related Sale and
Servicing Agreement among the Seller, the Servicer and the Trust (as amended and
supplemented from time to time, the "Sale and Servicing Agreement") or, if the
Trust is to be treated as a grantor trust for federal income tax purposes, the
related Pooling and Servicing Agreement. NMAC will continue to service the
Receivables.
In addition to the Receivables, the property of each Trust will also
include the following:
1. amounts that may be held in separate trust accounts established and
maintained by the Servicer with the Trustee pursuant to the related
Sale and Servicing Agreement or Pooling and Servicing Agreement;
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2. security interests in the vehicles financed by the Receivables (the
"Financed Vehicles") and any related property;
3. the rights to proceeds from claims on physical damage, credit life and
disability insurance policies covering the Financed Vehicles or the
Obligors;
4. NMAC's right to receive payments from Dealers pursuant to repurchase
by the Dealers of Receivables which do not meet specified
representations made by the Dealers ("Dealer Recourse");
5. the Seller's right under, as applicable, the Sale and Servicing
Agreement, the Pooling and Servicing Agreement, the Purchase Agreement
and the Yield Supplement Agreement, if any;
6. the Seller's right to realize upon any property (including the right
to receive future net liquidation proceeds) that secured a Receivable;
7. the Seller's right in rebates of premiums and other amounts relating
to insurance policies and other items financed under the Receivables
in effect as of the related Cutoff Date; and
8. all proceeds of the foregoing.
Various forms of credit enhancement may be used to benefit holders of the
related Securities, including a Reserve Account. In limited circumstances, a
Trust will also have access to the funds in the Yield Supplement Account. The
property of each Trust will not include amounts on deposit from time to time in
any Yield Supplement Account or Reserve Account.
THE RECEIVABLES
NMAC purchased the Receivables from the Dealers in the ordinary course of
business in accordance with NMAC's underwriting standards. The Receivables to
be held by each Trust will be randomly selected from those automobile and/or
light-duty truck retail installment sales contracts in NMAC's portfolio that
meet several criteria. The Seller will not use selection procedures adverse to
Securityholders when selecting the Receivables from qualifying retail
installment sale contracts. These criteria provide that each Receivable:
1. was originated in the United States;
2. provides for level monthly payments which provide interest at the
annual percentage rate ("APR") and fully amortize the amount financed
over an original term to maturity no greater than 60 months;
3. is attributable to the purchase of a new, near-new or used automobile
or light-duty truck and is secured by that vehicle; and
4. satisfies the other criteria, if any, set forth in the applicable
Prospectus Supplement.
All of the Receivables are simple interest contracts. In general, under a
simple interest contract, as payments are received they are applied first to pay
accrued interest, second, to pay
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principal until the principal balance is brought current, and third, to reduce
any unpaid late charges or associated fees as provided in the Receivable. Any
remaining amounts are then applied to reduce the remaining principal balance of
the Receivable.
Because interest accrues daily throughout each payment period, if an
Obligor pays the fixed monthly installment in advance of the due date, the
portion of the payment allocable to interest for that payment period will be
less than it would be if the payment were made on the due date. Similarly, the
portion of that monthly payment allocable to principal will be correspondingly
greater. Conversely, if the Obligor pays the fixed monthly installment after
its due date, the portion of the payment allocable to interest for that payment
period will be greater than it would be if the payment were made on the due
date, and the portion of the payment allocable to principal will be
correspondingly smaller. Accordingly, the timing and amount of prior payments
will determine the amount of the scheduled final monthly payment.
UNDERWRITING OF MOTOR VEHICLE LOANS
NMAC purchases automobile and light-duty truck retail installment sales
contracts from approximately 1,240 Dealers located throughout the United States,
including the District of Columbia, and in Guam. These contracts are
underwritten using NMAC's standard underwriting procedures. The Receivables are
originated by Dealers in accordance with NMAC's requirements under existing
Dealer Agreements and will be purchased in accordance with NMAC's underwriting
procedures which emphasize, among other factors, the applicant's willingness and
ability to pay and the value of the vehicle to be financed.
The Seller requires that applications received from Dealers be signed by
the applicant and contain, among other information, the applicant's name,
address, social security number, residential status, source and amount of
monthly income and amount of monthly rent or mortgage payment. Upon receipt of
the above information, NMAC obtains a credit report from an independent credit
bureau reporting agency.
NMAC's credit decision is influenced by, among other things, the
applicant's credit score as obtained from a statistically derived empirical
credit scoring process. The credit scoring process considers credit bureau,
application and contract information. The credit scoring process also takes
into account debt ratios, such as car payment to income and total debt payments
to total income, residential status, monthly mortgage or rent payment, bank
accounts and other personal information. NMAC makes its final credit decision
based upon the degree of credit risk perceived and the amount of credit
requested.
NMAC uses risk-based pricing which includes a tiered system of interest
rates and loan-to-value ratios representing the varying degrees of risk assigned
to different ranges of credit risk. If NMAC considers an Obligor to be
relatively less credit worthy (and, as a result, a greater risk), NMAC will
assign the Obligor a higher interest rate and a lower permissible loan-to-value
ratio.
NMAC's retail contract requires that Obligors maintain specific levels and
types of insurance coverage to protect the Financed Vehicle against loss. NMAC
requires Obligors to provide evidence of insurance at the time of purchase, but
performs no subsequent verification of continued coverage. NMAC will not be
obligated to make payments to a Trust for any loss when third party insurance
has not been maintained.
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SERVICING OF THE RECEIVABLES
NMAC considers a receivable to be past due when the Obligor fails to make a
payment by the due date and delinquent when a payment is 15 days past due. If a
payment is delinquent, NMAC will soon thereafter mail notices and initiate
telephone contacts requesting payment. If the delinquent receivable cannot be
brought current or completely collected within 60 to 90 days, NMAC generally
attempts to repossess the vehicle. NMAC holds repossessed vehicles in inventory
to comply with any applicable statutory requirements for reinstatement and then
sells those vehicles. Any deficiencies remaining after repossession and sale of
the vehicle or after the full charge-off of the receivable are pursued by or on
behalf of NMAC to the extent practicable and legally permitted. See "Material
Legal Aspects of the Receivables - Deficiency Judgments and Excess Proceeds."
NMAC attempts to contact Obligors and establish and monitor repayment schedules
until the deficiencies are either paid in full or become impractical to pursue.
USE OF PROCEEDS
Each Trust will use the net proceeds from the sale of the Securities of a
given series to purchase Receivables from the Seller. The Seller will use the
net proceeds it receives from any Trust to purchase Receivables from NMAC.
THE TRUSTEE
The trustee for each Trust (the "Trustee") or the trustee under any
Indenture pursuant to which Notes are issued (the "Indenture Trustee") will be
specified in the applicable Prospectus Supplement. The Trustee's or the
Indenture Trustee's liability in connection with the issuance and sale of the
related Securities is limited solely to the express obligations of that Trustee
or Indenture Trustee set forth in the related Trust Agreement, Pooling and
Servicing Agreement, Sale and Servicing Agreement or Indenture, as applicable.
A Trustee or Indenture Trustee may resign at any time, in which event the
Servicer, or its successor, will be obligated to appoint a successor thereto.
The Administrator of a Trust that is not a grantor trust may also remove a
Trustee or Indenture Trustee that becomes insolvent or otherwise ceases to be
eligible to continue in that capacity under the related Trust Agreement, Sale
and Servicing Agreement or Indenture, as applicable. The Servicer for a Trust
that is a grantor trust may remove a Trustee that becomes insolvent or otherwise
ceases to be eligible to continue in that capacity under the related Pooling and
Servicing Agreement. In those circumstances, the Servicer or, in the case of a
series that includes Notes, the Administrator, as the case may be, will be
obligated to appoint a successor thereto. Any resignation or removal of a
Trustee or Indenture Trustee and appointment of a successor trustee will not
become effective until acceptance of the appointment by the successor.
THE SELLER
The Seller is a wholly owned subsidiary of NMAC and was incorporated in the
State of Delaware on August 5, 1991. The Seller was organized for limited
purposes, which include purchasing receivables from NMAC and transferring those
receivables to third parties. The Seller's certificate of incorporation limits
the activities of the Seller to the foregoing purposes. The Seller has no
substantial assets other than those related to those activities. The principal
executive offices of the Seller are located at 990 W. 190th Street, Torrance,
California 90502 and its telephone number is (310) 719-8013.
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THE SERVICER
Nissan Motor Acceptance Corporation ("NMAC" or the "Servicer") was
incorporated in California in November of 1981 and began operations in February
of 1982. NMAC is a wholly owned subsidiary of Nissan North America, Inc.
("NNA"), the primary distributor of Nissan vehicles in the continental United
States. NNA is a direct wholly owned subsidiary of Nissan Motor Co., Ltd., a
Japanese corporation ("Nissan"), which is a worldwide manufacturer and
distributor of motor vehicles, industrial equipment and aerospace products.
NMAC provides indirect automotive consumer loan and lease financing and
direct dealer financing, through (and to) approximately 1,090 Nissan and 150
Infiniti Dealers in the United States. NMAC's underwriting, servicing and
collection activities are conducted principally at a processing center in
Dallas, Texas.
The principal executive offices of the Servicer are located at 990 W. 190th
Street, Torrance, California 90502 and its telephone number is (310) 719-8000.
WHERE YOU CAN FIND MORE INFORMATION ABOUT YOUR SECURITIES
THE TRUST - The Trustee will provide to securityholders ("Securityholders")
(which shall be Cede & Co. ("Cede") as the nominee of DTC unless definitive
Securities are issued under the limited circumstances described in this
Prospectus) unaudited monthly and annual reports concerning the Receivables and
other specified matters. See "Description of the Transfer and Servicing
Agreements - Statements to Securityholders" and "- Evidence as to Compliance" in
this Prospectus. Copies of these reports may be obtained at no charge at the
offices specified in the applicable Prospectus Supplement.
THE SELLER - Nissan Auto Receivables Corporation, as Seller of the
Receivables, has filed with the Securities and Exchange Commission (the "SEC") a
registration statement on Form S-3 (the "Registration Statement") under the
Securities Act of 1933 (the "Securities Act") of which this Prospectus forms a
part. The Registration Statement is available for inspection without charge at
the public reference facilities maintained at the principal office of the SEC at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the SEC at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661, and Seven World Trade Center, Suite 1300, New
York, New York 10048. You may obtain information on the operation of the SEC's
reference room by calling the SEC at (800) SEC-0330. You may obtain copies of
those materials at prescribed rates by writing to the Public Reference Section
of the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
The SEC also maintains a website (http://www.sec.gov) that contains reports,
registration statements, proxy and information statements, and other information
regarding issuers that file electronically with the SEC.
Copies of the operative agreements relating to the Securities will also be
filed with the SEC.
DELINQUENCIES, REPOSSESSIONS AND NET LOSSES
Information concerning NMAC's experience pertaining to delinquencies,
repossessions and net losses on its portfolio of new, near-new and used retail
automobile and light-duty truck
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receivables (including receivables previously sold that NMAC continues to
service) will be set forth in each Prospectus Supplement. There can be no
assurance that the delinquency, repossession and net loss experience on any
Receivables Pool will be comparable to prior experience or to the information in
any Prospectus Supplement.
WEIGHTED AVERAGE LIFE OF THE SECURITIES
The weighted average life of the Securities of any series will generally be
influenced by the rate at which the principal balances of the related
Receivables are paid, which payment may be in the form of scheduled amortization
or prepayments. For this purpose, the term "prepayments" includes prepayments
in full, partial prepayments (including those related to rebates of extended
warranty contract costs and insurance premiums), liquidations due to default as
well as receipts of proceeds from physical damage, credit life and disability
insurance policies. The rate of principal payment of the Securities may also be
affected by (1) repurchase by the Servicer or the Seller for Receivables as to
which an uncured breach of specified representations and warranties or specified
servicing covenants has occurred and (2) the exercise by the Servicer or the
Seller of its right to purchase all of the assets of the Trust at its option
under the circumstances described in this Prospectus, thereby triggering a
redemption of the Securities. The term "weighted average life" means the
average amount of time during which each dollar of principal of a Receivable is
outstanding. All of the Receivables will be prepayable at any time without
penalty to the Obligor. The rate of prepayment of automotive receivables is
influenced by a variety of economic, social and other factors, including that an
Obligor generally may not sell or transfer the Financed Vehicle securing the
related Receivable without the consent of the Servicer.
In light of the above considerations, there can be no assurance as to the
amount of principal payments to be made on the Securities of a given series on
each Distribution Date, since the amount of principal payments will depend, in
part, on the amount of principal collected on the related Receivables Pool
during the applicable Collection Period. No prediction can be made as to the
actual prepayment experience on the Receivables, and any reinvestment risks
resulting from a faster or slower rate of prepayment of Receivables will be
borne entirely by the Securityholders of a given series. See "Risk Factors-You
may experience reduced returns on your investment resulting from prepayments,
repurchases or early termination of the trust" in this Prospectus.
The applicable Prospectus Supplement may set forth additional information
regarding the maturity and prepayment considerations applicable to the
particular Receivables Pool and the related series of Securities.
POOL FACTORS AND TRADING INFORMATION
The "Note Factor" for each class of Notes will be a seven-digit decimal
which the Servicer will compute prior to each payment with respect to that class
of Notes. The Note Factor represents the remaining outstanding principal amount
of that class of Notes, as of the close of business on the applicable
Distribution Date, as a fraction of the initial outstanding principal amount of
that class of Notes. The "Certificate Factor" for each class of Certificates
will be a seven-digit decimal which the Servicer will compute prior to each
payment with respect to that class of Certificates indicating the remaining
Certificate Balance of that class of Certificates, as
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of the close of business on the applicable Distribution Date, as a fraction of
the Original Certificate Balance of that class of Certificates. The "Certificate
Balance" for any class of Certificates as of any Distribution Date will equal
the Original Certificate Balance of that class, as reduced by all amounts
distributed on or prior to that Distribution Date on that class of Certificates
and allocable to principal. The "Original Certificate Balance" for each class of
Certificates will be stated in the applicable Prospectus Supplement.
Each Note Factor and each Certificate Factor will initially be 1.0000000
and thereafter will decline to reflect reductions in the outstanding principal
amount of the applicable class of Notes, or the reduction of the Certificate
Balance of the applicable class of Certificates, as the case may be. A
Noteholder's portion of the aggregate outstanding principal amount of the
related class of Notes is the product of (1) the original denomination of that
Noteholder's Note and (2) the applicable Note Factor. A Certificateholder's
portion of the aggregate outstanding Certificate Balance for the related class
of Certificates is the product of (1) the original denomination of that
Certificateholder's Certificate and (2) the applicable Certificate Factor.
The "Note Pool Factor" for each class of Notes will be a seven-digit
decimal figure which the Servicer will compute prior to each payment with
respect to that class of Notes indicating the remaining outstanding principal
amount of that class of Notes, as of the close of business on the applicable
Distribution Date, as a fraction of the Pool Balance as of the related Cutoff
Date. The "Certificate Pool Factor" for each class of Certificates will be a
seven-digit decimal figure which the Servicer will compute prior to each payment
with respect to that class of Notes indicating the remaining Certificate Balance
of that class of Certificates, as of the close of business on the applicable
Distribution Date, as a fraction of the Pool Balance as of the related Cutoff
Date.
The Securityholders will receive monthly reports concerning payments
received on the Receivables, the Pool Balance, each Certificate Factor or Note
Factor, as applicable, each Certificate Pool Factor or Note Factor, as
applicable, and various other items of information.
THE NOTES
GENERAL
With respect to each Trust that issues Notes, one or more classes (each, a
"class") of Notes of the related series will be issued pursuant to the terms of
an indenture (the "Indenture"). A form of the Indenture has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part. The
following summary does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the Notes and
the Indenture.
Each class of Notes will initially be represented by one or more Notes, in
each case registered in the name of the nominee of DTC, except as set forth
below. Notes will be available for purchase in the denominations specified in
the applicable Prospectus Supplement in book-entry form only. The Seller has
been informed by DTC that DTC's nominee will be Cede, unless another nominee is
specified in the applicable Prospectus Supplement. Accordingly, that nominee is
expected to be the holder of record of the Notes (a "Noteholder") of each class.
No Noteholder will be entitled to receive a physical certificate representing a
Note until Definitive Notes are issued under the limited circumstances described
in this Prospectus or in the applicable Prospectus Supplement. All references
in this Prospectus and in the applicable Prospectus
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Supplement to actions by Noteholders refer to actions taken by DTC upon
instructions from its participating organizations (the "DTC Participants") and
all references in this Prospectus and in the applicable Prospectus Supplement to
payments, notices, reports and statements to Noteholders refer to payments,
notices, reports and statements to DTC or its nominee, as the registered holder
of the Notes, for distribution to Noteholders in accordance with DTC's
procedures. See "Material Information Regarding the Securities - Book-Entry
Registration" and "- Definitive Securities."
PRINCIPAL AND INTEREST ON THE NOTES
The applicable Prospectus Supplement will describe the timing and priority
of payment, seniority, allocations of losses, interest rate (the "Interest
Rate") and amount of or method of determining payments of principal and interest
on each class of Notes of a given series. The rights of holders of any class of
Notes to receive payments of principal and interest may be senior or subordinate
to the rights of holders of any other class or classes of Notes of that series.
Payments of interest on the Notes will generally be made prior to payments of
principal. A series may include one or more classes of Notes (the "Strip
Notes") entitled to (1) principal payments with disproportionate, nominal or no
interest payments or (2) interest payments with disproportionate, nominal or no
principal payments. Each class of Notes may have a different Interest Rate,
which may be a fixed, variable or adjustable Interest Rate (and which may be
zero for some classes of Strip Notes), or any combination of the foregoing. The
applicable Prospectus Supplement will specify the Interest Rate for each class
of Notes of a given series or the method for determining the Interest Rate. See
also "Material Information Regarding the Securities - Fixed Rate Securities" and
"- Floating Rate Securities." One or more classes of Notes of a series may be
redeemable in whole or in part, including as a result of the Servicer or the
Seller exercising its option to purchase the related Receivables Pool or other
early termination of the related trust.
One or more classes of Notes of a given series may have fixed principal
payment schedules, in the manner and to the extent set forth in the applicable
Prospectus Supplement. Noteholders of those Notes would be entitled to receive
as payments of principal on any given Distribution Date the amounts set forth on
that schedule with respect to those Notes.
Payments of interest to Noteholders of all classes within a series will
have the same priority. Under some circumstances, on any Distribution Date the
amount available for those payments could be less than the amount of interest
payable on the Notes. If this is the case, each class of Noteholders will
receive its ratable share (based upon the aggregate amount of interest due to
that class of Noteholders) of the aggregate amount of interest available for
payment on the Notes. See "Description of the Transfer and Servicing Agreements
- - Distributions on the Securities" and "- Credit and Cash Flow Enhancement."
If a series of Notes includes two or more classes of Notes, the sequential
order and priority of payment in respect of principal and interest, and any
schedule or formula or other provisions applicable to the determination thereof,
of each of those classes will be set forth in the applicable Prospectus
Supplement. Payments of principal and interest of any class of Notes will be
made on a pro rata basis among all the Noteholders of that class.
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THE INDENTURE
MODIFICATION OF INDENTURE. If a Trust has issued Notes pursuant to an
Indenture, the Trust and the Indenture Trustee may, with the consent of the
holders of a majority of the outstanding Notes of the related series, execute a
supplemental indenture to add provisions to, change in any manner or eliminate
any provisions of, the related Indenture, or modify (except as provided below)
in any manner the rights of the related Noteholders.
Without the consent of the holder of each outstanding affected Note, no
supplemental indenture will:
1. change the due date of any installment of principal of or interest on
that Note or reduce the principal amount of that Note, the Interest
Rate for that Note or the redemption price for that Note or change any
place of payment where or the coin or currency in which that Note or
any interest on that Note is payable;
2. impair the right to institute suit for the enforcement of specified
provisions of the related Indenture regarding payment;
3. reduce the percentage of the aggregate amount of the outstanding Notes
of that series, the consent of the holders of which is required for
any supplemental indenture or the consent of the holders of which is
required for any waiver of compliance with specified provisions of the
related Indenture or of specified defaults and their consequences as
provided for in that Indenture;
4. modify or alter the provisions of the related Indenture regarding the
voting of Notes held by the applicable Trust, any other obligor on
those Notes, the Seller or an affiliate of any of them;
5. reduce the percentage of the aggregate outstanding amount of those
Notes, the consent of the holders of which is required to direct the
related Indenture Trustee to sell or liquidate the Receivables if the
proceeds of that sale would be insufficient to pay the principal
amount of and accrued but unpaid interest on the outstanding Notes of
that series;
6. decrease the percentage of the aggregate principal amount of Notes
required to amend the sections of the related Indenture that specify
the applicable percentage of aggregate principal amount of the Notes
of that series necessary to amend that Indenture or other specified
agreements; or
7. permit the creation of any lien ranking prior to or on a parity with
the lien of the related Indenture with respect to any of the
collateral for those Notes or, except as otherwise permitted or
contemplated in that Indenture, terminate the lien of that Indenture
on any of the collateral or deprive the holder of any Note of the
security afforded by the lien of that Indenture.
The Trust and the applicable Indenture Trustee may also enter into
supplemental indentures, without obtaining the consent of the Noteholders of the
related series, for the purpose of, among other things, adding any provisions to
or changing in any manner or eliminating any
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of the provisions of the related Indenture or of modifying in any manner the
rights of those Noteholders; provided that that action will not materially and
adversely affect the interest of any of those Noteholders.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT. With respect to the Notes
of a given series, "Events of Default" under the related Indenture will consist
of:
1. a default for five days or more in the payment of any interest on any
of those Notes;
2. a default in the payment of the principal of or any installment of the
principal of any of those Notes when the same becomes due and payable;
3. a default in the observance or performance of any covenant or
agreement of the applicable Trust made in the related Indenture and
the continuation of the default for a period of 90 days after notice
thereof is given to that Trust by the applicable Indenture Trustee or
to that Trust and that Indenture Trustee by the holders of at least
25% in principal amount of those Notes then outstanding acting
together as a single class;
4. any representation or warranty made by that Trust in the related
Indenture or in any certificate delivered pursuant thereto or in
connection therewith having been incorrect in a material respect as of
the time made, and the breach not having been cured within 30 days
after notice thereof is given to that Trust by the applicable
Indenture Trustee or to that Trust and that Indenture Trustee by the
holders of at least 25% in principal amount of the Notes then
outstanding acting together as a single class; or
5. events of bankruptcy, insolvency, receivership or liquidation of the
applicable Trust.
However, the amount of principal required to be paid to Noteholders of
that series under the related Indenture will generally be limited to amounts
available to be deposited in the Collection Account. Therefore, the failure to
pay any principal on any class of Notes generally will not result in the
occurrence of an Event of Default until the final scheduled Distribution Date
for that class of Notes. In addition, as described below, following the
occurrence of an Event of Default (other than the events of default described in
(1) and (2) above) and acceleration of the maturity of the Notes, the Indenture
Trustee is not required to sell the assets of the Trust, and the Indenture
Trustee may sell the assets of the Trust only after meeting requirements
specified in the Indenture. In that case, even if the maturity of the Notes has
been accelerated, there may not be any funds to pay principal of the Notes.
If an Event of Default should occur and be continuing with respect to the
Notes of any series, the related Indenture Trustee or holders of a majority in
principal amount of the Notes then outstanding may declare the principal of the
Notes to be immediately due and payable. This declaration may, under some
circumstances, be rescinded by the holders of a majority in principal amount of
the Notes then outstanding.
If the Notes of any series are due and payable following an Event of
Default with respect thereto, the related Indenture Trustee may institute
proceedings to collect amounts due or foreclose on Trust property, exercise
remedies as a secured party, sell the related Receivables or elect to have the
applicable Trust maintain possession of those Receivables and continue to apply
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collections on those Receivables as if there had been no declaration of
acceleration. However, the Indenture Trustee is prohibited from selling the
related Receivables following an Event of Default (other than the events of
default described in (1) and (2) above), unless:
1. the holders of 66 2/3% of the aggregate outstanding principal amount
of the Notes consent to the sale and the proceeds of the sale are
sufficient to pay in full the principal of and accrued and unpaid
interest on the outstanding Notes at the date of the sale; or
2. if the proceeds of the sale will not be sufficient to pay in full the
principal of and accrued and unpaid interest on the outstanding Notes
at the date of the sale, the holders of all of the outstanding Notes
consent to the sale.
Subject to the provisions of the applicable Indenture relating to the
duties of the related Indenture Trustee, if an Event of Default occurs and is
continuing with respect to a series of Notes, the Indenture Trustee will be
under no obligation to exercise any of the rights or powers under the Indenture
at the request or direction of any of the holders of those Notes, if the
Indenture Trustee reasonably believes it will not be adequately indemnified
against the costs, expenses and liabilities that might be incurred by it in
complying with the request. Subject to the provisions for indemnification and
other limitations contained in the related Indenture, the holders of a majority
of the principal amount of the outstanding Notes of a given series will have the
right to direct the time, method and place of conducting any proceeding or any
remedy available to the applicable Indenture Trustee, and the holders of a
majority of the principal amount of those Notes then outstanding may, in some
cases, waive any default with respect thereto, except a default in the deposit
of collections or other required amounts, any required payment from amounts held
in any trust account in respect of amounts due on the Notes, payment of
principal or interest or a default in respect of a covenant or provision of the
Indenture that cannot be modified without the waiver or consent of all the
holders of the outstanding Notes.
No holder of a Note of any series will have the right to institute any
proceeding with respect to the related Indenture, unless:
1. that holder of a Note or Notes previously has given to the applicable
Indenture Trustee written notice of a continuing Event of Default;
2. the holders of not less than 25% in principal amount of the
outstanding Notes of that series have requested in writing the
Indenture Trustee to institute the proceeding in its own name as
Indenture Trustee;
3. that holder or holders of Notes have offered the Indenture Trustee
reasonable indemnity;
4. the Indenture Trustee has for 60 days failed to institute the
proceeding; and
5. no direction inconsistent with that written request has been given to
the Indenture Trustee during the 60-day period by the holders of a
majority in principal amount of those outstanding Notes.
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In addition, each Indenture Trustee and the related Noteholders, by
accepting the related Notes, will covenant that they will not at any time
institute against the applicable Trust any bankruptcy, reorganization or other
proceeding under any federal or state bankruptcy or similar law.
With respect to any Trust, neither the related Indenture Trustee nor the
related Trustee in its individual capacity, nor any holder of a Certificate
representing an ownership interest in that Trust nor any of their respective
owners, beneficiaries, agents, officers, directors, employees, affiliates,
successors or assigns will, in the absence of an express agreement to the
contrary, be personally liable for the payment of the principal of or interest
on the related Notes or for the agreements of that Trust contained in the
applicable Indenture.
MATERIAL COVENANTS. Each Indenture will provide that the related Trust may
not consolidate with or merge into any other entity, unless, among other things,
1. the entity formed by or surviving the consolidation or merger is
organized under the laws of the United States, any state or the
District of Columbia;
2. that entity expressly assumes that Trust's obligation to make due and
punctual payments upon the Notes of the related series and the
performance or observance of every agreement and covenant of that
Trust under the Indenture;
3. no Event of Default shall have occurred and be continuing immediately
after the merger or consolidation;
4. that Trust has been advised that the rating of the Securities of that
series then in effect would not be reduced or withdrawn by the rating
agencies then rating the Notes as a result of the merger or
consolidation; and
5. that Trust has received an opinion of counsel to the effect that the
consolidation or merger would have no material adverse tax consequence
to the Trust or to any related Noteholder or Certificateholder.
Each Trust will not, among other things,
1. except as expressly permitted by the applicable Indenture, the
applicable Transfer and Servicing Agreements or other specified
documents with respect to that Trust (collectively, the "Related
Documents"), sell, transfer, exchange or otherwise dispose of any of
the assets of that Trust;
2. claim any credit on or make any deduction from the principal of and
interest payable on the Notes of the related series (other than
amounts withheld under the Code or applicable state law) or assert any
claim against any present or former holder of those Notes because of
the payment of taxes levied or assessed upon that Trust;
3. except as expressly permitted by the Related Documents, dissolve or
liquidate in whole or in part;
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4. permit the validity or effectiveness of the related Indenture to be
impaired or permit any person to be released from any covenants or
obligations with respect to those Notes under that Indenture except as
may be expressly permitted by that Indenture; or
5. permit any lien or other encumbrance to be created on or extend to or
otherwise arise upon or burden the assets of that Trust or any part
thereof, or any interest in the assets of that Trust or the proceeds
of those assets.
No Trust may engage in any activity other than as specified in this
Prospectus or in the applicable Prospectus Supplement. No Trust will incur,
assume or guarantee any indebtedness other than indebtedness incurred pursuant
to the related Notes and the related Indenture, pursuant to any Advances made to
it by the Servicer or otherwise in accordance with the Related Documents.
ANNUAL COMPLIANCE STATEMENT. Each Trust will be required to file annually
with the related Indenture Trustee a written statement as to the fulfillment of
its obligations under the Indenture.
INDENTURE TRUSTEE'S ANNUAL REPORT. The Indenture Trustee for each Trust
will be required to mail each year to all related Noteholders a brief report
relating to its eligibility and qualification to continue as Indenture Trustee
under the related Indenture, any amounts advanced by it under the Indenture, the
amount, interest rate and maturity date of specified indebtedness owing by that
Trust to the applicable Indenture Trustee in its individual capacity, the
property and funds physically held by that Indenture Trustee and any action
taken by it that materially affects the related Notes and that has not been
previously reported.
SATISFACTION AND DISCHARGE OF INDENTURE. An Indenture will be discharged
with respect to the collateral securing the related Notes upon the delivery to
the related Indenture Trustee for cancellation of all of those Notes or, with
specified limitations, upon deposit with that Indenture Trustee of funds
sufficient for the payment in full of all the Notes.
THE CERTIFICATES
GENERAL
With respect to each Trust that issues Certificates, one or more classes
(each, a "class") of Certificates of the related series will be issued pursuant
to the terms of a Trust Agreement or a Pooling and Servicing Agreement, a form
of each of which has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. The following summary does not purport to
be complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the Certificates and the Trust Agreement or Pooling and
Servicing Agreement, as applicable.
Except for the Certificates, if any, of a given series purchased by the
Seller, each class of Certificates will initially be represented by one or more
Certificates registered in the name of the nominee for DTC, except as set forth
below. Except for the Certificates, if any, of a given series purchased by the
Seller, the Certificates will be available for purchase in the denominations
specified in the applicable Prospectus Supplement in book-entry form only. The
Seller has been informed by DTC that DTC's nominee will be Cede, unless another
nominee is specified in the
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applicable Prospectus Supplement. Accordingly, that nominee is expected to be
the holder of record of the Certificates (a "Certificateholder") of any series
that are not purchased by the Seller. No Certificateholder (other than the
Issuer) will be entitled to receive a physical certificate representing a
Certificate until Definitive Certificates are issued under the limited
circumstances described in this Prospectus or in the applicable Prospectus
Supplement. All references in this Prospectus and in the applicable Prospectus
Supplement to actions by Certificateholders refer to actions taken by DTC upon
instructions from the DTC Participants and all references in this Prospectus and
in the applicable Prospectus Supplement to distributions, notices, reports and
statements to Certificateholders refer to distributions, notices, reports and
statements given, made or sent to DTC or its nominee, as the case may be, as the
registered holder of the Certificates, for distribution to Certificateholders in
accordance with DTC's procedures with respect thereto. See "Material Information
Regarding the Securities - Book-Entry Registration" and "- Definitive
Securities." Any Certificates of a given series owned by the Seller or its
affiliates will be entitled to equal and proportionate benefits under the
applicable Trust Agreement, except that those Certificates will be deemed not to
be outstanding for the purpose of determining whether the requisite percentage
of Certificateholders have given any request, demand, authorization, direction,
notice, consent or other action under the Related Documents (other than the
commencement by the related Trust of a voluntary proceeding in bankruptcy as
described under "Description of the Transfer and Servicing Agreements -
Insolvency Event").
PAYMENTS OF PRINCIPAL AND INTEREST
The timing and priority of payments, seniority, allocations of losses, pass
through rate (the "Pass Through Rate") and amount of or method of determining
payments with respect to principal and interest of each class of Certificates
will be described in the applicable Prospectus Supplement. Payments of interest
on those Certificates will be made on the dates specified in the applicable
Prospectus Supplement (each, a "Distribution Date"). To the extent provided in
the applicable Prospectus Supplement, a series may include one or more classes
of Certificates (the "Strip Certificates") entitled to (1) payments in respect
of principal with disproportionate, nominal or no interest payments or (2)
interest payments with disproportionate, nominal or no payments in respect of
principal. Each class of Certificates may have a different Pass Through Rate,
which may be a fixed, variable or adjustable Pass Through Rate (and which may be
zero for some classes of Strip Certificates) or any combination of the
foregoing. The applicable Prospectus Supplement will specify the Pass Through
Rate for each class of Certificates of a given series or the method for
determining the Pass Through Rate. See also "Material Information Regarding the
Securities - Fixed Rate Securities" and "- Floating Rate Securities." Payments
in respect of the Certificates of a given series that includes Notes may be
subordinate to payments in respect of the Notes of that series as more fully
described in the applicable Prospectus Supplement. The rights of holders of any
class of Certificates to receive payments of principal and interest may also be
senior or subordinate to the rights of holders of any other class or classes of
Certificates of that series as more fully described in the applicable Prospectus
Supplement. Payments in respect of principal of and interest on any class of
Certificates will be made on a pro rata basis among all the Certificateholders
of that class.
In the case of a series of Certificates that includes two or more classes
of Certificates, the timing, sequential order, priority of payment or amount of
payments in respect of interest and
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principal, and any schedule or formula or other provisions applicable to the
determination thereof, of each class shall be as set forth in the applicable
Prospectus Supplement.
If and as provided in the applicable Prospectus Supplement, amounts
remaining on deposit in the Collection Account after all required payments to
the related Securityholders have been made may be released to the Seller, NMAC
or one or more third party credit or liquidity enhancement providers.
MATERIAL INFORMATION REGARDING THE SECURITIES
FIXED RATE SECURITIES
Any class of Securities (other than some classes of Strip Notes or Strip
Certificates) may bear interest at a fixed rate per annum ("Fixed Rate
Securities") or at a variable or adjustable rate per annum ("Floating Rate
Securities"), as more fully described below and in the applicable Prospectus
Supplement. Each class of Fixed Rate Securities will bear interest at the
applicable per annum Interest Rate or Pass Through Rate, as the case may be,
specified in the applicable Prospectus Supplement. Interest on each class of
Fixed Rate Securities will be computed on the basis of a 360-day year consisting
of twelve 30-day months. See "The Notes - Principal and Interest on the Notes"
and "The Certificates - Payments of Principal and Interest."
FLOATING RATE SECURITIES
Each class of Floating Rate Securities will bear interest during each
applicable Interest Period at a rate per annum determined by reference to an
interest rate basis (the "Base Rate"), plus or minus the Spread, if any, or
multiplied by the Spread Multiplier, if any, in each case as specified in the
applicable Prospectus Supplement.
The "Spread" is the number of basis points to be added to or subtracted
from the related Base Rate applicable to the Floating Rate Securities. The
"Spread Multiplier" is the percentage of the related Base Rate applicable to the
Floating Rate Securities by which that Base Rate will be multiplied to determine
the applicable interest rate on those Floating Rate Securities. The applicable
Prospectus Supplement will designate one of the following Base Rates as
applicable to a given Floating Rate Security:
1. LIBOR (a "LIBOR Security");
2. the Commercial Paper Rate (a "Commercial Paper Rate Security");
3. the Treasury Rate (a "Treasury Rate Security");
4. the Federal Funds Rate (a "Federal Funds Rate Security");
5. the CD Rate (a "CD Rate Security"); or
6. any other Base Rate that is set forth in the applicable Prospectus
Supplement.
Each applicable Prospectus Supplement will specify whether the rate of
interest on the related Floating Rate Securities will be reset daily, weekly,
monthly, quarterly, semiannually, annually or some other specified period (each,
an "Interest Reset Period") and the dates on which
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that Interest Rate will be reset (each, an "Interest Reset Date"). The Interest
Reset Date will be, in the case of Floating Rate Securities which reset:
1. daily, each Business Day;
2. weekly, the Wednesday of each week (with the exception of weekly reset
Treasury Rate Securities which will reset the Tuesday of each week);
3. monthly, the third Wednesday of each month;
4. quarterly, the third Wednesday of March, June, September and December
of each year;
5. semiannually, the third Wednesday of the two months specified in the
applicable Prospectus Supplement; and
6. annually, the third Wednesday of the month specified in the applicable
Prospectus Supplement.
If any Interest Reset Date for any Floating Rate Security would otherwise
be a day that is not a Business Day, that Interest Reset Date will be postponed
to the next succeeding day that is a Business Day, except that in the case of a
Floating Rate Security as to which LIBOR is an applicable Base Rate, if that
Business Day falls in the next succeeding calendar month, that Interest Reset
Date will be the immediately preceding Business Day. Unless specified otherwise
in the applicable Prospectus Supplement, "Business Day" means a day other than a
Saturday, a Sunday or a day on which banking institutions in New York, New York,
Minneapolis, Minnesota, Wilmington, Delaware, or Los Angeles, California are
authorized or obligated by law, regulation, executive order or decree to be
closed. With respect to Notes as to which LIBOR is an applicable Base Rate, a
Business Day must also be a day that is a London Business Day. "London Business
Day" means any day (a) if the Index Currency is other than the Euro, on which
dealings in deposits in that Index Currency are transacted in the London
interbank market or (b) if the Index Currency is the Euro, a day on which the
Trans-European Automated Real-time Gross Settlement Express Transfer System
("TARGET system") is open and on which commercial banks and foreign exchange
markets settle payments in London and New York.
If any Distribution Date for any Floating Rate Security (other than the
final Distribution Date) would otherwise be a day that is not a Business Day,
that Distribution Date will be the next succeeding day that is a Business Day
except that in the case of a Floating Rate Security as to which LIBOR is the
applicable Base Rate, if that Business Day falls in the next succeeding calendar
month, that Distribution Date will be the immediately preceding Business Day. If
the final Distribution Date of a Floating Rate Security falls on a day that is
not a Business Day, the payment of principal, premium, if any, and interest will
be made on the next succeeding Business Day, and no interest on that payment
shall accrue for the period from and after that final Distribution Date.
Each Floating Rate Security will accrue interest on an "Actual/360" basis,
an "Actual/Actual" basis, or a "30/360" basis, in each case as specified in the
applicable Prospectus Supplement. For Floating Rate Securities calculated on an
Actual/360 basis and Actual/Actual basis, accrued interest for each Interest
Period will be calculated by multiplying:
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1. the face amount of that Floating Rate Security;
2. the applicable interest rate; and
3. the actual number of days in the related Interest Period, and dividing
the resulting product by 360 or 365, as applicable (or, with respect
to an Actual/Actual basis Floating Rate Security, if any portion of
the related Interest Period falls in a leap year, the product of (1)
and (2) above will be multiplied by the sum of (x) the actual number
of days in that portion of that Interest Period falling in a leap year
divided by 366 and (y) the actual number of days in that portion of
that Interest Period falling in a non-leap year divided by 365).
For Floating Rate Securities calculated on a 30/360 basis, accrued interest
for an Interest Period will be computed on the basis of a 360-day year
consisting of twelve 30-day months, irrespective of how many days are actually
in that Interest Period. With respect to any Floating Rate Security that accrues
interest on a 30/360 basis, if any Distribution Date, including the related
final Distribution Date, falls on a day that is not a Business Day, the related
payment of principal or interest will be made on the next succeeding Business
Day as if made on the date that payment was due, and no interest will accrue on
the amount so payable for the period from and after that Distribution Date. The
"Interest Period" with respect to any class of Floating Rate Securities will be
set forth in the applicable Prospectus Supplement.
As specified in the applicable Prospectus Supplement, Floating Rate
Securities of a given class may also have either or both of the following (in
each case expressed as a rate per annum): (1) a maximum limitation, or ceiling,
on the rate at which interest may accrue during any Interest Period and (2) a
minimum limitation, or floor, on the rate at which interest may accrue during
any Interest Period. In addition to any maximum interest rate that may be
applicable to any class of Floating Rate Securities, the interest rate
applicable to any class of Floating Rate Securities will in no event be higher
than the maximum rate permitted by applicable law, as the same may be modified
by United States law of general application.
Each Trust with respect to which a class of Floating Rate Securities will
be issued will appoint, and enter into agreements with, a calculation agent
(each, a "Calculation Agent") to calculate Interest Rates on each class of
Floating Rate Securities issued with respect thereto. The applicable Prospectus
Supplement will set forth the identity of the Calculation Agent for each class
of Floating Rate Securities of a given series, which may be the related Trustee
or Indenture Trustee with respect to that series. All determinations of
interest by the Calculation Agent shall, in the absence of manifest error, be
conclusive for all purposes and binding on the holders of Floating Rate
Securities of a given class. All percentages resulting from any calculation on
Floating Rate Securities will be rounded to the nearest one hundred-thousandth
of a percentage point, with five one millionths of a percentage point rounded
upwards (e.g., 9.876545% (or .09876545) would be rounded to 9.87655% (or
.0987655)), and all dollar amounts used in or resulting from that calculation on
Floating Rate Securities will be rounded to the nearest cent (with one-half cent
being rounded upwards).
CD RATE SECURITIES. Each CD Rate Security will bear interest for each
Interest Reset Period at an interest rate calculated with reference to the CD
Rate and the Spread or Spread Multiplier, if any, specified in that Security and
in the applicable Prospectus Supplement.
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The "CD Rate" for each Interest Reset Period shall be the rate as of the
second business day prior to the Interest Reset Date for that Interest Reset
Period (a "CD Rate Determination Date") for negotiable certificates of deposit
having the Index Maturity designated in the applicable Prospectus Supplement as
published in H.15(519) under the heading "CDs (Secondary Market)." If that rate
is not published prior to 3:00 p.m., New York City time, on the Calculation Date
pertaining to that CD Rate Determination Date, then the "CD Rate" for that
Interest Reset Period will be the rate on that CD Rate Determination Date for
negotiable certificates of deposit of the Index Maturity designated in the
applicable Prospectus Supplement as published in Composite Quotations under the
heading "Certificates of Deposit." If by 3:00 p.m., New York City time, on that
Calculation Date that rate is not yet published in either H.15(519) or Composite
Quotations, then the "CD Rate" for that Interest Reset Period will be calculated
by the Calculation Agent for that CD Rate Security and will be the arithmetic
mean of the secondary market offered rates as of 10:00 a.m., New York City time,
on that CD Rate Determination Date, of three leading nonbank dealers in
negotiable U.S. dollar certificates of deposit in The City of New York selected
by the Calculation Agent for that CD Rate Security for negotiable certificates
of deposit of major United States money market banks with a remaining maturity
closest to the Index Maturity designated in the applicable Prospectus Supplement
in an amount that is representative for a single transaction in that market at
that time; provided, however, that if the dealers selected as aforesaid by the
Calculation Agent are not quoting offered rates as mentioned in this sentence,
the "CD Rate" for that Interest Reset Period will be the same as the CD Rate for
the immediately preceding Interest Reset Period.
"H.15(519)" means the publication entitled "Statistical Release H.15(519),
Selected Interest Rates," or any successor publication, published by the Board
of Governors of the Federal Reserve System. "Composite Quotations" means the
daily statistical release entitled "Composite 3:30 p.m. Quotations for U.S.
Government Securities" published by the Federal Reserve Bank of New York.
The "Calculation Date" pertaining to any CD Rate Determination Date shall
be the first to occur of (a) the tenth calendar day after that CD Rate
Determination Date or, if that day is not a Business Day, the next succeeding
Business Day or (b) the Business Day preceding the applicable Distribution Date.
The "Index Maturity" is the period to maturity of the instrument or
obligation with respect to which the Base Rate will be calculated.
COMMERCIAL PAPER RATE SECURITIES. Each Commercial Paper Rate Security will
bear interest for each Interest Reset Period at an interest rate calculated with
reference to the Commercial Paper Rate and the Spread or Spread Multiplier, if
any, specified in that Security and in the applicable Prospectus Supplement.
The "Commercial Paper Rate" for each Interest Reset Period will be
determined by the Calculation Agent for that Commercial Paper Rate Security as
of the second Business Day prior to the Interest Reset Date for that Interest
Reset Period (a "Commercial Paper Rate Determination Date") and shall be the
Money Market Yield on that Commercial Paper Rate Determination Date of the rate
for commercial paper having the Index Maturity specified in the applicable
Prospectus Supplement, as published by the Board of Governors of the Federal
Reserve System in H.15(519) under the heading "Commercial Paper - Nonfinancial"
(with an
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Index Maturity of one month or three months being deemed to be equivalent to an
Index Maturity of 30 days or 90 days, respectively). If that rate is not
published prior to 3:00 p.m., New York City time, on the Calculation Date
pertaining to that Commercial Paper Rate Determination Date, then the
"Commercial Paper Rate" for that Interest Reset Period shall be the Money Market
Yield on that Commercial Paper Rate Determination Date of the rate for
commercial paper of the specified Index Maturity as published in Composite
Quotations under the heading "Commercial Paper - Nonfinancial." If by 3:00 p.m.,
New York City time, on that Calculation Date that rate is not yet published in
either H.15(519) or Composite Quotations, then the "Commercial Paper Rate" for
that Interest Reset Period shall be the Money Market Yield of the arithmetic
mean of the offered rates, as of 11:00 a.m., New York City time, on that
Commercial Paper Rate Determination Date of three leading dealers of commercial
paper in The City of New York selected by the Calculation Agent for that
Commercial Paper Rate Security for commercial paper of the specified Index
Maturity placed for an industrial issuer whose bonds are rated "AA" or the
equivalent by a nationally recognized rating agency; provided, however, that if
the dealers selected as aforesaid by the Calculation Agent are not quoting
offered rates as mentioned in this sentence, the "Commercial Paper Rate" for
that Interest Reset Period will be the same as the Commercial Paper Rate for the
immediately preceding Interest Reset Period.
"Money Market Yield" means a yield (expressed as a percentage rounded
upwards to the nearest one hundredthousandth of a percentage point) calculated
in accordance with the following formula:
D x 360
Money Market Yield = -------------------- x 100
360 - (D x M)
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days in the Interest Period for which interest is being calculated.
The "Calculation Date" pertaining to any Commercial Paper Rate
Determination Date shall be the first to occur of (a) the tenth calendar day
after that Commercial Paper Rate Determination Date or, if that day is not a
Business Day, the next succeeding Business Day or (b) the second Business Day
preceding the related Distribution Date.
FEDERAL FUNDS RATE SECURITIES. Each Federal Funds Rate Security will bear
interest for each Interest Reset Period at an interest rate calculated with
reference to the Federal Funds Rate and the Spread or Spread Multiplier, if any,
specified in that Security and in the applicable Prospectus Supplement.
The "Federal Funds Rate" for each Interest Reset Period shall be the
effective rate on the Interest Reset Date for that Interest Reset Period (a
"Federal Funds Rate Determination Date") for Federal Funds as published in
H.15(519) under the heading "Federal Funds (Effective)." If that rate is not
published prior to 3:00 p.m., New York City time, on the Calculation Date
pertaining to that Federal Funds Rate Determination Date, the "Federal Funds
Rate" for that Interest Reset Period shall be the rate on that Federal Funds
Rate Determination Date as published in Composite Quotations under the heading
"Federal Funds/Effective Rate." If by
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3:00 p.m., New York City time, on that Calculation Date that rate is not yet
published in either H.15(519) or Composite Quotations, then the "Federal Funds
Rate" for that Interest Reset Period shall be calculated by the Calculation
Agent for that Federal Funds Rate Security and will be the arithmetic mean of
the rates for the last transaction in overnight United States dollar federal
funds arranged by three leading brokers of federal funds transactions in The
City of New York selected by the Calculation Agent prior to 9:00 A.M., New York
City time, on that Federal Funds Rate Interest Determination Date; provided,
however that if the brokers so selected by the Calculation Agent are not quoting
rates as mentioned in this sentence, the Federal Funds Rate with respect to that
Federal Funds Rate Interest Determination Date will be the Federal Funds Rate in
effect for the preceding Interest Reset Period.
The "Calculation Date" pertaining to any Federal Funds Rate Determination
Date shall be the next succeeding Business Day.
LIBOR SECURITIES. Each LIBOR Security will bear interest for each Interest
Reset Period at an interest rate calculated with reference to LIBOR and the
Spread or Spread Multiplier, if any, specified in that Security and in the
applicable Prospectus Supplement.
With respect to LIBOR indexed to the offered rates for U.S. dollar
deposits, "LIBOR" for each Interest Reset Period will be determined by the
Calculation Agent for that LIBOR Security as follows:
1. On the second London Business Day prior to the Interest Reset Date for
that Interest Reset Period (a "LIBOR Determination Date"), the
Calculation Agent will determine the arithmetic mean of the offered
rates for deposits in U.S. dollars for the period of the Index
Maturity specified in the applicable Prospectus Supplement, as either
(a) if "LIBOR Bloomberg" is specified in the applicable Prospectus
Supplement, the arithmetic mean of the offered rates (unless the
specified Designated LIBOR Page by its terms provides only for a
single rate, in which case that single rate shall be used) for
deposits in the Index Currency having the Index Maturity designated in
the applicable Prospectus Supplement, commencing on the second London
Business Day immediately following that LIBOR Determination Date, that
appear on the Designated LIBOR Page specified in the applicable
Prospectus Supplement as of 11:00 A.M. London time, on that LIBOR
Determination Date, if at least two offered rates appear (unless,
described above, only a single rate is required) on that Designated
LIBOR Page, or (b) if "LIBOR Telerate" is specified in the applicable
Prospectus Supplement, the rate for deposits in the Index Currency
having the Index Maturity designated in the applicable Prospectus
Supplement, commencing on the second London Business Day immediately
following that LIBOR Determination Date that appears on the Designated
LIBOR Page specified in the applicable Prospectus Supplement as of
11:00 A.M. London time, on that LIBOR Determination Date. If fewer
than two offered rates appear, LIBOR in respect of the related LIBOR
Determination Date will be determined as if the parties had specified
the rate described in clause (2) below.
2. With respect to a LIBOR Determination Date on which fewer than two
offered rates appear, on the applicable Designated LIBOR Page as
specified in clause (1) above, the Calculation Agent will request the
principal London offices of each of four major
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reference banks in the London interbank market, as selected by the
Calculation Agent, to provide the Calculation Agent with their offered
quotations for deposits in the Index Currency for the period of the
Index Maturity designated in the applicable Prospectus Supplement,
commencing on the second London Business Day immediately following
that LIBOR Determination Date, to prime banks in the London interbank
market at approximately 11:00 A.M., London time, on that LIBOR
Determination Date and in a principal amount that is representative
for a single transaction in that Index Currency in that market at that
time. If at least two of those quotations are provided, LIBOR
determined on that LIBOR Determination Date will be the arithmetic
mean of those quotations. If fewer than two quotations are provided,
LIBOR determined on that LIBOR Determination Date will be the
arithmetic mean of the rates quoted at approximately 11:00 A.M. (or
another time specified in the applicable Prospectus Supplement), in
the applicable Principal Financial Center, on that LIBOR Determination
Date by three major banks in that Principal Financial Center selected
by the Calculation Agent for loans in the Index Currency to leading
European banks, having the Index Maturity designated in the applicable
Prospectus Supplement and in a principal amount that is representative
for a single transaction in that Index Currency in that market at that
time; provided, however, that if the banks so selected by the
Calculation Agent are not quoting offered rates as mentioned in this
sentence, LIBOR determined on that LIBOR Determination Date will be
LIBOR in effect for the preceding Interest Reset Period.
"Index Currency" means the currency (including composite currencies)
specified in the applicable Prospectus Supplement as the currency for which
LIBOR shall be calculated. If no currency is specified in the applicable
Prospectus Supplement, the Index Currency shall be U.S. dollars.
"Designated LIBOR Page" means either (1) if "LIBOR Bloomberg" is designated
in the applicable Prospectus Supplement, the display on Bloomberg on the
page designated in the applicable Prospectus Supplement (or another page that
may replace that designated page on that service for the purpose of displaying
London interbank rates of major banks) for the applicable Index Currency, or (2)
if "LIBOR Telerate" is designated in the applicable Prospectus Supplement, the
display on the Dow Jones Telerate Service on the page designated in the
applicable Prospectus Supplement (or another page that may replace that
designated page on that service or another service or services as may be
nominated by the British Bankers' Association for the purpose of displaying
London interbank offered rates for the related Index Currency) for the purpose
of displaying the London interbank rates of major banks for the applicable Index
Currency. If neither LIBOR Bloomberg nor LIBOR Telerate is specified in the
applicable Prospectus Supplement, LIBOR for the applicable Index Currency will
be determined as if LIBOR Telerate (and, if the U.S. dollar is the Index
Currency, page 3750) had been specified.
"Principal Financial Center" will generally be the capital city of the
country of the specified Index Currency, except that with respect to U.S.
dollars, Deutsche marks, Canadian dollars, Australian dollars, Italian lira,
Swiss francs, Dutch guilders and Euros, the Principal Financial Center shall be
The City of New York, Frankfurt, Toronto, Sydney, Rome, Zurich, Amsterdam and
London, respectively.
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TREASURY RATE SECURITIES. Each Treasury Rate Security will bear interest
for each Interest Reset Period at an interest rate calculated with reference to
the Treasury Rate and the Spread or Spread Multiplier, if any, specified in that
Security and in the applicable Prospectus Supplement determined on the "Treasury
Rate Determination Date" specified in that Prospectus Supplement.
The "Treasury Rate" for each Interest Period will be the rate for the most
recent auction of direct obligations of the United States ("Treasury bills")
having the Index Maturity specified in the applicable Prospectus Supplement, as
that rate shall be published in H.15(519) under the heading "U.S. Government
Securities - Treasury bills - auction average (investment)" or, if that rate is
not published prior to 3:00 p.m., New York City time, on the Calculation Date
pertaining to that Treasury Rate Determination Date, the auction average rate
(expressed as a bond equivalent on the basis of a year of 365 or 366 days, as
applicable, and applied on a daily basis) as otherwise announced by the United
States Department of the Treasury. In the event that the results of the auction
of Treasury bills having the specified Index Maturity are not published or
reported as provided above by 3:00 p.m., New York City time, on that Calculation
Date, or if that auction is not held in a particular week, then the "Treasury
Rate" for that Interest Reset Period will be the rate published in H.15(510)
under the heading "U.S. Government Securities - Treasury Bills - Secondary
Market" (expressed as a bond equivalent yield on the basis of a 365 or 366 day
year, as applicable, on a daily basis), or if not published by 3:00 P.M. New
York City time, on the related Calculation Date, the Treasury Rate will be
calculated by the Calculation Agent for that Treasury Rate Security and shall be
the yield to maturity (expressed as a bond equivalent on the basis of a year of
365 or 366 days, as applicable, and applied on a daily basis) of the arithmetic
mean of the secondary market bid rates, as of approximately 3:30 p.m., New York
City time, on that Treasury Rate Determination Date, of three leading primary
United States government securities dealers selected by the Calculation Agent
for the issue of Treasury bills with a remaining maturity closest to the
specified Index Maturity; provided, however, that if the dealers selected as
aforesaid by the Calculation Agent are not quoting bid rates as mentioned in
this sentence, then the "Treasury Rate" for that Interest Reset Period will be
the same as the Treasury Rate for the immediately preceding Interest Reset
Period.
The "Calculation Date" pertaining to any Treasury Rate Determination Date
shall be the first to occur of (a) the tenth calendar day after that Treasury
Rate Determination Date or, if that a day is not a Business Day, the next
succeeding business day or (b) the second Business Day preceding the date any
payment is required to be made for any period following the applicable Interest
Reset Date.
INDEXED SECURITIES
To the extent specified in any Prospectus Supplement, any class of
Securities of a given series may consist of Securities ("Indexed Securities") in
which the principal amount payable on the final Distribution Date for that class
(the "Indexed Principal Amount") and/or the interest payable on any Distribution
Date is determined by reference to a measure (the "Index") which will be related
to the exchange rates of one or more currencies or composite currencies (the
"Index Currencies"); the price or prices of specified commodities; or specified
stocks, which may be based on U.S. or foreign stocks, on specified dates
specified in the applicable Prospectus Supplement, or another price, interest
rate, exchange rate or other financial index or indices as are described in the
applicable Prospectus Supplement. Holders of Indexed Securities may receive a
principal amount on the related final Distribution Date that is greater than or
less than
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the face amount of the Indexed Securities depending upon the relative value on
the related final Distribution Date of the specified indexed item. The
applicable Prospectus Supplement will also contain information as to the method
for determining the principal amount payable on the related final Distribution
Date, if any, and, where applicable, historical information with respect to the
specific indexed item or items and special tax considerations associated with
investment in Indexed Securities. Notwithstanding anything to the contrary in
this Prospectus, for purposes of determining the rights of a holder of a
Security indexed as to principal in respect of voting for or against amendments
to the related Trust Agreement, Indenture, or other related agreements, as the
case may be, and modifications and the waiver of rights under those agreements,
the principal amount of that Indexed Security shall be deemed to be the face
amount thereof upon issuance less any payments allocated to principal of that
Indexed Security.
If the determination of the Indexed Principal Amount of an Indexed Security
is based on an Index calculated or announced by a third party and that third
party either suspends the calculation or announcement of that Index or changes
the basis upon which that Index is calculated (other than changes consistent
with policies in effect at the time that Indexed Security was issued and
permitted changes described in the applicable Prospectus Supplement), then that
Index shall be calculated for purposes of that Indexed Security by an
independent calculation agent named in the applicable Prospectus Supplement on
the same basis, and subject to the same conditions and controls, as applied to
the original third party. If for any reason that Index cannot be calculated on
the same basis and subject to the same conditions and controls as applied to the
original third party, then the Indexed Principal Amount of that Indexed Security
shall be calculated in the manner set forth in the applicable Prospectus
Supplement. Any determination of that independent calculation agent shall, in
the absence of manifest error, be binding on all parties.
The applicable Prospectus Supplement will describe whether the principal
amount of the related Indexed Security, if any, that would be payable upon
redemption or repayment prior to the applicable final scheduled Distribution
Date will be the face amount of that Indexed Security, the Indexed Principal
Amount of that Indexed Security at the time of redemption or repayment or
another amount described in that Prospectus Supplement.
ISSUES RELATED TO YEAR 2000 DATE CONVERSION
DTC management has advised that DTC is aware that some computer
applications, systems and the like for processing data ("Systems") that are
dependent upon calendar dates, including dates before, on and after January 1,
2000, may encounter "Year 2000 problems." DTC has informed its DTC
Participants and other members of the financial community (the "Industry") that
it has developed and is implementing a program so that its Systems, as they
relate to timely payments (including principal and income payments) to
Securityholders, book-entry deliveries, and settlement of trades within DTC
("DTC Services"), continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames.
However, DTC's ability to perform its services properly is also dependent
upon other parties, including but not limited to issuers and their agents, as
well as DTC's direct and indirect participants and third
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party vendors from whom DTC licenses software and hardware, and third party
vendors on whom DTC relies for information or the provision of services,
including telecommunication and electrical utility service providers, among
others. DTC has informed the Industry that it is contacting (and will continue
to contact) third party vendors from whom DTC acquires services to: (1) impress
upon them the importance of those services being Year 2000 compliant; and (2)
determine the extent of their efforts for Year 2000 remediation (and, as
appropriate, testing) of their services. In addition, DTC is in the process of
developing those contingency plans as it deems appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided to the Industry for informational purposes only and is not intended to
serve as a representation, warranty or contract modification of any kind.
BOOK-ENTRY REGISTRATION
Each class of Securities offered by this Prospectus will be represented by
one or more certificates registered in the name of Cede, as nominee of the
Depository Trust Company ("DTC"). Securityholders may hold beneficial interests
in Securities through the DTC (in the United States) or Cedelbank ("Cedelbank")
or the Euroclear System ("Euroclear") (in Europe or Asia) directly if they are
participants of those systems, or indirectly through organizations which are
participants in those systems.
No Securityholder will be entitled to receive a certificate representing
that person's interest in the Securities, except as set forth below. Unless and
until Securities of a class are issued in fully registered certificated form
("Definitive Securities") under the limited circumstances described below, all
references in this Prospectus to actions by Noteholders, Certificateholders or
Securityholders shall refer to actions taken by DTC upon instructions from DTC
Participants, and all references in this Prospectus to distributions, notices,
reports and statements to Noteholders, Certificateholders or Securityholders
shall refer to distributions, notices, reports and statements to Cede, as the
registered holder of the Securities, for distribution to Securityholders in
accordance with DTC procedures. Therefore, it is anticipated that the only
Noteholder, Certificateholder or Securityholder will be Cede, as nominee of DTC.
Securityholders will not be recognized by the related Trustee as Noteholders,
Certificateholders or Securityholders as those terms will be used in the
relevant agreements, and Securityholders will only be permitted to exercise the
rights of holders of Securities of the related class indirectly through DTC and
DTC Participants, as further described below.
Cedelbank and Euroclear will hold omnibus positions on behalf of their
participants through customers' securities accounts in their respective names on
the books of their respective depositaries (collectively, the "Depositaries")
which in turn will hold those positions in customers' securities accounts in the
Depositaries' names on the books of DTC.
Transfers between DTC Participants will occur in accordance with DTC rules.
Transfers between Cedelbank Participants and Euroclear Participants will occur
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 Cedelbank or
Euroclear participants, on the other, will be effected in DTC in accordance with
DTC rules on behalf of the relevant European international clearing system by
its Depositary. However, each of these cross-market
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transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in that system in accordance
with its rules and procedures and within its established deadlines. The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depositary to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. Cedelbank Participants and
Euroclear Participants may not deliver instructions directly to the
Depositaries.
Because of time-zone differences, credits of securities received in
Cedelbank 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. Those credits or any
transactions in those securities settled during that processing will be reported
to the relevant Euroclear or Cedelbank participant on that business day. Cash
received in Cedelbank or Euroclear as a result of sales of Securities by or
through a Cedelbank 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 Cedelbank or Euroclear cash account only as of the business day
following settlement in DTC.
DTC is a limited purpose trust company organized under the laws of the
State of New York, 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 Uniform Commercial Code and a "clearing
agency" registered pursuant to Section 17A of the Exchange Act. DTC was created
to hold securities for its participating members ("DTC Participants") and to
facilitate the clearance and settlement of securities transactions between DTC
Participants through electronic book-entries, thereby eliminating the need for
physical movement of certificates. DTC Participants include securities brokers
and dealers, banks, trust companies and clearing corporations which may include
underwriters, agents or dealers with respect to the Securities of any class or
series. 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 DTC Participant, either directly or indirectly
(the "Indirect DTC Participants"). The rules applicable to DTC and DTC
Participants are on file with the SEC.
Securityholders that are not DTC Participants or Indirect DTC Participants
but desire to purchase, sell or otherwise transfer ownership of, or other
interests in, Securities may do so only through DTC Participants and Indirect
DTC Participants. DTC Participants will receive a credit for the Securities on
DTC's records. The ownership interest of each Securityholder will in turn be
recorded on respective records of the DTC Participants and Indirect DTC
Participants. Securityholders will not receive written confirmation from DTC of
their purchase, but Securityholders are expected to receive written
confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the DTC Participant or Indirect DTC
Participant through which the Securityholder entered into the transaction.
Transfers of ownership interests in the Securities of any class will be
accomplished by entries made on the books of DTC Participants acting on behalf
of Securityholders.
To facilitate subsequent transfers, all Securities deposited by DTC
Participants with DTC will be registered in the name of Cede, a nominee of DTC.
The deposit of Securities with DTC
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and their registration in the name of Cede will effect no change in beneficial
ownership. DTC will have no knowledge of the actual Securityholders and its
records will reflect only the identity of the DTC Participants to whose accounts
those Securities are credited, which may or may not be the Securityholders. DTC
Participants and Indirect DTC Participants will remain responsible for keeping
account of their holdings on behalf of their customers. While the Securities of
a series are held in book-entry form, Securityholders will not have access to
the list of Securityholders of that series, which may impede the ability of
Securityholders to communicate with each other.
Conveyance of notices and other communications by DTC to DTC Participants,
by DTC Participants to Indirect DTC Participants and by DTC Participants and
Indirect DTC Participants to Securityholders will be governed by arrangements
among them, subject to any statutory or regulatory requirements that may be in
effect from time to time.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among DTC
Participants on whose behalf it acts with respect to the Securities and is
required to receive and transmit payments of principal of and interest on the
Securities. DTC Participants and Indirect DTC Participants with which
Securityholders have accounts with respect to the Securities similarly are
required to make book-entry transfers and receive and transmit those payments on
behalf of their respective Securityholders.
DTC's practice is to credit DTC Participants' accounts on each Distribution
Date in accordance with their respective holdings shown on its records, unless
DTC has reason to believe that it will not receive payment on that Distribution
Date. Payments by DTC Participants and Indirect DTC Participants to
Securityholders will be governed by standing instructions and customary
practices, as is the case with securities held for the accounts of customers in
bearer form or registered in "street name", and will be the responsibility of
that DTC Participant and not of DTC, the related Indenture Trustee or Trustee
(or any paying agent appointed by the Indenture Trustee or Trustee), the Seller
or the Servicer, subject to any statutory or regulatory requirements that may be
in effect from time to time. Payment of principal of and interest on each class
of Securities to DTC will be the responsibility of the related Indenture Trustee
or Trustee (or any paying agent), disbursement of those payments to DTC
Participants will be the responsibility of DTC and disbursement of those
payments to the related Securityholders will be the responsibility of DTC
Participants and Indirect DTC Participants. DTC will forward those payments to
its DTC Participants which thereafter will forward them to Indirect DTC
Participants or Securityholders.
Because DTC can only act on behalf of DTC Participants, who in turn act on
behalf of Indirect DTC Participants and some other banks, a Securityholder may
be limited in its ability to pledge Securities to persons or entities that do
not participate in the DTC system, or otherwise take actions with respect to
those Securities due to the lack of a physical certificate for those Securities.
DTC has advised the Seller that it will take any action permitted to be
taken by a Securityholder only at the direction of one or more DTC Participants
to whose account with DTC the Securities are credited. Additionally, DTC has
advised the Seller that it will take those actions with respect to specified
percentages of the Securityholders' interest only at the direction
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of and on behalf of DTC Participants whose holdings include undivided interests
that satisfy those specified percentages. DTC may take conflicting actions with
respect to other undivided interests to the extent that those actions are taken
on behalf of DTC Participants whose holdings include those undivided interests.
Neither DTC nor Cede will consent or vote with respect to the Securities.
Under its usual procedures, DTC will mail an "Omnibus Proxy" to the related
Indenture Trustee or Trustee as soon as possible after any applicable record
date for that consent or vote. The Omnibus Proxy will assign Cede's consenting
or voting rights to those DTC Participants to whose accounts the related
Securities are credited on that record date (which record date will be
identified in a listing attached to the Omnibus Proxy).
Cedelbank is incorporated under the laws of Luxembourg as a professional
depository. Cedelbank holds securities for its participating organizations
("Cedelbank Participants") and facilitates the clearance and settlement of
securities transactions between Cedelbank Participants through electronic book
entry changes in accounts of Cedelbank Participants, thereby eliminating the
need for physical movement of certificates. Transactions may be settled in
Cedelbank in any of 28 currencies, including United States dollars. Cedelbank
provides to Cedelbank Participants, among other things, services for
safekeeping, administration, clearance and settlement of internationally traded
securities and securities lending and borrowing. Cedelbank interfaces with
domestic markets in several countries. As a professional depository, Cedelbank
is subject to regulation by the Luxembourg Monetary Institute. Cedelbank
Participants are recognized financial institutions around the world, including
underwriters, securities brokers and dealers, banks, trust companies, clearing
corporations and other organizations and may include any underwriters, agents or
dealers with respect to any class or series of Securities offered by this
Prospectus. Indirect access to Cedelbank is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Cedelbank Participant, either directly or
indirectly.
Euroclear was created in 1968 to hold securities for participants of the
Euroclear System ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 27 currencies, including United
States dollars. The Euroclear System includes various other services, including
securities lending and borrowing, and interfaces with domestic markets in
several countries generally similar to the arrangements for cross-market
transfers with DTC described above. The Euroclear System is operated by Morgan
Guaranty Trust Company of New York, Brussels, Belgium office (the "Euroclear
Operator" or "Euroclear"), under contract with Euroclear Clearance System S.C.,
a Belgian cooperative corporation (the "Cooperative"). All operations are
conducted by the Euroclear Operator, and all Euroclear securities clearance
accounts and Euroclear cash accounts are accounts with the Euroclear Operator,
not the Cooperative. The Cooperative establishes policy for the Euroclear
System on behalf of Euroclear Participants. Euroclear Participants include
banks (including central banks), securities brokers and dealers and other
professional financial intermediaries and may include any underwriters, agents
or dealers with respect to any class or series of Securities offered by this
Prospectus. 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.
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The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. Therefore, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, 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.
Payments with respect to Securities held through Cedelbank or Euroclear
will be credited to the cash accounts of Cedelbank Participants or Euroclear
Participants in accordance with the relevant system's rules and procedures, to
the extent received by its Depositary. Those payments will be subject to tax
withholding in accordance with relevant United States tax laws and regulations.
See "Material Income Tax Consequences." Cedelbank or the Euroclear Operator, as
the case may be, will take any other action permitted to be taken by a
Securityholder on behalf of a Cedelbank Participant or Euroclear Participant
only in accordance with its relevant rules and procedures and subject to its
Depositary's ability to effect those actions on its behalf through DTC.
Although DTC, Cedelbank and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Securities among participants of
DTC, Cedelbank and Euroclear, they are under no obligation to perform or
continue to perform those procedures and those procedures may be discontinued at
any time.
DEFINITIVE SECURITIES
The Notes, if any, and the Certificates of a given series will be issued in
fully registered, certificated form ("Definitive Notes" and "Definitive
Certificates", respectively, and collectively referred to in this Prospectus as
"Definitive Securities") to Noteholders or Certificateholders or their
respective nominees, rather than to DTC or its nominee, only if:
1. DTC is no longer willing or able to discharge properly its
responsibilities as depository with respect to those Securities and
the Seller, the Administrator or the Trustee is unable to locate a
qualified successor (and if it is the Seller or the Administrator that
has made that determination, the Seller or that Administrator so
notifies the applicable Trustee in writing);
2. the Seller or the Administrator or the Trustee, as applicable, at its
option, elects to terminate the book-entry system through DTC; or
3. after the occurrence of an Event of Default or a Servicer Default with
respect to those Securities, holders representing at least a majority
of the outstanding principal amount
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of the Notes or the Certificates, as the case may be, of that series,
acting together as a single class, advise the applicable Trustee
through DTC in writing that the continuation of a book-entry system
through DTC (or a successor thereto) with respect to those Notes or
Certificates is no longer in the best interests of the holders of
those Securities.
Upon the occurrence of any event described in the immediately preceding
paragraph, the applicable Trustee or Indenture Trustee will be required to
notify all applicable Securityholders of a given series through DTC Participants
of the availability of Definitive Securities. Upon surrender by DTC of the
definitive certificates representing the corresponding Securities and receipt of
instructions for re-registration, the applicable Trustee or Indenture Trustee
will reissue those Securities as Definitive Securities to those Securityholders.
Payments of principal of, and interest on, the Definitive Securities will
thereafter be made by the applicable Trustee or Indenture Trustee in accordance
with the procedures set forth in the related Indenture or the related Trust
Agreement or Pooling and Servicing Agreement, as applicable, directly to holders
of Definitive Securities in whose names the Definitive Securities were
registered at the close of business on the applicable record date specified for
those Securities in the applicable Prospectus Supplement. Those payments will
be made by check mailed to the address of that holder as it appears on the
register maintained by the applicable Trustee or Indenture Trustee. The final
payment on any Definitive Security, however, will be made only upon presentation
and surrender of that Definitive Security at the office or agency specified in
the notice of final payment to the applicable Securityholders. The applicable
Trustee or the Indenture Trustee will provide that notice to the applicable
Securityholders not less than 15 nor more than 30 days prior to the date on
which the final payment is expected to occur.
Definitive Securities will be transferable and exchangeable at the offices
of the applicable Trustee or of a registrar named in a notice delivered to
holders of Definitive Securities. No service charge will be imposed for any
registration of transfer or exchange, but the applicable Trustee may require
payment of a sum sufficient to cover any tax or other governmental charge
imposed in connection therewith.
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes material terms of each Sale and Servicing
Agreement or Pooling and Servicing Agreement pursuant to which a Trust will
purchase Receivables from the Seller and the Servicer will agree to service
those Receivables, each Trust Agreement (or in the case of a grantor trust, the
Pooling and Servicing Agreement) pursuant to which a Trust will be created and
Certificates will be issued and each Administration Agreement pursuant to which
NMAC will undertake specified administrative duties with respect to a Trust that
issues Notes (collectively, the "Transfer and Servicing Agreements"). Forms of
the Transfer and Servicing Agreements have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part. The provisions of
any of the Transfer and Servicing Agreements may differ from those described in
this Prospectus and, if so, will be described in the applicable Prospectus
Supplement. This summary does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all the provisions of the Transfer
and Servicing Agreements.
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SALE AND ASSIGNMENT OF RECEIVABLES
On or prior to the Closing Date specified with respect to any given Trust
in the applicable Prospectus Supplement (the "Closing Date"), NMAC will sell and
assign to the Seller, without recourse, pursuant to a Purchase Agreement (the
"Purchase Agreement"), its entire interest in the Receivables comprising the
related Receivables Pool, including the security interests in the Financed
Vehicles. On the Closing Date, the Seller will transfer and assign to the
applicable Trustee on behalf of the Trust, without recourse, pursuant to a Sale
and Servicing Agreement or a Pooling and Servicing Agreement, as applicable, its
entire interest in the Receivables comprising the related Receivables Pool,
including its security interests in the related Financed Vehicles. Each
Receivable will be identified in a schedule appearing as an exhibit to the
related Sale and Servicing Agreement or Pooling and Servicing Agreement (a
"Schedule of Receivables"), but the existence and characteristics of the related
Receivables will not be verified by the related Trustee. The applicable Trustee
will, concurrently with the transfer and assignment, on behalf of the Trust,
execute and deliver the related Notes and/or Certificates. The net proceeds
received from the sale of the Certificates and the Notes of a given series will
be applied to the purchase of the related Receivables from the Seller and, to
the extent specified in the applicable Prospectus Supplement, to make any
required initial deposit into the Reserve Account and the Yield Supplement
Account, if any. The Seller will initially retain the most subordinated class of
Security of the related series.
NMAC, pursuant to a Purchase Agreement, and the Seller, pursuant to a Sale
and Servicing Agreement or a Pooling and Servicing Agreement, will represent and
warrant, among other things, that:
1. the information provided in the related Schedule of Receivables is
true and correct in all material respects;
2. the related Obligor on each Receivable is required to maintain
physical damage insurance covering the Financed Vehicle in accordance
with NMAC's normal requirements;
3. as of the Closing Date, each of those Receivables is or will be
secured by a first priority perfected security interest in favor of
NMAC in the Financed Vehicle;
4. as of the Closing Date, the related Receivables are free and clear of
all security interests, liens, charges and encumbrances and no
offsets, defenses or counterclaims have been asserted or threatened;
5. each related Receivable, at the time it was originated, complied and,
as of the Closing Date, complies in all material respects with
applicable federal and state laws, including, consumer credit, truth-
in-lending, equal credit opportunity and disclosure laws; and
6. any other representations and warranties that may be set forth in the
applicable Prospectus Supplement.
As of the last day of the second (or, if the Seller so elects, the first)
Collection Period following the discovery by or notice to the Seller of a breach
of any representation or warranty of
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the Seller that materially and adversely affects the interests of the related
Securityholders in any Receivable (the initial determination of a material
adverse effect generally being made by the Servicer), the Seller, unless the
breach is cured, will repurchase that Receivable (a "Warranty Receivable") from
that Trust and, pursuant to the related Purchase Agreement, NMAC will purchase
that Warranty Receivable from the Seller, at a price equal to the Warranty
Purchase Payment for that Receivable. The "Warranty Purchase Payment" will be
equal to the amount required to be paid by the related Obligor to prepay the
Receivable (including interest accrued on that Receivable through the due date
for the Obligor's payment in the related Collection Period at the applicable
APR), after giving effect to the receipt of any monies collected (from whatever
source) on that Receivable, if any. This repurchase obligation will constitute
the sole remedy available to the Securityholders or the Trust for any uncured
breach by the Seller of those representations and warranties (other than
remedies that may be available under federal securities laws or other laws). The
obligation of the Seller to repurchase a Receivable will not be conditioned on
performance by NMAC of its obligation to purchase that Receivable from the
Seller pursuant to the related Purchase Agreement.
Pursuant to each Sale and Servicing Agreement or Pooling and Servicing
Agreement, the Seller and each Trust will designate the Servicer as custodian to
maintain possession as that Trust's agent of the related installment sale
contracts and any other documents relating to the Receivables. To assure
uniform quality in servicing both the Receivables and the Servicer's own
portfolio of automobile and light-duty truck installment sales contracts, as
well as to facilitate servicing and reduce administrative costs, the documents
evidencing the Receivables will not be physically segregated from other
automobile and light-duty truck installment sales contracts of the Servicer, or
those which the Servicer services for others, or marked to reflect the transfer
to the related Trust as long as NMAC is servicing the Receivables. However,
Uniform Commercial Code ("UCC") financing statements reflecting the sale and
assignment of the Receivables by NMAC to the Seller and by the Seller to the
applicable Trust will be filed, and the respective accounting records and
computer files of NMAC and the Seller will reflect that sale and assignment.
Because the Receivables will remain in the Servicer's possession and will not be
stamped or otherwise marked to reflect the assignment to the Trustee, if a
subsequent purchaser were able to take physical possession of the Receivables
without knowledge of the assignment, the Trust's interest in the Receivables
could be defeated. In addition, in some cases, the Trustee's security interest
in collections that have been received by the Servicer but not yet remitted to
the related Collection Account could be defeated. See "Material Legal Aspects
of the Receivables - Security Interests" in this Prospectus.
ACCOUNTS
With respect to each Trust that issues Notes, the Servicer will establish
and maintain with the related Indenture Trustee one or more accounts (each, a
"Collection Account"), in the name of the Indenture Trustee on behalf of the
related Securityholders, into which payments made on or with respect to the
related Receivables and amounts released from any Yield Supplement Account,
Reserve Account or other form of credit enhancement will be deposited for
payment to the related Securityholders. With respect to each Trust that does
not issue Notes, the Servicer will also establish and maintain a Collection
Account and any other Account in the name of the related Trustee on behalf of
the related Certificateholders.
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Any other accounts to be established with respect to a Trust, including any
Yield Supplement Account or any Reserve Account, will be described in the
applicable Prospectus Supplement.
For any series of Securities, funds in the related Collection Account, any
Yield Supplement Account, the Reserve Account and other accounts that may be
identified in the applicable Prospectus Supplement (collectively, the
"Accounts") will be invested as provided in the related Sale and Servicing
Agreement or Pooling and Servicing Agreement in Eligible Investments. "Eligible
Investments" are generally limited to investments acceptable to the rating
agencies rating those Securities as being consistent with the rating of those
Securities (including obligations of the Servicer and its affiliates, to the
extent consistent with that rating). Except as described below, Eligible
Investments are limited to obligations or securities that mature on or before
the next Distribution Date for that series. However, to the extent permitted by
the rating agencies, funds in any Account (other than the Collection Account and
the Yield Supplement Account) may be invested in obligations or securities that
will not mature prior to the date of the next payment with respect to those
Certificates or Notes and will not be sold to meet any shortfalls. Thus, the
amount of cash in any Reserve Account at any time may be less than the balance
of the Reserve Account. If the amount required to be withdrawn from any Reserve
Account to cover shortfalls in collections on the related Receivables (as
provided in the applicable Prospectus Supplement) exceeds the amount of cash in
the Reserve Account, a temporary shortfall in the amounts paid to the related
Noteholders or Certificateholders could result, which could, in turn, increase
the average life of the Notes or the Certificates of that series. Investment
earnings on funds deposited in the Accounts, net of losses and investment
expenses, shall be released to the Servicer or the Seller on each Distribution
Date and shall be the property of the Servicer or the Seller, as the case may
be.
For each Trust, the Accounts will be maintained with the related Indenture
Trustee or the Trustee so long as:
1. the Indenture Trustee's or the Trustee's short-term unsecured debt
obligations have a rating of "P-1" by Moody's Investors Service, Inc.
and a rating of "A-1+" by Standard & Poor's Ratings Services, a
division of The McGraw Hill Companies, Inc. (the "Required Deposit
Rating"); or
2. each of those accounts is maintained in a segregated trust account in
the trust department of the Indenture Trustee or the Trustee, as the
case may be.
If the short-term unsecured debt obligations of the related Indenture
Trustee or the Trustee, as the case may be, do not have the Required Deposit
Rating, then the Servicer shall, with the assistance of the Indenture Trustee or
the Trustee as may be necessary, cause each Account to be moved to (1) a bank
whose short-term unsecured debt obligations have the Required Deposit Rating or
(2) the trust department of the related Indenture Trustee or the Trustee.
SERVICING PROCEDURES
The Servicer will make reasonable efforts to collect all payments due with
respect to the Receivables held by any Trust and will, consistent with the
related Sale and Servicing
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Agreement or Pooling and Servicing Agreement, follow the collection procedures
it follows with respect to comparable retail installment sale contracts it
services for itself.
The Servicer shall not:
1. change the amount of a Receivable;
2. reschedule the due date of any scheduled payment of a Receivable;
3. change the APR of a Receivable;
4. extend the due date for any payment on a Receivable; or
5. change the material terms of a Receivable.
However, if a default, breach, violation, delinquency or event permitting
acceleration under the terms of any Receivable has occurred or, in the judgment
of the Servicer, is imminent, the Servicer may do the following:
1. extend the due date for any payment on that Receivable for credit
related reasons that would be acceptable to the Servicer for
comparable retail installment sale contracts that it services for
itself, but only if (a) the final scheduled distribution date of that
Receivable, as extended, would not be later than the Collection Period
preceding the final scheduled distribution date set forth in the
applicable Prospectus Supplement, and (b) the rescheduling or
extension would not modify the terms of that Receivable in a manner
which would constitute a cancellation of that Receivable and the
creation of a new receivable for federal income tax purposes; or
2. reduce an Obligor's monthly payment amount in the event of a
prepayment resulting from refunds of credit life and disability
insurance premiums and service contracts and make similar adjustments
in payment terms for that Receivable to the extent required by law.
In addition, the Servicer will covenant that, except as otherwise
contemplated in the related agreement (including the provisions in the
immediately two preceding paragraphs):
1. it will not release any Financed Vehicle from the security interest
granted in the related Receivable;
2. it will do nothing to impair the rights of the Securityholders in the
Receivables;
3. it will not alter the APR of any Receivable;
4. it will not modify the number of payments under a Receivable;
5. it will not increase the amount financed under a Receivable; and
6. it will not extend the due date for any payment on or forgive payments
on a Receivable.
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The Servicer, the Indenture Trustee and the Trustee shall inform the other
parties promptly upon the discovery of any breach of the above obligations of
the Servicer. Unless the breach is cured by the last day of the second
Collection Period following the discovery (or, if the Servicer so elects, the
last day of the first Collection Period following the discovery), the Servicer
is required to purchase any Receivable materially and adversely affected by the
breach (an "Administrative Receivable") from the Trust at a price equal to the
Administrative Purchase Payment for that Receivable. The "Administrative
Purchase Payment" for a Receivable will be equal to its unpaid Principal Balance
as of the beginning of that Collection Period, plus interest accrued through the
due date for the Obligor's payment in that Collection Period at the related APR,
after giving effect to the receipt of monies collected (from whatever source
other than the Advances) on that Administrative Receivable, if any, in that
Collection Period. Upon the purchase of any Administrative Receivable, the
Servicer will for all purposes of the related Sale and Servicing Agreement or
the Pooling Agreement, as applicable, be deemed to have released all claims for
the reimbursement of outstanding Advances made in respect of that Administrative
Receivable. This purchase obligation will constitute the sole remedy available
to the Certificateholders or the Trustee for any uncured breach by the Servicer.
If the Servicer determines that eventual payment in full of a Receivable is
unlikely, the Servicer will follow its normal practices and procedures to
recover all amounts due upon that Receivable, including repossessing and
disposing of the related Financed Vehicle at a public or private sale, or taking
any other action permitted by applicable law. See "Material Legal Aspects of
the Receivables."
INSURANCE ON FINANCED VEHICLES
Each Receivable requires the related Obligor to maintain specific levels
and types of insurance coverage to protect the Financed Vehicle against loss.
NMAC requires evidence of insurance coverage by the Obligors at the time of
origination of the Receivables, but performs no verification of continued
coverage after origination. NMAC will not be obligated to make payments to the
Trust for any loss as to which third party insurance has not been maintained,
except to the extent of its obligations under the related Purchase Agreement.
COLLECTIONS
With respect to each Trust, the Servicer will deposit all payments on
Receivables received from Obligors and all proceeds of Receivables collected
during the collection period specified in the applicable Prospectus Supplement
(each, a "Collection Period") into the Collection Account not later than the
Business Day after receipt. However, so long as NMAC is the servicer, if each
condition to making monthly deposits as may be required by the related Sale and
Servicing Agreement or Pooling and Servicing Agreement (including, the
satisfaction of specified ratings criteria by NMAC and the absence of any
Servicer Default) is satisfied, the Servicer may retain such amounts until the
related Distribution Date. The Servicer will be entitled to withhold, or to be
reimbursed from amounts otherwise payable into or on deposit in the Collection
Account, amounts previously deposited in the Collection Account but later
determined to have resulted from mistaken deposits or postings. Except in
certain circumstances described in the related Sale and Servicing Agreement or
Pooling and Servicing Agreement, pending deposit into the Collection Account,
collections may be employed by the Servicer at its own risk and for its own
benefit and will not be segregated from its own funds.
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The Servicer or the Seller, as the case may be, will remit the aggregate
Warranty Purchase Payments and Administrative Purchase Payments of Receivables
to be purchased from the Trust to the Collection Account on the Business Day
immediately preceding the related Distribution Date.
If the Servicer were unable to remit the funds as described above,
Securityholders might incur a loss. To the extent set forth in the applicable
Prospectus Supplement, the Servicer may, in order to satisfy the requirements
described above, obtain a letter of credit or other security for the benefit of
the related Trust to secure timely remittances of collections on the related
Receivables and payment of the aggregate Warranty Purchase Payments and
Administrative Purchase Payments with respect to Receivables required to be
repurchased by the Seller or the Servicer, as applicable.
For purposes of the related Sale and Servicing Agreement or Pooling and
Servicing Agreement, collections on a Receivable made during a Collection Period
(including Warranty Purchase Payments and Administrative Purchase Payments) will
be applied first to interest accrued to date, second to principal until the
principal balance is brought current, third to reduce the unpaid late charges as
provided in the Receivable and finally to prepay principal on the Receivable.
ADVANCES
If payment on a Receivable (other than an Administrative Receivable or a
Warranty Receivable) is not received in full by the end of the month in which it
is due, the Servicer shall, subject to the limitations set forth below, advance
to the Trust an amount with respect to that Receivable equal to the product of
the Principal Balance of that Receivable as of the first day of the related
Collection Period and one-twelfth of its APR minus the amount of interest
actually received on that Receivable during the related Collection Period (each,
an "Advance"). If that calculation results in a negative number, an amount
equal to that negative amount shall be paid to the Servicer in reimbursement of
outstanding Advances. In addition, if a defaulted Receivable is liquidated (a
"Liquidated Receivable"), the amount of accrued and unpaid interest on that
Liquidated Receivable (but not including interest for the current Collection
Period) will, up to the amount of all outstanding Advances in respect thereof,
be withdrawn from the related Collection Account and paid to the Servicer in
reimbursement of the outstanding Advances. No advances of principal will be
made with respect to Receivables. The Servicer will not be obligated to make an
Advance (other than in respect of an interest shortfall arising from the
prepayment of a Receivable) to the extent that it determines, in its sole
discretion, that that Advance will not be recovered from subsequent collections
or recoveries.
The Servicer will make all Advances by depositing into the related
Collection Account an amount equal to the aggregate of the Advances due in
respect of a Collection Period on the Business Day immediately preceding the
related Distribution Date.
SERVICING COMPENSATION
The Servicer will be entitled to receive a basic servicing fee for each
Collection Period in an amount equal to a specified percent per annum (as set
forth in the applicable Prospectus Supplement, the "Servicing Rate") of the Pool
Balance as of the first day of the related Collection Period (the "Base
Servicing Fee"). The Base Servicing Fee (together with any
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portion of the Base Servicing Fee that remains unpaid from prior Distribution
Dates) will be paid solely to the extent of amounts available for that purpose
as set forth in the applicable Prospectus Supplement. However, the Base
Servicing Fee will be paid prior to the payment of available amounts to the
Noteholders or the Certificateholders of the given series.
The Servicer will also be entitled to collect and retain any late fees,
prepayment charges and other administrative fees or similar charges allowed by
applicable law with respect to the related Receivables and any interest earned
during a Collection Period from the investment of monies in the Accounts as
additional servicing compensation (the "Supplemental Servicing Fee" and,
together with the Base Servicing Fee, the "Total Servicing Fee"). Payments by
or on behalf of Obligors will be allocated to scheduled payments and late fees
and other charges in accordance with the Servicer's normal practices and
procedures. In addition, the Servicer will be entitled to reimbursement from
any given Trust for specified liabilities. The Servicer will be paid the Base
Servicing Fee for each Collection Period on the Distribution Date related to
that Collection Period prior to the payment of interest on any class of Notes or
Certificates. However, if each rating agency for a series of Notes or
Certificates confirms that it will not reduce the rating of any class of Notes
or Certificates in that series, as the case may be, the Base Servicing Fee in
respect of a Collection Period (together with any portion of the Base Servicing
Fee that remains unpaid from the prior Distribution Dates) will be paid at the
beginning of that Collection Period out of collections of interest on the
related Receivables.
The Total Servicing Fee will compensate the Servicer for performing the
functions of a third party servicer of motor vehicle receivables as an agent for
the beneficial owner of those receivables, including collecting and posting all
payments, responding to inquiries of Obligors on the Receivables, investigating
delinquencies, sending payment statements to Obligors, reporting tax information
to Obligors, paying costs of collections and policing the collateral. The Total
Servicing Fee also will compensate the Servicer for administering the particular
Receivables Pool, including making Advances, accounting for collections and
furnishing monthly statements to the related Trustee and Indenture Trustee with
respect to payments. The Total Servicing Fee also will reimburse the Servicer
for specified taxes, the fees of the related Trustee and Indenture Trustee, if
any, accounting fees, outside auditor fees, data processing costs and other
costs incurred in connection with administering the applicable Receivables Pool.
The "Pool Balance" will equal the aggregate Principal Balance of the
Receivables. The "Principal Balance" of a Receivable as of any date will equal
the original principal balance of that Receivable minus the sum of:
1. that portion of all payments actually received on or prior to that
date allocable to principal;
2. any Warranty Purchase Payment or Administrative Purchase Payment with
respect to that Receivable allocable to principal (to the extent not
included in clause (1) above); and
3. any prepayments or other payments applied to reduce the unpaid
principal balance of that Receivable (to the extent not included in
clauses (1) and (2) above).
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YIELD SUPPLEMENT ACCOUNT; YIELD SUPPLEMENT AGREEMENT
YIELD SUPPLEMENT ACCOUNT. A "Yield Supplement Account" may be established
with respect to any class or series of Securities. The terms relating to any of
Yield Supplement Account will be set forth in the applicable Prospectus
Supplement. Each Yield Supplement Account will be designed to hold funds to be
applied by the related Trustee or, if that Trust issues Notes, the related
Indenture Trustee, to provide payments to Securityholders in respect of
Receivables that have APRs less than the sum of the Pass Through Rate or
Interest Rate specified in the applicable Prospectus Supplement plus the
Servicing Rate specified in the applicable Prospectus Supplement (the "Required
Rate"). Each Yield Supplement Account will be maintained with the same entity
with which the related Collection Account is maintained and will be created on
the related Closing Date with an initial deposit in an amount and by the Seller
or other person specified in the applicable Prospectus Supplement.
On each Distribution Date, the related Trustee or Indenture Trustee will
transfer to the Collection Account from monies on deposit in the Yield
Supplement Account an amount specified in the applicable Prospectus Supplement
(the "Yield Supplement Amount") in respect of the Receivables having APRs less
than the Required Rate for that Distribution Date. Amounts on deposit on any
Distribution Date in the Yield Supplement Account in excess of the "Required
Yield Supplement Amount" specified in the applicable Prospectus Supplement,
after giving effect to all payments to be made on that Distribution Date, will
be released to the Seller. The Seller or other person specified in the
applicable Prospectus Supplement will not have any obligation after the related
Closing Date to deposit any amounts into the Yield Supplement Account after the
related Closing Date even if the amount on deposit in that account is less than
the Required Yield Supplement Amount for any Distribution Date. Monies on
deposit in the Yield Supplement Account may be invested in Eligible Investments
under the circumstances and in the manner described in the related Pooling and
Servicing Agreement or Trust Agreement. Any monies remaining on deposit in the
Yield Supplement Account upon the termination of the Trust also will be released
to the Seller.
YIELD SUPPLEMENT AGREEMENT. If a Yield Supplement Account is to be
established with respect to a series of Securities, on or prior to the related
Closing Date, the Seller will enter into a "Yield Supplement Agreement" with the
entity with which the account is maintained. The Seller will assign its rights
under the Yield Supplement Agreement to the applicable Trustee for the benefit
of the applicable Securityholders.
DISTRIBUTIONS ON THE SECURITIES
With respect to each series of Securities, beginning on the Distribution
Date specified in the applicable Prospectus Supplement, payments of principal of
and interest (or, where applicable, of principal or interest only) on each class
of those Securities entitled thereto will be made by the applicable Indenture
Trustee to the Noteholders and by the applicable Trustee to the
Certificateholders of that series. The timing, calculation, allocation, order,
source, priorities of and requirements for all payments to each class of
Noteholders and all payments to each class of Certificateholders of that series
will be set forth in the applicable Prospectus Supplement.
With respect to each Trust, on each Distribution Date, collections on the
related Receivables will be withdrawn from the related Collection Account and
will be paid to the
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Noteholders and/or Certificateholders to the extent provided in the applicable
Prospectus Supplement. Credit enhancement, such as a Reserve Account, will be
available to cover any shortfalls in the amount available for payment to the
Securityholders on that date to the extent specified in the applicable
Prospectus Supplement. As more fully described in the applicable Prospectus
Supplement,
1. payments of principal of a class of Securities of a given series will
be subordinate to payments of interest on that class;
2. payments in respect of one or more classes of Certificates of that
series may be subordinate to payments in respect of Notes, if any, of
that series or other classes of Certificates of that series; and
3. payments in respect of one or more classes of Notes of that series may
be subordinated to payments in respect of other classes of Notes of
that series.
CREDIT AND CASH FLOW ENHANCEMENT
The amounts and types of credit and cash flow enhancement arrangements and
the provider thereof, if applicable, with respect to each class of Securities of
a given series, if any, will be set forth in the applicable Prospectus
Supplement. If and to the extent provided in the applicable Prospectus
Supplement, credit and cash flow enhancement may be in the form of subordination
of one or more classes of Securities, Reserve Accounts, over-collateralization,
letters of credit, credit or liquidity facilities, surety bonds, guaranteed
investment contracts or other interest rate protection agreements, repurchase
obligations, yield supplement agreements, other agreements with respect to third
party payments or other support, cash deposits or other arrangements that may be
described in the applicable Prospectus Supplement or any combination of the
foregoing. If specified in the applicable Prospectus Supplement, credit or cash
flow enhancement for a class of Securities may cover one or more other classes
of Securities of the same series, and credit or cash flow enhancement for a
series of Securities may cover one or more other series of Securities.
The presence of a Reserve Account and other forms of credit enhancement for
the benefit of any class or series of Securities is intended to enhance the
likelihood of receipt by the Securityholders of that class or series of the full
amount of principal and interest due on those Securities and to decrease the
likelihood that that Securityholders will experience losses. The credit
enhancement for a class or series of Securities will not provide protection
against all risks of loss and will not guarantee repayment of the entire
principal of and interest on those Securities. If losses occur which exceed the
amount covered by any credit enhancement or which are not covered by any credit
enhancement, Securityholders of any class or series will bear their allocable
share of deficiencies, as described in the applicable Prospectus Supplement. In
addition, if a form of credit enhancement covers more than one class or series
of Securities, Securityholders of any of that class or series will be subject to
the risk that that credit enhancement will be exhausted by the claims of
Securityholders of other classes or series.
RESERVE ACCOUNT. If provided in the applicable Prospectus Supplement,
pursuant to the related Sale and Servicing Agreement or Pooling and Servicing
Agreement, the Seller or a third party will establish for a series or class of
Securities an account, as specified in the applicable Prospectus Supplement,
which may be designated as a "Reserve Account" or a "Subordination
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Spread Account" (for the purposes of this Prospectus, the "Reserve Account"),
that will be maintained with the related Trustee or Indenture Trustee, as
applicable. The Reserve Account will be funded by an initial deposit by the
Seller or a third party on the Closing Date in the amount set forth in the
applicable Prospectus Supplement (the "Reserve Account Initial Deposit"). To the
extent provided in the applicable Prospectus Supplement, the amount on deposit
in the Reserve Account will be increased on each Distribution Date thereafter up
to the Specified Reserve Account Balance (as defined in the applicable
Prospectus Supplement) by the deposit in the Reserve Account of the amount of
collections on the related Receivables remaining on each Distribution Date after
all other required payments on that date are made. The applicable Prospectus
Supplement will describe the circumstances and manner under which payments may
be made out of the Reserve Account, either to holders of the Securities covered
by that Prospectus Supplement or to the Seller or a third party.
NET DEPOSITS
As an administrative convenience, as long as specified conditions are
satisfied, the Servicer will be permitted to make the deposit of collections,
aggregate Advances and Administrative Purchase Payments for any Trust for or
with respect to the related Collection Period net of payments to be made to the
Servicer with respect to that Collection Period. The Servicer may cause to be
made a single, net transfer from the Collection Account. The Servicer, however,
will account to the Trustee, any Indenture Trustee, the Noteholders, if any, and
the Certificateholders with respect to each Trust as if all deposits, payments
and transfers were made individually. With respect to any Trust that issues
both Certificates and Notes, if the related Distribution Dates are not the same
for all classes of Securities, all distributions, deposits or other remittances
made on a Distribution Date will be treated as having been distributed,
deposited or remitted on the same Distribution Date for the applicable
Collection Period for purposes of determining other amounts required to be
distributed, deposited or otherwise remitted on a Distribution Date.
STATEMENTS TO TRUSTEES AND TRUST
On a Business Day in each month that precedes each Distribution Date (each,
a "Determination Date" to be specified in the applicable Prospectus Supplement),
the Servicer will provide to the applicable Indenture Trustee, if any, and the
applicable Trustee a statement setting forth with respect to a series of
Securities substantially the same information that is required to be provided in
the periodic reports provided to Securityholders of that series described under
"- Statements to Securityholders" below.
STATEMENTS TO SECURITYHOLDERS
With respect to each series of Securities that includes Notes, on or prior
to each Distribution Date, the Servicer will prepare and provide to the related
Indenture Trustee a statement to be delivered to the related Noteholders on that
Distribution Date. In addition, on or prior to each Distribution Date, the
Servicer will prepare and provide to the related Trustee of each Trust, a
statement to be delivered to the Certificateholders. Each statement to be
delivered to Securityholders will include (to the extent applicable) the
following information (and any other information so specified in the applicable
Prospectus Supplement) as to the Notes of that series and as to the Certificates
of that series with respect to that Distribution Date:
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1. the amount of the payment allocable to the principal amount of each
class of those Notes and to the Certificate Balance of each class of
those Certificates;
2. the amount of the payment allocable to interest on each class of
Securities of that series;
3. the amount of the distribution allocable to the Yield Supplement
Amount, if any;
4. the Pool Balance as of the close of business on the last day of the
related Collection Period;
5. the amount of the Base Servicing Fee paid to the Servicer with respect
to the related Collection Period, the amount of any unpaid Base
Servicing Fees and the change in that amount from that of the prior
Distribution Date and the amount of any additional servicing
compensation paid to the Servicer with respect to the related
Collection Period;
6. the Interest Rate or Pass Through Rate for the Interest Period
relating to the succeeding Distribution Date for any class of Notes or
Certificates of that series with variable or adjustable rates;
7. the Noteholders' Interest Carryover Shortfall, the Noteholders'
Principal Carryover Shortfall, the Certificateholders' Interest
Carryover Shortfall and the Certificateholders' Principal Carryover
Shortfall (each as defined in the applicable Prospectus Supplement),
if any, in each case as applicable to each class of Securities, and
the change in those amounts from the preceding statement;
8. the amount, if any, otherwise distributable to one or more
subordinated classes of Notes or Certificates that has instead been
distributed to more senior classes of Notes or Certificates on that
Distribution Date;
9. the aggregate outstanding principal amount, the Note Factor and the
Note Pool Factor for each class of those Notes, and the Certificate
Balance, the Certificate Factor and the Certificate Pool Factor for
each class of those Certificates, each after giving effect to all
payments reported under clause (1) above on that date;
10. the amount of Advances made in respect of the related Receivables and
the related Collection Period and the amount of unreimbursed Advances
on that Distribution Date; and
11. the balance of any related Reserve Account, Yield Supplement Account
or other credit or liquidity enhancement on that date, after giving
effect to changes thereto on that date and the amount of those
changes.
Each amount set forth in subclauses (1), (2), (5) and (7) above will be
expressed in the aggregate and as a dollar amount per $1,000 of the original
principal amount of each class of Notes or the Original Certificate Balance of
each class of Certificates, as the case may be.
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Copies of the statements may be obtained by the Securityholders by
delivering a request in writing addressed to the applicable Trustee at its
address set forth in the applicable Prospectus Supplement.
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year during the term of each Trust, the applicable Trustee
will mail to each person who at any time during that calendar year has been a
Securityholder with respect to that Trust and received any payment a statement
containing information for the purposes of that Securityholder's preparation of
federal income tax returns. See "Material Income Tax Consequences."
EVIDENCE AS TO COMPLIANCE
Each Sale and Servicing Agreement and Pooling and Servicing Agreement will
provide that a firm of independent public accountants will furnish to the
related Trust and Indenture Trustee or Trustee, as applicable, annually a
statement as to compliance in all material respects by the Servicer during the
preceding twelve months (or, in the case of the first statement, from the
applicable Closing Date, which may be longer than twelve months) with specified
standards relating to the servicing of the applicable Receivables.
Each Sale and Servicing Agreement and Pooling and Servicing Agreement will
also provide for delivery to the related Trust and Indenture Trustee or Trustee,
as applicable, substantially simultaneously with the delivery of those
accountants' statement referred to above, of a certificate signed by an officer
of the Servicer stating that the Servicer has fulfilled its obligations under
the Sale and Servicing Agreement or Pooling and Servicing Agreement, as
applicable, throughout the preceding twelve months (or, in the case of the first
certificate, from the Closing Date) in all material respects or, if there has
been a default in the fulfillment of any obligation, describing each default.
The Servicer has agreed to give each Indenture Trustee and each Trustee notice
of specified Servicer Defaults under the related Sale and Servicing Agreement or
Pooling and Servicing Agreement, as applicable.
Copies of the statements and certificates may be obtained by
Securityholders by a request in writing addressed to the applicable Trustee.
MATERIAL MATTERS REGARDING THE SERVICER
Each Sale and Servicing Agreement and Pooling and Servicing Agreement will
provide that NMAC may not resign from its obligations and duties as Servicer
under that document, except upon NMAC's determination that its performance of
those duties is no longer permissible under applicable law. No resignation will
become effective until the related Indenture Trustee or Trustee, as applicable,
or a successor servicer has assumed NMAC's servicing obligations and duties
under the related Sale and Servicing Agreement or Pooling and Servicing
Agreement.
Each Sale and Servicing Agreement and Pooling and Servicing Agreement will
further provide that neither the Servicer nor any of its directors, officers,
employees or agents will be under any liability to the related Trust or the
related Noteholders or Certificateholders for taking any action or for
refraining from taking any action pursuant to the related Sale and Servicing
Agreement or Pooling and Servicing Agreement or for errors in judgment; except
that neither the Servicer nor any person will be protected against any liability
that would otherwise be imposed
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by reason of willful misfeasance, bad faith or negligence (except for errors in
judgment) in the performance of the Servicer's duties under that document or by
reason of reckless disregard of its obligations and duties under that document.
In addition, each Sale and Servicing Agreement and Pooling and Servicing
Agreement will provide that the Servicer is not obligated to appear in,
prosecute or defend any legal action that is not incidental to the Servicer's
servicing responsibilities under the related Sale and Servicing Agreement or
Pooling and Servicing Agreement and that, in its opinion, may cause it to incur
any expense or liability. The Servicer may, however, undertake any reasonable
action that it may deem necessary or desirable in respect of the related Sale
and Servicing Agreement or Pooling and Servicing Agreement, the rights and
duties of the parties thereto and the interests of the Securityholders under the
applicable agreement. In that event, the legal expenses and costs of that action
and any liability resulting therefrom will be expenses, costs and liabilities of
the Servicer, and the Servicer will not be entitled to be reimbursed therefor.
Any entity into which the Servicer or the Seller may be merged or
consolidated, or any entity resulting from any merger, conversion or
consolidation to which the Servicer or the Seller, as applicable, is a party, or
any entity succeeding to the business of the Servicer or the Seller, as
applicable, or any corporation, more than 50% of the voting stock of which is
owned, directly or indirectly, by Nissan, which assumes the obligations of the
Servicer or the Seller, as applicable, will be the successor of the Servicer or
the Seller, as applicable, under each Sale and Servicing Agreement and Pooling
and Servicing Agreement. For as long as NMAC is the Servicer, it may at any time
subcontract substantially all of its duties as servicer under any Sale and
Servicing Agreement or Pooling and Servicing Agreement to any corporation more
than 50% of the voting stock of which is owned, directly or indirectly, by
Nissan, and the Servicer may at any time perform specific duties as servicer
through other subcontractors.
SERVICER DEFAULT
"Servicer Default" under each Sale and Servicing Agreement and Pooling and
Servicing Agreement will consist of the following:
1. any failure by the Servicer (or the Seller, so long as NMAC is the
Servicer) to deliver to the applicable Trustee or Indenture Trustee
for deposit in any related Account any required payment or to direct
the applicable Trustee or Indenture Trustee to make any required
distributions from that Account, and that failure continues unremedied
for three Business Days after (a) receipt by the Servicer (or the
Seller, so long as NMAC is the Servicer) of written notice of the
failure given by the applicable Trustee or Indenture Trustee, (b)
receipt by the Servicer (or the Seller, so long as NMAC is the
Servicer) and the applicable Trustee or Indenture Trustee of written
notice of the failure given by the holders of Notes or Certificates
evidencing not less than 25% in principal amount of those outstanding
Notes and the Certificates, acting together as a single class; or (b)
discovery of that failure by any officer of the Servicer;
2. any failure by the Servicer (or the Seller, as long as NMAC is the
Servicer) to duly observe or perform in any material respect any other
covenants or agreements of the Servicer (or the Seller, as long as
NMAC is the Servicer) set forth in the related Sale and Servicing
Agreement or Pooling and Servicing Agreement, and that failure
materially and adversely affects the rights of the Noteholders or the
Certificateholders
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of the related series, and that failure continues unremedied for 90
days after the giving of written notice of the failure to (a) the
Servicer (or the Seller, so long as NMAC is the Servicer) by the
applicable Trustee or Indenture Trustee, or (b) the Servicer (or the
Seller, so long as NMAC is the Servicer) and the applicable Trustee
and Indenture Trustee by the holders of Notes or Certificates of the
related series evidencing not less than 25% in principal amount of
those outstanding Notes or Certificates, acting together as a single
class; and
3. the occurrence of events of insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings with
respect to the Servicer indicating its insolvency, reorganization
pursuant to bankruptcy proceedings or inability to pay its obligations
(any of these events with respect to any person being an "Insolvency
Event").
RIGHTS UPON SERVICER DEFAULT
In the case of any Trust that has issued Notes, as long as a Servicer
Default under a Sale and Servicing Agreement remains unremedied, the related
Indenture Trustee or holders of Notes of the related series evidencing a
majority of the principal amount of those Notes then outstanding, acting
together as a single class, may terminate all the rights and obligations of the
Servicer under that Sale and Servicing Agreement. When this happens, the
Indenture Trustee or a successor servicer appointed by that Indenture Trustee
will succeed to all the responsibilities, duties and liabilities of the Servicer
under that Sale and Servicing Agreement and will be entitled to similar
compensation arrangements.
In the case of any Trust that has not issued Notes, as long as a Servicer
Default under the related Pooling and Servicing Agreement remains unremedied,
the related Trustee or holders of Certificates of the related series evidencing
a majority of the aggregate Certificate Balance of those Certificates then
outstanding (but excluding for purposes of the calculation and action all
Certificates held by the Seller, the Servicer or any of their affiliates),
acting together as a single class, may terminate all the rights and obligations
of the Servicer under the related Pooling and Servicing Agreement. When this
happens, the Trustee or a successor servicer appointed by that Trustee will
succeed to all the responsibilities, duties and liabilities of the Servicer
under the related Pooling and Servicing Agreement and will be entitled to
similar compensation arrangements.
However, if a bankruptcy trustee or similar official has been appointed for
the Servicer, and no Servicer Default other than the appointment of a bankruptcy
trustee or similar official has occurred, that bankruptcy trustee or official
may have the power to prevent that Indenture Trustee, those Noteholders, that
Trustee or those Certificateholders, as applicable, from effecting a transfer of
servicing as described above. If that Indenture Trustee or Trustee is unwilling
or unable to so act, it may appoint, or petition a court of competent
jurisdiction for the appointment of, a successor servicer with a net worth of at
least $100,000,000 and whose regular business includes the servicing of
automobile receivables. The related Indenture Trustee or the Trustee, or any
person appointed as successor servicer, will be the successor in all respects to
the predecessor Servicer under the related Sale and Servicing Agreement or
Pooling and Servicing Agreement and all references in the related Sale and
Servicing Agreement or Pooling and Servicing Agreement to the Servicer shall
apply to that successor servicer. The related Indenture
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Trustee or Trustee may make arrangements for compensation to be paid, but the
compensation for the successor servicer may not be greater than the Total
Servicing Fee under the related Sale and Servicing Agreement or Pooling and
Servicing Agreement. Notwithstanding termination, the Servicer will be entitled
to payment of specified amounts payable to it prior to the termination for
services it rendered prior to the termination.
WAIVER OF PAST DEFAULTS
With respect to each Trust that has issued Notes, (1) the holders of Notes
of the related series evidencing a majority of the principal amount of the then
outstanding Notes of the related series, acting together as a single class, or
(2) in the case of any Servicer Default that does not adversely affect the
related Indenture Trustee or the related Noteholders, the holders of
Certificates of that series evidencing a majority of the aggregate Certificate
Balance of those Certificates then outstanding (but excluding for purposes of
calculation and action all Certificates held by the Seller, the Servicer or any
of their affiliates), acting together as a single class, may, on behalf of all
those Noteholders or Certificateholders, waive any default by the Servicer in
the performance of its obligations under the related Sale and Servicing
Agreement and its consequences, except a Servicer Default in making any required
deposits to the related Collection Account in accordance with that Sale and
Servicing Agreement. With respect to each Trust that has not issued Notes,
holders of Certificates of that series evidencing a majority of the aggregate
Certificate Balance of those Certificates then outstanding (but excluding for
purposes of calculation and action all Certificates held by the Seller, the
Servicer or any of their affiliates), acting together as a single class, may, on
behalf of all those Certificateholders, waive any default by the Servicer in the
performance of its obligations under the related Pooling and Servicing
Agreement, except a Servicer Default in making any required deposits to the
related Collection Account in accordance with the related Pooling and Servicing
Agreement. No waiver will impair those Noteholders' or Certificateholders'
rights with respect to subsequent defaults.
AMENDMENT
A Transfer and Servicing Agreement may be amended by the parties thereto,
without the consent of the related Noteholders or Certificateholders:
1. to cure any ambiguity, correct or supplement any provision in the
related Transfer and Servicing Agreement that may be inconsistent with
any other provision in that agreement, or make any other provisions
with respect to matters or questions arising under that agreement that
are not inconsistent with the provisions of that agreement; provided
that the amendment will not materially and adversely affect the
interest of any Noteholder or Certificateholder; and
2. to change the formula for determining the required amount for the
related Reserve Account, if any, upon confirmation from the rating
agencies rating the Securities as described in the applicable
Prospectus Supplement.
An amendment will be deemed not to materially and adversely affect the
interests of any Noteholder or Certificateholder of any class if (a) the
amendment does not adversely affect the Trust's status as a grantor trust or a
partnership, as applicable, for federal income tax purposes, and (b) each rating
agency then rating the related Certificates or Notes confirms that that
amendment will not result in a reduction or withdrawal of its rating on the
Certificates or Notes
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of that class.
A Transfer and Servicing Agreement may also be amended by the parties
thereto with the consent of:
1. the holders of Notes evidencing a majority of the principal amount of
the then outstanding Notes, if any, of the related series, acting
together as a single class; or
2. in the case of any amendment that does not adversely affect the
related Indenture Trustee or the related Noteholders, the holders of
the Certificates of that series evidencing a majority of the
outstanding Certificate Balance (but excluding for purposes of
calculation and action all Certificates held by the Seller, the
Servicer or any of their affiliates), acting together as a single
class, for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of the Transfer and
Servicing Agreement or of modifying in any manner the rights of those
Noteholders or Certificateholders.
No amendment, however, shall:
(x) increase or reduce in any manner the amount of, or accelerate or
delay the timing of, collections of payments on the related
Receivables or distributions that are required to be made for the
benefit of those Noteholders or Certificateholders or change the
Interest Rate or the Pass Through Rate or the required amount in the
related Reserve Account (except as described above under clause (2) of
the immediately preceding sentence) without the consent of each of the
"adversely affected" Noteholder or Certificateholder; or
(y) reduce the aforesaid percentage of the principal amount of the
then outstanding Notes or Certificates of that series which is
required to consent to any amendment, without the consent of the
holders of all the then outstanding Notes or Certificates of each
affected class.
An amendment referred to in clause (x) above will be deemed not to
"adversely affect" a Certificateholder or Noteholder of any class only if each
rating agency then rating the related Certificates or Notes confirms that that
amendment will not result in a reduction or withdrawal of its rating on the
Certificates or Notes of that class.
LIST OF SECURITYHOLDERS
Three or more holders of the Notes of that series or one or more holders of
those Notes evidencing not less than 25% of the aggregate principal amount of
those Notes then outstanding may, by written request to the related Indenture
Trustee, obtain access to the list of all Noteholders maintained by that
Indenture Trustee for the purpose of communicating with other Noteholders with
respect to their rights under the related Indenture or under those Notes. If
stated in the applicable Prospectus Supplement, an Indenture Trustee may elect
not to afford the requesting Noteholders access to the list of Noteholders if it
agrees to mail the desired communication or proxy, on behalf of and at the
expense of the requesting Noteholders, to all Noteholders of that series.
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Three or more holders of the Certificates of that series or one or more
holders of those Certificates evidencing not less than 25% of the Certificate
Balance of those Certificates may, by written request to the related Trustee,
obtain access to the list of all Certificateholders maintained by that Trustee
for the purpose of communicating with other Certificateholders with respect to
their rights under the related Trust Agreement or Pooling and Servicing
Agreement or under those Certificates.
The Indenture Trustee or the Trustee, as the case may be, will provide to
the Servicer within 15 days after receipt of a written request from the
Servicer, a list of the names of all Noteholders or Certificateholders, as the
case may be, of record as of the most recent applicable record date.
No Transfer and Servicing Agreement will provide for the holding of annual
or other meetings of Securityholders.
INSOLVENCY EVENT
With respect to a Trust which is not a grantor trust, if an Insolvency
Event occurs with respect to the Seller, the related Receivables of that Trust
will be liquidated and the Trust will be terminated 90 days after the date of
that Insolvency Event, unless, before the end of that 90-day period, the related
Trustee shall have received written instructions from holders representing more
than a majority of the aggregate unpaid principal amount of each class of the
related Securities (but excluding for purposes of calculation and action all
Certificates held by the Seller, the Servicer or any of their affiliates), to
the effect that those holders disapprove of the liquidation of those Receivables
and termination of that Trust. Promptly after the occurrence of an Insolvency
Event with respect to the Seller, the Indenture Trustee or the Trustee, as
applicable, will give notice to the Noteholders and Certificateholders of the
related series; provided that any failure to give the required notice will not
prevent or delay termination of that Trust. Upon termination of any Trust, the
related Trustee shall, or shall direct the related Indenture Trustee to,
promptly sell the assets of that Trust (other than the Accounts) in a
commercially reasonable manner and on commercially reasonable terms. The
proceeds from any sale, disposition or liquidation of the Receivables of that
Trust will be treated as collections on those Receivables and deposited in the
related Collection Account. With respect to any Trust, if the proceeds from the
liquidation of the related Receivables and any amounts on deposit in the related
Reserve Account, if any, Yield Supplement Account, if any, and Collection
Account are not sufficient to pay the Notes, if any, and the Certificates of the
related series in full, the amount of principal returned to Noteholders and
Certificateholders thereof will be reduced and some or all of those Noteholders
and Certificateholders will incur a loss.
Each Trust Agreement will provide that the related Trustee does not have
the power to commence a voluntary proceeding in bankruptcy with respect to the
related Trust without the unanimous prior approval of all Certificateholders
(including the Seller) of that Trust and the delivery to that Trustee by each
Certificateholder (including the Seller) of a certificate certifying that that
Certificateholder reasonably believes that that Trust is insolvent.
PAYMENT OF NOTES
Upon the payment in full of all outstanding Notes of a given series and the
satisfaction and discharge of the related Indenture, the related Trustee will
succeed to all the rights of the
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Indenture Trustee, and the Certificateholders of that series will succeed to all
the rights of the Noteholders of that series, under the related Sale and
Servicing Agreement, except as otherwise provided in the Sale and Servicing
Agreement.
SELLER LIABILITY
Under each Trust Agreement, the Seller will agree to be liable directly to
an injured party for the entire amount of any losses, claims, damages or
liabilities (other than those incurred by a Noteholder or a Certificateholder in
the capacity of an investor with respect to that Trust) arising out of or based
on the arrangement created by that Trust Agreement as though that arrangement
created a partnership under the Delaware Revised Uniform Limited Partnership Act
in which the Seller was a general partner.
TERMINATION
The respective obligations of the Seller, the Servicer, NMAC (so long as
NMAC has rights or obligations under the related Transfer and Servicing
Agreement), the related Trustee and the related Indenture Trustee, as the case
may be, pursuant to a Transfer and Servicing Agreement will terminate upon:
1. the maturity or other liquidation of the last Receivable and the
disposition of any amounts received upon liquidation of any remaining
Receivables;
2. the payment to Securityholders of all amounts required to be paid to
them pursuant to the related agreement;
3. the election by the Servicer or the Seller to purchase the corpus of
the Trust as described below; or
4. the occurrence of an Insolvency Event of the Seller as described
below.
The Trustee will give written notice of termination to each Securityholder
of record. The final distribution to any Securityholder will be made only upon
surrender and cancellation of that holder's Security at any office or agency of
the Trustee specified in the notice of termination. Any funds remaining in the
Trust, after the Trustee has taken measures to locate a Securityholder set forth
in the related Transfer and Servicing Agreement and those measures have failed,
will be distributed, subject to applicable law, to the Children's Hospital Los
Angeles.
In order to avoid excessive administrative expense, the Servicer or the
Seller will each have the option to purchase from each Trust, as of the end of
any applicable Collection Period, if the then outstanding Pool Balance with
respect to the Receivables held by that Trust is 10% or less of the Pool Balance
as of the related Cutoff Date, the corpus of the Trust at a price equal to the
aggregate Warranty Purchase Payments or Administrative Purchase Payments, as the
case may be, for the Receivables (including Receivables that became Defaulted
Receivables in the Collection Period preceding the Distribution Date on which
that purchase is effected) plus the appraised value of any other property held
as part of the Trust (less liquidation expenses). If both the Servicer and the
Seller, or any successor to the Servicer, elect to purchase the corpus of the
Trust as described above, the party first notifying the related Trustee (based
on that Trustee's
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receipt of the notice) shall be permitted to purchase the Receivables. The
related Trustee and related Indenture Trustee, if any, will give written notice
of termination to each Securityholder.
As described above under "- Insolvency Event," with respect to a trust that
is not a grantor trust, if an Insolvency Event occurs with respect to the
Seller, the related Receivables of that Trust will be liquidated and the Trust
will be terminated 90 days after the date of that Insolvency Event, unless the
holders of sufficient Securities of each class direct the Trustee not to
terminate that trust. Upon termination of any Trust, the assets of that Trust
will be liquidated and the proceeds therefrom (and amounts held in related
Accounts) will be applied to pay the Notes and the Certificates of the related
series in full, to the extent of amounts available.
As more fully described in the applicable Prospectus Supplement, any
outstanding Notes of the related series will be redeemed concurrently with any
of the events specified above and the subsequent payment to the related
Certificateholders of all amounts required to be paid to them pursuant to the
applicable Trust Agreement or Pooling and Servicing Agreement will effect early
retirement of the Certificates of that series.
ADMINISTRATION AGREEMENT
NMAC, in its capacity as administrator (the "Administrator"), will enter
into an agreement (as amended and supplemented from time to time, an
"Administration Agreement") with each Trust that issues Notes and the related
Indenture Trustee pursuant to which the Administrator will agree, to the extent
provided in that Administration Agreement, to provide the notices and to perform
other administrative obligations required by the related Indenture. As
compensation for the performance of the Administrator's obligations under the
applicable Administration Agreement and as reimbursement for its expenses
related thereto, the Administrator will be entitled to a monthly administration
fee in an amount that may be set forth in the applicable Prospectus Supplement
(the "Administration Fee"), which fee will be paid by the Servicer.
MATERIAL LEGAL ASPECTS OF THE RECEIVABLES
GENERAL
The transfer of the Receivables to the applicable Trustee, the perfection
of the security interests in the Receivables and the enforcement of rights to
realize on the Financed Vehicles as collateral for the Receivables are subject
to a number of federal and state laws, including the UCC as in effect in various
states. The Servicer and the Seller will take the action described below to
perfect the rights of the applicable Trustee in the Receivables. If another
party purchases (including the taking of a security interest in) the Receivables
for new value in the ordinary course of its business, without actual knowledge
of the Trust's interest, and takes possession of the Receivables, that purchaser
would acquire an interest in the Receivables superior to the interest of the
Trust.
SECURITY INTERESTS
GENERAL. In states in which retail installment sale contracts such as the
Receivables evidence the credit sale of automobiles or light-duty trucks by
dealers to obligors, the contracts also constitute personal property security
agreements and include grants of security interests in
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the vehicles under the applicable UCC. Perfection of security interests in
financed automobiles and/or light-duty trucks is generally governed by the motor
vehicle registration laws of the state in which the vehicle is located. In most
states, a security interest in an automobile or light-duty truck is perfected by
obtaining possession of the certificate of title to the vehicle or notation of
the secured party's lien on the vehicle's certificate of title.
All retail installment sales contracts acquired by NMAC from Dealers name
NMAC as obligee or assignee and as the secured party. NMAC also takes all
actions necessary under the laws of the state in which the related Financed
Vehicle is located to perfect its security interest in that Financed Vehicle,
including, where applicable, having a notation of its lien recorded on the
related certificate of title and obtaining possession of that certificate of
title. Because NMAC continues to service the contracts as Servicer under the
Sale and Servicing Agreement or the Pooling and Servicing Agreement, as
applicable, the Obligors on the contracts will not be notified of the sale from
NMAC to the Seller or the sale from the Seller to the related Trust.
PERFECTION. Pursuant to the related Purchase Agreement, NMAC will sell and
assign its security interest in the Financed Vehicles to the Seller and, with
respect to each Trust, pursuant to the related Sale and Servicing Agreement or
Pooling and Servicing Agreement, as applicable, the Seller will assign its
security interest in the Financed Vehicles to that Trust. However, because of
the administrative burden and expense, none of NMAC, the Seller or the related
Trustee will amend any certificate of title to identify that Trust as the new
secured party on that certificate of title relating to a Financed Vehicle.
However, UCC financing statements with respect to the transfer to the Seller of
NMAC's security interest in the Financed Vehicles and the transfer to the
Trustee of the Seller's security interest in the Financed Vehicles will be
filed. In addition, the Servicer will continue to hold any certificates of
title relating to the Financed Vehicles in its possession as custodian for that
Trust pursuant to the related Sale and Servicing Agreement or Pooling and
Servicing Agreement. See "Description of the Transfer and Servicing Agreements
- - Sale and Assignment of Receivables."
In most states, an assignment such as that under each Purchase Agreement or
each Sale and Servicing Agreement or Pooling and Servicing Agreement is an
effective conveyance of a security interest without amendment of any lien noted
on a vehicle's certificate of title, and the assignee succeeds to the assignor's
rights as secured party. Although re-registration of the vehicle is not
necessary to convey a perfected security interest in the Financed Vehicles to
the Trust, because the Trust will not be listed as lienholder on the
certificates of title, the security interest of that Trust in the vehicle could
be defeated through fraud or negligence. In those states, in the absence of
fraud or forgery by the vehicle owner or the Servicer or administrative error by
state or local agencies, the notation of NMAC's lien on the certificates of
title will be sufficient to protect that Trust against the rights of subsequent
purchasers of a Financed Vehicle or subsequent lenders who take a security
interest in a Financed Vehicle. In each Purchase Agreement, NMAC will represent
and warrant, and in each Sale and Servicing Agreement or Pooling and Servicing
Agreement, the Seller will represent and warrant, that it has taken all action
necessary to obtain a perfected security interest in each Financed Vehicle. If
there are any Financed Vehicles as to which NMAC failed to obtain and assign to
the Seller a perfected security interest, the security interest of the Seller
would be subordinate to, among others, subsequent purchasers of the Financed
Vehicles and holders of perfected security interests in the Financed Vehicles.
To the extent that failure has a material and adverse effect on the Trust's
interest in the related Receivables, however, it would constitute a breach of
the warranties of
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NMAC under the related Purchase Agreement or the Seller under the related Sale
and Servicing Agreement or Pooling and Servicing Agreement. Accordingly,
pursuant to the related Sale and Servicing Agreement or Pooling and Servicing
Agreement, the Seller would be required to repurchase the related Receivable
from the Trust and, pursuant to the related Purchase Agreement, NMAC would be
required to purchase that Receivable from the Seller, in each case unless the
breach was cured. Pursuant to each Sale and Servicing Agreement and Pooling and
Servicing Agreement, the Seller will assign to the related Trust its rights to
cause NMAC to purchase that Receivable under the related Purchase Agreement. See
"Description of the Transfer and Servicing Agreements - Sale and Assignment of
Receivables" and "Risk Factors - Interests of other persons in the receivables
and financed vehicles could be superior to the trust's interest, which may
result in reduced payments on your securities."
CONTINUITY OF PERFECTION. Under the laws of most states, the perfected
security interest in a vehicle would continue for four months after the vehicle
is moved to a state that is different from the one in which it is initially
registered and thereafter until the owner thereof re-registers the vehicle in
the new state. A majority of states generally require surrender of a
certificate of title to re-register a vehicle. In those states (such as
California) that require a secured party to hold possession of the certificate
of title to maintain perfection of the security interest, the secured party
would learn of the re-registration through the request from the obligor under
the related installment sales contract to surrender possession of the
certificate of title. In the case of vehicles registered in states providing
for the notation of a lien on the certificate of title but not possession by the
secured party (such as Texas), the secured party would receive notice of
surrender from the state of re-registration if the security interest is noted on
the certificate of title. Thus, the secured party would have the opportunity to
re-perfect its security interest in the vehicle in the state of relocation.
However, these procedural safeguards will not protect the secured party if
through fraud, forgery or administrative error, the debtor somehow procures a
new certificate of title that does not list the secured party's lien.
Additionally, in states that do not require a certificate of title for
registration of a motor vehicle, re-registration could defeat perfection. In
the ordinary course of servicing the Receivables, NMAC will take steps to effect
re-perfection upon receipt of notice of re-registration or information from the
Obligor as to relocation. Similarly, when an Obligor sells a Financed Vehicle,
NMAC must surrender possession of the certificate of title or will receive
notice as a result of its lien noted on the certificate of title and accordingly
will have an opportunity to require satisfaction of the related Receivable
before release of the lien. Under each Sale and Servicing Agreement and Pooling
and Servicing Agreement, the Servicer will be obligated to take appropriate
steps, at the Servicer's expense, to maintain perfection of security interests
in the Financed Vehicles and will be obligated to purchase the related
Receivable if it fails to do so and that failure has a material and adverse
effect on the Trust's interest in the Receivable.
PRIORITY OF LIENS ARISING BY OPERATION OF LAW. Under the laws of most
states (including California), liens for repairs performed on a motor vehicle
and liens for unpaid taxes take priority over even a perfected security interest
in a financed vehicle. The Code also grants priority to specified federal tax
liens over the lien of a secured party. The laws of some states and federal law
permit the confiscation of vehicles by governmental authorities under some
circumstances if used in unlawful activities, which may result in the loss of a
secured party's perfected security interest in the confiscated vehicle. NMAC
will represent and warrant to the Seller in each Purchase Agreement, and the
Seller will represent and warrant to the Trust in each Sale and Servicing
Agreement and Pooling and Servicing Agreement, that, as of the related Closing
Date,
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each security interest in a Financed Vehicle is prior to all other present
liens (other than tax liens and other liens that arise by operation of law) upon
and security interests in that Financed Vehicle. However, liens for repairs or
taxes could arise, or the confiscation of a Financed Vehicle could occur, at any
time during the term of a Receivable. No notice will be given to the Trustee,
any Indenture Trustee, any Noteholders or any Certificateholders in respect of a
given Trust if a lien arises or confiscation occurs that would not give rise to
the Seller's repurchase obligation under the related Sale and Servicing
Agreement or Pooling and Servicing Agreement or NMAC's repurchase obligation
under the related Purchase Agreement.
REPOSSESSION
In the event of default by an obligor, the holder of the related retail
installment sale contract has all the remedies of a secured party under the UCC,
except where specifically limited by other state laws. Among the UCC remedies,
the secured party has the right to perform repossession by self-help means,
unless it would constitute a breach of the peace or is otherwise limited by
applicable state law. Unless a vehicle financed by NMAC is voluntarily
surrendered, self-help repossession is the method employed by NMAC in most
states and is accomplished simply by retaking possession of the financed
vehicle. In cases where an obligor objects or raises a defense to repossession,
or if otherwise required by applicable state law, a court order must be obtained
from the appropriate state court, and that vehicle must then be recovered in
accordance with that order. In some jurisdictions, the secured party is
required to notify that obligor of the default and the intent to repossess the
collateral and to give that obligor a time period within which to cure the
default prior to repossession. In some states, an obligor has the right to
reinstate its contract and recover the collateral by paying the delinquent
installments and other amounts due.
NOTICE OF SALE; REDEMPTION RIGHTS
In the event of default by an obligor under a retail installment sales
contract, some jurisdictions require that the obligor be notified of the default
and be given a time period within which to cure the default prior to
repossession. Generally, this right of cure may only be exercised on a limited
number of occasions during the term of the related contract.
The UCC and other state laws require the secured party to provide an
obligor with reasonable notice of the date, time and place of any public sale
and/or the date after which any private sale of the collateral may be held. In
most states, an obligor has the right to redeem the collateral prior to actual
sale by paying the secured party the unpaid principal balance of the obligation,
accrued interest on the obligation plus reasonable expenses for repossessing,
holding and preparing the collateral for disposition and arranging for its sale,
plus, in some jurisdictions, reasonable attorneys' fees. In some states, an
obligor has the right to redeem the collateral prior to actual sale by payment
of delinquent installments or the unpaid balance.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of resale of the vehicles generally will be applied first to
the expenses of resale and repossession and then to the satisfaction of the
indebtedness. While some states impose prohibitions or limitations on
deficiency judgments if the net proceeds from resale do not cover the full
amount of the indebtedness, a deficiency judgment can be sought in those states
that do not prohibit or limit those judgments. In addition to the notice
requirement described
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above, the UCC requires that every aspect of the sale or other disposition,
including the method, manner, time, place and terms, be "commercially
reasonable." Generally, courts have held that when a sale is not "commercially
reasonable," the secured party loses its right to a deficiency judgment.
However, the deficiency judgment would be a personal judgment against the
obligor for the shortfall, and a defaulting obligor can be expected to have very
little capital or sources of income available following repossession. Therefore,
in many cases, it may not be useful to seek a deficiency judgment or, if one is
obtained, it may be settled at a significant discount or be uncollectible. In
addition, the UCC permits the obligor or other interested party to recover for
any loss caused by noncompliance with the provisions of the UCC. Also, prior to
a sale, the UCC permits the obligor or other interested person to prohibit the
secured party from disposing of the collateral if it is established that the
secured party is not proceeding in accordance with the "default" provisions
under the UCC.
Occasionally, after resale of a repossessed vehicle and payment of all
expenses and indebtedness, there is a surplus of funds. In that case, the UCC
requires the creditor to remit the surplus to any holder of a subordinate lien
with respect to that vehicle or if no lienholder exists, the UCC requires the
creditor to remit the surplus to the obligor.
MATERIAL BANKRUPTCY CONSIDERATIONS
In structuring the transactions contemplated by this Prospectus, the Seller
has taken steps that are intended to make it unlikely that the voluntary or
involuntary application for relief by NMAC or its parent, NNA, under the United
States Bankruptcy Code or similar applicable state laws (collectively,
"Insolvency Laws") will result in consolidation of the assets and liabilities of
the Seller with those of NMAC or NNA. These steps include the creation of the
Seller as a wholly-owned, limited purpose subsidiary pursuant to articles of
incorporation and bylaws containing limitations (including restrictions on the
nature of the Seller's business and on its ability to commence a voluntary case
or proceeding under any Insolvency Law without the unanimous affirmative vote of
all of its directors).
However, delays in payments on the Securities and possible reductions in
the amount of those payments could occur if:
1. a court were to conclude that the assets and liabilities of the Seller
should be consolidated with those of NMAC or NNA in the event of the
application of applicable Insolvency Laws to NMAC or NNA, as the case
may be;
2. a filing were made under any Insolvency Law by or against the Seller;
or
3. an attempt were to be made to litigate any of the foregoing issues.
On the Closing Date, O'Melveny & Myers LLP will give an opinion to the
effect that, based on a reasoned analysis of analogous case law (although there
is no precedent based on directly similar facts), and, subject to facts,
assumptions and qualifications specified in the opinion and applying the
principles set forth in the opinion, in the event of a voluntary or involuntary
bankruptcy case in respect of NMAC under Title 11 of the United States
Bankruptcy Code at a time when NMAC was insolvent, the property of the Seller
would not properly be substantively consolidated with the property of the estate
of NMAC. Among other things, that opinion will assume that each of the Seller
and NMAC will follow specified procedures in the
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conduct of its affairs, including maintaining records and books of account
separate from those of the other, refraining from commingling its assets with
those of the other, and refraining from holding itself out as having agreed to
pay, or being liable for, the debts of the other. The Seller and NMAC intend to
follow these and other procedures related to maintaining their separate
corporate identities. However, there can be no assurance that a court would not
conclude that the assets and liabilities of the Seller should be consolidated
with those of NMAC.
NMAC will warrant in each Purchase Agreement that the sale of the related
Receivables by it to the Seller is a valid sale. Notwithstanding the foregoing,
if NMAC were to become a debtor in a bankruptcy case, a court could take the
position that the sale of Receivables to the Seller should instead be treated as
a pledge of those Receivables to secure a borrowing of NMAC. In addition, if
the transfer of Receivables to the Seller is treated as a pledge instead of a
sale, a tax or government lien on the property of NMAC arising before the
transfer of a Receivable to the Seller may have priority over the Seller's
interest in that Receivable. In addition, while NMAC is the Servicer, cash
collections on the Receivables may be commingled with the funds of NMAC and, in
the event of that bankruptcy of NMAC, the Trust may not have a perfected
interest in those collections.
NMAC and the Seller will treat the transactions described in this
Prospectus as a sale of the Receivables to the Seller, so that the automatic
stay provisions of the United States Bankruptcy Code should not apply to the
Receivables if NMAC were to become a debtor in a bankruptcy case.
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws and related regulations
impose substantial requirements upon lenders and servicers involved in consumer
finance. These laws include the Truth-in-Lending Act, the Equal Credit
Opportunity Act, the Federal Trade Commission Act, the Fair Credit Billing Act,
the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the
Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations B and Z, the
Soldiers' and Sailors' Civil Relief Act of 1940, the Texas Consumer Credit Code,
state adoptions of the National Consumer Act and of the Uniform Consumer Credit
Code and state motor vehicle retail installment sales acts and other similar
laws. Also, state laws impose finance charge ceilings and other restrictions on
consumer transactions and require contract disclosures in addition to those
required under federal law. These requirements impose specific statutory
liabilities upon creditors who fail to comply with their provisions. In some
cases, this liability could affect an assignee's ability to enforce consumer
finance contracts such as the Receivables.
The so-called "Holder-in-Due-Course" Rule of the Federal Trade Commission
(the "FTC Rule"), the provisions of which are generally duplicated by the
Uniform Consumer Credit Code, other statutes or the common law in some states,
has the effect of subjecting a seller (and specified creditors and their
assignees) in a consumer credit transaction to all claims and defenses that the
obligor in the transaction could assert against the seller of the goods.
Liability under the FTC Rule is limited to the amounts paid by the obligor under
the contract, and the holder of the contract may also be unable to collect any
balance remaining due under that contract from the obligor.
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Most of the Receivables will be subject to the requirements of the FTC
Rule. Accordingly, each Trust, as holder of the related Receivables, will be
subject to any claims or defenses that the purchaser of the applicable Financed
Vehicle may assert against the seller of the related Financed Vehicle. As to
each Obligor, these claims are limited to a maximum liability equal to the
amounts paid by the Obligor on the related Receivable. Under most state motor
vehicle dealer licensing laws, sellers of motor vehicles are required to be
licensed to sell motor vehicles at retail sale. Furthermore, federal odometer
regulations promulgated under the Motor Vehicle Information and Cost Savings Act
require that all sellers of new and used vehicles furnish a written statement
signed by the seller certifying the accuracy of the odometer reading. If the
seller is not properly licensed or if a written odometer disclosure statement
was not provided to the purchaser of the related Financed Vehicle, an obligor
may be able to assert a defense against the seller of the vehicle. If an
Obligor were successful in asserting any of those claims or defenses, that claim
or defense would constitute a breach of the Seller's representations and
warranties under the related Sale and Servicing Agreement or Pooling and
Servicing Agreement and a breach of NMAC's warranties under the related Purchase
Agreement and would, if the breach materially and adversely affects the
Receivable or the interests of the Securityholders, create an obligation of the
Seller and NMAC, respectively, to repurchase the Receivable unless the breach is
cured. See "Description of the Transfer and Servicing Agreements - Sale and
Assignment of Receivables."
Courts have applied general equitable principles to secured parties
pursuing repossession and litigation involving deficiency balances. These
equitable principles may have the effect of relieving an obligor from some or
all of the legal consequences of a default.
In several cases, consumers have asserted that the self-help remedies of
secured parties under the UCC and related laws violate the due process
protections provided under the 14th Amendment to the Constitution of the United
States. Courts have generally upheld the notice provisions of the UCC and
related laws as reasonable or have found that the repossession and resale by the
creditor do not involve sufficient state action to afford constitutional
protection to borrowers.
NMAC and the Seller will represent and warrant under each Purchase
Agreement and each Sale and Servicing Agreement and Pooling and Servicing
Agreement, as applicable, that each Receivable complies with all requirements of
law in all material respects. Accordingly, if an Obligor has a claim against a
Trust for violation of any law and that claim materially and adversely affects
that Trust's interest in a Receivable, that violation would constitute a breach
of the representations and warranties of NMAC under the Purchase Agreement and
the Seller under the related Sale and Servicing Agreement or Pooling and
Servicing Agreement and would create an obligation of NMAC and the Seller to
repurchase the Receivable unless the breach is cured. See "Description of the
Transfer and Servicing Agreements - Sale and Assignment of Receivables."
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a secured party
to realize upon collateral or to enforce a deficiency judgment. For example, in
a Chapter 13 proceeding under the federal bankruptcy law, a court
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may prevent a creditor from repossessing a vehicle and, as part of the
rehabilitation plan, reduce the amount of the secured indebtedness to the market
value of the vehicle at the time of bankruptcy (as determined by the court),
leaving the creditor as a general unsecured creditor for the remainder of the
indebtedness. A bankruptcy court may also reduce the monthly payments due under
a contract or change the rate of interest and time of repayment of the
indebtedness.
Under the terms of the Soldiers' and Sailors' Relief Act of 1940 (the
"Relief Act"), an Obligor who enters the military service after the origination
of that Obligor's Receivable (including an Obligor who is a member of the
National Guard or is in reserve status at the time of the origination of the
Obligor's Receivable and is later called to active duty) may not be charged
interest above an annual rate of 6% during the period of that Obligor's active
duty status, unless a court orders otherwise upon application of the lender. It
is possible that the foregoing could have an effect on the ability of the
Servicer to collect the full amount of interest owing on some of the
Receivables. In addition, the Relief Act imposes limitations that would impair
the ability of the Servicer to repossess the released Financed Vehicle during
the Obligor's period of active duty status. Thus, if that that Receivable goes
into default, there may be delays and losses occasioned by the inability to
exercise the Trust's rights with respect to the Receivable and the related
Financed Vehicle in a timely fashion.
Any shortfall pursuant to either of the two preceding paragraphs, to the
extent not covered by amounts payable to the Securityholders from amounts on
deposit in the related Reserve Account or from coverage provided under any other
credit enhancement mechanism, could result in losses to the Securityholders.
MATERIAL INCOME TAX CONSEQUENCES
The following general discussion of the anticipated material federal and
California income tax consequences of the purchase, ownership and disposition of
the Notes and the Certificates of any series, to the extent it relates to
matters of law or legal conclusions with respect thereto, represents the opinion
of tax counsel to each Trust with respect to the related series on the material
matters associated with those consequences, subject to the qualifications set
forth in this Prospectus. "Tax Counsel" with respect to each Trust will be
O'Melveny & Myers LLP. The summary does not purport to deal with federal income
tax consequences applicable to all categories of investors, some of which may be
subject to special rules. For example, it does not discuss the tax treatment of
Noteholders or Certificateholders that are insurance companies, regulated
investment companies or dealers in securities. Moreover, there are no cases or
Internal Revenue Service ("IRS") rulings on similar transactions involving both
debt and equity interests issued by a trust with terms similar to those of the
Notes and the Certificates. As a result, the IRS may disagree with all or a
part of the discussion below. It is suggested that prospective investors
consult their own tax advisors in determining the federal, state, local, foreign
and any other tax consequences to them of the purchase, ownership and
disposition of the Notes and the Certificates.
The following summary is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated under the Code and judicial or ruling authority, all of which are
subject to change, which change may be retroactive. Each Trust will be provided
with an opinion of Tax Counsel regarding the federal income tax matters
discussed below. An opinion of Tax Counsel, however, is not binding on the IRS
or the
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courts. No ruling on any of the issues discussed below will be sought from the
IRS. For purposes of the following summary, references to the Trust, the Notes,
the Certificates and related terms, parties and documents shall be deemed to
refer to each Trust and the Notes, Certificates and related terms, parties and
documents applicable to that Trust. The federal income tax consequences to
Certificateholders will vary depending on whether an election is made to treat
the Trust as a partnership under the Code or whether the Trust will be treated
as a grantor trust. The Prospectus Supplement for each Series of Certificates
will specify whether a partnership election will be made or the Trust will be
treated as a grantor trust.
TAX TREATMENT OF OWNER TRUSTS
TAX CHARACTERIZATION OF THE TRUST
The following general discussion of the anticipated federal income tax
consequences of the purchase, ownership and disposition of the Notes and the
Certificates of a Trust nominally referred to as an "owner trust" in the
applicable prospectus supplement (an "Owner Trust"), to the extent it relates to
matters of law or legal conclusions with respect thereto, represents the opinion
of Tax Counsel to each Owner Trust with respect to the related series on the
material matters associated with those consequences, subject to the
qualifications set forth in this Prospectus. In addition, Tax Counsel has
prepared or reviewed the statements in this Prospectus under the heading
"Material Income Tax Consequences - Tax Treatment of Owner Trusts," and is of
the opinion that those statements are correct in all material respects. Those
statements are intended as an explanatory discussion of the related tax matters
affecting investors generally, but do not purport to furnish information in the
level of detail or with the attention to an investor's specific tax
circumstances that would be provided by an investor's own tax advisor.
Accordingly, it is suggested that each investor consult its own tax advisors
with regard to the tax consequences to it of investing in Notes or Certificates.
Tax Counsel will deliver its opinion that an Owner Trust for which no
election to be treated as a corporation is made will not be an association (or
publicly traded partnership) taxable as a corporation for federal income tax
purposes. This opinion will be based on the assumption that the terms of the
Related Documents will be complied with, and on Tax Counsel's conclusions that
(1) the Trust will not have those characteristics necessary for a business trust
to be classified as an association taxable as a corporation and (2) the nature
of the income of the Trust will exempt it from the rule that some publicly
traded partnerships are taxable as corporations.
If the Trust were taxable as a corporation for federal income tax purposes,
the Trust would be subject to corporate income tax on its taxable income. The
Trust's taxable income would include all its income on the Receivables, possibly
reduced by its interest expense on the Notes. Any corporate income tax could
materially reduce cash available to make payments on the Notes and the
Certificates, and Certificateholders could be liable for any tax of this type
that is not paid by the Trust.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES
TREATMENT OF THE NOTES AS INDEBTEDNESS. The Seller will agree, and the
Noteholders will agree by their purchase of Notes, to treat the Notes as debt
for federal income tax purposes. Tax
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Counsel will advise the Trust that the Notes will be classified as debt for
federal income tax purposes. The discussion below assumes this characterization
of the Notes is correct.
OID, INDEXED SECURITIES, ETC. The discussion below assumes that all
payments on the Notes are denominated in U.S. dollars, and that the Notes are
not Indexed Securities or Strip Notes. Moreover, the discussion assumes that
the interest formula for the Notes meets the requirements for "qualified stated
interest" under Treasury regulations (the "OID regulations") relating to
original issue discount ("OID"), and that any OID on the Notes (i.e., any excess
of the principal amount of the Notes over their issue price) does not exceed a
de minimis amount (i.e., 1/4% of their principal amount multiplied by the
number of full years included in determining their weighted average maturity),
all within the meaning of the OID regulations. In determining whether any OID
on the Notes is de minimis, the Seller expects to use a reasonable assumption
regarding prepayments (a "Prepayment Assumption") to determine the weighted
average maturity of the Notes. If these conditions are not satisfied with
respect to any given series of Notes, additional tax considerations with respect
to those Notes will be disclosed in the applicable Prospectus Supplement.
INTEREST INCOME ON THE NOTES. Based on the above assumptions, except as
discussed in the following paragraph, the Notes will not be considered issued
with OID. The stated interest on the Notes will be taxable to a Noteholder as
ordinary interest income when received or accrued in accordance with that
Noteholder's method of tax accounting. Under the OID regulations, a holder of a
Note issued with a de minimis amount of OID must include that OID in income, on
a pro rata basis, as principal payments are made on the Note. A purchaser who
buys a Note for more or less than its principal amount will generally be
subject, respectively, to the premium amortization or market discount rules of
the Code.
A holder of a Note that has a fixed maturity date of not more than one year
from the issue date of that Note (a "Short-Term Note") may be subject to special
rules. An accrual basis holder of a Short-Term Note (and some cash method
holders, including regulated investment companies, as set forth in Section 1281
of the Code) generally would be required to report interest income as interest
accrues on a straight-line basis or under a constant yield method over the term
of each interest period. Other cash basis holders of a Short-Term Note would,
in general, be required to report interest income as interest is paid (or, if
earlier, upon the taxable disposition of the Short-Term Note). However, a cash
basis holder of a Short-Term Note reporting interest income as it is paid may be
required to defer a portion of any interest expense otherwise deductible on
indebtedness incurred to purchase or carry the Short-Term Note until the taxable
disposition of the Short-Term Note. A cash basis taxpayer that is not required
to report interest income as it accrues under Section 1281 may elect to accrue
interest income on all nongovernment debt obligations with a term of one year or
less, in which case the taxpayer would not be subject to the interest expense
deferral rule referred to in the preceding sentence. Special rules apply if a
Short-Term Note is purchased for more or less than its principal amount.
SALE OR OTHER DISPOSITION. If a Noteholder sells a Note, the holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the holder's adjusted tax basis in the Note. The
adjusted tax basis of a Note to a particular Noteholder will equal the holder's
cost for the Note, increased by any market discount, acquisition discount, OID
and gain previously included in income by that Noteholder with respect to the
Note and decreased by the amount of bond premium, if any, previously amortized
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and by the amount of payments of principal and OID previously received by that
Noteholder with respect to that Note. Any gain or loss, and any gain or loss
recognized on a prepayment of the Notes, will be capital gain or loss if the
Note was held as a capital asset, except for gain representing accrued interest
and accrued market discount not previously included in income. Capital losses
generally may be used only to offset capital gains.
FOREIGN HOLDERS. Interest paid (or accrued) to a Noteholder who is not a
U.S. Person (a "Foreign Holder") generally will be considered "portfolio
interest," and generally will not be subject to United States federal income tax
and withholding tax if the interest is not effectively connected with the
conduct of a trade or business within the United States by the Foreign Holder
and
1. the Foreign Holder is not actually or constructively a "10 percent
shareholder" of the Trust or the Seller (including a holder of 10% of
the outstanding Certificates) or a "controlled foreign corporation"
with respect to which the Trust or the Seller is a "related person"
within the meaning of the Code;
2. the Foreign Holder is not a bank receiving interest described in
Section 881(c)(3)(A) of the Code;
3. the interest is not contingent interest described in Section 871(h)(4)
of the Code; and
4. the Foreign Holder does not bear specified relationships to any
Certificateholder.
To qualify for the exemption from taxation, the Foreign Holder must provide
the applicable Trustee or other person who is otherwise required to withhold
U.S. tax with respect to the Notes with an appropriate statement (on Form W-8 or
a similar form), signed under penalties of perjury, certifying that the
beneficial owner of the Note is a Foreign Holder and providing the Foreign
Holder's name and address. If a Note is held through a securities clearing
organization or other financial institutions, the organization or institution
may provide the relevant signed statement to the withholding agent; in that
case, however, the signed statement must be accompanied by a Form W-8 or
substitute form provided by the Foreign Holder that owns the Note and the
Foreign Holder that owns the Note must notify the financial institution acting
on its behalf of any changes to the information on the Form W-8 (or substitute
form) within 30 days of any that change. If interest paid to a Foreign Holder
is not considered portfolio interest, then it will be subject to United States
federal income and withholding tax at a rate of 30 percent, unless reduced or
eliminated pursuant to an applicable tax treaty. In order to claim the benefit
of any applicable tax treaty, the Foreign Holder must provide the applicable
Trustee or other person who is required to withhold U.S. tax with respect to the
Notes with an appropriate statement (on Form 1001 or a similar form), signed
under penalties of perjury, certifying that the beneficial owner of the Notes is
entitled to benefits under the treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a Foreign Holder will be exempt from United
States federal income and withholding tax, provided that (1) that gain is not
effectively connected with the conduct of a trade or business in the United
States by the Foreign Holder and (2) in the case of an individual Foreign
Holder, the Foreign Holder is not present in the United States for 183 days or
more during the taxable year of disposition.
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As used in this Prospectus, a "U.S. Person" means:
1. a citizen or resident of the United States;
2. a corporation or a partnership organized in or under the laws of the
United States or any political subdivision thereof;
3. an estate, the income of which from sources outside the United States
is includible in gross income for federal income tax purposes
regardless of its connection with the conduct of a trade or business
within the United States; or
4. a trust if (a) a court within the U.S. is able to exercise primary
supervision over the administration of the trust and one or more
United States fiduciaries have authority to control all substantial
decisions of the trust or (b) such trust has elected to be treated as
a domestic trust pursuant to the Code.
BACKUP WITHHOLDING. Each holder of a Note (other than an exempt holder
such as a corporation, tax-exempt organization, qualified pension and profit-
sharing trust, individual retirement account or nonresident alien who provides
certification as to status as a nonresident) will be required to provide, under
penalties of perjury, a certificate (on Form W-9) providing the holder's name,
address, correct federal taxpayer identification number and a statement that the
holder is not subject to backup withholding. Should a nonexempt Noteholder fail
to provide the required certification, the Trust will be required to withhold 31
percent of the amount otherwise payable to the holder, and remit the withheld
amount to the IRS as a credit against the Noteholder's federal income tax
liability.
NEW WITHHOLDING REGULATIONS. Recently, the Treasury Department issued new
regulations (the "New Regulations") which make certain modifications to the
withholding, backup withholding and information reporting rules described above.
The New Regulations attempt to unify certification requirements and modify
reliance standards. The New Regulations will generally be effective for
payments made after December 31, 2000, subject to certain transition rules. It
is suggested that prospective investors consult their own tax advisors regarding
the New Regulations.
POSSIBLE ALTERNATIVE TREATMENTS OF THE NOTES. If, contrary to the opinion
of Tax Counsel, the IRS successfully asserted that one or more of the Notes did
not represent debt for federal income tax purposes, the Notes might be treated
as equity interests in the Trust. If so treated, the Trust might be taxable as
a corporation with the adverse consequences described above (and the taxable
corporation would not be able to reduce its taxable income by deductions for
interest expense on Notes recharacterized as equity). Alternatively, and most
likely in the view of Tax Counsel, the Trust might be treated as a publicly
traded partnership that would not be taxable as a corporation because it would
meet specified qualifying income tests. Nonetheless, treatment of the Notes as
equity interests in a publicly traded partnership could have adverse tax
consequences to some holders. For example, income to some tax-exempt entities
(including pension funds) may be "unrelated business taxable income," income to
foreign holders may be subject to U.S. tax and U.S. tax return filing and
withholding requirements, and individual holders might be subject to some
limitations on their ability to deduct their share of Trust expenses.
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TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES
TREATMENT OF THE TRUST AS A PARTNERSHIP. The Seller and the Servicer will
agree, and the Certificateholders will agree by their purchase of Certificates,
to treat the Trust as a partnership for purposes of federal and state income
tax, franchise tax and any other tax measured in whole or in part by income,
with the assets of the partnership being the assets held by the Trust, the
partners of the partnership being the Certificateholders (including the Seller
in its capacity as recipient of payments from the Reserve Account), and the
Notes being debt of the partnership. However, the proper characterization of
the arrangement involving the Trust, the Certificates, the Notes, the Seller and
the Servicer is not clear because there is no authority on transactions closely
comparable to that contemplated in this Prospectus.
A variety of alternative characterizations are possible. For example,
because the Certificates have features characteristic of debt, the Certificates
might be considered debt of the Seller or the Trust. Any characterization of
this type generally would not result in materially adverse tax consequences to
Certificateholders as compared to the consequences from treatment of the
Certificates as equity in a partnership, described below. The following
discussion assumes that the Certificates represent equity interests in a
partnership.
INDEXED SECURITIES, ETC. The following discussion assumes that all
payments on the Certificates are denominated in U.S. dollars, none of the
Certificates are Indexed Securities or Strip Certificates, and that a series of
Securities includes a single class of Certificates. If these conditions are not
satisfied with respect to any given series of Certificates, additional tax
considerations with respect to those Certificates will be disclosed in the
applicable Prospectus Supplement.
PARTNERSHIP TAXATION. As a partnership, the Trust will not be subject to
federal income tax. Rather, each Certificateholder will be required to
separately take into account that holder's allocated share of income, gains,
losses, deductions and credits of the Trust. The Trust's income will consist
primarily of interest and finance charges earned on the Receivables (including
appropriate adjustments for market discount, OID and bond premium) and any gain
upon collection or disposition of Receivables. The Trust's deductions will
consist primarily of interest accruing with respect to the Notes, servicing and
other fees, and losses or deductions upon collection or disposition of
Receivables.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement (here, the
Trust Agreement and related documents). In the Trust Agreement, the
Certificateholders will agree that the yield on a Certificate is intended to
qualify as a "guaranteed payment" and not as a distributive share of partnership
income. A guaranteed payment would be treated by a Certificateholder as
ordinary income, but may well not be treated as interest income. The Trust
Agreement will provide that, to the extent that the treatment of the yield on a
Certificate as a guaranteed payment is not respected, the Certificateholders of
each class of Certificates will be allocated taxable income of the Trust for
each month equal to the sum of:
1. the interest that accrues on the Certificates in accordance with their
terms for that month, including interest accruing at the Pass Through
Rate for that month and interest on amounts previously due on the
Certificates but not yet paid;
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2. any Trust income attributable to discount on the Receivables that
corresponds to any excess of the principal amount of the Certificates
over their initial issue price;
3. prepayment premium payable to the Certificateholders for that month;
and
4. any other amounts of income payable to the Certificateholders for that
month.
That allocation will be reduced by any amortization by the Trust of premium
on Receivables that corresponds to any excess of the issue price of Certificates
over their principal amount. All remaining taxable income of the Trust will be
allocated to the Seller. Except as provided below, losses and deductions
generally will be allocated to the Certificateholders only to the extent the
Certificateholders are reasonably expected to bear the economic burden of those
losses or deductions. Any losses allocated to Certificateholders could be
characterized as capital losses, and the Certificateholders generally would only
be able to deduct those losses against capital gain income, and deductions would
be subject to the limitations set forth below. Accordingly, a
Certificateholder's taxable income from the Trust could exceed the cash it is
entitled to receive from the Trust.
Based on the economic arrangement of the parties, this approach for
allocating Trust income and loss should be permissible under applicable Treasury
regulations, although no assurance can be given that the IRS would not require a
greater amount of income to be allocated to Certificateholders. Moreover, even
under the foregoing method of allocation, Certificateholders may be allocated
income equal to the entire Pass Through Rate plus the other items described
above even though the Trust might not have sufficient cash to make current cash
payments of that amount. Thus, cash basis holders will in effect be required to
report income from the Certificates on the accrual basis and Certificateholders
may become liable for taxes on Trust income even if they have not received cash
from the Trust to pay those taxes. In addition, because tax allocations and tax
reporting will be done on a uniform basis for all Certificateholders but
Certificateholders may be purchasing Certificates at different times and at
different prices, Certificateholders may be required to report on their tax
returns taxable income that is greater or less than the amount reported to them
by the Trust.
For each taxable year of the Certificateholder, the Certificateholder will
be required to report items of income, loss and deduction allocated to them by
the Trust for the Trust's taxable year that ends on or before the last day of
that taxable year of the Certificateholder. The Code prescribes rules for
determining the taxable year of the Trust. It is likely that, under these
rules, the taxable year of the Trust will be the calendar year. However, in the
event that all of the Certificateholders possessing a 5 percent or greater
interest in the equity or profits of the Trust share a taxable year that is
other than the calendar year, the Trust could be required to use that year as
its taxable year.
A significant portion of the taxable income allocated to a
Certificateholder that is a pension, profit sharing or employee benefit plan or
other tax-exempt entity (including an individual retirement account) generally
will constitute "unrelated business taxable income" taxable to that holder under
the Code.
An individual taxpayer's share of expenses of the Trust (including fees to
the Servicer but not interest expense) would be miscellaneous itemized
deductions. Those deductions might be disallowed to the individual in whole or
in part and might result in that holder being taxed on an
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amount of income that exceeds the amount of cash actually paid to that holder
over the life of the Trust.
The Trust intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that those calculations be made separately for each Receivable, the
Trust might be required to incur additional expense but it is believed that
there would not be a material adverse effect on Certificateholders.
DISCOUNT AND PREMIUM. It is believed that the Receivables were not issued
with OID, and, therefore, the Trust should not have OID income. However, the
purchase price paid by the Trust for the Receivables may be greater or less than
the remaining principal balance of the Receivables at the time of purchase. If
so, the Receivables will have been acquired at a premium or discount, as the
case may be. (As indicated above, the Trust will make this calculation on an
aggregate basis, but might be required to recompute it on a Receivable-by-
Receivable basis.)
If the Trust acquires the Receivables at a market discount or premium, the
Trust will elect to include that discount in income currently as it accrues
over the life of the Receivables or to offset any that premium against interest
income on the Receivables. As indicated above, a portion of the market discount
income or premium deduction may be allocated to Certificateholders.
SECTION 708 TERMINATION. Under Section 708 of the Code, the Trust will be
deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust are sold or exchanged within a
12-month period. If that termination occurs, the Trust will be considered to
transfer all of it assets and liabilities to a new partnership in exchange for
an interest in the new partnership, after which the Trust would be deemed to
distribute interests in the new partnership to Certificateholders (including the
purchasing partner who caused the termination) in liquidation of the terminated
partnership. The Trust will not comply with technical requirements that might
apply when a constructive termination occurs. As a result, the Trust may be
subject to tax penalties and may incur additional expenses if it is required to
comply with those requirements. Furthermore, the Trust might not be able to
comply due to lack of data.
DISPOSITION OF CERTIFICATES. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
A Certificateholder's tax basis in a Certificate will generally equal the
holder's cost increased by the holder's share of Trust income (includible in
income) and decreased by any payments received with respect to that Certificate.
In addition, both the tax basis in the Certificates and the amount realized on a
sale of a Certificate would include the holder's share of the Notes and other
liabilities of the Trust. A holder acquiring Certificates at different prices
may be required to maintain a single aggregate adjusted tax basis in those
Certificates, and, upon sale or other disposition of some of the Certificates,
allocate a portion of that aggregate tax basis to the Certificates sold (rather
than maintaining a separate tax basis in each Certificate for purposes of
computing gain or loss on a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the holder's share of
unrecognized accrued market discount on the Receivables would generally be
treated as ordinary income to the holder and would give rise to special tax
reporting requirements. The Trust does not expect to
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have any other assets that would give rise to those special reporting
requirements. Thus, to avoid those special reporting requirements, the Trust
will elect to include market discount in income as it accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash payments with respect thereto, the excess will generally give rise to a
capital loss upon the retirement of the Certificates.
ALLOCATIONS BETWEEN TRANSFERORS AND TRANSFEREES. In general, the Trust's
taxable income and losses will be determined monthly and the tax items for a
particular calendar month will be apportioned among the Certificateholders in
proportion to the principal amount of Certificates owned by them as of the close
of the last day of that month. As a result, a holder purchasing Certificates
may be allocated tax items (which will affect its tax liability and tax basis)
attributable to periods before the holder actually owned the Certificates.
The use of a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Trust might be reallocated among the Certificateholders. The Seller is
authorized to revise the Trust's method of allocation between transferors and
transferees to conform to a method permitted by future regulations.
SECTION 754 ELECTION. In the event that a Certificateholder sells its
Certificates at a profit (loss), the purchasing Certificateholder will have a
higher (or lower) basis in the Certificates than the selling Certificateholder
had. The tax basis of the Trust's assets will not be adjusted to reflect that
higher (or lower) basis unless the Trust were to file an election under Section
754 of the Code. In order to avoid the administrative complexities that would
be involved in keeping accurate accounting records, as well as potentially
onerous information reporting requirements, the Trust will not make that
election. As a result, Certificateholders might be allocated a greater or
lesser amount of Trust income than would be appropriate based on their own
purchase price for Certificates.
ADMINISTRATIVE MATTERS. The Trustee is required to keep or have kept
complete and accurate books of the Trust. These books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year of
the Trust will be set forth in the applicable Prospectus Supplement. The
Trustee will file a partnership information return (IRS Form 1065) with the IRS
for each taxable year of the Trust and will report each Certificateholder's
allocable share of items of Trust income and expense to holders and the IRS on
Schedule K-1. The Trust will provide the Schedule K-1 information to nominees
that fail to provide the Trust with the information statement described below
and those nominees will be required to forward that information to the
beneficial owners of the Certificates. Generally, holders must file tax returns
that are consistent with the information return filed by the Trust or be subject
to penalties unless the holder notifies the IRS of all those inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust with
a statement containing specified information on the nominee, the beneficial
owners and the Certificates so held. The information includes (1) the name,
address and taxpayer identification number of the nominee and (2) as to
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each beneficial owner (x) the name, address and identification number of that
person, (y) whether that person is a United States person, a tax-exempt entity
or a foreign government, an international organization, or any wholly-owned
agency or instrumentality of either of the foregoing, and (z) specified
information on Certificates that were held, bought or sold on behalf of that
person throughout the year. In addition, brokers and financial institutions that
hold Certificates through a nominee are required to furnish directly to the
Trust information as to themselves and their ownership of Certificates. A
clearing agency registered under Section 17A of the Exchange Act is not required
to furnish any information statement of this type to the Trust. The information
referred to above for any calendar year must be furnished to the Trust on or
before the following January 31. Nominees, brokers and financial institutions
that fail to provide the Trust with the information described above may be
subject to penalties.
The Seller will be designated as the tax matters partner in the related
Trust Agreement, and as such is designated to receive notice on behalf of, and
to provide notice to those Certificateholders not receiving notice from, the
IRS, and to represent the Certificateholders in any dispute with the IRS. The
Code provides for administrative examination of a partnership as if the
partnership were a separate and distinct taxpayer. Generally, the statute of
limitations for partnership items does not expire before three years after the
date on which the partnership information return is filed. Any adverse
determination following an audit of the return of the Trust by the appropriate
taxing authorities could result in an adjustment of the returns of the
Certificateholders, and, under some circumstances, a Certificateholder may be
precluded from separately litigating a proposed adjustment to the items of the
Trust. As the tax matters partner, the Seller may enter into a binding
settlement on behalf of all Certificateholders with a less than 1 percent
interest in the Trust (except for any group of those Certificateholders with an
aggregate interest of 5 percent or more in Trust profits that elects to form a
notice group or Certificateholders who otherwise notify the IRS that the Seller
is not authorized to settle on their behalf). In the absence of a proceeding at
the Trust level, a Certificateholder under some circumstances may pursue a claim
for credit or refund on his own behalf by filing a request for administrative
adjustment of a Trust item. It is suggested that each Certificateholder consult
its own tax advisor with respect to the impact of these procedures on its
particular case. An adjustment could also result in an audit of a
Certificateholder's returns and adjustments of items not related to the income
and losses of the Trust.
TAX CONSEQUENCES TO FOREIGN CERTIFICATEHOLDERS. It is not clear whether
the Trust would be considered to be engaged in a trade or business in the United
States for purposes of federal withholding taxes with respect to a
Certificateholder who is not a U.S. Person (a "Foreign Certificateholder")
because there is no clear authority dealing with that issue under facts
substantially similar to those described in this Prospectus. Although it is not
expected that the Trust would be engaged in a trade or business in the United
States for those purposes, the Trust will withhold as if it were so engaged in
order to protect the Trust from possible adverse consequences of a failure to
withhold. The Trust expects to withhold on the portion of its taxable income
that is allocable to Foreign Certificateholders pursuant to Section 1446 of the
Code, as if that income were effectively connected to a U.S. trade or business,
at a rate of 35% for Foreign Certificateholders that are taxable as corporations
and 39.6% for all other Foreign Certificateholders. Subsequent adoption of
Treasury regulations or the issuance of other administrative pronouncements may
require the Trust to change its withholding procedures. In determining a
holder's withholding status, the Trust may rely on IRS Form W-8, IRS Form W-9 or
the holder's certification of nonforeign status signed under penalties of
perjury.
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Each Foreign Certificateholder might be required to file a U.S. individual
or corporate income tax return (including, in the case of a corporation, the
branch profits tax) on its share of the Trust's income. Each Foreign
Certificateholder must obtain a taxpayer identification number from the IRS and
submit that number to the Trust on Form W-8 in order to assure appropriate
crediting of the taxes withheld. A Foreign Certificateholder generally would be
entitled to file with the IRS a claim for refund with respect to taxes withheld
by the Trust, taking the position that no taxes were due because the Trust was
not engaged in a U.S. trade or business. However, interest payments made (or
accrued) to a Foreign Certificateholder generally will be considered guaranteed
payments to the extent those payments are determined without regard to the
income of the Trust. If these interest payments are properly characterized as
guaranteed payments, then the interest will not be considered "portfolio
interest," in which case Certificateholders would be subject to United States
federal income tax and withholding tax at a rate of 30 percent, unless reduced
or eliminated pursuant to an applicable treaty. In that case, a Foreign
Certificateholder would only be entitled to claim a refund for that portion of
the taxes in excess of the taxes that should be withheld with respect to the
guaranteed payments.
BACKUP WITHHOLDING. Payments made on the Certificates and proceeds from
the sale of the Certificates will be subject to a "backup" withholding tax of
31% if, in general, the Certificateholder fails to comply with specified
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code. See "- - Tax Consequences to Holders of the
Notes - - - Backup Withholding."
TAX TREATMENT OF GRANTOR TRUSTS
TAX CHARACTERIZATION OF THE TRUST AS A GRANTOR TRUST. The following
general discussion of the anticipated federal income tax consequences of the
purchase, ownership and disposition of the Certificates of a Trust nominally
referred to as a "grantor trust" in the applicable prospectus supplement (a
"Grantor Trust"), to the extent it relates to matters of law or legal
conclusions with respect thereto, represents the opinion of Tax Counsel to each
Grantor Trust with respect to the related series on the material matters
associated with those consequences, subject to the qualifications set forth in
this Prospectus. In addition, Tax Counsel has prepared or reviewed the
statements in this Prospectus under the heading "Material Income Tax
Consequences - Tax Treatment of Grantor Trusts," and is of the opinion that
those statements are correct in all material respects. Those statements are
intended as an explanatory discussion of the possible effects of the
classification of any Trust as a grantor trust for federal income tax purposes
on investors generally and of related tax matters affecting investors generally,
but do not purport to furnish information in the level of detail or with the
attention to an investor's specific tax circumstances that would be provided by
an investor's own tax advisor. Accordingly, it is suggested that each investor
consult its own tax advisors with regard to the tax consequences to it of
investing in Certificates.
If a partnership election is not made, Tax Counsel will deliver its opinion
that the Trust will not be classified as an association taxable as a corporation
and that that Trust will be classified as a grantor trust under subpart E, Part
I of subchapter J of Chapter 1 of Subtitle A of the Code and the applicable
provisions of the California Revenue and Taxation Code. In this case, owners of
Certificates (referred to as "Grantor Trust Certificateholders") could be
considered to own either (1) an undivided interest in a single debt obligation
held by the Trust and having a principal amount equal to the total stated
principal amount of the Receivables and
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an interest rate equal to the relevant Pass Through Rate or (2) an interest in
each of the Receivables and any other Trust property. The Certificates issued by
a Trust that is treated as a grantor trust are referred to as "Grantor Trust
Certificates."
The determination of whether the economic substance of a property transfer
is a sale or a loan secured by the transferred property has been made by the IRS
and the courts on the basis of numerous factors designed to determine whether
the transferor has relinquished (and the transferee has obtained) substantial
incidents of ownership in the property. Among those factors, the primary
factors examined are whether the transferee has the opportunity to gain if the
property increases in value, and has the risk of loss if the property decreases
in value.
The relevant pooling and servicing agreement will express the intent of the
Seller to sell, and the Grantor Trust Certificateholders to purchase, the
Receivables, and the Seller and each Grantor Trust Certificateholder, by
accepting a beneficial interest in a Certificate, will agree to treat the
Certificates as ownership interests in the Receivables and any other Trust
property.
TREATMENT AS DEBT OBLIGATION. If a Grantor Trust Certificateholder was
considered to own an undivided interest in a single debt obligation, the
principles described under "- Tax Treatment of Owner Trusts - - Tax Consequences
to Holders of the Notes" would apply. Each Grantor Trust Certificateholder,
rather than reporting its share of the interest accrued on each Receivable,
would, in general, be required to include in income interest accrued or received
on the principal amount of the Certificates at the relevant Pass Through Rate in
accordance with its usual method of accounting.
The Certificates would be subject to the original issue discount ("OID")
rules, described below under "- - Stripped Bonds and Stripped Coupons" and "- -
Original Issue Discount." In determining whether any OID on the Certificates is
de minimis, the Seller expects to use a reasonable Prepayment Assumption to
determine the weighted average life of the Certificates. OID includible in
income for any accrual period (generally, the period between payment dates)
would generally be calculated using a Prepayment Assumption and an anticipated
yield established as of the date of initial sale of the Certificates, and would
increase or decrease to reflect prepayments at a faster or slower rate than
anticipated. The Certificates would also be subject to the market discount
provisions of the Code to the extent that a Grantor Trust Certificateholder
purchased those Certificates at a discount from the initial issue price (as
adjusted to reflect prior accruals of OID).
The remainder of the discussion in this Prospectus assumes that a Grantor
Trust Certificateholder will be treated as owning an interest in each Receivable
(and the proceeds therefrom), any right to receive Yield Supplement Amounts and
any other Trust property, although for administrative convenience, the Servicer
will report information on an aggregate basis (as though all of the Receivables
and the Yield Supplement Agreement were a simple obligation). The amount and,
in some instances, character, of the income reported to a Grantor Trust
Certificateholder may differ under this method for a particular period from that
which would be reported if income were reported on a precise asset-by-asset
basis.
CHARACTERIZATION. Each Grantor Trust Certificateholder will be treated as
the owner of a pro rata undivided interest in the interest and principal
portions of the Trust represented by the Grantor Trust Certificates and will be
considered the equitable owner of a pro rata undivided
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interest in each of the Receivables in the Trust, any right to receive Yield
Supplement Amounts, and any other Trust property. Any amounts received by a
Grantor Trust Certificateholder in lieu of amounts due with respect to any
Receivable because of a default or delinquency in payment will be treated for
federal income tax purposes as having the same character as the payments they
replace.
For federal income tax purposes, the Seller will be treated as having
retained a fixed portion of the interest due on each Receivable having an annual
percentage rate in excess of the sum of the applicable Pass Through Rate and the
Servicing Rate (each, a "High Yield Receivable") equal to the difference between
(1) the annual percentage rate of the Receivable and (2) the sum of the
applicable Pass Through Rate and the Servicing Rate (the "Retained Yield"). The
Retained Yield will be treated as "stripped coupons" within the meaning of
Section 1286 of the Code, and the Stripped Receivables will be treated as
"stripped bonds." See "- - Stripped Bonds and Stripped Coupons." Accordingly,
each Grantor Trust Certificateholder will be treated as owning its pro rata
percentage interest in (1) payments received under any Yield Supplement
Agreement, and (2) the principal of, and interest payable on, each Receivable
(minus the Retained Yield on the High Yield Receivables).
Those Receivables that bear interest at a rate which is less than or equal
to the sum of the applicable Pass Through Rate and the Servicing Rate (the "Low
Yield Receivables") will not be treated as stripped bonds. Instead, Yield
Supplement Amounts will be payable to eliminate the difference between the
actual yield on each Low Yield Receivable and the yield such Receivable would
have had if its interest rate had equaled the sum of the applicable Pass Through
Rate and the Servicing Rate. See "- - Yield Supplement Amounts."
Each Grantor Trust Certificateholder will be required to report on its
federal income tax return in accordance with that Grantor Trust
Certificateholder's method of accounting its pro rata share of the entire income
from the Receivables in the Trust represented by Grantor Trust Certificates,
including interest, OID, if any, prepayment fees, assumption fees, any gain
recognized upon an assumption, late payment charges received by the Servicer and
any gain reorganized upon collection or disposition of the Receivables (but not
including any portion of the Retained Yield). A Grantor Trust Certificateholder
will also be required to report under its usual method of accounting any
payments received under any Yield Supplement Agreement to the extent that these
payments are treated as income. Under Sections 162 or 212, each Grantor Trust
Certificateholder will be entitled to deduct its pro rata share of Base
Servicing Fees, prepayment fees, assumption fees, any loss recognized upon an
assumption and late payment charges retained by the Servicer, provided that
those amounts are reasonable compensation for services rendered to the Trust.
Grantor Trust Certificateholders that are individuals, estates or trusts will be
entitled to deduct their share of expenses only to the extent those expenses
plus all other Section 212 expenses exceed two percent of its adjusted gross
income. In addition, Grantor Trust Certificateholders who are individuals may
be subject to additional deduction limitations based on adjusted gross income.
A Grantor Trust Certificateholder using the cash method of accounting must
take into account its pro rata share of income and deductions as and when
collected by or paid to the Servicer. A Grantor Trust Certificateholder using
an accrual method of accounting must take into account its pro rata share of
income and deductions as they become due or are paid to the Servicer, whichever
is earlier. Because (1) interest accrues on the Receivables over differing
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monthly periods and is paid in arrears and (2) interest collected on a
Receivable generally is paid to Certificateholders in the following month, the
amount of interest accruing to a Grantor Trust Certificateholder during any
calendar month will not equal the interest distributed in that month. The actual
amount of discount on a Receivable will be includible in income as principal
payments are received on the Receivables. If the Base Servicing Fees paid to the
Servicer are deemed to exceed reasonable servicing compensation, the amount of
that excess could be considered as an ownership interest retained by the
Servicer (or any person to whom the Servicer assigned for value all or a portion
of the Base Servicing Fees) in a portion of the interest payments on the
Receivables. The Receivables would then be subject to the "stripped bond" and
"stripped coupons" rules of the Code discussed below.
DISCOUNT AND PREMIUM. In determining whether a Grantor Trust
Certificateholder has purchased its interest in the Receivables (or any
Receivable) held by the related Trust at a discount or premium and whether such
Receivables (or any Receivable) have OID, market discount, or amortizable
premium, a portion of the purchase price of a Certificate should be allocated to
the Grantor Trust Certificateholder's undivided interest in accrued but unpaid
interest, amounts collected at the time of purchase but not distributed, and
rights to receive Yield Supplement Amounts. As a result, the portion of the
purchase price allocable to a Grantor Trust Certificateholder's undivided
interest in the Receivables (or any Receivable) will be increased or decreased,
as applicable, and the potential OID, market discount, or amortizable premium on
the Receivables (or any Receivable) could be increased or decreased accordingly.
PREMIUM. A Grantor Trust Certificateholder that acquires an interest in
Receivables at a premium over the "stated redemption price at maturity" of the
Receivables may elect to amortize that premium under a constant interest method.
Amortizable bond premium will be treated as an offset to interest income on that
Grantor Trust Certificate. The basis for that Grantor Trust Certificate will be
reduced to the extent that amortizable premium is applied to offset interest
payments. It is not clear whether a reasonable prepayment assumption should be
used in computing amortization of premium allowable under Section 171. With
some exceptions, a Grantor Trust Certificateholder that makes this election for
a Grantor Trust Certificate that is acquired at a premium will be deemed to have
made an election to amortize bond premium with respect to all debt instruments
having amortizable bond premium that that Grantor Trust Certificateholder holds
during the year of the election or thereafter. Absent on election to amortize
bond premium, the premium will be deductible as an ordinary loss upon
disposition of the Certificate or pro rata as principal is paid on the
Receivables.
If a premium is not subject to amortization using a reasonable prepayment
assumption, the holder of a Grantor Trust Certificate acquired at a premium
should recognize a loss if a Receivable prepays in full, equal to the difference
between the portion of the prepaid principal amount of that Receivable that is
allocable to the Grantor Trust Certificate and the portion of the adjusted basis
of the Grantor Trust Certificate that is allocable to that Receivable. If a
reasonable prepayment assumption is used to amortize that premium, it appears
that that loss would be available, if at all, only if prepayments have occurred
at a rate faster than the reasonable assumed prepayment rate. It is not clear
whether any other adjustments would be required to reflect differences between
an assumed prepayment rate and the actual rate of prepayments.
STRIPPED BONDS AND STRIPPED COUPONS. Although the tax treatment of
stripped bonds is not entirely clear, based on recent guidance from the IRS,
each purchaser of a Grantor Trust
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Certificate will be treated as the purchaser of a stripped bond (to the extent
that the Receivables consist of High Yield Receivables) which generally should
be treated as a single debt instrument issued on the day it is purchased for
purposes of calculating any original issue discount. Generally, under applicable
Treasury regulations (the "Section 1286 Treasury Regulations"), if the discount
on a stripped bond is larger than a de minimis amount (as calculated for
purposes of the OID rules of the Code), that stripped bond will be considered to
have been issued with OID. See "- - Original Issue Discount." Based on the
preamble to the Section 1286 Treasury Regulations, Tax Counsel is of the opinion
that, although the matter is not entirely clear, the interest income on the
Certificates at the sum of the Pass Through Rate and the portion of the
Servicing Rate that does not constitute excess servicing will be treated as
"qualified stated interest" within the meaning of the Section 1286 Treasury
Regulations, and that income will be so treated in the Trustee's tax information
reporting. In this case, the amount of OID on a High Yield Receivable will equal
the amount by which the purchase price of a High Yield Receivable is less than
the portion of the remaining principal balance of the Receivable allocable to
the interest acquired.
ORIGINAL ISSUE DISCOUNT. The IRS has stated in published rulings that, in
circumstances similar to those described in this Prospectus, the special rules
of the Code relating to OID will be applicable to a Grantor Trust
Certificateholder's interest in those Receivables meeting the conditions
necessary for these rules to apply. Generally, a Grantor Trust
Certificateholder that acquires an undivided interest in a Receivable issued or
acquired with OID must include in gross income the sum of the "daily portions,"
as defined below, of the OID on that Receivable for each day on which it owns a
Certificate, including the date of purchase but excluding the date of
disposition. In the case of an original Grantor Trust Certificateholder, the
daily portions of OID with respect to a Receivable generally would be determined
as follows. A calculation will be made of the portion of OID that accrues on
the Receivable during each successive monthly accrual period (or shorter period
in respect of the date of original issue or the final Distribution Date). This
will be done, in the case of each full monthly accrual period, by adding (1) the
present value of all remaining payments to be received on the Receivable under
the Prepayment Assumption used in respect of the Receivables and (2) any
payments received during that accrual period, and subtracting from that total
the "adjusted issue price" of the Receivable at the beginning of that accrual
period. No representation is made that the Receivables will prepay at any
prepayment assumption. The "adjusted issue price" of a Receivable at the
beginning of the first accrual period is the amount of the purchase price paid
by the Grantor Trust Certificateholder for the Certificate that is allocable to
the Receivable, and the "adjusted issue price" of a Receivable at the beginning
of a subsequent accrual period is the "adjusted issue price" at the beginning of
the immediately preceding accrual period plus the amount of OID allocable to
that accrual period and reduced by the amount of any payment on the Receivable
(other than "qualified stated interest") made at the end of or during that
accrual period. The OID accruing during that accrual period will then be
divided by the number of days in the period to determine the daily portion of
OID for each day in the period. With respect to an initial accrual period
shorter than a full monthly accrual period, the daily portions of OID must be
determined according to a reasonable method, provided that that method is
consistent with the method used to determine the yield to maturity of the
Receivables.
If the amount of OID is de minimis under the rule set forth above, a High
Yield Receivable would not be treated as having OID. The actual amount of
discount on a High Yield Receivable would be includible in income as principal
payments are received on the Receivable,
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in the proportion that each principal payment bears to the total principal
amount of the Receivable.
With respect to the Receivables, the method of calculating OID as described
above will cause the accrual of OID to either increase or decrease (but never
below zero) in any given accrual period to reflect the fact that prepayments are
occurring at a faster or slower rate than the prepayment assumption used in
respect of the Receivables. Subsequent purchasers that purchase Receivables at
more than a de minimis discount should consult their tax advisors with respect
to the proper method to accrue that OID.
YIELD SUPPLEMENT AMOUNTS. The proper Federal income tax characterization
of the Yield Supplement Amounts is not clear. Moreover, the sum of the income
and deductions properly reportable by a Grantor Trust Certificateholder in any
taxable year may not equal the amounts that would be reportable if a Grantor
Trust Certificateholder held instead of an interest in the Receivables and in
the Yield Supplement Agreement either (1) a debt instrument bearing interest at
the applicable Pass Through Rate or (2) an interest in a trust holding
Receivables each of which bears interest at a rate at least equal to the sum of
the Pass Through Rate plus the Servicing Rate. It is likely that the right to
receive Yield Supplement Amounts will be treated as a separate asset purchased
by each Grantor Trust Certificateholder, in which case a portion of each Grantor
Trust Certificateholder's purchase price or other tax basis in the Certificate
equal to the fair market value of the right to receive such Yield Supplement
Amounts should be allocated to the right to receive payments of Yield Supplement
Amounts. The right to receive Yield Supplement Amounts may be treated as a loan
made by a Grantor Trust Certificateholder to the Seller in an amount equal to
the present value, discounted at a rate equal to the sum of the applicable Pass
Through Rate and the Servicing Rate, of the projected Yield Supplement Amounts.
In that event, a portion of the Yield Supplement Amounts generally representing
a yield equal to the applicable Pass Through Rate plus the Servicing Rate on
such discounted value should be treated as interest includible in income as
accrued or received, and the remainder should be treated as a return of the
principal amount of the deemed loan. Alternatively, it is possible that the
entire amount of each Yield Supplement Amount should be included in income as
accrued or received, in which event a Grantor Trust Certificateholder should
also be entitled to amortize the portion of its purchase price allocable to its
right to receive Yield Supplement Amounts. The method of calculating such
amortization is unclear, and could result in the inclusion of greater amounts of
income than a Grantor Trust Certificateholder's actual yield on a Receivable.
Alternatively, it is possible that the Yield Supplement Amounts could be treated
as payments adjusting the purchase price of the Low Yield Receivables, rather
than as a separate asset. In that event, a Grantor Trust Certificateholder
could be treated as having purchased each Low Yield Receivable at a discount
(which may consist of imputed interest, market discount, or both) that, combined
with the actual coupon rate of such Receivable, produces a yield equal to the
sum of the applicable Pass Through Rate and the Servicing Rate. It is not clear
whether, and to what extent, the amounts includible in income or amortizable
under any of these methods woul be adjusted to take account of prepayments on
the Receivables. Moreover, it is possible that the IRS might contend that none
of the above methods is appropriate, and that income with respect to the Yield
Supplement Agreement should be reported by a Grantor Trust Certificateholder in
some other manner. In addition, to the extent that the amounts payable pursuant
to Yield Supplement Agreement decline during any period by reason of prepayments
on the Receivables, it is possible that a portion of the amount amortizable by
the Grantor Trust Certificateholder during such period would be treated as a
capital loss (which would not offset ordinary income), rather than as
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an ordinary deduction. It is suggested that Grantor Trust Certificateholder
consult their tax advisors regarding the appropriate method of accounting for
income attributable to the Yield Supplement Agreement.
MARKET DISCOUNT. A Grantor Trust Certificateholder that acquires an
undivided interest in Receivables may be subject to the market discount rules of
Sections 1276 through 1278 to the extent an undivided interest in a Receivable
is considered to have been purchased at a "market discount." Generally, the
amount of market discount is equal to the excess of the portion of the principal
amount of that Receivable allocable to that holder's undivided interest in the
Receivable over that holder's tax basis in that interest. Market discount with
respect to a Receivable will be considered to be zero if the amount allocable to
the Receivable is less than 0.25% of the Receivable's stated redemption price at
maturity multiplied by the weighted average maturity remaining after the date of
purchase. Treasury regulations implementing the market discount rules have not
yet been issued; therefore, it is suggested that investors consult their own tax
advisors regarding the application of these rules and the advisability of making
any of the elections allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled payment
or a prepayment) or any gain on disposition of a market discount bond shall be
treated as ordinary income to the extent that it does not exceed the accrued
market discount at the time of that payment. The amount of accrued market
discount for purposes of determining the tax treatment of subsequent principal
payments or dispositions of the market discount bond is to be reduced by the
amount so treated as ordinary income.
The Code also grants the Treasury Department authority to issue regulations
providing for the computation of accrued market discount on debt instruments,
the principal of which is payable in more than one installment. While the
Treasury Department has not yet issued regulations, rules described in the
relevant legislative history will apply. Under those rules, the holder of a
market discount bond may elect to accrue market discount either on the basis of
a constant interest rate or according to one of the following methods. If a
Grantor Trust Certificate is issued with respect to which there is OID, the
amount of market discount that accrues during any accrual period would be equal
to the product of (1) the total remaining market discount and (2) a fraction,
the numerator of which is the OID accruing during the period and the denominator
of which is the total remaining OID at the beginning of the accrual period. If
a Grantor Trust Certificate is issued with respect to which there is no OID, the
amount of market discount that accrues during a period is equal to the product
of (1) the total remaining market discount and (2) a fraction, the numerator of
which is the amount of stated interest paid during the accrual period and the
denominator of which is the total amount of stated interest remaining to be paid
at the beginning of the accrual period. For purposes of calculating market
discount under any of the above methods in the case of instruments (such as the
Grantor Trust Certificates) that provide for payments that may be accelerated by
reason of prepayments of other obligations securing those instruments, the same
prepayment assumption applicable to calculating the accrual of OID will apply.
Because the regulations described above have not been issued, it is impossible
to predict what effect those regulations might have on the tax treatment of a
Grantor Trust Certificate purchased at a discount or premium in the secondary
market.
A holder who acquired a Grantor Trust Certificate at a market discount also
may be required to defer a portion of its interest deductions for the taxable
year attributable to any
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indebtedness incurred or continued to purchase or carry that Grantor Trust
Certificate purchased with market discount. For these purposes, the de minimis
rule referred to above applies. Any deferred interest expense would not exceed
the market discount that accrues during that taxable year and is, in general,
allowed as a deduction not later than the year in which the market discount is
includible in income. If that holder elects to include market discount in income
currently as it accrues on all market discount instruments acquired by such
holder in that taxable year or thereafter, the interest deferral rule described
above will not apply.
ELECTION TO TREAT ALL INTEREST AS OID. The OID regulations permit a
Grantor Trust Certificateholder to elect to accrue all interest, discount
(including de minimis market or original issue discount) and premium in income
as interest, based on a constant yield method. If that election were to be made
with respect to a Grantor Trust Certificate with market discount, the Grantor
Trust Certificateholder would be deemed to have made an election to include in
income currently market discount with respect to all other debt instruments
having market discount that that Grantor Trust Certificateholder acquires during
the year of the election or thereafter. Similarly, a Grantor Trust
Certificateholder that makes this election for a Grantor Trust Certificate that
is acquired at a premium will be deemed to have made an election to amortize
bond premium with respect to all debt instruments having amortizable bond
premium that that Grantor Trust Certificateholder owns or acquires. See "- -
Premium" in this Prospectus. The election to accrue interest, discount and
premium on a constant yield method with respect to a Grantor Trust Certificate
is irrevocable except with the approval of the IRS.
SALE OR EXCHANGE OF A GRANTOR TRUST CERTIFICATE. Sale or exchange of a
Grantor Trust Certificate prior to its maturity will result in gain or loss
equal to the difference, if any, between the amount received and the owner's
adjusted basis in the Grantor Trust Certificate. The adjusted basis generally
will equal the seller's purchase price for the Grantor Trust Certificate,
increased by any market discount, OID and gain previously included in the
seller's gross income with respect to the Grantor Trust Certificate, and reduced
by the amount of any premium, if any, previously amortized and by the amount of
any payments of principal and OID on the Grantor Trust Certificate previously
received by the seller. That gain or loss will be capital gain or loss to an
owner for which a Grantor Trust Certificate is a "capital asset" within the
meaning of Section 1221, and will be long-term or short-term depending on
whether the Grantor Trust Certificate has been owned for the long-term capital
gain holding period (currently more than one year).
A Grantor Trust Certificate will be an "evidence of indebtedness" within
the meaning of Section 582(c)(1), so that gain or loss recognized from the sale
of a Grantor Trust Certificate by a bank or a thrift institution to which that
section applies will be treated as ordinary income or loss.
FOREIGN PERSONS. Generally, interest or OID paid by the person required to
withhold tax under Section 1441 or 1442 to (1) a Grantor Trust Certificateholder
that is not a U.S. Person (as defined under "- Tax Treatment of Owner Trusts - -
Tax Consequences to Holders of the Notes - - Foreign Holders") (a "Foreign
Grantor Trust Certificateholder") or (2) a person holding on behalf of a Foreign
Grantor Trust Certificateholder, as well as accrued OID recognized by the
Foreign Grantor Trust Certificateholder on the sale or exchange of that Grantor
Trust Certificate, will not be subject to withholding to the extent that a
Grantor Trust Certificate evidences ownership in Receivables issued after July
18, 1984 by natural persons if that Foreign Grantor
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Trust Certificateholder complies with specified identification requirements
(including delivery of a statement, signed by the Foreign Grantor Trust
Certificateholder under penalties of perjury, certifying that that Foreign
Grantor Trust Certificateholder is not a U.S. Person and providing the name and
address of that Foreign Grantor Trust Certificateholder). Additional
restrictions apply to Receivables where the obligor is not a natural person in
order to qualify for the exemption from withholding.
Although it is not entirely clear, it is likely that amounts received by a
Foreign Grantor Trust Certificateholder that are attributable to payments of
Yield Supplement Amounts received pursuant to any Yield Supplement Agreement
generally would not be subject to withholding tax. It is suggested that Foreign
Grantor Trust Certificateholders consult their tax advisors regarding the
withholding tax consequences of amounts received on the Grantor Trust
Certificates that are attributable to payments of Yield Supplement Amounts
received pursuant to any Yield Supplement Agreement.
INFORMATION REPORTING AND BACKUP WITHHOLDING. The Servicer will furnish or
make available, within a reasonable time after the end of each calendar year, to
each person who was a Grantor Trust Certificateholder at any time during that
year, that information as may be deemed necessary or desirable to assist Grantor
Trust Certificateholders in preparing their federal income tax returns, or to
enable holders to make that information available to beneficial owners or
financial intermediaries that hold Grantor Trust Certificates as nominees on
behalf of beneficial owners. If a holder, beneficial owner, financial
intermediary or other recipient of a payment on behalf of a beneficial owner
fails to supply a certified taxpayer identification number or if the Secretary
of the Treasury determines that that person has not reported all interest and
dividend income required to be shown on its federal income tax return, 31%
backup withholding may be required with respect to any payments. Any amounts
deducted and withheld from a payment to a recipient would be allowed as a credit
against that recipient's federal income tax liability.
MATERIAL STATE TAX CONSEQUENCES WITH RESPECT TO OWNER TRUSTS
The activities to be undertaken by the Servicer in servicing and collecting
the Receivables will take place in California. The State of California imposes
a state individual income tax and a corporate franchise tax on corporations,
partnerships and other entities doing business in the State of California. This
discussion relates only to Trusts for which a partnership election is made, and
is based upon present provisions of California statutes and the regulations
promulgated under those statutes, and applicable judicial or ruling authority,
all of which are subject to change, which change may be retroactive.
Because of the variation in each state's tax laws based in whole or in part
upon income, it is impossible to predict tax consequences to holders of Notes
and Certificates in all of the state taxing jurisdictions in which they are
already subject to tax. It is suggested that Noteholders and Certificateholders
consult their own tax advisors with respect to state tax consequences arising
out of the purchase, ownership and disposition of Notes and Certificates.
For purposes of the following summary, references to the Trust, the Notes,
the Certificates and related terms, parties and documents shall be deemed to
refer to each Owner Trust and the Notes, Certificates and related terms, parties
and documents applicable to that Trust.
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TAX CONSEQUENCES WITH RESPECT TO THE NOTES. It is expected that Tax
Counsel will advise each Owner Trust that issues Notes that, assuming the Notes
will be treated as debt for federal income tax purposes, the Notes will be
treated as debt for California income and franchise tax purposes. Accordingly,
Noteholders not otherwise subject to taxation in California would not become
subject to taxation in California solely because of a holder's ownership of
Notes. However, a Noteholder already subject to California's income tax or
franchise tax could be required to pay additional California tax as a result of
the holder's ownership or disposition of Notes.
TAX CONSEQUENCES WITH RESPECT TO THE CERTIFICATES ISSUED BY AN OWNER TRUST.
Based on regulations issued by the Franchise Tax Board with respect to the
California tax characterization of an owner trust as a partnership and not as an
association taxable as a corporation or other taxable entity, Tax Counsel will
opine that an Owner Trust for which no election to be treated as a corporation
is made will not be an association (or publicly traded partnership) treated as a
corporation for California tax purposes. In that case, the resulting
constructive partnership should not be treated as doing business in California
but rather should be viewed as a passive holder of investments and, as a result,
should not be subject to the California franchise tax (which, if applicable,
could possibly result in reduced payments to Certificateholders).
Under current law, Certificateholders that are nonresidents of California
and are not otherwise subject to California income tax may be subject to
California income tax on the income from the constructive partnership. In any
event, classification of the arrangement as a "partnership" would not cause a
Certificateholder not otherwise subject to taxation in California to pay
California tax on income beyond that derived from the Certificates.
It is not clear whether the Trust would be considered to be engaged in a
trade or business in the United States for purposes of California withholding
taxes with respect to Foreign Holders because there is no clear authority
dealing with that issue under facts substantially similar to those described in
this Prospectus. Although it is not expected that the Trust would be engaged in
a trade or business in the United States for those purposes, the Trust will
withhold on amounts paid to Certificateholders who are Foreign Holders as if it
were so engaged in order to protect the Trust from possible adverse consequences
of a failure to withhold. The Trust expects to withhold on the portion of its
taxable income from California sources that is allocable to Certificateholders
who are Foreign Holders pursuant to Section 18666 of California's Revenue and
Taxation Code, as if that income were effectively connected to a U.S. trade or
business, at the maximum appropriate rate.
If the Certificates are instead treated as ownership interests in an
association taxable as a corporation or a "publicly traded partnership" taxable
as a corporation, then the hypothetical entity should not be subject to the
California franchise tax (which, if applicable, could result in reduced payments
to Certificateholders). A Certificateholder not otherwise subject to tax in
California would not become subject to California tax as a result of its mere
ownership of that interest.
MATERIAL STATE TAX CONSEQUENCES WITH RESPECT TO GRANTOR TRUSTS
It is expected that Tax Counsel will advise each Grantor Trust that the
Trust will be treated as a grantor trust for California tax purposes, and that,
for California tax purposes,
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Grantor Trust Certificateholders could be considered to own either (1) an
undivided interest in a single debt obligation held by the Trust and having a
principal amount equal to the total stated principal amount of the Receivables
and an interest rate equal to the related Pass Through Rate or (2) an interest
in each of the Receivables and any other Trust assets.
It is suggested that Grantor Trust Certificateholders consult their tax
advisors regarding the state tax consequences associated with the purchase,
ownership and disposition of the Grantor Trust Certificates.
THE FEDERAL AND STATE TAX DISCUSSIONS SET FORTH ABOVE ARE INCLUDED FOR
GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON YOUR
PARTICULAR TAX SITUATION. IT IS SUGGESTED THAT YOU CONSULT YOUR TAX ADVISOR
WITH RESPECT TO THE TAX CONSEQUENCES TO YOU OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF NOTES AND CERTIFICATES, INCLUDING THE TAX CONSEQUENCES UNDER
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN
FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") and Section 4975 of the Code prohibit a pension,
profit-sharing or other employee benefit plan, as well as individual retirement
accounts and some types of Keogh Plans (each a "Benefit Plan"), from engaging in
transactions involving "plan assets" with persons that are "parties in interest"
under ERISA or "disqualified persons" under the Code with respect to that
Benefit Plan. ERISA also imposes duties on persons who are fiduciaries of
Benefit Plans subject to ERISA and prohibits specified transactions between a
Benefit Plan and parties in interest with respect to those Benefit Plans. Under
ERISA, any person who exercises any authority or control with respect to the
management or disposition of the assets of a Benefit Plan is considered to be a
fiduciary of that Benefit Plan (subject to exceptions not here relevant). A
violation of these "prohibited transaction" rules may result in an excise tax or
other penalties and liabilities under ERISA and the Code for those persons.
Certain exemptions from the prohibited transaction rules could be applicable to
the purchase and holding of Securities by a Benefit Plan depending on the type
and circumstances of the plan fiduciary making the decision to acquire such
Securities. Potentially available exemption would include, without limitation,
Prohibited Transaction Class Exemption ("PTCE") 90-1, which exempts certain
transactions involving insurance company pooled separate accounts; PTCE 95-60,
which exempts certain transactions involving insurance company general accounts;
PTCE 91-38, which exempts certain transactions involving bank collective
investment funds; PTCE 84-14, which exempts certain transactions effected on
behalf of a plan by a "qualified professional asset manager"; and PTCE 96-23,
which exempts certain transactions effected on behalf of a plan by an "in-house
asset manager." Insurance company general accounts should also discuss with
their legal counsel the availability of exemptive relief under Section 401(c) of
ERISA. A purchaser of Securities should be aware, however, that even if the
conditions specified in one or more exemptions are met, the scope of the relief
provided by the applicable exemption or exemptions might not cover all acts that
might be construed as prohibited transactions.
Some transactions involving a Trust might be deemed to constitute
prohibited transactions under ERISA and the Code with respect to a Benefit Plan
that purchased Notes or Certificates if assets of the Trust were deemed to be
assets of the Benefit Plan. Under a regulation issued by the United States
Department of Labor (the "Plan Assets Regulation"), the
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assets of a Trust would be treated as plan assets of a Benefit Plan for the
purposes of ERISA and the Code only if the Benefit Plan acquired an "equity
interest" in the Trust and none of the exceptions contained in the Plan Assets
Regulation was applicable. An equity interest is defined under the Plan Assets
Regulation as an interest other than an instrument which is treated as
indebtedness under applicable local law and which has no substantial equity
features. The likely treatment in this context of Notes and Certificates of a
given series will be discussed in the applicable Prospectus Supplement.
Employee benefit plans that are governmental plans (as defined in Section
3(32) of ERISA) and some church plans (as defined in Section 3(33) of ERISA) are
not subject to ERISA requirements nor to Section 4975 of the Code. However,
governmental plans may be subject to state or local laws that impose similar
requirements. In addition, governmental plans and church plans that are
"qualified" under Section 401(a) of the Code are subject to restrictions with
respect to prohibited transactions under Section 503(a)(1)(B) of the Code, the
sanction for violation being loss of "qualified" status.
Due to the complexities of the "prohibited transaction" rules and the
penalties imposed upon persons involved in prohibited transactions, it is
important that the fiduciary of any Benefit Plan considering the purchase of
Securities consult with its tax and/or legal advisors regarding whether the
assets of the related Trust would be considered plan assets, the possibility of
exemptive relief from the prohibited transaction rules and other issues and
their potential consequences.
UNDERWRITING
On the terms and conditions set forth in an underwriting agreement with
respect to the Notes, if any, of a given series and an underwriting agreement
with respect to the Certificates of that series (collectively, the "Underwriting
Agreements"), the Seller will agree to cause the related Trust to sell to the
underwriters named in the Underwriting Agreements and in the applicable
Prospectus Supplement, and each of those underwriters will severally agree to
purchase, the principal amount of each class of Notes and Certificates, as the
case may be, of the related series set forth in the Underwriting Agreements and
in the applicable Prospectus Supplement.
In each of the Underwriting Agreements with respect to any given series of
Securities, the several underwriters will agree, subject to the terms and
conditions set forth in the Underwriting Agreements, to purchase all the Notes
and Certificates, as the case may be, described in the Underwriting Agreements
which are offered by this Prospectus and by the applicable Prospectus Supplement
if any of those Notes and Certificates, as the case may be, are purchased.
Each Prospectus Supplement will either (1) set forth the price at which
each class of Notes and Certificates, as the case may be, being offered by that
Prospectus Supplement will be offered to the public and any concessions that may
be offered to some dealers participating in the offering of those Notes and
Certificates or (2) specify that the related Notes and Certificates, as the case
may be, are to be resold by the underwriters in negotiated transactions at
varying prices to be determined at the time of that sale. After the initial
public offering of those Notes and Certificates, those public offering prices
and those concessions may be changed.
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Each Underwriting Agreement will provide that NMAC and the Seller will
indemnify the underwriters against specified civil liabilities, including
liabilities under the Securities Act, or contribute to payments the several
underwriters may be required to make in respect thereof.
Each Trust may, from time to time, invest the funds in its Accounts in
Eligible Investments acquired from the underwriters or from the Seller.
Pursuant to each Underwriting Agreement with respect to a given series of
Securities, the closing of the sale of any class of Securities subject to that
Underwriting Agreement will be conditioned on the closing of the sale of all
other classes of Securities of that series.
The place and time of delivery for the Securities in respect of which this
Prospectus is delivered will be set forth in the applicable Prospectus
Supplement.
LEGAL OPINIONS
Certain legal matters relating to the Securities of any series will be
passed upon for the related Trust, the Seller and the Servicer by Joy Crose,
Esq. and O'Melveny & Myers LLP. In addition, certain United States federal and
California state tax and other matters will be passed upon for the related Trust
by O'Melveny & Myers LLP.
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INDEX OF TERMS
10 percent shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . 78
30/360 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Actual/360 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Actual/Actual. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
adjusted issue price . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Administration Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 68
Administration Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Administrative Purchase Payment. . . . . . . . . . . . . . . . . . . . . . 54
Administrative Receivable. . . . . . . . . . . . . . . . . . . . . . . . . 54
Administrator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
adversely affect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
APR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
banking organization . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Base Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Base Servicing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Benefit Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Calculation Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Calculation Date . . . . . . . . . . . . . . . . . . . . . . . 38, 39, 40, 42
capital asset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
CD Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
CD Rate Determination Date . . . . . . . . . . . . . . . . . . . . . . . . 38
CD Rate Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
CDs (Secondary Market) . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Cede . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Cedelbank. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Cedelbank Participants . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Certificate Balance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Certificate Factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Certificate Pool Factor. . . . . . . . . . . . . . . . . . . . . . . . . . 27
Certificateholder. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
class. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27, 33
clearing agency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
clearing corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21, 50
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Collection Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Collection Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Commercial Paper Rate. . . . . . . . . . . . . . . . . . . . . . . . . 38, 39
Commercial Paper Rate Determination Date . . . . . . . . . . . . . . . . . 38
Commercial Paper Rate Security . . . . . . . . . . . . . . . . . . . . . . 35
commercially reasonable. . . . . . . . . . . . . . . . . . . . . . . . . . 72
Composite Quotations . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
controlled foreign corporation . . . . . . . . . . . . . . . . . . . . . . 78
Cooperative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Cutoff Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
daily portions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Dealer Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Dealer Recourse. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Dealers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Definitive Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . 48
Definitive Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Definitive Securities. . . . . . . . . . . . . . . . . . . . . . . . . 44, 48
demonstration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Depositaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Designated LIBOR Page. . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Determination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
disqualified persons . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Distribution Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
DTC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
DTC Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . 28, 45
DTC Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Eligible Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
equity interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Euroclear. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44, 47
Euroclear Operator . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Euroclear Participants . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
evidence of indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . 92
Federal Funds (Effective). . . . . . . . . . . . . . . . . . . . . . . . . 39
Federal Funds Rate . . . . . . . . . . . . . . . . . . . . . . . . . . 39, 40
Federal Funds Rate Determination Date. . . . . . . . . . . . . . . . . . . 39
Federal Funds Rate Security. . . . . . . . . . . . . . . . . . . . . . 35, 39
Federal Funds/Effective Rate . . . . . . . . . . . . . . . . . . . . . . . 39
Financed Vehicles. . . . . . . . . . . . . . . . . . . . . . . . . . . 21, 22
Fixed Rate Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Floating Rate Securities . . . . . . . . . . . . . . . . . . . . . . . . . 35
Foreign Certificateholder. . . . . . . . . . . . . . . . . . . . . . . . . 84
Foreign Grantor Trust Certificateholder. . . . . . . . . . . . . . . . . . 92
Foreign Holder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
FTC Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Grantor Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Grantor Trust Certificateholders . . . . . . . . . . . . . . . . . . . . . 85
Grantor Trust Certificates . . . . . . . . . . . . . . . . . . . . . . . . 86
guaranteed payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
H.15(519). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
High Yield Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Holder-in-Due-Course . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Indenture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Indenture Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Index Currencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Index Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Index Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Indexed Principal Amount . . . . . . . . . . . . . . . . . . . . . . . . . 42
Indexed Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Indirect DTC Participants. . . . . . . . . . . . . . . . . . . . . . . . . 45
Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
in-house asset manager . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Insolvency Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Insolvency Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Interest Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Interest Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Interest Reset Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Interest Reset Period. . . . . . . . . . . . . . . . . . . . . . . . . . . 35
98
<PAGE>
IRS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
LIBOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
LIBOR Bloomberg. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
LIBOR Determination Date . . . . . . . . . . . . . . . . . . . . . . . . . 40
LIBOR Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
LIBOR Telerate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40, 41
Liquidated Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . 55
London Business Day. . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Low Yield Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . 87
market discount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Money Market Yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Near-new . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
New. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
New Regulations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Nissan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
NMAC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21, 25
NNA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Note Factor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Note Pool Factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Noteholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Obligors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
OID. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77, 86
OID regulations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Omnibus Proxy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Original Certificate Balance . . . . . . . . . . . . . . . . . . . . . . . 27
Owner Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
parties in interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
partnership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Pass Through Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Plan Assets Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Pool Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Pooling and Servicing Agreement. . . . . . . . . . . . . . . . . . . . . . 21
portfolio interest . . . . . . . . . . . . . . . . . . . . . . . . . . 78, 85
Prepayment Assumption. . . . . . . . . . . . . . . . . . . . . . . . . 77, 86
prepayments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Principal Balance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Principal Financial Center . . . . . . . . . . . . . . . . . . . . . . . . 41
prohibited transaction . . . . . . . . . . . . . . . . . . . . . . . . 95, 96
Prospectus Supplement. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
PTCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
publicly traded partnership. . . . . . . . . . . . . . . . . . . . . . . . 94
Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
qualified. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
qualified professional asset manager . . . . . . . . . . . . . . . . . . . 95
qualified stated interest. . . . . . . . . . . . . . . . . . . . . . . 77, 89
Receivables Pool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Related Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
related person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Relief Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Required Deposit Rating. . . . . . . . . . . . . . . . . . . . . . . . . . 52
Required Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Required Yield Supplement Amount . . . . . . . . . . . . . . . . . . . . . 57
Reserve Account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Reserve Account Initial Deposit. . . . . . . . . . . . . . . . . . . . . . 59
Retained Yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Sale and Servicing Agreement . . . . . . . . . . . . . . . . . . . . . . . 21
Schedule of Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . 50
SEC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 1286 Treasury Regulations. . . . . . . . . . . . . . . . . . . . . 89
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Securityholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Servicer Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Servicing Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Short-Term Note. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Spread . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Spread Multiplier. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
stated redemption price at maturity. . . . . . . . . . . . . . . . . . . . 88
street name. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Strip Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Strip Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
stripped coupons . . . . . . . . . . . . . . . . . . . . . . . . . . . 87, 88
Subordination Spread Account . . . . . . . . . . . . . . . . . . . . . . . 59
Supplemental Servicing Fee . . . . . . . . . . . . . . . . . . . . . . . . 56
Systems. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
TARGET system. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Tax Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Terms and Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Total Servicing Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Transfer and Servicing Agreements. . . . . . . . . . . . . . . . . . . . . 49
Treasury bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Treasury Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Treasury Rate Determination Date . . . . . . . . . . . . . . . . . . . . . 42
Treasury Rate Security . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Trust Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
U.S. Person. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
UCC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Underwriting Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . 96
unrelated business taxable income. . . . . . . . . . . . . . . . . . . 79, 81
Warranty Purchase Payment. . . . . . . . . . . . . . . . . . . . . . . . . 51
Warranty Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
weighted average life. . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Year 2000 problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Yield Supplement Account . . . . . . . . . . . . . . . . . . . . . . . . . 57
Yield Supplement Agreement . . . . . . . . . . . . . . . . . . . . . . . . 57
Yield Supplement Amount. . . . . . . . . . . . . . . . . . . . . . . . . . 57
99
<PAGE>
The information contained in this supplement is not complete and may be changed.
This prospectus supplement is not an offer to sell these securities and it is
not soliciting an offer to buy these securities in any state where the offer or
sale is not permitted.
Subject to completion, dated _________.
Prospectus Supplement
(To Prospectus dated __________)
NISSAN AUTO RECEIVABLES ____-__ GRANTOR TRUST
NISSAN AUTO RECEIVABLES CORPORATION,
SELLER
NISSAN MOTOR ACCEPTANCE CORPORATION,
SERVICER
$____________________ ASSET BACKED CERTIFICATES
YOU SHOULD REVIEW CAREFULLY THE FACTORS SET FORTH UNDER "RISK FACTORS"
BEGINNING ON PAGE S-15 OF THIS PROSPECTUS SUPPLEMENT AND PAGE 15 IN THE
ACCOMPANYING PROSPECTUS.
The securities are asset backed securities issued by the trust. The securities
are not obligations of Nissan Motor Acceptance Corporation, Nissan North
America, Inc. or any of their respective affiliates. Neither the securities
nor the receivables are insured or guaranteed by any governmental agency.
This prospectus supplement may be sued to offer and set the securities only if
it is accompanied by the prospectus dated _____, 1999.
- - The trust will issue three classes of certificates.
- - Only the certificates described on the following table are being offered by
this Prospectus Supplement and the Prospectus.
- - The certificates accrue interest from ______________, __.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Class A Certificates Class B Certificates
- --------------------------------------------------------------------------------
<S> <C> <C>
Principal Amount $____________ $____________
- --------------------------------------------------------------------------------
Pass Through Rate _____% _____%
- --------------------------------------------------------------------------------
Final Scheduled __________,___ __________,__
Distribution Date
- --------------------------------------------------------------------------------
Price to Public ___% ___%
- --------------------------------------------------------------------------------
Underwriting Discount ___% ___%
- --------------------------------------------------------------------------------
Proceeds to Seller $______________ $______________
- --------------------------------------------------------------------------------
</TABLE>
CREDIT ENHANCEMENT
- - Subordination Spread Account, with an initial deposit of [$_____________].
- - The Class B Certificates are subordinated to the Class A Certificates, and
the Class C Certificates (not offered hereby) are subordinated to the Class
A Certificates and the Class B Certificates.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED THE CERTIFICATES OR DETERMINED THAT THIS PROSPECTUS SUPPLEMENT OR
THE PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
[UNDERWRITERS]
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS _________.
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
Information about the certificates is provided in two separate documents
that progressively provide varying levels of detail: (1) the accompanying
prospectus, which provides general information, some of which may not apply to a
particular class of certificates, including your class; and (2) this prospectus
supplement, which describes the specific terms of your class of certificates.
IF THE DESCRIPTION OF THE TERMS OF YOUR CERTIFICATES VARIES BETWEEN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, YOU SHOULD RELY ON THE
INFORMATION IN THIS PROSPECTUS SUPPLEMENT.
Cross-references are included in this prospectus supplement and in the
accompanying prospectus which direct you to more detailed descriptions of a
particular topic. You can also find references to key topics in the Table of
Contents on page S-3 in this prospectus supplement and the Table of Contents
on page 3 in the accompanying prospectus.
You can find a listing of the pages where capitalized terms used in this
prospectus supplement are defined under the caption "Index of Terms"
beginning on page S-56 in this prospectus supplement and under the caption
"Index of Terms" beginning on page 98 in the accompanying prospectus.
S-2
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
<S> <C>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS....................S-2
SUMMARY OF TRANSACTION PARTIES................................................S-7
SUMMARY OF MONTHLY DEPOSITS TO AND WITHDRAWALS FROM ACCOUNTS..................S-8
SUMMARY.......................................................................S-9
Issuer...............................................................S-9
Seller...............................................................S-9
Servicer.............................................................S-9
Trustee..............................................................S-9
Offered Certificates.................................................S-9
Receivables..........................................................S-9
Closing Date........................................................S-10
Terms of the Certificates...........................................S-10
Optional Purchase...................................................S-11
Credit Enhancement..................................................S-11
Subordination Spread Account........................................S-12
Yield Supplement Account............................................S-13
Tax Status..........................................................S-13
ERISA Considerations................................................S-14
Rating of the Offered Certificates..................................S-14
RISK FACTORS.................................................................S-15
YOU MAY HAVE DIFFICULTY SELLING YOUR CERTIFICATES AND/OR
OBTAINING YOUR DESIRED PRICE DUE TO THE ABSENCE OF
A SECONDARY MARKET...........................................S-16
GEOGRAPHIC CONCENTRATION OF THE STATES OF ORIGINATION OF
THE RECEIVABLES MAY INCREASE THE RISK OF LOSS ON YOUR
INVESTMENT...................................................S-16
BECAUSE OF THE UNCERTAINTY OF FEDERAL INCOME TAX CONSEQUENCES
OF THE YIELD SUPPLEMENT AGREEMENT, YOU MAY EXPERIENCE
UNEXPECTED TAX CONSEQUENCES..................................S-16
COMPLICATIONS ASSOCIATED WITH YEAR 2000 DATE CONVERSION COULD AFFECT
THE SERVICER'S OPERATIONS, IMPAIRING ITS ABILITY TO COLLECT
RECEIVABLES, WHICH MAY RESULT IN LOSS ON YOUR
INVESTMENTS..................................................S-16
THE TRUST....................................................................S-17
General.............................................................S-17
S-3
<PAGE>
THE TRUSTEE..................................................................S-18
THE RECEIVABLES..............................................................S-18
MATURITY AND PREPAYMENT CONSIDERATIONS.......................................S-23
DELINQUENCIES, REPOSSESSIONS AND NET LOSSES..................................S-23
CERTIFICATE AND POOL FACTORS.................................................S-27
USE OF PROCEEDS..............................................................S-28
THE SELLER AND THE SERVICER..................................................S-28
Financial Condition of Nissan Motor Co., Ltd........................S-28
Year 2000...........................................................S-29
Cautionary Statement for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform
Act of 1995..................................................S-29
THE CERTIFICATES.............................................................S-30
General.............................................................S-30
Sale And Assignment Of Receivables..................................S-31
Accounts............................................................S-31
Collections.........................................................S-31
Advances............................................................S-32
Servicing Compensation..............................................S-32
Yield Supplement Account And Yield Supplement Agreement.............S-32
Net Deposits........................................................S-33
Optional Purchase...................................................S-33
Removal of Servicer.................................................S-34
Duties of The Trustee...............................................S-35
The Trustee.........................................................S-35
Notices.............................................................S-36
Governing Law.......................................................S-36
DISTRIBUTIONS ON THE CERTIFICATES............................................S-36
General.............................................................S-36
Calculation of Available Amounts....................................S-37
Calculation of Distributable Amounts................................S-38
Payments of Interest................................................S-39
Payments of Principal...............................................S-40
Payment of Distributable Amounts....................................S-40
S-4
<PAGE>
Payments Under The Yield Supplement Agreement.......................S-42
SUBORDINATION; SUBORDINATION SPREAD ACCOUNT..................................S-43
Subordination.......................................................S-43
Subordination Spread Account........................................S-43
MATERIAL INCOME TAX CONSEQUENCES.............................................S-45
Classification Of The Trust.........................................S-45
Payments Under The Yield Supplement Agreement.......................S-46
Original Issue Discount, Imputed Interest And Market Discount.......S-46
Sale or Prepayment..................................................S-49
Foreign Certificateholders..........................................S-49
Material State Tax Consequences.....................................S-50
ERISA CONSIDERATIONS.........................................................S-50
Class A Certificates................................................S-50
Class B and Class C Certificates....................................S-52
All Certificates....................................................S-53
UNDERWRITING.................................................................S-53
LEGAL OPINIONS...............................................................S-55
INDEX OF TERMS...............................................................S-56
ANNEX A GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES.......S-58
Initial Settlement..................................................S-58
Secondary Market Trading............................................S-58
Material U.S. Federal Income Tax Documentation Requirements.........S-61
</TABLE>
S-5
<PAGE>
[INTENTIONALLY LEFT BLANK]
S-6
<PAGE>
[GRAPHIC - SUMMARY OF TRANSACTION PARTIES]
S-7
<PAGE>
[GRAPHIC - SUMMARY OF MONTHLY DEPOSITS TO AND WITHDRAWALS FROM ACCOUNTS]
S-8
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY CONTAINS A BRIEF DESCRIPTION OF THE CERTIFICATES. YOU
WILL FIND A DETAILED DESCRIPTION OF THE TERMS OF THE OFFERING OF THE
CERTIFICATES FOLLOWING THIS SUMMARY. YOU SHOULD READ CAREFULLY THIS ENTIRE
DOCUMENT AND THE ACCOMPANYING PROSPECTUS TO UNDERSTAND ALL OF THE TERMS OF THE
OFFERING OF THE CERTIFICATES. YOU SHOULD CONSIDER BOTH DOCUMENTS WHEN MAKING
YOUR INVESTMENT DECISION.
ISSUER Nissan Auto Receivables Grantor Trust ____-__. The trust
will be established by a pooling and servicing
agreement.
SELLER Nissan Auto Receivables Corporation.
SERVICER Nissan Motor Acceptance Corporation.
TRUSTEE [________________________].
OFFERED CERTIFICATES The offered certificates consist of the Class A
Certificates and the Class B Certificates as described
on the cover page. The trust will also issue
[$______________] initial principal balance of Class C
Certificates, which are not being offered pursuant to
this prospectus supplement.
The Class A Certificates will evidence in the aggregate
an undivided ownership interest of [__%] of the trust
(initially representing [$________]) and the Class B
Certificates will evidence in the aggregate an undivided
ownership interest of [__%] of the trust (initially
representing [$___________]).
RECEIVABLES The trust's main source of funds for making payments on
the certificates will be collections on its motor
vehicle retail installment sale contracts, otherwise
referred to as the receivables.
The principal balance of the receivables on
[_____________], referred to as the "cut-off date," was
$[________________]. As of [_____________], the
receivables had the following characteristics:
Number of Receivables..................
Average Principal Balance..............
S-9
<PAGE>
Weighted average annual percentage
rate.................................
Weighted average remaining term to
maturity.............................
Approximate weighted average
original term to maturity............
YOU SHOULD REFER TO "THE RECEIVABLES" IN THIS PROSPECTUS
SUPPLEMENT FOR MORE INFORMATION ON THE RECEIVABLES.
CLOSING DATE On or about [______________].
TERMS OF THE
CERTIFICATES PAYMENT DATE:
Interest and principal will generally be payable on the
15th day of each month, unless the 15th day is not a
business day, in which case the payment will be made on
the following business day. The first payment will be on
[____________].
PER ANNUM PASS THROUGH RATES:
The certificates will have [fixed] rates of interest as
follows:
<TABLE>
<CAPTION>
CLASS PASS THROUGH RATE
----- -----------------
<S> <C>
A [__%]
B [__%]
C [__%]
</TABLE>
INTEREST ACCRUAL PERIODS:
Interest on the certificates will accrue in the
following manner:
<TABLE>
<CAPTION>
Initial Subsequent
Accrual Interest Day Count
Class Period Accrual Periods Convention
----- ------ --------------- ----------
<S> <C> <C> <C> <C>
From To
(Including) (Excluding)
----------- -----------
A, B [__ days] [prior [current [30/360]
and C distribution distribution
date] date]
</TABLE>
PRINCIPAL:
- LEGAL FINALS: The trust must pay the outstanding
principal balance of each class of certificates by
its final scheduled distribution date as follows:
S-10
<PAGE>
<TABLE>
<CAPTION>
CLASS LEGAL FINAL
----- -----------
<S> <C>
A [_____________]
B [_____________]
C [_____________]
</TABLE>
- AMOUNT OF PRINCIPAL PAYABLE ON EACH DISTRIBUTION
DATE: The trust will make principal payments on
each class of certificates on each distribution
date in an amount equal to the applicable class
percentage of the following amounts:
1. principal collections on the receivables
during the prior collection period;
2. prepayments on the receivables allocable to
principal received during the prior collection
period;
3. the principal balance of each receivable which
the seller or the servicer became obligated to
purchase; and
4. the principal balance of liquidated
receivables.
The class percentage for each class of certificates
is detailed in "The Certificates - General" in this
prospectus supplement.
YOU SHOULD REFER TO "DISTRIBUTIONS ON THE CERTIFICATES -
CALCULATION OF DISTRIBUTABLE AMOUNTS" AND "- PAYMENTS OF
PRINCIPAL" IN THIS PROSPECTUS SUPPLEMENT FOR MORE
DETAILED INFORMATION REGARDING PAYMENTS OF PRINCIPAL.
OPTIONAL PURCHASE The servicer or the seller may redeem all outstanding
certificates when the outstanding aggregate principal
balance of the receivables declines to 10% or less of
the original aggregate principal balance of the
receivables on the cut-off date.
CREDIT ENHANCEMENT The credit enhancement of the offered certificates will
be the following:
1. CLASS A CERTIFICATES: the subordination of the
Class B
S-11
<PAGE>
Certificates and the Class C Certificates;
2. CLASS B CERTIFICATES: the subordination of the
Class C Certificates; and
3. CLASS A CERTIFICATES AND CLASS B CERTIFICATES: the
subordination spread account.
SUBORDINATION OF INTEREST AND PRINCIPAL:
1. CLASS B CERTIFICATES: Interest and principal
payments on the Class B Certificates will be
subordinated to interest and principal payments on
the Class A Certificates.
2. CLASS C CERTIFICATES: Interest and principal
payments on the Class C Certificates will be
subordinated to interest and principal payments on
the Class A Certificates and the Class B
Certificates.
The credit enhancement is intended to protect you
against losses and delays in payments on your
certificates by absorbing losses on the receivables and
other shortfalls in cash flows.
SUBORDINATION SPREAD
ACCOUNT On each distribution date, the trust will use funds in
the subordination spread account to pay the following
amounts in the following order if collections on the
receivables are insufficient to pay those amounts:
1. amounts due to the servicer; and
2. interest and principal due on the
certificates in the order of
priority detailed in "Distributions
on the Certificates--Payment of
Distributable Amounts."
The pooling and servicing agreement specifies the amount
that is required to be on deposit in the subordination
spread account. On the closing date, the seller
will deposit [$____________] into the subordination
spread account, which is [__%] of the initial principal
balance of the offered certificates and which is less
than the amount required to be maintained in the
subordination spread account called the "specified
subordination spread account balance." On each
distribution date, after making payments to the servicer
and to the holders of the Class A
S-12
<PAGE>
and Class B Certificates, the trust will make a deposit
into the subordination spread account to fund and
maintain the specified subordination spread account
balance.
YIELD SUPPLEMENT
ACCOUNT On each distribution date, the trust will withdraw from
funds on deposit in the yield supplement account the
aggregate amount by which (1) one month's interest on
the principal balance of each receivable at a rate equal
to the weighted average interest rate on the Class A
Certificates and the Class B Certificates plus 1.00%
(servicing rate) exceeds (2) one month's interest on
such principal balance at the annual percentage rate of
that receivable.
On the closing date, the seller will deposit
[$_________] into the yield supplement account. Neither
the seller nor the servicer will make any additional
deposits to the yield supplement account after the
closing date.
TAX STATUS In the opinion of O'Melveny & Myers LLP:
1. the trust will be treated as a grantor trust for
United States federal income and California
franchise and income tax purposes; and
2. will not be subject to federal income tax or
California franchise or income tax.
If you purchase the certificates, you will be required
to report your pro rata share of all income earned on
the receivables (other than amounts, if any, treated as
"stripped coupons"). In addition if you are an
individual, trust or estate, you may deduct your pro
rata share of reasonable servicing and other fees,
subject to limitations.
The exact characterization for federal income tax
purposes of the payments received with respect to the
yield supplement agreement is not clear. YOU SHOULD
REFER TO "MATERIAL INCOME TAX CONSEQUENCES--PAYMENTS
UNDER THE YIELD SUPPLEMENT AGREEMENT" IN THIS PROSPECTUS
SUPPLEMENT.
YOU SHOULD REFER TO "MATERIAL INCOME TAX CONSEQUENCES -
TAX TREATMENT OF GRANTOR TRUSTS" IN THE ACCOMPANYING
PROSPECTUS FOR ADDITIONAL INFORMATION CONCERNING THE
APPLICATION OF UNITED STATES FEDERAL INCOME TAX LAWS TO
THE
S-13
<PAGE>
TRUST AND THE CERTIFICATES.
ERISA CONSIDERATIONS The Class A Certificates are generally eligible for
purchase by employee benefit plans and individual
retirement accounts, subject to considerations discussed
under "ERISA Considerations" in this prospectus
supplement and in the accompanying prospectus.
The Class B Certificates, however, may not be acquired
by any employee benefit plan or any individual
retirement account. However, under limited
circumstances, Class B Certificates may be purchased as
limited investments by persons using insurance company
general accounts.
YOU SHOULD REFER TO "ERISA CONSIDERATIONS" IN THIS
PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING
PROSPECTUS. IF YOU ARE A BENEFIT PLAN FIDUCIARY
CONSIDERING PURCHASE OF THE CERTIFICATES OF ANY CLASS
YOU SHOULD, AMONG OTHER THINGS, CONSULT WITH YOUR
COUNSEL TO DETERMINE WHETHER ALL REQUIRED CONDITIONS
HAVE BEEN SATISFIED.
RATING OF THE OFFERED
CERTIFICATES On the closing date, each class of offered certificates
will receive the following ratings from Standard &
Poor's Ratings Group and Moody's Investors Service,
Inc.:
<TABLE>
<CAPTION>
Standard &
Class Poors Moody's
----- ---------- -------
<S> <C> <C>
A [____] [____]
B [____] [____]
</TABLE>
S-14
<PAGE>
RISK FACTORS
YOU SHOULD CONSIDER THE FOLLOWING RISK FACTORS (AND THE FACTORS SET FORTH
UNDER "RISK FACTORS" IN THE ACCOMPANYING PROSPECTUS) IN DECIDING WHETHER TO
PURCHASE THE CERTIFICATES OF ANY CLASS.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
S-15
<PAGE>
YOU MAY HAVE The trust will not list the certificates on any
DIFFICULTY securities exchange. Therefore, in order to sell
SELLING YOUR your certificates, you must first locate a willing
CERTIFICATES purchaser. In addition, currently, no secondary
AND/OR OBTAINING market exists for the certificates. We cannot assure
YOUR DESIRED you that a secondary market will develop. The
PRICE DUE TO THE underwriter intends to make a secondary market for the
ABSENCE OF A certificates by offering to buy the certificates from
SECONDARY MARKET. investors that wish to sell. However, the underwriter
is not obligated to offer to buy the certificates and
it may stop making offers at any time.
GEOGRAPHIC As of [________________], Nissan Motor Acceptance
CONCENTRATION OF Corporation's records indicate that the billing addresses
THE STATES OF of the obligors of the receivables were in the following
ORIGINATION OF states:
THE RECEIVABLES
MAY INCREASE
THE RISK OF LOSS
ON YOUR INVESTMENT.
<TABLE>
PERCENTAGE OF TOTAL
PRINCIPAL BALANCE
<S> <C>
[--------------------------] [---- %]
[--------------------------] [---- %]
[--------------------------] [---- %]
[--------------------------] [---- %]
[--------------------------] [---- %]
</TABLE>
No other state, by billing addresses, constituted more
than 5% of the balance of the receivables as of
[____________________]. Economic conditions or other
factors affecting these states in particular could
adversely affect the delinquency, credit loss or
repossession experience of the trust.
BECAUSE OF THE Tax counsel is unable to opine as to the federal income
UNCERTAINTY OF tax consequences of the Yield Supplement Agreement. You
FEDERAL INCOME should review "Material Income Tax Consequences - Payments
TAX CONSEQUENCES Under the Yield Supplement Agreement" in this prospectus
OF THE YIELD supplement.
SUPPLEMENT
AGREEMENT, YOU MAY
EXPERIENCE
UNEXPECTED TAX
CONSEQUENCES.
COMPLICATIONS Many computers and computer chips do not recognize more
ASSOCIATED WITH than two digits of a date field in a year of a date. As a
YEAR result, in the year 2000,
S-16
<PAGE>
2000 DATE those computers will not know whether the "00" refers to
CONVERSION COULD the year 1900 or the year 2000. Nissan Motor Acceptance
AFFECT THE Corporation will have significant obligations to the
SERVICER'S trust in its role as servicer. It is therefore important
OPERATIONS, that Nissan Motor Acceptance Corporation resolve any
IMPAIRING ITS year 2000 issues that will affect its ability to fulfill
ABILITY TO COLLECT these obligations. A description of Nissan Motor
RECEIVABLES, WHICH Acceptance Corporation's year 2000 compliance efforts is
MAY RESULT IN LOSS contained under "The Seller and the Servicer - Year 2000"
ON YOUR in this prospectus supplement.
INVESTMENTS.
The inability of Nissan Motor Acceptance Corporation or
of third parties who deal with Nissan Motor Acceptance
Corporation to make the necessary year 2000
modifications of their systems could have a significant
adverse effect on Nissan Motor Acceptance Corporation's
operations and financial results. Possible adverse
consequences include the inability to:
1. collect and otherwise service the receivables;
2. provide information and technology necessary to
pay certificateholders and provide reports;
3. pay obligations;
4. process new business; and
5. occupy facilities.
These consequences could have a material adverse effect
on the value of your securities.
THE TRUST
GENERAL
The Nissan Auto Receivables ____-__ Grantor Trust (the "Trust") will be
formed by Nissan Auto Receivables Corporation (the "Seller") pursuant to the
Pooling and Servicing Agreement (the "Agreement") dated as of _____________,
among the Seller, Nissan Motor Acceptance Corporation ("NMAC"), as servicer (in
that capacity, the "Servicer") and ______________, as trustee (the "Trustee").
The Seller will establish the Trust by selling and assigning the assets of the
Trust to the Trustee in exchange for the Certificates to be issued by the Trust.
The Servicer will service the Receivables pursuant to the Agreement and will be
compensated for acting as the Servicer. See "The Certificates - Servicing
Compensation" in this Prospectus Supplement.
S-17
<PAGE>
Pursuant to agreements between NMAC and the Dealers, each Dealer will
repurchase from NMAC those retail installment sales contracts that do not meet
specified representations and warranties made by that Dealer. These Dealers'
repurchase obligations are referred to in this Prospectus Supplement as "Dealer
Recourse." Those representations and warranties relate primarily to the
origination of the contracts and the perfection of the security interests in the
related financed vehicles, and do not relate to the creditworthiness of the
related Obligors or the collectability of those contracts. Although the Dealer
Agreements with respect to the Receivables will not be assigned to the Trustee,
any recovery by NMAC pursuant to any Dealer Recourse will be deposited in the
Collection Account to satisfy NMAC's repurchase obligations under the Agreement.
The sales by the Dealers of installment sales contracts to NMAC do not generally
provide for recourse against the Dealers for unpaid amounts in the event of a
default by an Obligor, other than in connection with the breach of the foregoing
representations and warranties.
Each Certificate represents a fractional undivided ownership interest
in the Trust. The Trust property includes the Receivables and monies due or
received under the Receivables on or after the Cutoff Date. The Subordination
Spread Account and the Yield Supplement Account will be maintained by the
Trustee for the benefit of the Class A Certificateholders and the Class B
Certificateholders, but will not be part of the Trust.
The Trust's principal offices are in_______________, in care
of_______, as Trustee, at the address set forth below under "The Trustee."
THE TRUSTEE
__________ is the Trustee under the Agreement. ____________________ is a
_________________ and its principal offices are located at ____________. The
Seller and its affiliates may maintain normal commercial banking relations with
the Trustee and its affiliates.
THE RECEIVABLES
The property of the Trust will consist of a pool of retail installment sale
contracts (the "Receivables") originated on or after___________, between Nissan
and Infiniti dealers (the "Dealers") and retail purchasers (the "Obligors"). The
Receivables were originated by Dealers in accordance with NMAC's requirements
under agreements with Dealers governing the assignment of the Receivables to
NMAC. The Receivables evidence the indirect financing made available by NMAC to
the Obligors. The Receivables are secured by new, near-new and used Nissan and
Infiniti automobiles and light-duty trucks (the "Financed Vehicles") and all
principal and interest payments made on or after [_______] (the "Cutoff Date")
and other property specified in the Receivables.
NMAC purchased the Receivables from the Dealers in the ordinary course of
business in accordance with NMAC's underwriting standards. On or before the date
of the initial issuance of the Certificates (the "Closing Date"), NMAC will sell
the Receivables to the Seller. The Seller
S-18
<PAGE>
will, in turn, sell the Receivables to the Trust pursuant to the Agreement. NMAC
will continue to service the Receivables. The Receivables to be held by the
Trust will be randomly selected from those automobile and/or light-duty truck
retail installment sales contracts in NMAC's portfolio that meet several
criteria. These criteria provide that each Receivable:
1. was originated in the United States;
2. has a contractual Annual Percentage Rate ("APR") that equals or
exceeds [___%];
3. provides for level monthly payments which provide interest at the APR
on a simple interest basis and fully amortize the amount financed over
an original term to maturity no greater than [___] months;
4. has a remaining term to maturity, as of the Cutoff Date, of not less
than [___] months and not greater than [___] months;
5. had an original balance of not more than [$___________] and a
remaining principal balance as of the Cutoff Date of not less than
[$___________] nor more than [$___________];
6. is not more than 29 days past due as of the Cutoff Date;
7. is attributable to the purchase of a new, near-new or used automobile
or light-duty truck and is secured by that vehicle;
8. was originated on or after ___________;
9. has been entered into by an Obligor that as of the Cutoff Date was not
in bankruptcy proceedings (according to the records of NMAC);
10. is secured by a Financed Vehicle that as of the Cutoff Date has not
been repossessed (according to the records of NMAC);
11. has not had forced-placed insurance premiums added to the amount
financed; and
12. has not been extended by more than two months.
No selection procedures believed to be adverse to the Certificateholders
will be utilized in selecting the Receivables from qualifying retail installment
sale contracts. Except as described in item (2) above, the Receivables were not
selected on the basis of their APRs.
The composition, distribution by APR and geographic distribution of the
Receivables as of the Cutoff Date are as set forth in the following tables. NMAC
will not sell to the Seller, and the Seller will not sell to the Trust, any
Receivables originated in the State of Alabama for administrative reasons.
S-19
<PAGE>
<TABLE>
COMPOSITION OF THE RECEIVABLES
<S> <C>
Aggregate Principal Balance $_________________
Number of Receivables __________________
Average Principal Balance $_________________
Average Original Amount Financed $_________________
Range of Original Amount Financed $_________________ to
$_________________
Weighted Average APR _________%
Range of APRs _________% to
_________%
Approximate Weighted Average Original Term to Maturity ______ months
(Range) ______ to
______ months
Weighted Average Remaining Term to Maturity ______ months
(Range) ______ to
______ months
Percentage by Principal Balance of Receivables of New, Near-New and Used Vehicles ______ (New)
______ (Near-New)
______ (Used)
Percentage by Principal Balance of Receivables Financed through Nissan and ______ (Nissan)
Infiniti Dealers ______ (Infiniti)
</TABLE>
S-20
<PAGE>
DISTRIBUTION BY APR OF THE RECEIVABLES
(PERCENTAGES MAY NOT ADD TO 100.00% DUE TO ROUNDING)
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF CUTOFF DATE PRINCIPAL CUTOFF DATE
RANGE OF APRS(%) RECEIVABLES BALANCE POOL BALANCE
---------------- ----------- ------- ------------
<S> <C> <C> <C>
3.0 to 3.99....................
4.0 to 4.99....................
5.0 to 5.99....................
6.0 to 6.99....................
7.0 to 7.99....................
8.0 to 8.99....................
9.0 to 9.99....................
10.0 to 10.99..................
11.0 to 11.99..................
12.0 to 12.99..................
13.0 to 13.99..................
14.0 to 14.99..................
15.0 to 15.99..................
16.0 to 16.99..................
17.0 to 17.99..................
18.0 to 18.99..................
19.0 and above.................
Totals
</TABLE>
S-21
<PAGE>
GEOGRAPHIC DISTRIBUTION OF THE RECEIVABLES
BASED ON THE ADDRESSES OF THE ORIGINATING DEALERS
(PERCENTAGES MAY NOT ADD TO 100.00% DUE TO ROUNDING)
<TABLE>
<CAPTION>
PERCENTAGE OF
STATE CUTOFF DATE POOL BALANCE
------------- ------------------------------------
<S> <C>
Alaska......................
Arizona.....................
Arkansas....................
California..................
Colorado....................
Connecticut.................
Delaware....................
Florida.....................
Georgia.....................
Idaho.......................
Illinois....................
Indiana.....................
Iowa........................
Kansas......................
Kentucky....................
Louisiana...................
Maine.......................
Maryland....................
Massachusetts...............
Michigan....................
Minnesota...................
Mississippi.................
Missouri....................
Montana.....................
Nebraska....................
Nevada......................
New Hampshire...............
New Jersey..................
New Mexico..................
New York....................
North Carolina..............
North Dakota................
Ohio........................
Oklahoma....................
Oregon......................
Pennsylvania................
Rhode Island................
S-22
<PAGE>
<CAPTION>
PERCENTAGE OF
STATE CUTOFF DATE POOL BALANCE
------------- ------------------------------------
<S> <C>
South Carolina..............
South Dakota................
Texas.......................
Tennessee...................
Utah........................
Vermont.....................
Virginia....................
Washington..................
West Virginia...............
Wisconsin...................
Wyoming.....................
Total...................
</TABLE>
MATURITY AND PREPAYMENT CONSIDERATIONS
Information regarding maturity and prepayment considerations with respect
to the Certificates is set forth under "Weighted Average Life of the Securities"
in the accompanying Prospectus and "Risk Factors - You may experience reduced
returns on your investment resulting from prepayments, repurchases or early
termination of the trust" in the accompanying Prospectus. Because the rate of
payment of principal of each class of Certificates depends on the rate of
payment (including prepayments and liquidations due to default) of the principal
balance of the Receivables, the final payment in respect of the Certificates
could occur significantly earlier than their respective final scheduled
distribution date ("Final Scheduled Distribution Date") set forth in "Summary -
Terms of the Certificates - - Principal - - - Legal Finals" in this Prospectus
Supplement. Certificateholders will bear the risk of being able to reinvest
principal payments on the Certificates at yields at least equal to the yield on
their respective Certificates. No prediction can be made as to the rate of
prepayments on the Receivables in either stable or changing interest rate
environments.
Although the Receivables have different APRs, disproportionate rates
of prepayments between Receivables with APRs greater than or less than the
Required Rate will generally not affect the yield to the Certificateholders.
However, higher rates of prepayments of Receivables with higher APRs will
decrease the amount available to cover delinquencies and defaults on the
Receivables and may decrease the amounts available to be deposited in the
Subordination Spread Account.
DELINQUENCIES, REPOSSESSIONS AND NET LOSSES
The following tables set forth material information concerning
NMAC's experience with respect to its total portfolio of U.S. retail installment
sale contracts for new, near-new and used automobiles and light-duty trucks. The
portfolio consists of retail installment
S-23
<PAGE>
sale contracts in all fifty states, the District of Columbia and Guam. As of
[_________], approximately eighty-nine percent of NMAC's total portfolio of U.S.
retail installment sales contracts (excluding those with original maturities of
64 months or more) consisted of new, near-new and used automobiles and
light-duty trucks financed through Nissan dealers, with the remaining
approximate 11% financed through Infiniti dealers.
There can be no assurance that the behavior of the Receivables
included in the Trust will be comparable to NMAC's experience shown in the
following tables.
S-24
<PAGE>
<TABLE>
<CAPTION>
DELINQUENCY EXPERIENCE (1)
At March 31,
-----------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------- ---------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Number of Contracts
Outstanding 312,237 330,662 317,238 274,807 226,684
Delinquencies as a Percent of
Contracts Outstanding (2)..
30-59 Days................. 2.27% 2.55% 3.10% 2.40% 2.10%
60-89 Days................. 0.27% 0.36% 0.49% 0.25% 0.15%
90 Days or More............ 0.04% 0.06% 0.17% 0.05% 0.02%
</TABLE>
S-25
<PAGE>
<TABLE>
<CAPTION>
NET CREDIT LOSS AND REPOSSESSION EXPERIENCE(1)
(dollars in thousands)
At or For Twelve Months Ended March 31,
--------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Principal Amount Outstanding $3,126,219 $3,497,123 $3,276,423 $2,659,232 $1,921,100
Average Principal Amount
Outstanding............. $3,463,840 $3,248,193 $3,181,569 $2,308,058 $1,822,669
Number of Contracts
Outstanding............. 312,237 330,662 317,238 274,807 226,684
Average Number of Contracts
Outstanding............. 329,320 316,769 309,257 250,040 229,248
Charge-Offs (3)........... $92,005 $134,671 $158,969 $72,838 $46,201
Recoveries (4)............ $41,947 $39,997 $31,874 $20,489 $16,465
Net Losses................ $50,059 $94,674 $127,095 $52,349 $29,736
Net Losses as a Percent
of Principal Amount
Outstanding............. 1.60% 2.71% 3.88% 1.97% 1.55%
Number of Repossessions (5) 9,782 14,164 17,569 9,841 8,530
Number of Repossessions as a
Percent of the Average
Number of Contracts
Outstanding............... 2.97% 4.47% 5.68% 3.94% 3.72%
</TABLE>
- -------------------------
(1) The information in the Delinquency Experience and Net Credit Loss and
Repossession Experience tables includes retail installment sale contracts
for new, near-new and used automobiles and light-duty trucks and includes
contracts which NMAC has sold to third parties but continues to service.
The information does not include retail installment sale contracts
purchased by NMAC under certain special financing programs. The information
in the tables relates only to retail installment sales contracts with
original terms of 64 months or less. The Trust does not include Receivables
with original maturities in excess of 60 months. In general, NMAC has
experienced higher overall levels of losses with respect to contracts with
original maturities of 64 to 72 months than with respect to contracts with
shorter original maturities. All amounts and percentages, except as
indicated, are based on the principal balances of the contracts including
unearned interest. Averages are computed by taking a simple average of
month end outstandings for each period presented.
(2) An account is considered delinquent if 20% or more of the scheduled payment
is past due.
(3) Charge-offs represent the total aggregate net principal balance of
contracts determined to be uncollectible in the period less proceeds from
disposition of related vehicles, other than recoveries described in
Note (4). Charge-offs do not include expenses associated with collection,
repossession or disposition of the vehicle.
(4) Recoveries generally include amounts received on contracts following the
time at which the contract is charged off. Recoveries are net of expenses
associated with collection.
(5) The number of repossessions excludes accounts that have been subsequently
reinstated.
S-26
<PAGE>
NMAC's retail loss experience is dependent upon receivables levels, the number
of repossessions, the amount outstanding at the time of repossession and the
resale value of repossessed vehicles. The losses in the year ended March 31,
1997 were higher than in previous or subsequent years due to NMAC's effort to
finance a broader credit range of customers to support the sale of Nissan and
Infiniti vehicles and a general increase in personal bankruptcy filings. NMAC's
management reacted to the negative trend in losses by initiating changes to its
credit policy that tightened the range of available credit in order to originate
an improved mix of business. These changes involved discontinuing the
origination of 72-month term contracts in June 1996 and installing a new
empirically derived credit score card in September 1996. In addition, NMAC
tightened its credit policy by reducing advance rates for lower credit scores
and implementing risked-based pricing. See "The Receivables--Underwriting of
Motor Vehicle Loans" in the accompanying Prospectus.
CERTIFICATE AND POOL FACTORS
The "Class A Certificate Factor" will be a seven-digit decimal which the
Servicer will compute each month indicating the Class A Certificate Balance as
of the close of business on the Distribution Date in that month as a fraction of
the Original Class A Certificate Balance. The Class A Certificate Factor will be
1.0000000 as of the Cutoff Date. Class A Certificate Factor will decline
thereafter to reflect reductions in the Class A Certificate Balance. Class A
Certificate Balance will be computed by allocating payments in respect of the
Receivables to principal and interest using the simple interest method. The
amount of a Class A Certificateholder's pro rata share of the Class A
Certificate Balance can be determined by multiplying the original denomination
of the holder's Certificate by the Class A Certificate Factor as of the close of
business on the most recent Distribution Date. The Class A Certificate Factor
will be made available through the Trustee.
The "Class B Certificate Factor" will be a seven-digit decimal which the
Servicer will compute each month indicating the Class B Certificate Balance as
of the close of business on the Distribution Date in that month as a fraction of
the Original Class B Certificate Balance. The Class B Certificate Factor will be
1.0000000 as of the Cutoff Date. Class B Certificate Factor will decline
thereafter to reflect reductions in the Class B Certificate Balance. The amount
of a Class B Certificateholder's pro rata share of the Class B Certificate
Balance can be determined by multiplying the original denomination of the
holder's Certificate by the Class B Certificate Factor as of the close of
business on the most recent Distribution Date. The Class B Certificate Factor
will be made available through the Trustee.
The "Class A Pool Factor" is a seven-digit decimal figure which the
Servicer will compute each month and will be calculated by dividing the Class A
Certificate Balance as of the close of business on the Distribution Date in that
month by the Pool Balance as of the Cutoff Date.
The "Class B Pool Factor" is a seven-digit decimal figure which the
Servicer will compute each month and will be calculated by dividing the Class B
Certificate Balance as of the
S-27
<PAGE>
close of business on the Distribution Date in that month by the Pool Balance as
of the Cutoff Date.
Pursuant to the Agreement, the Servicer provides the Trustee with monthly
reports concerning the payments received on the Receivables, the Class A
Certificate Balance, the Class A Certificate Factor, the Class A Pool Factor,
the Class B Certificate Balance, the Class B Certificate Factor, the Class B
Pool Factor and various other items of information. Class A Certificateowners
and Class B Certificateowners may obtain copies of these monthly reports from
the Trustee upon delivery of a written request to the Trustee. Class A
Certificateowners and Class B Certificateowners during any calendar year will be
furnished information by the Trustee for tax reporting purposes not later than
the latest date permitted by law. See "Description of the Transfer and Servicing
Agreements - Statements to Securityholders" in the accompanying Prospectus.
USE OF PROCEEDS
The net proceeds to be received by the Seller from the sale of the Class A
Certificates, the Class B Certificates (together with the Class A Certificates,
"Offered Certificates") and the Class C Certificates (together with the Offered
Certificates, the "Certificates") will be applied to purchase the Receivables
from NMAC and to make the initial deposit into the Subordination Spread Account
and the Yield Supplement Account.
THE SELLER AND THE SERVICER
Information regarding the Seller and the Servicer is set forth under the
captions "The Seller" and "The Servicer" in the accompanying Prospectus.
FINANCIAL CONDITION OF NISSAN MOTOR CO., LTD.
NMAC is an indirect wholly-owned subsidiary of Nissan Motor Co., Ltd.
("Nissan"). Although Nissan is not guaranteeing the Trust's obligations under
the Certificates, Nissan's financial condition may affect NMAC's ability to
service the Receivables. Nissan's consolidated net sales for the fiscal year
ended March 31, 1999 were 6,580.0 billion yen, up from 6,564.6 billion yen the
previous fiscal year. Nissan's consolidated operating income for the fiscal year
ended March 31, 1999 increased to 109.7 billion yen from 86.9 billion yen the
previous fiscal year. The increase in operating income was largely attributable
to depreciation of the yen against other currencies, which offset the effect of
a decline in sales volume in Japan.
Nissan reported a consolidated net loss of 27.7 billion yen for the fiscal
year ended March 31, 1999, compared to a consolidated net loss of 14.0 billion
yen the prior fiscal year. Factors contributing to the decline in net income
included the effect of the devaluation of the peso on Nissan's Mexican operation
and evaluation losses on Nissan's securities holdings.
At the end of May 1999, an increase in Nissan's capital of 585.7 billion
yen was effected through the sale of shares to Renault. The resulting 36.8%
ownership position in Nissan gives Renault significant representation on the
Board of Directors and in the senior management of
S-28
<PAGE>
Nissan. As of the date of this Prospectus Supplement, there have been no
significant developments resulting from this alliance. Nissan's management
expects that significant developments will occur; however, there can be no
assurance that such developments will occur or that, should they occur, they
will have a positive impact on the financial condition of Nissan.
YEAR 2000
Many existing computer programs use only two digits to define a year in the
date field. These programs may recognize a date using "00" as the year 1900
rather than the year 2000, which could result in the program shutting down,
performing incorrect computations or performing inconsistently. In response to
this issue, NMAC has developed a comprehensive plan to ensure that its software
applications and systems are year 2000 compliant. The plan includes the
assessment of "at risk" applications and systems, an assessment of the
interdependencies of various systems and the relative importance of each system
to NMAC's business to verify year 2000 compliance. In addition, the plan
requires testing with all of NMAC's outside vendors and banking institutions.
NMAC expects to complete substantially all year 2000 system upgrades and testing
by September 1999.
Costs associated with the year 2000 systems and software modification are
expensed as incurred. NMAC has budgeted a total of $3.0 million to complete the
necessary upgrades. The total estimated costs are not expected to have a
material impact on NMAC's operations, liquidity or capital reserves. The Trust
will not bear any of the expenses incurred in connection with NMAC's plan.
Despite NMAC's significant efforts to make its systems year 2000 compliant,
the ability of third parties, including utility companies, to be year 2000
compliant is beyond NMAC's control. Accordingly, there can be no assurances that
the systems of other companies on which NMAC relies will be timely converted or
compatible with NMAC's systems. The failure of these entities to comply on a
timely basis could have a material adverse effect on NMAC and the Trust.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The foregoing description under "Year 2000" contains various "forward
looking statements" within the meaning of Section 27A of the Securities Act and
Section 21E of the Securities Exchange Act of 1934, as amended, which represent
NMAC's expectations or beliefs concerning future events, including the
following: that NMAC's action plan for year 2000 compliance efforts will be
carried out as described under "Year 2000"; that NMAC expects to complete its
year 2000 compliance efforts on its critical systems on a timely basis; that the
total estimated cost in connection with the year 2000 issue is not expected to
exceed $3.0 million, and is not expected to have a material adverse effect on
NMAC's results of operations, liquidity or capital resources; and that deferral
of some information technology projects is not expected to have a material
adverse effect on NMAC's results of operations, liquidity or capital resources.
S-29
<PAGE>
The foregoing statements relating to NMAC's expectations as to its year
2000 efforts are based on its best estimates which may be updated as additional
information becomes available. NMAC's forward looking statements are based on
assumptions about many important factors, including the technical skills of
employees and independent contractors, representations and preparedness of third
parties and the effects of the Year 2000 issues on business partners and
customers. While NMAC believes its assumptions are reasonable, it cautions that
it is impossible to predict the impact of those factors that could cause actual
timetables to differ materially from the expected results. See "Risk Factors -
Complications associated with year 2000 date conversion could affect the
servicer's operations, impairing its ability to collect receivables, which may
result in loss on your investments" in this Prospectus Supplement.
THE CERTIFICATES
The following summary describes specified terms of the Certificates and the
Agreement. The summary does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all the provisions of the
Certificates and the Agreement. The following summary supplements, and to the
extent inconsistent therewith replaces, the description of the general terms and
provisions of the Certificates of any given series and the related Agreement set
forth in the accompanying Prospectus, to which description reference is hereby
made.
GENERAL
The Certificates will be issued pursuant to the terms of the Agreement, a
form of which has been filed as an exhibit to the Registration Statement. A copy
of the final signed Agreement will be filed with the SEC following the issuance
of the Certificates. The Certificates will evidence undivided ownership
interests in the Trust created pursuant to the Agreement. In general, and
subject to the prior rights of any senior classes of Certificates, holders of
record of the Class A Certificates (the "Class A Certificateholders") and the
Class B Certificates (the "Class B Certificateholders," and together with the
Class A Certificateholders, the "Certificateholders") will receive, on each
Distribution Date, the related class Principal Distributable Amount and interest
at the related pass through rate set forth in "Summary - Terms of the
Certificates - - Per Annum Pass Through Rates" (each, a "Pass Through Rate") on
the Certificate Balance of that class. The "Certificate Balance" for any class
of Certificates as of any Distribution Date will equal the original certificate
balance of that class, reduced by all amounts distributed on or prior to that
Distribution Date on that class of Certificates and allocable to principal. The
"Original Class A Certificate Balance" means [$_____________], the "Original
Class B Certificate Balance" means [$_____________], and the "Original Class C
Certificate Balance" means [$_____________].
The Class A Certificates will evidence in the aggregate an undivided
ownership interest of [__%] (the "Class A Percentage") of the Trust (initially
representing [$___________]), the Class B Certificates will evidence in the
aggregate an undivided ownership interest of [__%] (the "Class B Percentage") of
the Trust (initially representing [$___________]), and the Class C Certificates
will evidence in the aggregate an undivided ownership interest of [__%] (the
"Class C Percentage" and each class percentage being "Class Percentage") of the
Trust (initially representing [$___________]).
S-30
<PAGE>
SALE AND ASSIGNMENT OF RECEIVABLES
Information with respect to the conveyance of the Receivables from the
Seller to the Trust on the Closing Date pursuant to the Agreement is set forth
under "Description of the Transfer and Servicing Agreements - Sale and
Assignment of Receivables" in the accompanying Prospectus.
ACCOUNTS
In addition to the Accounts referred to under "Description of the Transfer
and Servicing Agreements--Accounts" in the accompanying Prospectus, the Seller
will establish and will maintain with the Trustee a Yield Supplement Account in
the name of the Trustee on behalf of the Certificateholders that will not be
part of the Trust.
COLLECTIONS
The Servicer will deposit all payments on Receivables received from
Obligors and all proceeds of Receivables collected during each Collection Period
into the Collection Account not later than the Business Day after receipt.
However, so long as NMAC is the servicer, if each condition to making monthly
deposits as may be required by the Pooling and Servicing Agreement (including
the satisfaction of specified ratings criteria by NMAC and the absence of any
Servicer Default) is satisfied, the Servicer may retain such amounts until the
related Distribution Date. The Servicer or the Seller, as the case may be, will
remit the aggregate Warranty Purchase Payments and Administrative Purchase
Payments of Receivables to be purchased from the Trust to the Collection Account
on the Business Day immediately preceding the Distribution Date. The Servicer
will be entitled to withhold, or to be reimbursed from amounts otherwise payable
into or on deposit in the Collection Account, amounts previously deposited in
the Collection Account but later determined to have resulted from mistaken
deposits or postings. Except in certain circumstances described in the
Agreement, pending deposit into the Collection Account, collections may be
employed by the Servicer at its own risk and for its own benefit and will not be
segregated from its own funds. The Servicer, at its own risk and for its own
benefit, may instruct the Owner Trustee to invest amounts held in the Collection
Account in Eligible Investments from the time deposited until the related
Distribution Date. See "Description of the Transfer and Servicing Agreements -
Collections" in the accompanying Prospectus.
"Eligible Investments" will be specified in the Agreement and will be
limited to investments which meet the criteria of each Rating Agency from time
to time as being consistent with its then-current ratings of each class of the
Certificates.
Collections on or in respect of a Receivable made during a Collection
Period (including Warranty Purchase Payments and Administrative Purchase
Payments) will be applied first to interest accrued to date, second to principal
until the principal balance is brought current, third to reduce the unpaid late
charges as provided in the Receivable and finally to prepay principal on the
Receivable. See "Description of the Transfer and Servicing Agreements -
Collections" in the accompanying Prospectus.
S-31
<PAGE>
ADVANCES
On or before the Business Day prior to each Distribution Date, the Servicer
will make a payment into the Collection Account for each Receivable of an amount
equal to the product of the principal balance of the Receivable as of the first
day of the related Collection Period and one-twelfth of its APR minus the amount
of interest actually received on the Receivable during the Collection Period (an
"Advance"). If the calculation results in a negative number, an amount equal to
that negative amount will be paid to the Servicer in reimbursement of
outstanding Advances. In addition, if a Receivable becomes a Liquidated
Receivable, the amount of accrued and unpaid interest on that Receivable (but
not including interest for the current Collection Period) will, up to the amount
of outstanding Advances in respect thereof, be withdrawn from the Collection
Account and paid to the Servicer in reimbursement of the outstanding Advances.
The Servicer will not be required to make any Advance (other than the Advance of
an interest shortfall arising from a prepaid Receivable) to the extent that it
does not expect to recoup the Advance from subsequent collections or recoveries.
No advances of principal will be made with respect to the Receivables. See
"Description of the Transfer and Servicing Agreements - Advances" in the
accompanying Prospectus.
SERVICING COMPENSATION
The base servicing fee for the calendar month immediately preceding
any Distribution Date (a "Collection Period") will be one-twelfth of 1.00% (the
"Servicing Rate") of the Pool Balance as of the first day of that Collection
Period or, in the case of the first Distribution Date, the Initial Pool Balance
(the "Base Servicing Fee"). The Base Servicing Fee, together with any previously
unpaid Base Servicing Fee, will be paid on each Distribution Date solely to the
extent of Available Interest. The Servicer will be entitled to collect and
retain as additional servicing compensation in respect of each Collection Period
any late fees, prepayment charges and any other administrative fees and expenses
or similar charges collected during that Collection Period, plus any interest or
investment earnings earned during that Collection Period from the investment of
monies on deposit in the Collection Account (the "Supplemental Servicing Fee").
See "- Collections" above and "Description of the Transfer and Servicing
Agreements - Servicing Compensation" in the accompanying Prospectus. The
Servicer will be paid the Base Servicing Fee and the Supplemental Servicing Fee
(the "Total Servicing Fee") for each Collection Period on the following
Distribution Date related to that Collection Period. However, if it is
acceptable to each rating agency without a reduction in the rating of the
Offered Certificates, the Base Servicing Fee in respect of a Collection Period
(together with any portion of the Base Servicing Fee that remains unpaid from
prior Distribution Dates) will be paid at the beginning of that Collection
Period out of collections of interest on the Receivables for that Collection
Period. The Base Servicing Fee will be paid from Available Interest prior to the
payment of the Class Distributable Amount for any class of Certificates.
YIELD SUPPLEMENT ACCOUNT AND YIELD SUPPLEMENT AGREEMENT
Payments of the Yield Supplement Amounts will be made from funds on deposit
in a segregated trust account to be established by the Seller and pledged to and
maintained with the Trustee for the benefit of the holders of the Offered
Certificates (the "Yield Supplement
S-32
<PAGE>
Account"). The "Yield Supplement Amount" for each Collection Period means an
aggregate amount (if positive), calculated by the Servicer, by which (1) one
month's interest on the principal balance as of the first day of that Collection
Period of each Yield Supplemented Receivable (other than a Liquidated
Receivable, after the Collection Period in which that Receivable became a
Liquidated Receivable) at a rate equal to the Required Rate exceeds (2) one
month's interest on that principal balance at that Yield Supplemented
Receivable's APR. "Yield Supplemented Receivables" are Receivables that have
APRs which are less than the Required Rate. The "Required Rate" means, with
respect to any Distribution Date, the sum of the weighted average Pass Through
Rate for the Class A Certificates and the Class B Certificates and 1.00%. The
initial amount of the Yield Supplement Account will be $[_____________] (the
"Initial Yield Supplement Amount").
If the Yield Supplement Amounts for any Distribution Date exceed the amount
available for withdrawal from the Yield Supplement Account on that Distribution
Date, the Seller will not have any further obligation under the Yield Supplement
Agreement to deposit any further amounts into the Yield Supplement Account. The
amount required to be on deposit in the Yield Supplement Account (the "Required
Yield Supplement Amount") will be equal to the lesser of (1) maximum aggregate
Yield Supplement Amounts that will become due under the Yield Supplement
Agreement, assuming that payments on the Receivables are made on their scheduled
due dates and that no Receivable becomes a prepaid Receivable, or (2) the
Initial Yield Supplement Amount. The maximum aggregate Yield Supplement Amounts
may decline as a result of prepayments or repayments in full of the Receivables.
To the extent that on any Distribution Date the amount on deposit in the Yield
Supplement Account exceeds the Required Yield Supplement Amount on that
Distribution Date, the excess will be paid to the Seller. The Yield Supplement
Account will not be part of the Trust.
Simultaneously with the sale and assignment of the Receivables by NMAC to
the Seller, the Seller will enter into the Yield Supplement Agreement with the
Trustee and the Servicer. The Seller will assign the Yield Supplement Agreement
to the Trust.
NET DEPOSITS
As an administrative convenience and as long as specified conditions are
satisfied, the Servicer will be permitted to make the deposit of collections,
aggregate Advances and amounts deposited in respect of purchases of Receivables
by the Seller or the Servicer for or with respect to the related Collection
Period net of payments to be made to the Servicer with respect to that
Collection Period. The Servicer, however, will account to the Trustee and to the
Certificateholders as if all of the foregoing deposits and payments were made
individually. See "Description of the Transfer and Servicing Agreements - Net
Deposits" in the accompanying Prospectus.
OPTIONAL PURCHASE
The outstanding Certificates will be redeemed in whole, but not in part, on
any Distribution Date on which the Seller or the Servicer exercises its option
to purchase the Receivables. The Servicer, the Seller or any successor to the
Servicer may purchase the
S-33
<PAGE>
Receivables when the Pool Balance shall have declined to 10% or less of the
Initial Pool Balance, as described in the accompanying Prospectus under
"Description of the Transfer and Servicing Agreements - Termination." The
"Redemption Price" for the outstanding Certificates will equal the Certificate
Balance on the date of the optional purchase plus accrued and unpaid interest on
the Certificates.
REMOVAL OF SERVICER
The Trustee or Holders of Certificates evidencing a majority of the voting
interests of the Certificates, voting together as a single class, may terminate
the rights and obligations of the Servicer under the Agreement upon the:
1. any failure by the Servicer (or the Seller, so long as NMAC is the
Servicer) to deliver to the Trustee for deposit in any Account any
required payment or to direct the Trustee to make any required
distributions from that Account, and that failure continues unremedied
for three Business Days after (a) receipt by the Servicer (or the
Seller, so long as NMAC is the Servicer) of written notice of the
failure from the Trustee, (b) receipt by the Servicer (or the Seller,
so long as NMAC is the Servicer) and the Trustee of written notice of
the failure from the holders of Certificates evidencing not less than
25% in principal balance of those outstanding Certificates, acting
together as the single class; or (b) discovery of that failure by any
officer of the Servicer;
2. any failure by the Servicer (or the Seller, as long as NMAC is the
Servicer) to duly observe or perform in any material respect any other
covenants or agreements of the Servicer (or the Seller, as long as
NMAC is the Servicer) set forth in the Agreement, and that failure
materially and adversely affects the rights of the Certificateholders,
and that failure continues unremedied for 90 days after the giving of
written notice of the failure to (a) the Servicer (or the Seller, so
long as NMAC is the Servicer) by the Trustee, or (b) the Servicer (or
the Seller, so long as NMAC is the Servicer) and the Trustee by the
holders of Certificates evidencing not less than 25% in principal
balance of those Certificates, acting together as a single class; and
3. the occurrence of an Insolvency Event of the Servicer.
Under those circumstances, authority and power shall, without further
action, pass to and be vested in the Trustee or a successor Servicer appointed
under the Agreement. If, however, a bankruptcy trustee or similar official has
been appointed for the Servicer, and no Servicer Default other than the
appointment of a bankruptcy trustee or similar official has occurred, that
trustee or official may have the power to prevent the Trustee or the
Certificateholders from effecting a transfer of servicing. Upon receipt of
notice of the occurrence of a Servicer Default, the Trustee shall give notice
thereof to the rating agencies.
S-34
<PAGE>
DUTIES OF THE TRUSTEE
The Trustee will make no representations as to the validity or sufficiency
of the Agreement, the Certificates (other than the authentication of the
Certificates), or any Receivables or related documents, and is not accountable
for the use or application by the Seller or the Servicer of any funds paid to
the Seller or the Servicer in respect of the Certificates or the Receivables, or
the investment of any monies by the Servicer before those monies are deposited
into the Collection Account. The Trustee will not independently verify the
Receivables. If no Servicer Default has occurred, the Trustee is required to
perform only those duties specifically required of it under the Agreement. In
addition to making distributions to the Certificateholders, those duties
generally are limited to the receipt of the various certificates, reports or
other instruments required to be furnished to the Trustee under the Agreement,
in which case it will only be required to examine them to determine whether they
conform to the requirements of the Agreement. The Trustee shall not be charged
with knowledge of a failure by the Servicer to perform its duties under the
Agreement which failure constitutes a Servicer Default unless the Trustee
obtains actual knowledge of that failure as specified in the Agreement.
The Trustee will be under no obligation to exercise any of the rights or
powers vested in it by the Agreement or to make any investigation of matters
arising under the Agreement or to institute, conduct or defend any litigation
under the Agreement or in relation thereto at the request, order or direction of
any of the Certificateholders, unless those Certificateholders have offered to
the Trustee reasonable security or indemnity against the costs, expenses and
liabilities that may be incurred by the Trustee in connection with the exercise
of those rights. No Certificateholder will have any right under the Agreement to
institute any proceeding with respect to the Agreement, other than with respect
to the failure by the Seller or Servicer, as applicable, to remit payments,
unless that Certificateholder has previously given to the Trustee written notice
of default and unless the holders of Certificates evidencing not less than 25%
of the voting interests of the Certificates have made written request upon the
Trustee to institute that proceeding in its own name as Trustee under the
Agreement and have offered to the Trustee reasonable indemnity and the Trustee
for 30 days has neglected or refused to institute that proceeding.
THE TRUSTEE
[________________] is the Trustee under the Agreement. The Trustee, in its
individual capacity or otherwise, may hold Certificates in its own name or as
pledgee. For the purpose of meeting the legal requirements of some
jurisdictions, the Servicer and the Trustee acting jointly (or in some
instances, the Trustee acting alone) shall have the power to appoint co-trustees
or separate trustees of all or any part of the Trust. In the event of
appointment of co-trustees or separate trustees, all rights, powers, duties and
obligations conferred or imposed upon the Trustee by the Agreement shall be
conferred or imposed upon the Trustee and each separate trustee or co-trustee
jointly, or, in any jurisdiction in which the Trustee shall be incompetent or
unqualified to perform specified acts, singly upon that separate trustee or
co-trustee who shall exercise and perform those rights, powers, duties and
obligations solely at the direction of the Trustee.
S-35
<PAGE>
The Trustee may resign at any time, in which event the Servicer will be
obligated to appoint a successor trustee. The Servicer may also remove the
Trustee if the Trustee ceases to be eligible to continue as trustee under the
Agreement, becomes legally unable to act, or becomes insolvent. In those
circumstances, the Servicer will be obligated to appoint a successor trustee.
Any resignation or removal of the Trustee and appointment of a successor trustee
does not become effective until acceptance of the appointment by the successor
trustee.
The Agreement will provide that the Servicer will pay the Trustee's fees.
The Agreement will further provide that the Trustee will be entitled to
indemnification by the Seller and the Servicer for, and will be held harmless
against, any loss, liability, fee, disbursement or expense incurred by the
Trustee not resulting from the Trustee's own willful misfeasance, bad faith or
negligence (other than by reason of a breach of any of its representations or
warranties set forth in the Agreement). The Agreement will further provide that
the Seller and the Servicer will indemnify the Trustee for specified taxes that
may be asserted in connection with the transaction.
NOTICES
Certificateholders will be notified in writing by the Trustee of any
Servicer Default or termination of, or appointment of a successor to, the
Servicer promptly upon a Responsible Officer (as defined in the Agreement)
obtaining actual knowledge thereof. Except with respect to the monthly and
annual reports to Certificateholders described in this Prospectus Supplement,
the Trustee is not obligated under the Agreement to forward any other notices to
the Certificateholders. There are no provisions in the Agreement for the regular
or special meetings of Certificateholders.
GOVERNING LAW
The Agreement and the Certificates are governed by and shall be construed
in accordance with the laws of the State of New York applicable to agreements
made in and to be performed wholly within that jurisdiction.
DISTRIBUTIONS ON THE CERTIFICATES
GENERAL
The Trust will pay interest and principal on the Certificates on the
fifteenth day of each month. If the fifteenth day of the month is not a Business
Day, payments on the Certificates will be made on the next Business Day. The
date that any payment is made is called a "Distribution Date." The first
distribution date will be __________. A "Business Day" is any day except a
Saturday, Sunday, or a day on which banks in New York, New York, Minneapolis,
Minnesota, or Los Angeles, California are authorized or obligated by law,
regulation, executive order or decree to be closed.
On or before the tenth calendar day of each month (or, if the tenth day is
not a Business Day, the next succeeding Business Day (each, a "Determination
Date")), the Servicer will inform the Trustee of, among other things, the amount
of funds collected on or in respect of the
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Receivables, the amount of Advances to be made by and reimbursed to the Servicer
and the aggregate Warranty Purchase Payments and Administrative Purchase
Payments of Receivables to be purchased by the Seller or the Servicer, all with
respect to the related Collection Period.
On or prior to each Distribution Date, the Servicer will also determine the
Total Available Amount, Available Interest, Available Principal, the Class A
Distributable Amount, the Class B Distributable Amount, the Class C
Distributable Amount and other distributions to be made on that Distribution
Date, and as described below, the amount to be paid to Certificateholders of
each class.
The Trustee will make payments to the Certificateholders out of the amounts
on deposit in the Collection Account. The amount to be paid to the
Certificateholders will be determined in the manner described below.
CALCULATION OF AVAILABLE AMOUNTS
"Total Available Amount" for a Distribution Date (being the funds available
for distribution to Certificateholders of each class with respect to that
Distribution Date in accordance with the priorities described below) shall be
the sum of Available Interest and Available Principal.
"Available Interest" for a Distribution Date shall be the sum of the
following amounts allocable to interest received or allocated by the Servicer on
or in respect of the Receivables during the related Collection Period:
1. all collections on or in respect of the Receivables other than
Defaulted Receivables;
2. all proceeds of the liquidation of Defaulted Receivables, net of
expenses incurred by the Servicer in accordance with its customary
servicing procedures in connection with the liquidation, including
amounts received in subsequent Collection Periods ("Net Liquidation
Proceeds");
3. all Advances made by the Servicer;
4. all Warranty Purchase Payments with respect to Warranty Receivables
repurchased by the Seller in respect of that Collection Period;
5. all Administrative Purchase Payments with respect to Administrative
Receivables purchased by the Servicer in respect of that Collection
Period; and
6. any Yield Supplement Amounts.
"Available Principal" for a Distribution Date shall be the sum of the
amounts described in clauses (1), (2), (4) and (5) above received or allocated
by the Servicer in respect of principal on or in respect of the Receivables
during the related Collection Period.
Available Interest and Available Principal on any Distribution Date will
exclude the
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following amounts:
1. amounts received on a particular Receivable (other than a Defaulted
Receivable) to the extent that the Servicer has previously made an
unreimbursed Advance in respect of that Receivable;
2. Net Liquidation Proceeds with respect to a particular Receivable to
the extent of unreimbursed Advances in respect of that Receivable; and
3. recoveries from collections with respect to Advances that the Servicer
has determined are unlikely to be repaid.
A "Defaulted Receivable" will be a Receivable (other than an
Administrative Receivable or a Warranty Receivable) which, by its terms, is
delinquent more than 120 days or, with respect to a Receivable that is
delinquent less than 120 days, the Servicer has (a) determined, in accordance
with its customary servicing procedures, that eventual payment in full is
unlikely, or (b) repossessed the Financed Vehicle.
CALCULATION OF DISTRIBUTABLE AMOUNTS
The "Class Distributable Amount" for each class of Certificates with
respect to a Distribution Date will equal the sum of (1) the Principal
Distributable Amount for that class (each amount, the "Class A Principal
Distributable Amount", "Class B Principal Distributable Amount" and "Class C
Principal Distributable Amount"), and (2) the Interest Distributable Amount for
that class (each amount the "Class A Interest Distributable Amount", the "Class
B Interest Distributable Amount" and "Class C Interest Distributable Amount").
The "Principal Distributable Amount" for a particular class consists
of the related Class Percentage of the following items:
1. the principal portion of all payments actually received on the
Receivables during that Collection Period;
2. the principal portion of all prepayments and partial prepayments,
received during that Collection Period (to the extent those amounts
are not included in clause (1) above); and
3. the Principal Balance of each Receivable that the Servicer became
obligated to purchase, the Seller became obligated to repurchase or
that became a Defaulted Receivable during that Collection Period (to
the extent those amounts are not included in clauses (1) or (2)
above).
The "Interest Distributable Amount" for a particular class consists of 30
days' interest at the related Pass Through Rate on the related Certificate
Balance as of close of business on the last day of the related Collection Period
or, in the case of the first Distribution Date, the related Original Class
Certificate Balance (these amounts being the "Class A Interest Distributable
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Amount," the "Class B Interest Distributable Amount" and the "Class C Interest
Distributable Amount").
The "Class A Certificate Balance" will initially equal the Original Class A
Certificate Balance and, on any Distribution Date, will equal the Original Class
A Certificate Balance reduced by all amounts allocable to principal paid on or
prior to that Distribution Date on the Class A Certificates. In addition, on
each Distribution Date from and including the Distribution Date on which the
Class B Certificate Balance and the Class C Certificate Balance have been
reduced to zero, the Class A Certificate Balance will be reduced by the amount,
if any, necessary to cause it to equal the Pool Balance as of the last day of
the related Collection Period after taking into account all payments, deposits
and withdrawals to be made on that Distribution Date.
The "Class B Certificate Balance" will initially equal the Original Class B
Certificate Balance and, on any Distribution Date, will equal the Original Class
B Certificate Balance reduced by all amounts allocable to principal paid on or
prior to that Distribution Date on the Class B Certificates. In addition, on
each Distribution Date from and including the Distribution Date on which the
Class C Certificate Balance has been reduced to zero, the Class B Certificate
Balance will be reduced by the amount, if any, necessary to cause it to equal to
the excess, if any, of the Pool Balance as of the last day of the related
Collection Period over the Class A Certificate Balance as of such date, after
taking into account all payments, deposits and withdrawals to be made on that
Distribution Date.
The "Class C Certificate Balance" will initially equal the Original Class C
Certificate Balance and, on any Distribution Date, will equal the amount by
which the Pool Balance on the last day of the related Collection Period exceeds
the sum of the Class A Certificate Balance and the Class B Certificate Balance
on that date after taking into account all payments, deposits and withdrawals to
be made on that Distribution Date.
PAYMENTS OF INTEREST
On each Distribution Date, commencing [_________], the Certificateholders
will be entitled to interest payments in an amount up to the amount of interest
that accrued on the related Certificate Balance for the related Interest Period
at the related Pass Through Rate. The Certificates will constitute Fixed Rate
Securities, as that term is defined under "Material Information Regarding the
Securities - Fixed Rate Securities" in the accompanying Prospectus. Interest on
any class of Certificates in respect of a Distribution Date will accrue during
the related Interest Period and will be calculated on the basis of a 360-day
year consisting of twelve 30-day months. Interest payments due on any class of
Certificates for any Distribution Date but not paid on that Distribution Date
will be due on the next Distribution Date increased by an amount equal to
interest on that amount at the related Pass Through Rate (to the extent lawful).
Under some circumstances, amounts otherwise allocable to pay interest on a class
of Certificates will be applied to cover shortfalls in amounts available to make
payments of principal or interest on a more senior class of Certificates. In
addition, interest amounts otherwise distributable to the Class C
Certificateholders will be deposited by the Trustee in the Subordination Spread
Account to cover any deficiency in that account before application of any Excess
Amounts are deposited in that account.
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PAYMENTS OF PRINCIPAL
On each Distribution Date, commencing [_____________], each class of
Certificates will be entitled to principal payments in an amount generally equal
to the related Principal Distributable Amount for that class. Under some
circumstances, amounts otherwise allocable to pay principal on a class of
Certificates will be applied to cover shortfalls in amounts available to make
payments of interest on a more senior class of Certificates.
PAYMENT OF DISTRIBUTABLE AMOUNTS
Prior to each Distribution Date, the Servicer will calculate the amount to
be paid to the Certificateholders. On each Distribution Date, the Trustee will
pay the following amounts in the following order of priority, to the extent of
funds available for payment on that Distribution Date:
1. to the Servicer, the Total Servicing Fee, including any unpaid Total
Servicing Fees with respect to one or more prior Collection Periods,
and reimbursement for outstanding Advances, those amounts to be paid
from Available Interest;
2. to the Class A Certificateholders, an amount equal to the Class A
Interest Distributable Amount and any unpaid Class A Interest
Carryover Shortfall, that amount to be paid from Available Interest
(after giving effect to any reduction in Available Interest described
in clause (1) above); and if that Available Interest is insufficient,
the Class A Certificateholders will be entitled to receive that amount
first, from funds on deposit in the Subordination Spread Account,
second, if those amounts are insufficient, from the Class C Percentage
of Available Principal, and third, if those amounts are insufficient,
from the Class B Percentage of Available Principal;
3. to the Class A Certificateholders, an amount equal to the Class A
Principal Distributable Amount and any unpaid Class A Principal
Carryover Shortfall, that amount to be paid from Available Principal
(after giving effect to any reduction in Available Principal described
in clause (2) above); and if that Available Principal is insufficient,
the Class A Certificateholders will be entitled to receive that amount
first, from funds on deposit in the Subordination Spread Account and
second, if those amounts are insufficient, from Available Interest
(after giving effect to any reduction in Available Interest described
in clauses (1) through (2) above);
4. to the Class B Certificateholders, an amount equal to the Class B
Interest Distributable Amount and any unpaid Class B Interest
Carryover Shortfall, that amount to be paid from Available Interest
(after giving effect to any reduction in Available Interest described
in clauses (1) through (3) above); and if that Available Interest is
insufficient, the Class B Certificateholders will be entitled to
receive that amount first, from funds on deposit in the Subordination
Spread Account, and second, if those amounts are insufficient, from
the Class C Percentage of Available Principal;
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5. to the Class B Certificateholders, an amount equal to the Class B
Principal Distributable Amount and any unpaid Class B Principal
Carryover Shortfall, that amount to be paid from Available Principal
(after giving effect to any reduction in Available Principal described
in clauses (2) through (4) above); and if that Available Principal is
insufficient, the Class B Certificateholders will be entitled to
receive that amount first, from funds on deposit in the Subordination
Spread Account and second, if those amounts are insufficient, from
Available Interest (after giving effect to any reduction in Available
Interest described in clauses (1) through (4) above);
6. to the Class C Certificateholders, an amount equal to the Class C
Interest Distributable Amount and any unpaid Class C Interest
Carryover Shortfall, that amount to be paid from Available Interest
(after giving effect to any reduction in Available Interest described
in clauses (1) through (5) above);
7. to the Class C Certificateholders, an amount equal to the Class C
Principal Distributable Amount and any unpaid Class C Principal
Carryover Shortfall, that amount to be paid from Available Principal
(after giving effect to any reduction in Available Principal described
in clauses (2) through (5) above); and if that Available Principal is
insufficient, the Class C Certificateholders will be entitled to
receive that amount from Available Interest (after giving effect to
any reduction in Available Interest described in clauses (1) through
(6) above); and
8. if necessary, to the Subordination Spread Account so that the funds on
deposit in that account will be equal to the Specified Subordination
Spread Account Balance; provided that if there is a deficiency in the
Subordination Spread Account, amounts otherwise distributable to the
Class C Certificateholders will first be deposited by the Trustee in
the Subordination Spread Account to cover the deficiency.
Notwithstanding the foregoing, no amount will be paid to the Class A
Certificateholders or the Class B Certificateholders in respect of any Yield
Supplement Amount with respect to a Receivable, except to the extent of amounts
withdrawn from the Yield Supplement Account, except that if the Yield Supplement
Amounts exceed funds available in the Yield Supplement Account, the excess shall
be withdrawn from the Subordination Spread Account.
An "Interest Carryover Shortfall" with respect to any class of Certificates
on any Distribution Date will equal the excess, if any, of (1) the related
Interest Distributable Amount for that class on that Distribution Date and any
outstanding related Interest Carryover Shortfall for that class from the
immediately preceding Distribution Date plus interest on the outstanding
Interest Carryover Shortfall, to the extent permitted by law, at the related
Pass Through Rate from that immediately preceding Distribution Date through the
current Distribution Date, over (2) the amount of interest paid to the related
Certificateholders on that Distribution Date (each shortfall, the "Class A
Interest Carryover Shortfall," "Class B Interest Carryover Shortfall" and "Class
C Interest Carryover Shortfall", as applicable).
A "Principal Carryover Shortfall" with respect to any class of Certificates
on any Distribution Date will equal the excess, if any, of (1) the related
Principal Distributable Amount
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for that class on that Distribution Date and any outstanding Principal Carryover
Shortfall for that class from the immediately preceding Distribution Date over
(2) the amount of principal actually paid to the related Certificateholders on
that Distribution Date (each shortfall, the "Class A Principal Carryover
Shortfall," "Class B Principal Carryover Shortfall" and "Class C Principal
Carryover Shortfall", as applicable).
Any amounts remaining after giving effect to the distributions described in
clauses (1) through (8) of the fourth preceding paragraph on any Distribution
Date ("Excess Amounts") will be distributed to the Seller.
Notwithstanding the foregoing distribution priorities, if the Servicer
fails to make an Advance, the portion of any shortfall attributable thereto
shall be paid only from amounts available in the Subordination Spread Account.
Even if the Certificate Balance of any class of Certificates is reduced to
zero prior to the termination of the Trust and prior to the final payment in
respect of amounts payable on the Certificates of all classes, any Interest or
Principal Carryover Shortfalls with respect to that class will continue as
obligations of the Trust payable from amounts on deposit in the Collection
Account or Subordination Spread Account, including Excess Amounts, before any
further deposit of Excess Amounts into the Subordination Spread Account or
release of amounts in the Subordination Spread Account to the Seller.
PAYMENTS UNDER THE YIELD SUPPLEMENT AGREEMENT
Each Certificateholder of the Offered Certificates should allocate a
portion of its purchase price or other tax basis in the related Offered
Certificates, as the case may be, to its right to receive Yield Supplement
Amounts. See "Material Income Tax Consequences - Original Issue Discount,
Imputed Interest and Market Discount" in this Prospectus Supplement.
Tax counsel is unable to opine as to the federal income tax
characterization of the right to receive Yield Supplement Amounts. Arguably, the
arrangement is economically analogous to a loan made by the Certificateholder of
the Offered Certificates to the Seller in an amount equal to the discounted
present value of the Yield Supplement Amounts, if any, which are expected to be
received, resulting in OID to that Certificateholder for the amount of the
discount. In that case, each Certificateholder of the Offered Certificates will
accrue income in respect of its interest in that discounted present value under
the rules relating to OID under a method that takes account of the compounding
of interest and the holder's expected yield to maturity. Alternatively, it is
possible that the entire amount of Yield Supplement Amounts should be included
in income as accrued or received and not treated as interest and that any
Certificateholder of the Offered Certificates should also be entitled to
amortize the portion of its purchase price allocable to its right to receive
Yield Supplement Amounts, possibly on a straight-line basis over the term of the
related Offered Certificates. In that case, the Yield Supplement Amounts also
might be unrelated taxable income for a tax-exempt investor. Although the Seller
believes that these two characterizations of the Yield Supplement Agreement are
the most likely characterizations, no assurance can be given, however, that
either of these two characterizations will be accepted by the IRS.
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SUBORDINATION; SUBORDINATION SPREAD ACCOUNT
SUBORDINATION
The rights of the Certificateholders to receive payments with respect to
the Receivables will be subordinated to the rights of the Servicer to receive
the Base Servicing Fee, any additional servicing compensation described under
"The Certificates - Servicing Compensation" in this Prospectus Supplement and
the reimbursement of unreimbursed Advances.
In addition, the rights of the Certificateholders of the Class B
Certificates and the Class C Certificates to receive payments with respect to
collections on the Receivables will be subordinated to the rights of the Class A
Certificateholders to the extent described in this Prospectus Supplement. This
subordination is intended to enhance the likelihood of timely receipt by the
Class A Certificateholders, and, to a lesser extent, the Class B
Certificateholders, of the full amount of interest and principal required to be
paid to them, and to afford those Certificateholders limited protection against
losses in respect of the Receivables.
The Certificateholders of the Class B Certificates and the Class C
Certificates will not receive any distributions of interest or principal with
respect to a Distribution Date until the full amount of interest and principal
relating to that Distribution Date has been distributed to the Class A
Certificateholders.
The Class C Certificateholders will not receive any distributions of
interest or principal with respect to a Distribution Date until the full amount
of interest and principal relating to that Distribution Date has been
distributed to the Class A Certificateholders and the Class B
Certificateholders.
If on any Distribution Date the holders of the Class A Certificates do not
receive the sum of the Class A Distributable Amount, the Class A Interest
Carryover Shortfall and the Class A Principal Carryover Shortfall for that
Distribution Date (after giving effect to any amounts withdrawn from the
Subordination Spread Account, the Class B Distributable Amount and the Class C
Distributable Amount and applied to that deficiency, as described above), the
holders of the Class B Certificates and the Class C Certificates will not
receive any portion of the Total Available Amount.
If on any Distribution Date the holders of the Class B Certificates do not
receive the sum of the Class B Distributable Amount, the Class B Interest
Carryover Shortfall and the Class B Principal Carryover Shortfall for that
Distribution Date (after giving effect to any amounts withdrawn from the
Subordination Spread Account and the Class C Distributable Amount and applied to
that deficiency, as described above), the holders of the Class C Certificates
will not receive any portion of the Total Available Amount.
SUBORDINATION SPREAD ACCOUNT
The Class A Certificateholders and the Class B Certificateholders will also
have the benefit of the Subordination Spread Account. The Subordination Spread
Account will be a
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segregated trust account held by the Trustee and will not be an asset of the
Trust. Any amounts held on deposit in the Subordination Spread Account are owned
by the Seller and any investment earnings on the Subordination Spread Account
will be taxable to the Seller for federal income tax purposes. The Subordination
Spread Account will be created with an initial deposit by the Seller of an
amount equal to [$_______________] (the "Subordination Spread Account Initial
Deposit"). If on any subsequent Distribution Date the amount on deposit in the
Subordination Spread Account is less than the Specified Subordination Spread
Account Balance, first, the Class C Distributable Amount, and if that amount is
not sufficient, Excess Amounts will be deposited in the Subordination Spread
Account until the monies in the Subordination Spread Account reach an amount
equal to the Specified Subordination Spread Account Balance.
The time necessary for the Subordination Spread Account to reach and
maintain the Specified Subordination Spread Account Balance at any time after
the date of issuance of the Certificates will be affected by the delinquency,
credit loss and repossession and prepayment experience of the Receivables and,
therefore, cannot be accurately predicted. The "Specified Subordination Spread
Account Balance" with respect to any Distribution Date will be equal to
[$_______________], except that in the event that on any Distribution Date:
1. the annualized average for the preceding three Collection Periods of
the percentage equivalents of the ratios of net losses (i.e., the net
balances of all Receivables which are determined to be uncollectible
in the Collection Period, less any Net Liquidation Proceeds with
respect to those net balances from that or prior Collection Periods)
to the Pool Balance as of the first day of each that Collection Period
exceeds [___%], or
2. the average for the preceding three Collection Periods of the
percentage equivalents of the ratios of the number of Receivables that
are delinquent 60 days or more to the outstanding number of
Receivables exceeds [___%],
then the Specified Subordination Spread Account Balance for that Distribution
Date (and for each succeeding Distribution Date until the relevant averages have
not exceeded the specified percentages in clauses (1) and (2) above for three
successive Distribution Dates) shall be a dollar amount equal to (x) [___%] of
the Pool Balance as of the first day of the related Collection Period minus (y)
the excess of the Pool Balance over the sum of the Class A Certificate Balance
and the Class B Certificate Balance as of the first day of that Collection
Period, but in no event shall the Specified Subordination Spread Account Balance
be more than [$______________], or less than [$_____________].
On any Distribution Date on which the aggregate balance of the Offered
Certificates is [$_____________] or less, after giving effect to the
distributions on that Distribution Date, the Specified Subordination Spread
Account Balance shall be the greater of the balance described above or
[$_____________].
The Servicer may, from time to time after the date of this Prospectus
Supplement, request each rating agency then rating the Offered Certificates to
approve a different formula for determining the Specified Subordination Spread
Account Balance or a change in the manner by
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which the Subordination Spread Account is funded, if the new formula or manner
would not affect the then-current rating of the Offered Certificates.
Amounts held from time to time in the Subordination Spread Account will
continue to be held for the benefit of the holders of the Offered Certificates.
Funds on deposit in the Subordination Spread Account may be invested in Eligible
Investments. Investment income on monies on deposit in the Subordination Spread
Account will not be available for payment to Certificateholders or otherwise
subject to any claims or rights of the Certificateholders and will be paid to
the Seller. Any loss on those investments will be charged to the Subordination
Spread Account.
If on any Distribution Date the Class C Certificate Balance equals zero and
amounts on deposit in the Subordination Spread Account have been depleted as a
result of losses in respect of the Receivables, the protection afforded to the
Class A Certificateholders and the Class B Certificateholders by the
subordination of the Class C Certificates and by the Subordination Spread
Account will be exhausted and the Class B Certificateholders will bear directly
the risks associated with ownership of the Receivables. From and after that
date, all those losses realized during a Collection Period will be allocated
first to the Class B Certificates, resulting in the reduction of the Class B
Certificate Balance on the related Distribution Date and second, if the Class B
Certificate Balance is reduced to zero, to the Class A Certificates.
If on any Distribution Date the Class B Certificate Balance equals zero and
amounts on deposit in the Subordination Spread Account have been depleted as a
result of losses in respect of the Receivables, the protection afforded to the
Class A Certificateholders by the subordination of the Class B Certificates, the
Class C Certificates and by the Subordination Spread Account will be exhausted
and the Class A Certificateholders will bear directly the risks associated with
ownership of the Receivables. From and after that date, all those losses
realized during a Collection Period will be allocated first to the Class A
Certificates, resulting in the reduction of the Class A Certificate Balance on
the related Distribution Date.
MATERIAL INCOME TAX CONSEQUENCES
CLASSIFICATION OF THE TRUST
Under current law and assuming execution of, and compliance with, the
Agreement, the Custody and Pledge Agreement and the Yield Supplement Agreement,
the Trust will be classified for federal income tax purposes and California
franchise and income tax purposes as a grantor trust and not as an association
taxable as a corporation.
For federal income tax purposes, each holder will be considered to own an
undivided interest in the Trust's assets, be required to include in its gross
income, for federal income tax purposes, its share of the gross income of the
Trust and be entitled to deduct (subject both to possible recharacterization of
specified fees paid by the Trust to the Servicer and to any
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limitations generally applicable to that holder) its share of the expenses of
the Trust allocable to it.
Although each Certificateholder of Offered Certificates will be considered,
for federal income tax purposes, to own its pro rata share of the principal of
the Receivables in the Trust and of the Yield Supplement Amounts, each holder's
share of the right to interest on the Receivables, however, is not entirely
certain. Each Certificateholder's right to interest with respect to a particular
Receivable should be limited to its pro rata share of the lesser of (1) the
interest that accrues on the principal of that Receivable at the Pass Through
Rate plus its pro rata share of the Servicing and Trustee fees allocable to it
(which fees will be deemed to be paid over, on behalf of the holder, to the
Servicer and the Trustee, respectively) and (2) the total interest payable on
that Receivable.
For administrative convenience, however, the Trustee may report information
with respect to a Certificateholder's investment in an Offered Certificate on an
aggregate basis as though that Certificateholder's investment in the Receivables
and other assets were equal to that Certificateholder's share of the initial
Class Principal Balance and on which interest and Yield Supplement Amounts are
payable at a combined rate equal to the sum of the Pass Through Rate and the
Servicing Rate. If the IRS were to require reporting on an asset-by-asset
basis, the amount of income reportable for a period could differ from the amount
reportable on an aggregate basis. In particular, as described more fully below,
High Yield Receivables (as defined in the accompanying Prospectus) are subject
to the "stripped bond" rules of the Code, which could result in those
Receivables having original issue discount ("OID"), and Low Yield Receivables
(as defined in the accompanying Prospectus) may be subject to the market
discount or imputed interest rules.
PAYMENTS UNDER THE YIELD SUPPLEMENT AGREEMENT
A Certificateholder of any Offered Certificate should allocate a portion of
its purchase price or other tax basis in that Certificate to its right to
receive Yield Supplement Amounts. See "- Original Issue Discount, Imputed
Interest and Market Discount - - Original Issue Discount; General."
Tax counsel is unable to opine as to the federal income tax
characterization of the right to receive Yield Supplement Amounts. The potential
characterizations of the right to receive Yield Supplement Amounts are described
in the accompanying Prospectus under "Material Income Tax Consequences - Tax
Treatment of Grantor Trusts - - Yield Supplement Amounts."
ORIGINAL ISSUE DISCOUNT, IMPUTED INTEREST AND MARKET DISCOUNT
ORIGINAL ISSUE DISCOUNT; GENERAL. The Receivables bear interest at varying
rates. Because a Certificateholder of an Offered Certificate will be viewed as
owning an interest in each of the Trust's assets and the right to receive Yield
Supplement Amounts, a portion of the Certificateholder's purchase price of an
Offered Certificate (whether on initial sale or in a subsequent transaction) may
be required to be allocated among each of the Trust's assets and the right to
receive Yield Supplement Amounts, based on their respective fair market values.
See
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discussion under "Material Income Tax Consequences - Tax Treatment of Grantor
Trusts - - Discount and Premium" in the accompanying Prospectus.
Because the Seller will retain the right to receive interest at a rate
equal to the excess of the APR of each Receivable over the sum of the Pass
Through Rate and the Servicing Rate, the issuance of an Offered Certificate will
result in the separation of ownership ("stripping") of a portion of the rights
to interest payments on High Yield Receivables. See discussion under "Material
Income Tax Consequences - Tax Treatment of Grantor Trusts - - Characterization"
in the accompanying Prospectus.
PREMIUM. A Certificateholder that purchases an Offered Certificate for an
amount greater than its outstanding principal balance may elect under Section
171 of the Code to amortize premium in respect of the Receivables in order to
accrue income based on the Certificateholder's yield rather than at the Pass
Through Rate. That election would apply to all of the taxable debt instruments
held at or acquired after the first day of the holder's first taxable year to
which that election applies, and may be revoked only with the consent of the
IRS. See discussion under "Material Income Tax Consequences - Tax Treatment
of Grantor Trusts - - Premium" in the accompanying Prospectus.
IMPUTED INTEREST AND MARKET DISCOUNT. Some or all of the Low Yield
Receivables may have imputed interest and/or market discount. If a Low Yield
Receivable did not have "adequate stated interest" (as the term is defined in
Section 483 of the Code) when originated, then that Receivable would be treated
as having "imputed interest." Under the imputed interest rules of the Code, a
portion of the Receivable's stated principal amount equal to that total unstated
interest would be recharacterized as interest and the Receivable's principal
amount would be correspondingly reduced. If the imputed interest rules applied,
the total unstated interest would be included in the Certificateholder's gross
income over the term of the Receivable using a constant yield-to-maturity
method. It is uncertain whether the imputed interest rules would apply to a
Certificateholder. If these rules do not apply, or with respect to Low Yield
Receivables which had adequate stated interest when issued, the market discount
rules instead may be applicable.
In general, under the market discount provisions of the Code, principal
payments received by the Trust, and all or a portion of the gain recognized upon
a sale or other disposition of a Receivable or upon the sale or other
disposition of an Offered Certificate by a Certificateholder, will be treated as
ordinary income to the extent of accrued market discount. Any gain recognized by
a Certificateholder upon a sale or other disposition of an Offered Certificate
will be treated as capital gain to the extent the gain exceeds accrued market
discount. The character of any gain from the sale of an Offered Certificate
allocable to rights pursuant to the Yield Supplement Agreement as ordinary or
capital gain, however, is uncertain. In addition, a portion of the interest
deductions of an Offered Certificateholder attributable to any indebtedness
treated as incurred or continued to purchase or carry a Receivable may have to
be deferred, unless a Certificateholder makes an election to include market
discount in income currently as it accrues (in lieu of including accrued market
discount in income at the time principal payments are received or at the time of
disposition). That election would apply to all debt instruments acquired by the
taxpayer on or after the first day of the first taxable year to which that
election
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applies, and may be revoked only with consent of the IRS. Taxpayers may, in
general, elect to accrue market discount either (1) under a constant
yield-to-maturity method or (2) in the proportion that the stated interest paid
on the obligation for the current period bears to the total remaining interest
on the obligation. See discussion under "Material Income Tax Consequences - Tax
Treatment of Grantor Trusts - - Market Discount" in the accompanying Prospectus.
ACCRUING INCOME ON A SEPARATE ASSET BASIS. Although the matter is not
entirely certain, it appears that, as a technical matter, each holder should
calculate income separately for its interest in each Receivable (by first
allocating to each Receivable and to each other asset in the Trust a portion of
the holder's basis in the Offered Certificate). Further, in the case of any
"affected investor" (as defined below), in computing yield to maturity, all
interest on the Receivables allocable to the Offered Certificates, including
interest effectively paid over to the Servicer and the Trustee, is taken into
account. For this purpose "affected investors" are individuals, persons,
including estates and trusts, that compute taxable income in the same manner as
an individual and some "pass through entities." If required to report income in
respect of the Offered Certificates to the IRS and/or Certificateholders
holding the Offered Certificates, however, the Servicer and Trustee currently
intend to accrue income on an aggregate basis, based on an assumed initial
offering price of the Offered Certificates and based on the net amounts
distributable on the Offered Certificates. This method of reporting on a net
basis may not be permitted. Furthermore, subsequent purchasers of the Offered
Certificates will have to adjust the amounts reported to them based upon their
basis in the Offered Certificates.
POSSIBLE ALTERNATIVE CHARACTERIZATION. Prospective investors should be
aware that the IRS could take the position that, in accruing OID, and
possibly market discount, a Receivable-by-Receivable or pool-wide prepayment
assumption should be used to determine yield and time to maturity. If the holder
purchased its Offered Certificate at a yield higher than the Pass Through Rate
on the Offered Certificates (that is, for an amount less than the principal
amount of Receivables allocable to the Offered Certificate), that assumption
could accelerate income on the Offered Certificate.
Prospective investors should also be aware that, although the Seller
believes that none of:
1. the Class A Certificateholders' right to be paid prior to payment
being made on the Class B Certificates and the Class C Certificates;
2. the Class B Certificateholders' right to be paid prior to payment
being made on the Class C Certificates; or
3. the Class A and Class B Certificateholders' right to be paid out of
the Subordination Spread Account;
should be treated as an asset separate from the Class A and Class B
Certificateholders' rights in the Receivables, the IRS could take a contrary
view. If any of those rights were characterized as a separate asset, a portion
of that holder's basis in its Certificate could be required to be allocated to
those rights or a Certificateholder might be considered to own a greater
percentage of the right to interest on the Receivables (and be deemed to pay
over that additional interest as a
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guarantee or other fee as it is paid or accrued).
SALE OR PREPAYMENT
Upon the sale, exchange or retirement of an Offered Certificate, a
Certificateholder will recognize taxable gain or loss in respect of its
undivided interest in each asset held by the Trust. Gain or loss with respect to
each undivided interest in a Trust asset is equal to the difference between the
allocable portion of the amount realized and the Certificateholder's adjusted
basis in that asset. See discussion under "Material Income Tax Consequences -
Trusts Treated as Grantor Trusts - - Sale or Exchange of a Grantor Trust
Certificate" in the accompanying Prospectus.
A disposition or retirement of an Offered Certificate for no net gain or
loss may for tax purposes consist of a sale of one asset (e.g., an interest in
some Receivables) for a gain and the disposition of another asset at a loss
(e.g., an interest in other Receivables). Although those gains or losses
generally should be treated as offsetting capital gains and losses (unless
earned by a dealer), absent the making of an election to include market discount
currently in income (as discussed above), gain realized on an interest in
Receivables acquired with market discount may yield ordinary gain to the extent
of accrued market discount, which (1) for a corporate taxpayer could not be
offset by, and (2) for an individual taxpayer could only be offset by up to
$3,000 of, any capital loss attributable to an interest in any other Receivables
or Trust assets. See "- Original Issue Discount, Imputed Interest and Market
Discount - - Accruing Income on a Separate Asset Basis" above. The character of
any gain realized allocable to the Certificateholder's rights under the Yield
Supplement Agreement as ordinary or capital also is uncertain. Any loss realized
would be treated as a capital loss.
In general, gain or loss on any sale, exchange or retirement of an Offered
Certificate would be capital gain or loss. However, it is possible that the
Servicer will take the position that, under the rules for accruing OID, gain on
any prepayment of the Receivables will be ordinary income.
FOREIGN CERTIFICATEHOLDERS
Interest attributable to Receivables which is received by a
Certificateholder that is not a "U.S. person" (as defined in the accompanying
Prospectus under "Material Income Tax Consequences - Tax Treatment of Owner
Trusts - - Tax Consequences to Holders of the Notes - - - Foreign Holders," and
has no connection with the United States other than owning the Offered
Certificate would generally constitute "portfolio interest" and, accordingly,
not be subject to the normal 30% withholding tax imposed with respect to those
payments, provided that that Certificateholder fulfills specified certification
requirements.
Although it is not entirely clear, it is likely that payments received out
of the Yield Supplement Account or in respect of the Yield Supplement Agreement
generally would not be subject to withholding tax. See discussion under
"Material Income Tax Consequences - Trusts Treated as Grantor Trusts - -
Non-U.S. Persons" in the accompanying Prospectus.
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MATERIAL STATE TAX CONSEQUENCES
For California tax purposes, Grantor Trust Certificateholders could be
considered to own either (1) an undivided interest in a single debt obligation
held by the Trust and having a principal amount equal to the total stated
principal amount of the Receivables and an interest rate equal to the related
Pass Through Rate or (2) an interest in each of the Receivables and any other
Trust assets.
It is suggested that Grantor Trust Certificateholders consult their tax
advisors regarding the state tax consequences associated with the purchase,
ownership and disposition of the Grantor Trust Certificates.
ERISA CONSIDERATIONS
CLASS A CERTIFICATES
Subject to the considerations set forth below and under "ERISA
Considerations" in the accompanying Prospectus, the Class A Certificates may be
purchased by an employee benefit plan or an individual retirement account (a
"Benefit Plan") subject to ERISA or Section 4975 of the United States Internal
Revenue Code of 1986, as amended (the "Code"). A fiduciary of a Benefit Plan
must determine that the purchase of an Class A Certificate is consistent with
its fiduciary duties under ERISA and does not result in a nonexempt prohibited
transaction as defined in Section 406 of ERISA or Section 4975 of the Code.
The United States Department of Labor (the "DOL") has granted to
_____________________ and ________________________ administrative exemptions
(Prohibited Transaction Exemptions _____ and _____, as amended by Prohibited
Transaction Exemption 97-34 (the "Exemptions")) from some of the prohibited
transaction rules of ERISA with respect to the initial purchase, the holding and
the subsequent resale by Benefit Plans of certificates representing interests in
asset backed pass through trusts that consist of receivables, loans and other
obligations that meet the conditions and requirements of the Exemptions. The
receivables covered by the Exemptions include motor vehicle installment
obligations such as the Receivables. The Exemptions also apply to transactions
in connection with the servicing, management and operation of the Trust which
might otherwise constitute prohibited transactions.
Among the conditions that must be satisfied for either of the Exemptions to
apply to the acquisition by a Benefit Plan of the Class A Certificates are the
following:
1. The acquisition of the Class A Certificates by a Benefit Plan is on
terms (including the price for that Class A Certificates) that are at
least as favorable to the Benefit Plan as they would be in an
arm's-length transaction with an unrelated party.
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2. The rights and interests evidenced by the Class A Certificates
acquired by the Benefit Plan are not subordinated to the rights and
interests evidenced by other certificates of the Trust.
3. The Class A Certificates acquired by the Benefit Plan have received a
rating at the time of the acquisition that is in one of the three
highest generic rating categories from Standard & Poor's Structured
Rating Group ("S&P"), Moody's Investors Service, Inc. ("Moody's"),
Duff & Phelps Credit Rating Co. or Fitch Investors Service, L.P.
(together with S&P and Moody's, the "Rating Services").
4. The Trustee is not an affiliate of any member of the Restricted Group
(as defined below).
5. The sum of all payments made to and retained by the Underwriters in
connection with the purchase of the Class A Certificates represents
not more than reasonable compensation for underwriting the Class A
Certificates. The sum of all payments made to and retained by the
Seller pursuant to the sale of the Receivables to the Trust represents
not more than the fair market value of those Receivables. The sum of
all payments made to and retained by the Servicer represents not more
than reasonable compensation for the Servicer's services under the
Agreement and reimbursement of the Servicer's reasonable expenses in
connection therewith.
6. The Benefit Plan investing in the Class A Certificates is an
"accredited investor" as defined in Rule 501(a)(1) of Regulation D of
the Commission under the Securities Act.
The Trust must also meet the following requirements:
1. The corpus of the Trust must consist solely of assets of the type that
have been included in other investment pools.
2. Certificates in other investment pools must have been rated in one of
the three highest generic rating categories of any of the Rating
Services for at least one year prior to the Benefit Plan's acquisition
of certificates.
3. Certificates evidencing interests in other investment pools must have
been purchased by investors other than Benefit Plans for at least one
year prior to any Benefit Plan's acquisition of Class A Certificates.
The Exemptions do not apply in all respects to Benefit Plans sponsored by
the Seller, the Underwriters, the Trustee, the Servicer, any Obligor with
respect to the Receivables included in the Trust constituting more than 5% of
the aggregate unamortized principal balance of the assets in the Trust or any
affiliate of those parties (the "Restricted Group"). As of the date hereof, no
Obligor with respect to the Receivables included in the Trust constitutes more
than 5% of the aggregate unamortized principal balance of the Trust (i.e., the
initial principal amount of the
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Certificates). Moreover, each Exemption provides relief from specified
self-dealing/conflict of interest prohibited transactions only if, among other
requirements,
1. in the case of the acquisition of Class A Certificates in connection
with the initial issuance, at least 50% of each class of Certificates
in which Benefit Plans have invested is acquired by persons
independent of the Restricted Group and at least 50% of the aggregate
interest in the Trust is acquired by persons independent of the
Restricted Group;
2. a Benefit Plan's investment in the Class A Certificates does not
exceed 25% of all of the Class A Certificates outstanding at the time
of the acquisition; and
3. immediately after the acquisition, no more than 25% of the assets of a
Benefit Plan with respect to which a person has discretionary
authority or renders investment advice are invested in certificates
representing interests in trusts containing assets sold or serviced by
the same entity.
The Seller believes that the Exemptions will apply to the acquisition,
holding and resale of the Class A Certificates by a Benefit Plan and that all
conditions of the Exemptions other than those within the control of investors
will be met. However, there can be no assurance that the DOL or the IRS
will not take a contrary position, nor that that position will be sustained.
One or more alternative exemptions may be available with respect to specified
prohibited transactions to which the Exemptions are not applicable, depending
in part upon the type of a Benefit Plan's fiduciary making the decision to
acquire the Class A Certificates and the circumstances under which that
decision is made. See "ERISA Considerations" in the accompanying Prospectus.
Any Benefit Plan which acquires a beneficial ownership interest in a Class A
Certificates will be deemed, by virtue of the acceptance and acquisition of
that ownership interest, to have represented to the Seller and the Trustee that
that Benefit Plan is an "accredited investor" for purposes of Rule 501(a)(1) of
Regulation D under the Securities Act.
CLASS B AND CLASS C CERTIFICATES
Class B Certificates and Class C Certificates may not be acquired by an
employee benefit plan (as defined in Section 3(3) of ERISA) that is subject to
the provisions of Title I of ERISA or Section 4975(e)(1) of the Code or any
person acting on behalf of such a plan or using the assets of such a plan to
acquire the Class B Certificates or Class C Certificates or any entity whose
underlying assets include plan assets by reason of a plan's investment in the
entity, except as provided below with respect to insurance company general
accounts. By its acceptance of a Class B Certificate or Class C Certificate,
each holder thereof will be deemed to have represented and warranted that it is
not subject to the foregoing limitation.
In 1995, the DOL issued PTCE 95-60. Section III of PTCE 95-60 exempts from
the application of the prohibited transaction provisions of Sections 406(a),
406(b) and 407(a) of ERISA and Section 4975 of the Code transactions in
connection with the servicing, management and operation of a trust (such as the
Trust) in which an insurance company general account has an interest as a result
of its acquisition of certificates issued by the trust, provided that certain
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conditions are satisfied. If these conditions are met, insurance company general
accounts would be allowed to purchase classes of Certificates (such as the Class
B Certificates or Class C Certificates) which do not meet the requirements of
the Exemptions solely because they (i) are subordinated to other classes of
Certificates in the Trust and/or (ii) have not received a rating at the time of
the acquisition in one of the three generic highest rating categories from any
of the Rating Services. All other conditions of the Exemptions would have to be
satisfied in order for PTCE 95-60 to be available. Before purchasing Class B
Certificates or Class C Certificates, an insurance company general account
seeking to rely on Section III of PTCE 95-60 should itself confirm that all
applicable conditions and other requirements have been satisfied.
ALL CERTIFICATES
A purchaser of the Certificates should be aware, however, that even if the
conditions specified in one or more exemptions are met, the scope of the relief
provided by the applicable exemption or exemptions might not cover all acts that
might be construed as prohibited transactions.
Prospective Benefit Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the applicability of the Exemptions
or any other exemptions, and the potential consequences of any purchase in their
specific circumstances, prior to making an investment in a Certificate.
A governmental plan as defined in Section 3(32) of ERISA is not subject to
ERISA or Code Section 4975. However, that governmental plan may be subject to
federal, state or local law which is to a material extent similar to the
provisions of ERISA or Code Section 4975 ("Similar Law"). A fiduciary of a
governmental plan should make its own determination as to the need for and
availability of any exemptive relief under Similar Law.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement relating
to the Certificates (the "Underwriting Agreement"), the Seller has agreed to
sell to each of the Underwriters named below, and each of the Underwriters has
severally agreed to purchase, the principal amount of the Offered Certificates
set forth opposite its name below:
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<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF PRINCIPAL AMOUNT
UNDERWRITER CLASS A OF CLASS B
CERTIFICATES CERTIFICATES
------------------- ------------------- ----------------
<S> <C> <C>
------------------- ----------------
Total........................
------------------- ----------------
------------------- ----------------
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth in the Underwriting Agreement, to purchase all of
the Offered Certificates if any of the Offered Certificates is purchased. That
obligation of the Underwriters is subject to specified conditions precedent set
forth in the Underwriting Agreement. The Seller has been advised by the
Underwriters that they propose to offer the Offered Certificates to the public
at varying prices to be determined at the time of sale and to specified dealers
at that price less a concession not in excess of [_____]% of the Class A
Certificate denominations and [_____]% of the Class B Certificate denominations
and that the Underwriters may allow and those dealers may reallow a discount not
in excess of [_____]% of the Class A Certificate denominations and [_____]% of
the Class B Certificate denominations to specified other dealers. After the
initial public offering, the public offering prices and those concessions and
discounts to dealers may be changed by the Underwriters.
The Seller and NMAC have agreed to indemnify the Underwriters against
specified liabilities, including liabilities under the Securities Act or to
contribute to payments which the Underwriters may be required to make in respect
thereof. However, in the opinion of the Commission, certain indemnification
provisions for liability arising under the federal securities law are contrary
to public policy and therefore unenforceable. In the ordinary course of their
respective businesses, the Underwriters and their respective affiliates have
engaged and may engage in investment banking and/or commercial banking
transactions with Nissan and its affiliates.
The Certificates are new issues of securities with no established trading
markets. The Seller has been advised by the Underwriters that the Underwriters
intend to make a market in the Offered Certificates, as permitted by applicable
laws and regulations. The Underwriters are not obligated, however, to make a
market in the Offered Certificates and that market-making may be
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discontinued at any time at the sole discretion of the Underwriters without
notice. Accordingly, no assurance can be given as to the liquidity of, or
trading markets for, the Offered Certificates.
The Trust may, from time to time, invest funds in the Accounts in Eligible
Investments acquired from the Underwriters.
The Underwriters have advised the Seller that, pursuant to Regulation M
under the Securities Act, specified persons participating in this offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the Offered Certificates at
levels above those that might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of the Offered Certificates on
behalf of the Underwriters for the purpose of fixing or maintaining the price of
those Offered Certificates. A "syndicate covering transaction" is the bid for or
the purchase of those Offered Certificates on behalf of the Underwriters to
reduce a short position incurred by the Underwriters in connection with this
offering. A "penalty bid" is an arrangement permitting one of the Underwriters
to reclaim the selling concession otherwise accruing to another Underwriter or
syndicate member in connection with this offering if the Offered Certificates
originally sold by the other Underwriter or syndicate member are purchased by
the reclaiming Underwriter in a syndicate covering transaction and has therefore
not been effectively placed by the other Underwriter or syndicate member.
Stabilizing bids and syndicate covering transactions may have the effect of
causing the price of the Offered Certificates to be higher than it might be in
the absence thereof, and the imposition of penalty bids might also have an
effect on the price of any Offered Certificate to the extent that it discourages
resale of that Offered Certificate. Neither the Seller nor the Underwriters
makes any representation or prediction as to the direction or magnitude of any
of that type of effect on the prices for the Offered Certificates. Neither the
Seller nor the Underwriters makes any representation that the Underwriters will
engage in any of those transactions or that, once commenced, any of those
transactions will not be discontinued without notice.
LEGAL OPINIONS
In addition to the legal opinions described in the accompanying Prospectus,
legal matters relating to the Certificates and federal income tax and other
matters will be passed upon for the Trust by O'Melveny & Myers LLP.
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INDEX OF TERMS
<TABLE>
<S> <C>
accredited investor............................51, 52
adequate stated interest...........................47
Advance............................................32
affected investors.................................48
Agreement..........................................17
APR................................................19
Available Interest.................................37
Available Principal................................37
Base Servicing Fee.................................32
Benefit Plan.......................................50
Business Day.......................................36
Certificate Balance................................30
Certificateholders.................................30
Certificates.......................................28
Class A Certificate Balance........................39
Class A Certificate Factor.........................27
Class A Certificateholders.........................30
Class A Interest Carryover Shortfall...............41
Class A Interest Distributable Amount..........38, 39
Class A Percentage.................................30
Class A Pool Factor................................27
Class A Principal Carryover Shortfall..............42
Class A Principal Distributable Amount.............38
Class B Certificate Balance........................39
Class B Certificate Factor.........................27
Class B Certificateholders.........................30
Class B Interest Carryover Shortfall...............41
Class B Interest Distributable Amount..........38, 39
Class B Percentage.................................30
Class B Pool Factor................................27
Class B Principal Carryover Shortfall..............42
Class B Principal Distributable Amount.............38
Class C Certificate Balance........................39
Class C Interest Carryover Shortfall...............41
Class C Interest Distributable Amount..........38, 39
Class C Percentage.................................30
Class C Principal Carryover Shortfall..............42
Class C Principal Distributable Amount.............38
Class Distributable Amount.........................38
Class Percentage...................................30
Closing Date.......................................18
Code...............................................50
Collection Period..................................32
Cutoff Date........................................18
Dealer Recourse....................................18
Dealers............................................18
Defaulted Receivable...............................38
Determination Date.................................36
Distribution Date..................................36
DOL................................................50
Eligible Investments...............................31
Excess Amounts.....................................42
Exemptions.........................................50
Final Scheduled Distribution Date..................23
Financed Vehicles..................................18
forward looking statements.........................29
Global Securities..................................58
imputed interest...................................47
Initial Yield Supplement Amount....................33
Interest Carryover Shortfall.......................41
Interest Distributable Amount......................38
Moody's............................................51
Net Liquidation Proceeds...........................37
NMAC...............................................17
Non-U.S. Person....................................61
Obligors...........................................18
Offered Certificates...............................28
OID................................................46
Original Class A Certificate Balance...............30
Original Class B Certificate Balance...............30
Original Class C Certificate Balance...............30
Pass Through Rate..................................30
penalty bid........................................55
portfolio interest.................................49
Principal Carryover Shortfall......................41
Principal Distributable Amount.....................38
Rating Services....................................51
Receivables........................................18
Redemption Price...................................34
Required Rate......................................33
Required Yield Supplement Amount...................33
Restricted Group...................................51
S&P................................................51
Seller.............................................17
Servicer...........................................17
Servicing Rate.....................................32
Similar Law........................................53
Specified Subordination Spread Account Balance.....44
stabilizing bid....................................55
stripping..........................................47
Subordination Spread Account Initial Deposit.......44
Supplemental Servicing Fee.........................32
syndicate covering transaction.....................55
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<PAGE>
Total Available Amount.............................37
Total Servicing Fee................................32
Trust..............................................17
Trustee............................................17
U.S. person........................................49
Underwriting Agreement.............................53
Yield Supplement Account...........................33
Yield Supplement Amount............................33
Yield Supplemented Receivables.....................33
</TABLE>
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ANNEX A
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in limited circumstances, the globally offered Class A Certificates
(the "Global Securities") will be available only in book-entry form. Investors
in the Global Securities may hold those Global Securities through DTC, Cedelbank
or Euroclear. The Global Securities will be tradable 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 Cedelbank 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., three calendar day settlement).
Secondary market trading between investors holding Global Securities through DTC
will be conducted according to the rules and procedure applicable to U.S.
corporate debt obligations and prior asset-backed securities issues. Secondary
cross-market trading between Cedelbank or Euroclear and DTC Participants holding
securities will be effected on a delivery-against-payment basis through the
depositaries of Cedelbank and Euroclear (in that capacity) and as DTC
Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless those holders meet the 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, Cedelbank and Euroclear will hold
positions on behalf of their participants through their depositaries, which in
turn will hold those positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
DTC settlement practice. 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 Cedelbank 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
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.
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Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior
asset-backed securities issues in same-day funds.
Trading between Cedelbank and/or Euroclear Participants. Secondary market
trading between Cedelbank Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
TRADING BETWEEN DTC SELLER AND CEDELBANK OR EUROCLEAR PARTICIPANTS. When
Global Securities are to be transferred from the account of a DTC Participant to
the account of a Cedelbank Participant or a Euroclear Participant, the purchaser
will send instructions to Cedelbank or Euroclear through a Cedelbank Participant
or Euroclear Participant at least one business day prior to settlement.
Cedelbank or Euroclear will instruct the respective Depositary, as the case may
be, to receive the Global Securities against payment. Payment will include
interest accrued on the Global Securities from and including the last coupon
payment date to and excluding the settlement date, on the basis of the actual
number of days in that accrual period and a year assumed to consist of 360 days.
For transactions settling on the 31st of the month, payment will include
interest accrued to and excluding the first day of the following month. Payment
will then be made by the respective Depositary to the DTC Participant's account
against delivery of the Global Securities. After settlement has been completed,
the Global Securities will be credited to the respective clearing system and by
the clearing system, in accordance with its usual procedures, to the Cedelbank
Participant's or Euroclear Participant's account. The securities credit will
appear the next day (European time) and the cash debt will be back-valued to,
and the interest on the Global Securities will accrue from, the value date
(which would be the preceding day when settlement occurred in New York). If
settlement is not completed on the intended value date (i.e., the trade fails),
the Cedelbank or Euroclear cash debt will be valued instead as of the actual
settlement date.
Cedelbank Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Cedelbank or Euroclear. Under
this approach, they may take on credit exposure to Cedelbank or Euroclear until
the Global Securities are credited to their accounts one day later.
As an alternative, if Cedelbank or Euroclear has extended a line of credit
to them, Cedelbank Participants or Euroclear Participants can elect not to
preposition funds and allow that credit line to be drawn upon to finance
settlement. Under this procedure, Cedelbank Participants or Euroclear
Participants purchasing Global Securities would incur overdraft charges for one
day, assuming they clear the overdraft when the Global Securities are credited
to their accounts. However, interest on the Global Securities would accrue from
the value date. Therefore, in many cases the investment income on the Global
Securities earned during that one-day period may substantially reduce or offset
the amount of those overdraft charges, although this result will depend on each
Cedelbank Participant's or Euroclear Participant's particular cost of funds.
S-59
<PAGE>
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective European Depositary for the benefit of Cedelbank Participants or
Euroclear Participants. The sale proceeds will be available to the DTC seller on
the settlement date. Thus, to the DTC Participants a cross-market transaction
will settle no differently than a trade between two DTC Participants.
TRADING BETWEEN CEDELBANK OR EUROCLEAR SELLER AND DTC PURCHASER. Due to
time zone differences in their favor, Cedelbank Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC Participant. The seller will send
instructions to Cedelbank or Euroclear through a Cedelbank Participant or
Euroclear Participant at least one business day prior to settlement. In these
cases, Cedelbank or Euroclear will instruct the Relevant Depositary, as
appropriate, to deliver the Global Securities to the DTC Participant's account
against payment. Payment will include interest accrued on the Global Securities
from and including the last coupon payment to and excluding the settlement date
on the basis of the actual number of days in that accrual period and a year
assumed to consist of 360 days. For transactions settling on the 31st of the
month, payment will include interest accrued to and excluding the first day of
the following month. The payment will then be reflected in the account of the
Cedelbank Participant or Euroclear Participant the following day, and receipt of
the cash proceeds in the Cedelbank Participant's or Euroclear Participant's
account would be back-valued to the value date (which would be the preceding
day, when settlement occurred in New York). Should the Cedelbank Participant or
Euroclear Participant have a line of credit with its respective clearing system
and elect to be in debt in anticipation of receipt of the sale proceeds in its
account, the back valuation will extinguish any overdraft incurred over that
one-day period. If settlement is not completed on the intended value date (i.e.,
the trade fails), receipt of the cash proceeds in the Cedelbank Participant's or
Euroclear Participant's account would instead be valued as of the actual
settlement date.
Finally, day traders that use Cedelbank or Euroclear and that purchase
Global Securities from DTC Participants for delivery to Cedelbank Participants
or Euroclear Participants should note that these trades would automatically fail
on the sale side unless affirmative action were taken. At least three techniques
should be readily available to eliminate this potential problem:
1. borrowing through Cedelbank or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedelbank 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 Cedelbank 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 Participant is at
least one day prior to the value date for the sale to the Cedelbank
Participant or Euroclear Participant.
S-60
<PAGE>
MATERIAL U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through
Cedelbank 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 (1) each clearing system, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business in the chain of intermediaries between that beneficial owner and the
U.S. entity required to withhold tax complies with applicable certification
requirements and (2) that beneficial owner takes one of the following steps to
obtain an exemption or reduced tax rate:
EXEMPTION FOR NON-U.S. PERSONS (FORM W-8). Beneficial owners of Global
Securities that are Non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of that change.
EXEMPTION FOR NON-U.S. PERSONS WITH EFFECTIVELY CONNECTED INCOME (FORM
4224). A Non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
EXEMPTION OR REDUCED RATE FOR NON-U.S. PERSONS RESIDENT IN TREATY COUNTRIES
(FORM 1001). Non-U.S. Persons 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 Certificate Owners or their agents.
EXEMPTION FOR U.S. PERSONS (FORM W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. FEDERAL INCOME TAX REPORTING PROCEDURE. The Certificate Owner of a
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 though whom it holds (the
clearing agency, in the case of persons holding directly on the books of the
clearing agency). Form W-8 and Form 1001 are effective for three calendar years,
and Form 4224 is effective for one calendar year.
The term "Non-U.S. Person" means any person who is not a U.S. Person (as
defined in the accompanying Prospectus).
Recently, the Treasury Department issued new regulations (the "New
Regulations") which make certain modifications to the withholding rules
described above, and pursuant to
S-61
<PAGE>
which the certification procedures discussed above will be modified. It is
suggested that prospective investors consult their own tax advisers regarding
the New Regulations.
This summary does not deal with all aspects of U.S. federal income tax
withholding that may be relevant to foreign holders of Global Securities. It is
suggested that investors consult their tax advisors for specific tax advice
concerning their holding and disposing of Global Securities.
S-62
<PAGE>
Subject to completion, dated ______________
Prospectus Supplement
(To Prospectus Dated __________)
NISSAN AUTO RECEIVABLES ____-__ OWNER TRUST
NISSAN AUTO RECEIVABLES CORPORATION,
SELLER
NISSAN MOTOR ACCEPTANCE CORPORATION,
SERVICER
$____________________ ASSET BACKED NOTES
$____________________ ASSET BACKED CERTIFICATES
YOU SHOULD REVIEW CAREFULLY THE FACTORS SET FORTH UNDER "RISK FACTORS" BEGINNING
ON PAGE S-17 OF THIS PROSPECTUS SUPPLEMENT AND PAGE 15 IN THE ACCOMPANYING
PROSPECTUS.
The securities are asset backed securities issued by the trust. The securities
are not obligations of Nissan Motor Acceptance Corporation, Nissan Auto
Receivables Corporation, Nissan North America, Inc. or any of their respective
affiliates. Neither the securities nor the receivables are insured or guaranteed
by any governmental agency.
This prospectus supplement may be used to offer and sell the securities only if
it is accompanied by the prospectus dated ___, 1999.
- - The trust will issue six classes of securities.
- - Only the securities described on the following table are being offered by
this prospectus supplement and the prospectus.
- - The securities accrue interest from ___________, ___.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Class A Notes
- ----------------------------------------------------------------------------------------
A-1 Notes A-2 Notes A-3 Notes Class B Class C
Notes Certificates
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Principal Amount $ $ $ $ $
- ----------------------------------------------------------------------------------------
Interest Rate % % % % %
- ----------------------------------------------------------------------------------------
Final Scheduled _____,_ _____,_ _____,_ _____,_ _____,_
Distribution Date
- ----------------------------------------------------------------------------------------
Price to Public ___% ___% ___% ___% ___%
- ----------------------------------------------------------------------------------------
Underwriting ___% ___% ___% ___% ___%
Discount
- ----------------------------------------------------------------------------------------
Proceeds to Seller $______ $______ $______ $______ $______
- ----------------------------------------------------------------------------------------
</TABLE>
CREDIT ENHANCEMENT
- - Reserve account, with an initial deposit of [$___________].
- - The Class B Notes are subordinated to the Class A-1 Notes, the Class A-2
Notes and the Class A-3 Notes, and the certificates are subordinated to the
notes to the extent described herein.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED THE SECURITIES OR DETERMINED THAT THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
[UNDERWRITERS]
The date of this prospectus supplement is _________.
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
Information about the securities is provided in two separate documents that
progressively provide varying levels of detail: (1) the accompanying prospectus,
which provides general information, some of which may not apply to a particular
class of securities, including your class; and (2) this prospectus supplement,
which describes the specific terms of your class of securities.
IF THE DESCRIPTION OF THE TERMS OF YOUR SECURITIES VARIES BETWEEN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, YOU SHOULD RELY ON THE
INFORMATION IN THIS PROSPECTUS SUPPLEMENT.
Cross-references are included in this prospectus supplement and in the
accompanying prospectus which direct you to more detailed descriptions of a
particular topic. You can also find references to key topics in the Table of
Contents on page S-3 in this prospectus supplement and the Table of Contents
on page 3 in the accompanying prospectus.
You can find a listing of the pages where capitalized terms used in this
prospectus supplement are defined under the caption "Index of Terms"
beginning on page S-57 in this prospectus supplement and under the caption
"Index of Terms" beginning on page 98 in the accompanying prospectus.
S-2
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<S> <C>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS................................................S-2
SUMMARY OF TRANSACTION PARTIES.................................................S-7
SUMMARY OF MONTHLY DEPOSITS TO AND WITHDRAWALS FROM ACCOUNTS...................S-8
SUMMARY........................................................................S-9
Issuer......................................................................S-9
Seller......................................................................S-9
Servicer....................................................................S-9
Owner of the Certificates/Equity............................................S-9
Indenture Trustee...........................................................S-9
Owner Trustee...............................................................S-9
Offered Notes...............................................................S-9
Offered Certificates........................................................S-9
Receivables.................................................................S-9
Closing Date...............................................................S-10
Terms of the Notes.........................................................S-10
Terms of the Certificates..................................................S-12
Optional Redemption........................................................S-13
Credit Enhancement.........................................................S-13
Reserve Account............................................................S-14
Yield Supplement Account...................................................S-14
Tax Status.................................................................S-15
ERISA Considerations.......................................................S-15
Ratings....................................................................S-16
RISK FACTORS..................................................................S-17
YOU MAY HAVE DIFFICULTY SELLING YOUR SECURITIES AND/OR OBTAINING YOUR
DESIRED PRICE DUE TO THE ABSENCE OF A SECONDARY MARKET.....................S-17
S-3
<PAGE>
<CAPTION>
<S> <C>
THE CLASS B NOTES AND THE CLASS C CERTIFICATES ARE SUBJECT TO GREATER
CREDIT RISK BECAUSE THE CLASS B NOTES ARE SUBORDINATE TO THE CLASS A-1
NOTES, THE CLASS A-2 NOTES AND THE CLASS A-3 NOTES AND THE CLASS C
CERTIFICATES ARE SUBORDINATE TO THE NOTES..................................S-17
GEOGRAPHIC CONCENTRATION OF THE STATES OF ORIGINATION OF THE RECEIVABLES
MAY INCREASE THE RISK OF LOSS ON YOUR INVESTMENT...........................S-18
OCCURRENCE OF EVENTS OF DEFAULT UNDER THE INDENTURE MAY RESULT IN
INSUFFICIENT FUNDS TO MAKE PAYMENTS ON YOUR CERTIFICATES...................S-18
CERTIFICATEHOLDERS MAY NOT EXERCISE ANY RIGHTS WITH RESPECT TO THE
COLLATERAL OR THE SERVICER UNTIL THE NOTES ARE PAID IN FULL................S-18
COMPLICATIONS ASSOCIATED WITH YEAR 2000 DATE CONVERSION COULD AFFECT THE
SERVICER'S OPERATIONS, IMPAIRING ITS ABILITY TO COLLECT RECEIVABLES,
WHICH MAY RESULT IN LOSS ON YOUR INVESTMENTS...............................S-20
THE TRUST.....................................................................S-21
General....................................................................S-21
CAPITALIZATION OF THE TRUST...................................................S-22
THE OWNER TRUSTEE AND THE INDENTURE TRUSTEE...................................S-22
THE RECEIVABLES...............................................................S-22
MATURITY AND PREPAYMENT CONSIDERATIONS........................................S-27
DELINQUENCIES, REPOSSESSIONS AND NET LOSSES...................................S-28
NOTE FACTORS, CERTIFICATE FACTORS AND POOL FACTORS............................S-31
USE OF PROCEEDS...............................................................S-32
THE SELLER AND THE SERVICER...................................................S-32
Financial Condition of Nissan Motor Co., Ltd...............................S-32
Year 2000..................................................................S-32
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995...........................S-33
S-4
<PAGE>
<CAPTION>
<S> <C>
THE NOTES.....................................................................S-34
General....................................................................S-34
Payments of Interest.......................................................S-34
Payments of Principal......................................................S-35
Notices....................................................................S-36
Governing Law..............................................................S-36
THE CERTIFICATES..............................................................S-36
General....................................................................S-36
Payments of Interest.......................................................S-36
Payments of Principal......................................................S-37
Notices....................................................................S-38
Governing Law..............................................................S-38
DISTRIBUTIONS ON THE NOTES AND THE CERTIFICATES...............................S-38
Calculation of Available Amounts...........................................S-39
Payment of Distributable Amounts...........................................S-40
SUBORDINATION; RESERVE ACCOUNT................................................S-44
Subordination..............................................................S-44
Reserve Account............................................................S-44
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS..........................S-46
The Transfer and Servicing Agreements......................................S-46
Sale and Assignment of Receivables.........................................S-46
Accounts...................................................................S-46
Collections................................................................S-47
Advances...................................................................S-47
Servicing Compensation.....................................................S-48
Yield Supplement Account and Yield Supplement Agreement....................S-48
Net Deposits...............................................................S-49
S-5
<PAGE>
<CAPTION>
<S> <C>
Optional Purchase..........................................................S-49
Removal of Servicer........................................................S-49
Duties of the Owner Trustee and the Indenture Trustee......................S-50
The Owner Trustee and the Indenture Trustee................................S-52
MATERIAL INCOME TAX CONSEQUENCES..............................................S-53
ERISA CONSIDERATIONS..........................................................S-53
The Notes..................................................................S-53
The Certificates...........................................................S-53
UNDERWRITING..................................................................S-54
LEGAL OPINIONS................................................................S-56
INDEX OF TERMS................................................................S-57
ANNEX A GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES........S-58
Initial Settlement.........................................................S-58
Secondary Market Trading...................................................S-59
Material U.S. Federal Income Tax Documentation Requirements................S-61
</TABLE>
S-6
<PAGE>
[GRAPHIC-SUMMARY OF TRANSACTION PARTIES]
S-7
<PAGE>
[GRAPHIC-SUMMARY OF MONTHLY DEPOSITS TO AND WITHDRAWALS FROM ACCOUNTS]
S-8
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY CONTAINS A BRIEF DESCRIPTION OF THE NOTES AND THE
CERTIFICATES. YOU WILL FIND A DETAILED DESCRIPTION OF THE TERMS OF THE OFFERING
OF THE NOTES AND THE CERTIFICATES FOLLOWING THIS SUMMARY. YOU SHOULD READ
CAREFULLY THIS ENTIRE DOCUMENT AND THE ACCOMPANYING PROSPECTUS TO UNDERSTAND ALL
OF THE TERMS OF THE OFFERING OF THE NOTES AND THE CERTIFICATES. YOU SHOULD
CONSIDER BOTH DOCUMENTS WHEN MAKING YOUR INVESTMENT DECISION.
ISSUER Nissan Auto Receivables Owner Trust ____-__. The trust
will be established by a trust agreement.
SELLER Nissan Auto Receivables Corporation.
SERVICER Nissan Motor Acceptance Corporation.
OWNER OF THE [____________________].
CERTIFICATES/EQUITY
INDENTURE TRUSTEE [____________________].
OWNER TRUSTEE [____________________].
OFFERED NOTES The offered notes consist of the Class A-1 Notes, the
Class A-2 Notes, the Class A-3 Notes and the Class B
Notes, as described on the cover page.
OFFERED CERTIFICATES The offered certificates consist of the Class C
Certificates, as described on the cover page.
The trust will also issue [$________________] initial
principal amount of the Class D Certificates. The trust
is not offering the Class D Certificates.
The certificates will represent fractional undivided
interests in the trust. Payments of interest on and
principal of the certificates are subordinated to the
payments of interest on and principal of the notes as
described herein.
RECEIVABLES The trust's main source of funds for making payments on
the notes and the certificates will be collections on
its motor vehicle retail installment sale contracts,
otherwise known as the receivables.
The principal balance of the receivables on
[_____________], referred to as the "cut-off date," was
$[_________________]. As of [_____________], the
receivables had the following characteristics:
S-9
<PAGE>
Number of Receivables............................
Average Principal Balance........................
Weighted average annual percentage rate..........
Weighted average remaining term to maturity......
Approximate weighted average
original term to maturity......................
YOU SHOULD REFER TO "THE RECEIVABLES" IN THIS PROSPECTUS
SUPPLEMENT FOR MORE INFORMATION ON THE RECEIVABLES.
CLOSING DATE On or about [__________].
TERMS OF THE NOTES DISTRIBUTION DATES:
Interest and principal will generally be payable on the
15th day of each month, unless the 15th day is not a
business day, in which case the payment will be made on
the following business day. The first payment will be on
[_____________].
PER ANNUM INTEREST RATES:
The notes will have fixed rates of interest as follows:
<TABLE>
<CAPTION>
Class Interest Rate
----- -------------
<S> <C>
A-1 [__%]
A-2 [__%]
A-3 [__%]
B [__%]
</TABLE>
INTEREST PERIODS:
Interest on the notes will accrue in the following
manner:
<TABLE>
<CAPTION>
Initial Subsequent
Accrual Interest Day Count
Class Period Periods Convention
----- ------ ------- ----------
From To
(including) (excluding)
--------- ---------
<S> <C> <C> <C> <C>
A-1 [____] actual/360
A-2 [____] 30/360
A-3 [____] 30/360
B [____] 30/360
</TABLE>
PRINCIPAL:
- AMOUNTS ALLOCATED TO THE NOTES: Principal of the
notes will be payable generally in an amount
equal to the noteholders' percentage of the
following amounts
S-10
<PAGE>
referred to as the "principal distributable
amount":
1. principal collections on the receivables
during the prior collection period;
2. prepayments on the receivables allocable to
principal received during the prior
collection period;
3. the principal balance of each receivable
which the seller or the servicer became
obligated to purchase; and
4. the principal balance of liquidated
receivables.
Principal payments on the notes as described
above will be made from all available amounts
after the servicing fee and non-recoverable
advances have been paid and after payment of
interest on the notes.
- ORDER OF PAYMENT AMONG CLASSES: No principal
payments will be made (1) on the Class A-2
Notes until the Class A-1 Notes have been
paid in full; (2) on the Class A-3 Notes
until the Class A-2 Notes have been paid in
full; and (3) on the Class B Notes until the
Class A-1 Notes, the Class A-2 Notes and the
Class A-3 Notes have been paid in full.
However, upon the acceleration of the notes
following an event of default, principal
payments will be made first to the holders of
the Class A-1 Notes, the Class A-2 Notes and
the Class A-3 Notes on a pro rata basis based
on the outstanding principal balance of those
classes of notes. After the Class A-1 Notes,
the Class A-2 Notes and the Class A-3 Notes
have been paid in full, 100% of the principal
distributable amount will be applied to make
principal payments on the Class B Notes until
the Class B Notes have been paid in full.
- LEGAL FINALS: The trust must pay the
outstanding principal balance of each class
of notes by its final scheduled distribution
date as follows:
<TABLE>
<CAPTION>
Class Legal Final
----- -----------
<S> <C>
A-1 [_____________]
A-2 [_____________]
A-3 [_____________]
B [_____________]
</TABLE>
S-11
<PAGE>
YOU SHOULD REFER TO "DISTRIBUTIONS ON THE NOTES AND THE
CERTIFICATES - CALCULATION OF AVAILABLE AMOUNTS" IN THIS
PROSPECTUS SUPPLEMENT FOR MORE DETAILED INFORMATION
REGARDING PAYMENTS OF PRINCIPAL.
TERMS OF THE
CERTIFICATES DISTRIBUTION DATES:
Interest and principal will generally be payable on the
15th day of each month, unless the 15th day is not a
business day, in which case the payment will be made on
the following business day. The first payment will be on
[_____________].
PER ANNUM PASS THROUGH RATES:
The certificates will have the following pass through
rates:
<TABLE>
<CAPTION>
Pass
Class Through Rate
----- ------------
<S> <C>
C [__%]
D [__%]
</TABLE>
INTEREST PERIODS:
Interest on the certificates will accrue in the
following manner:
<TABLE>
<CAPTION>
Initial Subsequent
Accrual Interest Day Count
Class Period Periods Convention
----- ------ ------- ----------
From To
(including) (excluding)
--------- ---------
<S> <C> <C> <C>
C [____] 30/360
D [____] 30/360
</TABLE>
PRINCIPAL:
- AMOUNTS ALLOCATED TO THE CERTIFICATES:
Principal of the certificates will be payable
generally in an amount equal to the
certificateholders' percentage of the
principal distributable amount.
S-12
<PAGE>
Principal payments on the certificates as
described above will be made from all
available amounts after the following amounts
have been distributed:
1. the servicing fee and non-recoverable
advances;
2. interest and principal on the notes; and
3. interest on the certificates.
- ORDER OF PAYMENT AMONG CLASSES: No principal
payments will be made on the Class D
Certificates until the Class C Certificates
have been paid in full.
- LEGAL FINALS: The trust must pay the
outstanding principal balance of each class
of certificates by its final scheduled
distribution date as follows:
<TABLE>
<CAPTION>
Class Legal Final
----- -----------
<S> <C>
C [_____________]
D [_____________]
</TABLE>
YOU SHOULD REFER TO "DISTRIBUTIONS ON THE NOTES AND THE
CERTIFICATES - CALCULATION OF AVAILABLE AMOUNTS" IN THIS
PROSPECTUS SUPPLEMENT FOR MORE DETAILED INFORMATION
REGARDING PAYMENTS OF PRINCIPAL.
OPTIONAL REDEMPTION The servicer may redeem all outstanding notes and
certificates when the outstanding aggregate principal
balance of the receivables declines to 10% or less of
the original aggregate principal balance of the
receivables on the cut-off date.
CREDIT ENHANCEMENT The credit enhancement of the offered notes and the
offered certificates will be the following:
1. CLASS A-1 NOTES, CLASS A-2 NOTES AND CLASS A-3
NOTES: the subordination of the Class B Notes
and the certificates;
2. CLASS B NOTES: the subordination of the
certificates;
3. CLASS C CERTIFICATES: the subordination of the
Class D Certificates; and
4. ALL CLASSES OF NOTES AND THE CLASS C
CERTIFICATES: the reserve account.
The credit enhancement is intended to protect you
against losses and delays in payments on your securities
by
S-13
<PAGE>
absorbing losses on the receivables and other shortfalls
in cash flows. The Class B Notes, which have an initial
principal balance of [$____________] which represents
[__%] of the initial principal balance of all the notes,
will not receive any principal distributions until the
Class A-1 Notes, the Class A-2 Notes and the Class A-3
Notes have been paid or any interest distributions until
all interest owing to the Class A-1 Notes, the Class A-2
Notes and the Class A-3 Notes have been paid.
The certificates have an initial principal balance of
[$________] and represent [__%] of the initial principal
balance of all the notes and the certificates. The
certificates will not receive any principal
distributions until all of the notes have been paid in
full. The certificates will not receive any interest
payments until all required principal and interest
payments have been made on the notes.
RESERVE ACCOUNT On each distribution date, the trust will use funds in
the reserve account for distribution to the noteholders
and the holders of the Class C Certificates to cover any
shortfalls in interest and principal required to be paid
on the notes and the Class C Certificates.
The sale and servicing agreement sets forth the
specified reserve account balance, which is the amount
that is required to be on deposit in the reserve
account. On the closing date, the seller will deposit
[$____________] into the reserve account, which is [__%]
of the initial aggregate principal balance of the notes
and the Class C Certificates, and which is less than the
specified reserve account balance. On each distribution
date, after making required payments to the servicer and
to the holders of the Class A-1 Notes, the Class A-2
Notes, the Class A-3 Notes, the Class B Notes and the
Class C Certificates, the trust will make a deposit into
the reserve account to fund and maintain the specified
reserve account balance.
YIELD SUPPLEMENT
ACCOUNT On each distribution date, the trust will withdraw from
funds on deposit in the yield supplement account the
aggregate amount by which (1) one month's interest on
the principal balance of each receivable at a rate equal
to the weighted average interest rate on the notes and
the Class C Certificates plus 1.00% (servicing rate)
exceeds (2) one month's interest on that principal
balance at the annual percentage rate of that
receivable.
S-14
<PAGE>
On the closing date, the seller will deposit
[$_________] into the yield supplement account. Neither
the seller nor the servicer will make any additional
deposits to the yield supplement account after the
closing date.
TAX STATUS In the opinion of O'Melveny & Myers LLP:
1. the Class A Notes will be characterized as debt;
2. the Class B Notes should be treated as debt; and
3. the trust will not be characterized as an
association or a publicly traded partnership
taxable as a corporation for federal income and
California income and franchise tax purposes.
If you purchase the notes, you will agree to treat the
notes as debt. If you purchase the certificates, you
will agree to treat the trust as a partnership in which
the certificateholders are partners for federal income
and California income and franchise tax purposes.
YOU SHOULD REFER TO "MATERIAL INCOME TAX CONSEQUENCES"
IN THIS PROSPECTUS SUPPLEMENT AND "MATERIAL INCOME TAX
CONSEQUENCES - TAX TREATMENT OF OWNER TRUSTS" IN THE
ACCOMPANYING PROSPECTUS.
ERISA CONSIDERATIONS The notes are generally eligible for purchase by
employee benefit plans and individual retirement
accounts, subject to those considerations discussed
under "ERISA Considerations" in this prospectus
supplement and in the accompanying prospectus. The
certificates may not be acquired by an employee benefit
plan or by an individual retirement account.
YOU SHOULD REFER TO "ERISA CONSIDERATIONS" IN THIS
PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING
PROSPECTUS. IF YOU ARE A BENEFIT PLAN FIDUCIARY
CONSIDERING PURCHASE OF THE SECURITIES YOU SHOULD, AMONG
OTHER THINGS, CONSULT WITH YOUR COUNSEL IN DETERMINING
WHETHER ALL REQUIRED CONDITIONS HAVE BEEN SATISFIED.
S-15
<PAGE>
RATINGS On the closing date, each class of offered securities
will receive the following ratings from Standard &
Poor's Ratings Group and Moody's Investors Service,
Inc.:
<TABLE>
<CAPTION>
Standard &
Class Poors Moody's
----- ---------- -------
<S> <C> <C>
A-1 [___] [___]
A-2 [___] [___]
A-3 [___] [___]
B [___] [___]
C [___] [___]
</TABLE>
S-16
<PAGE>
RISK FACTORS
YOU SHOULD CONSIDER THE FOLLOWING RISK FACTORS (AND THE FACTORS SET FORTH
UNDER "RISK FACTORS" IN THE ACCOMPANYING PROSPECTUS) IN DECIDING WHETHER TO
PURCHASE THE SECURITIES OF ANY CLASS.
YOU MAY HAVE The trust will not list the certificates on any
DIFFICULTY securities exchange. Therefore, in order to sell
SELLING YOUR your securities, you must first locate a willing
SECURITIES purchaser. In addition, currently, no secondary
AND/OR OBTAINING market exists for the securities. We cannot assure
YOUR DESIRED you that a secondary market will develop. The
PRICE DUE TO THE underwriter intends to make a secondary market for the
ABSENCE OF A securities by offering to buy the certificates from
SECONDARY MARKET. investors that wish to sell. However, the underwriter
is not obligated to offer to buy the securities and
it may stop making offers at any time.
THE CLASS B NOTES If you buy the Class B Notes, you will bear a greater
AND THE CLASS C risk than the holders of the Class A-1 Notes, the
CERTIFICATES Class A-2 Notes and the Class A-3 Notes because payments
ARE SUBJECT TO of interest and principal on your notes are subordinated
GREATER CREDIT to payments of interest and principal on the Class A-1
RISK BECAUSE THE Notes, the Class A-2 Notes and the Class A-3 Notes to the
CLASS B NOTES extent described below.
ARE SUBORDINATE
TO THE CLASS A-1 Interest payments on the Class B Notes on each distribution
NOTES, THE CLASS date will be subordinated to servicing fees and interest
A-2 NOTES AND payments on the Class A-1 Notes, the Class A-2 Notes and
THE CLASS A-3 the Class A-3 Notes. Principal payments on the Class B
NOTES AND Notes will be subordinated to principal payments on the
THE CLASS C Class A-1 Notes, the Class A-2 Notes and the Class A-3
CERTIFICATES ARE Notes. In other words, no interest will be paid on the
SUBORDINATE Class B Notes unless interest owing to the Class A-1
TO THE NOTES. Notes, the Class A-2 Notes and the Class A-3 Notes
has been paid in full, and no principal will be paid on
the Class B Notes until principal of the Class A-1 Notes,
the Class A-2 Notes and the Class A-3 Notes has been
paid in full.
If you buy the Class C Certificates, you will bear a
greater credit risk than the notes because payments of
interest on and principal of your certificates are
subordinated to payments of interest and principal on
the notes.
Interest payments on your certificates on each
distribution date will be subordinated to servicing fees
and interest and principal payments on the notes. In
other words, no interest will be paid on your
certificates on any distribution date until all required
interest and principal payments on the notes on that
date have been made.
In addition, principal payments on your certificates
will be subordinated
S-17
<PAGE>
to principal payments on the notes since no principal
will be paid on your certificates until after all
principal on the notes due has been paid in full. In
addition, you will not receive any principal payments on
any distribution date until all principal and interest
on each class of notes on that date have been paid.
GEOGRAPHIC As of ________________ , Nissan Motor Acceptance
CONCENTRATION OF Corporation's records indicate that the billing
THE STATES OF addresses of the obligors of the receivables were
ORIGINATION OF in the following states:
THE RECEIVABLES
MAY INCREASE THE
RISK OF LOSS ON
YOUR INVESTMENT.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
PRINCIPAL BALANCE
<S> <C>
-------------------------- %
-------------------------- %
-------------------------- %
-------------------------- %
-------------------------- %
</TABLE>
No other state, by billing addresses, constituted more
than 5% of the balance of the receivables as of
[____________________]. Economic conditions or other
factors affecting these states in particular could
adversely affect the delinquency, credit loss or
repossession experience of the trust.
OCCURRENCE OF Payment defaults or the insolvency or dissolution of the
EVENTS OF seller may result in prepayment of the notes and the
DEFAULT UNDER certificates, which may result in losses under the
THE INDENTURE securities. If the trust fails to pay principal of the
MAY RESULT IN notes when due, or fails to pay interest on the notes
INSUFFICIENT within five days of the due date, the indenture trustee
FUNDS TO MAKE or the noteholders may declare the entire amount of the
PAYMENTS ON notes to be due immediately. If this happens, the
YOUR CERTIFICATES. holders of a majority in outstanding principal amount of
the notes may direct the indenture trustee to sell the
receivables and prepay the notes. After the trust pays
the notes in full with the proceeds of the sale of the
receivables, the trust will distribute any remaining
trust assets to pay the certificates. There may not be
sufficient funds to pay the certificates in full under
these circumstances.
The certificateholders will not have any right to direct
the indenture trustee or to consent to any action until
the notes are paid in full. See "The Notes -The
Indenture - Events of Default; Rights Upon Event of
Default" in the accompanying prospectus. A similar
result will occur if the seller becomes insolvent or is
dissolved.
CERTIFICATEHOLDERS The trust will pledge the property of the trust to the
MAY NOT EXERCISE indenture trustee as
S-18
<PAGE>
ANY RIGHTS WITH collateral for the payment of the notes. As a result,
RESPECT TO THE the indenture trustee, acting at the direction of the
COLLATERAL holders of a majority in outstanding principal amount of
OR THE SERVICER the notes, has the power to direct the trust to take
UNTIL THE NOTES specified actions in connection with the property of the
ARE PAID IN FULL. trust. The holders of a majority of the notes, or the
indenture trustee acting on behalf of the holders of
notes, will also have the right under limited
circumstances to terminate the servicer without
considering how this will affect the certificateholders.
If you buy the certificates, you will not be able to
remove the servicer until the notes have been paid in
full. In addition, the holders of at least a majority in
outstanding principal amount of the notes will have the
right to waive specified events of default involving the
servicer, without considering how this will affect you
as a certificateholder. See "Description of the Transfer
and Servicing Agreements - Rights Upon Servicer Default"
and "- Waiver of Past Defaults" in the accompanying
prospectus.
S-19
<PAGE>
COMPLICATIONS Many computers and computer chips do not recognize more
ASSOCIATED WITH than two digits of a date field in a year of a date. As
YEAR 2000 DATE a result, in the year 2000, those computers will not
CONVERSION COULD know whether the "00" refers to the year 1900 or the
AFFECT THE year 2000. Nissan Motor Acceptance Corporation will have
SERVICER'S significant obligations to the trust in its role as
OPERATIONS, servicer. It is therefore important that Nissan Motor
IMPAIRING ITS Acceptance Corporation resolve any year 2000 issues that
ABILITY TO will affect its ability to fulfill these obligations. A
COLLECT description of Nissan Motor Acceptance Corporation's
RECEIVABLES, year 2000 compliance efforts is contained under "The
WHICH MAY RESULT Seller and the Servicer - Year 2000" in this prospectus
IN LOSS ON YOUR supplement.
INVESTMENTS.
The inability of Nissan Motor Acceptance Corporation or
of third parties who deal with Nissan Motor Acceptance
Corporation to make the necessary year 2000
modifications of their systems could have a significant
adverse effect on Nissan Motor Acceptance Corporation's
operations and financial results. Possible adverse
consequences include the inability to:
1. collect and otherwise service the receivables;
2. provide the information and technology necessary
to pay securityholders and provide reports;
3. pay obligations;
4. process new business; and
5. occupy facilities.
These consequences could have a material adverse effect
on the value of your securities.
S-20
<PAGE>
THE TRUST
GENERAL
The Nissan Auto Receivables ____-__ Owner Trust (the "Trust") is a
Delaware business trust to be formed pursuant to the trust agreement (the "Trust
Agreement") between Nissan Auto Receivables Corporation, as seller (the
"Seller"), and ________________, as owner trustee (the "Owner Trustee"). After
its formation, the Trust will not engage in any activity other than:
1. acquiring, holding and managing the Receivables and the other assets
of the Trust and proceeds therefrom;
2. issuing the Notes and the Certificates;
3. making payments on the Notes and the Certificates; and
4. engaging in other activities that are necessary, suitable or
convenient to accomplish the foregoing or are incidental to or
connected with those activities.
The Trust will initially be capitalized with an amount equal to the
Certificate Balance of [$_____________], excluding amounts deposited in the
Reserve Account. Class D Certificates with an original principal balance of
[$______________] will be sold to the Seller and the Class C Certificates will
be sold to third party investors that are expected to be unaffiliated with the
Seller, the Servicer or their affiliates or the Trust. The equity of the Trust,
together with the net proceeds from the sale of the Notes, will be used by the
Trust to purchase the Receivables from the Seller pursuant to the sale and
servicing agreement between the Servicer and the Seller (the "Sale and Servicing
Agreement") and to fund the Reserve Account.
Nissan Motor Acceptance Corporation ("NMAC") will be appointed to act
as the servicer of the Receivables (in that capacity, the "Servicer"). The
Servicer will service the Receivables pursuant to the Sale and Servicing
Agreement, the Administration Agreement and the Trust Agreement and will be
compensated for those services as described under "Description of the Transfer
and Servicing Agreements - Servicing Compensation" in this Prospectus Supplement
and "Description of the Transfer and Servicing Agreements - Servicing
Compensation" in the accompanying Prospectus.
Pursuant to agreements between NMAC and the Dealers, each Dealer will
repurchase from NMAC those contracts that do not meet specified representations
and warranties made by the Dealer. These Dealer repurchase obligations are
referred to this Prospectus Supplement as "Dealer Recourse." Those
representations and warranties relate primarily to the origination of the
contracts and the perfection of the security interests in the related financed
vehicles, and do not relate to the creditworthiness of the related Obligors or
the collectability of those contracts. Although the Dealer Agreements with
respect to the Receivables will not be assigned to the Owner Trustee, the Sale
and Servicing Agreement will require that any recovery by NMAC in respect of any
Receivable pursuant to any Dealer Recourse be deposited in the Collection
Account to satisfy NMAC's repurchase obligations under the Sale and Servicing
Agreement. The sales by the Dealers of installment sales contracts to NMAC do
not generally
S-21
<PAGE>
provide for recourse against the Dealers for unpaid amounts in the event of a
default by an Obligor, other than in connection with the breach of the foregoing
representations and warranties.
Each Certificate represents a fractional undivided ownership interest
in the Trust. The Trust property includes the Receivables and monies due or
received under the Receivables on or after the Cutoff Date. The Reserve Account
and the Yield Supplement Account will be maintained by the Indenture Trustee for
the benefit of the Noteholders and the Class C Certificateholders, but will not
be part of the Trust.
The Trust's principal offices are in _______________, in care of
______________, as Owner Trustee, at the address set forth below under "The
Owner Trustee and the Indenture Trustee."
CAPITALIZATION OF THE TRUST
The following table illustrates the capitalization of the Trust as of
the Closing Date, as if the issuance and sale of the Notes and the Certificates
had taken place on that date:
[TABLE]
THE OWNER TRUSTEE AND THE INDENTURE TRUSTEE
___________________ is the Owner Trustee under the Trust Agreement.
_________________ is a _____________ and its principal executive offices are
located at ______________________________. The Seller and its affiliates may
maintain normal commercial banking relations with the Owner Trustee and its
affiliates.
___________________ is the trustee under the Indenture (the "Indenture
Trustee"). _________________ is a _____________ and its principal executive
offices are located at ______________________________. The Seller and its
affiliates may maintain normal commercial banking relations with the Indenture
Trustee and its affiliates.
THE RECEIVABLES
The property of the Trust will consist of a pool of retail installment
sale contracts (the "Receivables") originated on or after __________, between
Nissan and Infiniti dealers (the "Dealers") and retail purchasers (the
"Obligors"). The Receivables were originated by Dealers in accordance with
NMAC's requirements under agreements with Dealers governing the assignment of
the Receivables to NMAC. The Receivables evidence the indirect financing made
available by NMAC to the Obligors. The Receivables are secured by new, near-new
and used Nissan and Infiniti automobiles and light-duty trucks (the "Financed
Vehicles") and all principal and interest payments made on or after _______ (the
"Cutoff Date") and other property specified in the Receivables.
S-22
<PAGE>
NMAC purchased the Receivables from the Dealers in the ordinary course
of business in accordance with NMAC's underwriting standards. On or before the
date of the initial issuance of the Certificates (the "Closing Date"), NMAC will
sell the Receivables to the Seller. The Seller will, in turn, sell the
Receivables to the Trust on the Closing Date pursuant to the Sale and Servicing
Agreement. NMAC will continue to service the Receivables. The Receivables to be
held by the Trust will be randomly selected from those automobile and/or
light-duty truck retail installment sales contracts in NMAC's portfolio that
meet several criteria. These criteria provide that each Receivable:
1. was originated in the United States;
2. has a contractual Annual Percentage Rate ("APR") that equals or
exceeds [___]%;
3. provides for level monthly payments which provide interest at the APR
on a simple interest basis and fully amortize the amount financed over
an original term to maturity no greater than [___] months;
4. has a remaining term to maturity, as of the Cutoff Date, of not less
than [___] months and not greater than [___] months;
5. had an original principal balance of not more than [$__________] and a
remaining principal balance as of the Cutoff Date of not less than
[$__________] nor more than [$__________];
6. is not more than 29 days past due as of the Cutoff Date;
7. is attributable to the purchase of a new, near-new or used automobile
or light-duty truck and is secured by that vehicle;
8. was originated on or after [__________];
9. has been entered into by an Obligor that as of the Cutoff Date was not
in bankruptcy proceedings (according to the records of NMAC);
10. is secured by a Financed Vehicle that as of the Cutoff Date has not
been repossessed (according to the records of NMAC);
11. has not had forced-placed insurance premiums added to the amount
financed; and
12. has not been extended by more than two months.
No selection procedures believed to be adverse to the Securityholders
will be utilized in selecting the Receivables from qualifying retail installment
sale contracts. Except as described in item (2) above, the Receivables were not
selected on the basis of their APRs.
The composition, distribution by APR and geographic distribution of
the Receivables as of the Cutoff Date are as set forth in the following tables.
NMAC will not sell to the Seller, and the Seller will not sell to the Trust, any
Receivables originated in the State of Alabama for administrative reasons.
S-23
<PAGE>
COMPOSITION OF THE RECEIVABLES
<TABLE>
<S> <C>
Aggregate Principal Balance $_________________
Number of Receivables __________________
Average Principal Balance $_________________
Average Original Amount Financed $_________________
Range of Original Amount Financed $_________________ to
$_________________
Weighted Average APR _________%
Range of APRs _________% to
_________%
Approximate Weighted Average Original Term to Maturity ______ months
(Range) ______to
______ months
Weighted Average Remaining Term to Maturity ______ months
(Range) ______ to
______ months
Percentage by Principal Balance of Receivables of New, Near-New ______% (New)
and Used Vehicles ______% (Near-New)
______% (Used)
Percentage by Principal Balance of Receivables Financed through ______% (Nissan)
Nissan and Infiniti Dealers ______% (Infiniti)
</TABLE>
S-24
<PAGE>
DISTRIBUTION BY APR OF THE RECEIVABLES
(PERCENTAGES MAY NOT ADD TO 100.00% DUE TO ROUNDING)
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF CUTOFF DATE CUTOFF DATE
RANGE OF APRS (%) RECEIVABLES PRINCIPAL BALANCE POOL BALANCE
----------------- ----------- ----------------- ------------
<S> <C> <C> <C>
3.0 to 3.99....................
4.0 to 4.99....................
5.0 to 5.99....................
6.0 to 6.99....................
7.0 to 7.99....................
8.0 to 8.99....................
9.0 to 9.99....................
10.0 to 10.99..................
11.0 to 11.99..................
12.0 to 12.99..................
13.0 to 13.99..................
14.0 to 14.99..................
15.0 to 15.99..................
16.0 to 16.99..................
17.0 to 17.99..................
18.0 to 18.99..................
19.0 and above.................
Totals
</TABLE>
S-25
<PAGE>
GEOGRAPHIC DISTRIBUTION OF THE RECEIVABLES
BASED ON THE ADDRESSES OF THE ORIGINATING DEALERS
(PERCENTAGES MAY NOT ADD TO 100.00% DUE TO ROUNDING)
<TABLE>
<CAPTION>
PERCENTAGE OF
STATE CUTOFF DATE POOL
----- BALANCE
--------------------
<S> <C>
Alaska......................
Arizona.....................
Arkansas....................
California..................
Colorado....................
Connecticut.................
Delaware....................
Florida.....................
Georgia.....................
Idaho.......................
Illinois....................
Indiana.....................
Iowa........................
Kansas......................
Kentucky....................
Louisiana...................
Maine.......................
Maryland....................
Massachusetts...............
Michigan....................
Minnesota...................
Mississippi.................
Missouri....................
Montana.....................
Nebraska....................
Nevada......................
New Hampshire...............
New Jersey..................
New Mexico..................
New York....................
North Carolina..............
North Dakota................
Ohio........................
Oklahoma....................
Oregon......................
Pennsylvania................
Rhode Island................
South Carolina..............
S-26
<PAGE>
<CAPTION>
PERCENTAGE OF
STATE CUTOFF DATE POOL
----- BALANCE
--------------------
<S> <C>
South Dakota................
Tennessee...................
Texas.......................
Utah........................
Vermont.....................
Virginia....................
Washington..................
West Virginia...............
Wisconsin...................
Wyoming.....................
Total...................
</TABLE>
MATURITY AND PREPAYMENT CONSIDERATIONS
Information regarding maturity and prepayment considerations with
respect to the Securities is set forth under "Weighted Average Life of the
Securities" in the accompanying Prospectus and "Risk Factors - You may
experience reduced returns on your investment resulting from prepayments,
repurchases or early termination of the trust" in the accompanying Prospectus.
Except as otherwise provided in this Prospectus Supplement, no principal
payments will be made on the Class A-2 Notes until the Class A-1 Notes have been
paid in full; no principal payments will be made on the Class A-3 Notes until
the Class A-2 Notes have been paid in full; and no principal payments will be
made on the Class B Notes until the Class A-3 Notes have been paid in full. In
addition, no principal payments will be made on the Class C Certificates until
all of the Notes have been paid in full. See "The Notes - Payments of Principal"
and "The Certificates - Payments of Principal" in this Prospectus Supplement.
Because the rate of payment of principal of each class of Notes and
the Certificates depends primarily on the rate of payment (including
prepayments) of the principal balance of the Receivables, final payment of any
class of Notes and the final payment in respect of the Certificates could occur
significantly earlier or later than their respective final scheduled
Distribution Dates set forth in "Summary - Terms of the Notes - - Legal Finals"
and "Summary - Terms of the Certificates - - Principal - - - Legal Finals"
(each, a "Final Scheduled Distribution Date") in this Prospectus Supplement.
Securityholders will bear the risk of being able to reinvest principal payments
on the Securities at yields at least equal to the yield on their respective
Securities. No prediction can be made as to the rate of prepayments on the
Receivables in either stable or changing interest rate environments.
The Certificates will provide limited protection against losses on the
Receivables. Accordingly, the yield on the Certificates will be extremely
sensitive to the loss experience of the Receivables and the timing of any of
those losses. If the actual rate and amount of losses experienced by the
Receivables exceed the rate and amount of those losses assumed by an investor,
the yield to maturity on the Certificates may be lower than anticipated.
S-27
<PAGE>
Although the Receivables have different APRs, disproportionate rates
of prepayments between Receivables with APRs greater than or less than the
Required Rate will generally not affect the yield to the Securityholders.
However, higher rates of prepayments of Receivables with higher APRs will
decrease the amount available to cover delinquencies and defaults on the
Receivables and may decrease the amounts available to be deposited in the
Reserve Account.
DELINQUENCIES, REPOSSESSIONS AND NET LOSSES
The following tables set forth information concerning NMAC's
experience with respect to its total portfolio of U.S. retail installment sale
contracts for new, near-new and used automobiles and light-duty trucks. The
portfolio consists of retail installment sale contracts in all fifty states, the
District of Columbia and Guam. As of [_________], approximately eighty-nine
percent of NMAC's total portfolio of U.S. retail installment sales contracts
(excluding those with original maturities of 64 months or more) consisted of
new, near-new and used automobiles and light-duty trucks financed through Nissan
dealers, with the remaining approximate 11% financed through Infiniti dealers.
There can be no assurance that the behavior of the Receivables
included in the Trust will be comparable to NMAC's experience shown in the
following tables.
S-28
<PAGE>
<TABLE>
<CAPTION>
DELINQUENCY EXPERIENCE (1)
At March 31,
-----------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------- ---------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Number of Contracts
Outstanding 312,237 330,662 317,238 274,807 226,684
Delinquencies as a Percent of
Contracts Outstanding (2).
30-59 Days................ 2.27% 2.55% 3.10% 2.40% 2.10%
60-89 Days................ 0.27% 0.36% 0.49% 0.25% 0.15%
90 Days or More........... 0.04% 0.06% 0.17% 0.05% 0.02%
</TABLE>
S-29
<PAGE>
<TABLE>
<CAPTION>
NET CREDIT LOSS AND REPOSSESSION EXPERIENCE(1)
(dollars in thousands)
At or For Twelve Months Ended March 31,
--------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Principal Amount Outstanding $3,126,219 $3,497,123 $3,276,423 $2,659,232 $1,921,100
Average Principal Amount
Outstanding............. $3,463,840 $3,248,193 $3,181,569 $2,308,058 $1,822,669
Number of Contracts
Outstanding............. 312,237 330,662 317,238 274,807 226,684
Average Number of Contracts
Outstanding............. 329,320 316,769 309,257 250,040 229,248
Charge-Offs (3)........... $92,005 $134,671 $158,969 $72,838 $46,201
Recoveries (4)............ $41,947 $39,997 $31,874 $20,489 $16,465
Net Losses................ $50,059 $94,674 $127,095 $52,349 $29,736
Net Losses as a Percent
of Principal Amount
Outstanding............. 1.60% 2.71% 3.88% 1.97% 1.55%
Number of Repossessions (5) 9,782 14,164 17,569 9,841 8,530
Number of Repossessions as a
Percent of the Average
Number of Contracts
Outstanding............ 2.97% 4.47% 5.68% 3.94% 3.72%
</TABLE>
- -------------------------
(1) The information in the Delinquency Experience and Net Credit Loss and
Repossession Experience tables includes retail installment sale contracts
for new, near-new and used automobiles and light-duty trucks and includes
contracts which NMAC has sold to third parties but continues to service.
The information does not include retail installment sale contracts
purchased by NMAC under certain special financing programs. The information
in the tables relates only to retail installment sales contracts with
original terms of 64 months or less. The Trust does not include Receivables
with original maturities in excess of 60 months. In general, NMAC has
experienced higher overall levels of losses with respect to contracts with
original maturities of 64 to 72 months than with respect to contracts with
shorter original maturities. All amounts and percentages, except as
indicated, are based on the principal balances of the contracts including
unearned interest. Averages are computed by taking a simple average of
month end outstandings for each period presented.
(2) An account is considered delinquent if 20% or more of the scheduled payment
is past due.
(3) Charge-offs represent the total aggregate net principal balance of
contracts determined to be uncollectible in the period less proceeds from
disposition of related vehicles, other than recoveries described in
Note (4). Charge-offs do not include expenses associated with collection,
repossession or disposition of the vehicle.
(4) Recoveries generally include amounts received on contracts following the
time at which the contract is charged off. Recoveries are net of expenses
associated with collection.
(5) The number of repossessions excludes accounts that have been subsequently
reinstated.
S-30
<PAGE>
NMAC's retail loss experience is dependent upon receivables levels,
the number of repossessions, the amount outstanding at the time of repossession
and the resale value of repossessed vehicles. The losses in the year ended March
31, 1997 were higher than in previous or subsequent years due to NMAC's effort
to finance a broader credit range of customers to support the sale of Nissan and
Infiniti vehicles and a general increase in personal bankruptcy filings. NMAC's
management reacted to the negative trend in losses by initiating changes to its
credit policy that tightened the range of available credit in order to originate
an improved mix of business. These changes involved discontinuing the
origination of 72-month term contracts in June 1996 and installing a new
empirically derived credit score card in September 1996. In addition, NMAC
tightened its credit policy by reducing advance rates for lower credit scores
and implementing risked-based pricing. See "The Receivables - Underwriting of
Motor Vehicle Loans" in the accompanying Prospectus.
NOTE FACTORS, CERTIFICATE FACTORS AND POOL FACTORS
The "Note Factor" with respect to any class of Notes will be a
seven-digit decimal indicating the principal amount of that class of Notes as of
the close of business on the Distribution Date in that month as a fraction of
the respective principal amount thereof as of the Closing Date. The Servicer
will compute the Note Factor each month for each class of Notes. Each Note
Factor will initially be 1.0000000 and thereafter will decline to reflect
reductions in the principal amount of each class of Notes. Each principal amount
will be computed by allocating payments in respect of the Receivables to
principal and interest using the simple interest method. The portion of the
principal amount of any class of Notes for a given month allocable to a
Noteholder can be determined by multiplying the original denomination of the
holder's Note by the related Note Factor for that month.
The "Certificate Factor" with respect to any class of Certificates
will be a seven-digit decimal indicating the Certificate Balance of that class
of Certificates as of the close of business on the Distribution Date in that
month as a fraction of the Initial Certificate Balance of that class. The
Servicer will compute the Certificate Factor each month for each class of
Certificates. Each Certificate Factor will initially be 1.0000000 and thereafter
will decline to reflect reductions in the Certificate Balance. Each Certificate
Balance will be computed by allocating payments in respect of the Receivables to
principal and interest using the simple interest method. The portion of the
Certificate Balance for any class of Certificates for a given month allocable to
a Certificateholder can be determined by multiplying the original denomination
of the holder's Certificate by the related Certificate Factor for that month.
The "Pool Factor" for a particular class of Notes or the Certificates
will be a seven-digit decimal indicating the principal amount of that class of
Notes or the Certificate Balance as of the close of business on the Distribution
Date in that month as a fraction of the Pool Balance as of the Cutoff Date. The
Servicer will compute the Pool Factor for each month for each class of Notes and
Certificates.
Pursuant to the Transfer and Servicing Agreements, the Securityholders
will receive monthly reports concerning the payments received on the
Receivables, the Pool Balance, the related Note Factors, Certificate Factors,
Pool Factors and various other items of information
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pertaining to the Trust. Securityholders of record during each calendar year
will be furnished information by the Indenture Trustee or the Owner Trustee, as
appropriate, for tax reporting purposes not later than the latest date permitted
by law. See "Description of the Transfer and Servicing Agreements - Statements
to Securityholders" in the accompanying Prospectus.
USE OF PROCEEDS
The Seller will use the net proceeds from the sale of the Securities
(approximately $____________) to purchase the Receivables from NMAC pursuant to
the Purchase Agreement and to fund the Reserve Account.
THE SELLER AND THE SERVICER
Information regarding the Seller and the Servicer is set forth under
the captions "The Seller" and "The Servicer" in the accompanying Prospectus.
FINANCIAL CONDITION OF NISSAN MOTOR CO., LTD.
NMAC is an indirect wholly-owned subsidiary of Nissan Motor Co., Ltd.
("Nissan"). Although Nissan is not guaranteeing the Trust's obligations under
the Securities, Nissan's financial condition may affect NMAC's ability to
service the Receivables. Nissan's consolidated net sales for the fiscal year
ended March 31, 1999 were 6,580.0 billion yen, up from 6,564.6 billion yen the
previous fiscal year. Nissan's consolidated operating income for the fiscal year
ended March 31, 1999 increased to 109.7 billion yen from 86.9 billion yen the
previous fiscal year. The increase in operating income was largely attributable
to depreciation of the yen against other currencies, which offset the effect of
a decline in sales volume in Japan.
Nissan reported a consolidated net loss of 27.7 billion yen for the
fiscal year ended March 31, 1999, compared to a consolidated net loss of 14.0
billion yen the prior fiscal year. Factors contributing to the decline in net
income included the effect of the devaluation of the peso on Nissan's Mexican
operation and evaluation losses on Nissan's securities holdings.
At the end of May 1999, an increase in Nissan's capital of 585.7
billion yen was effected through the sale of shares to Renault. The resulting
36.8% ownership position in Nissan gives Renault significant representation on
the Board of Directors and in the senior management of Nissan. As of the date of
this Prospectus Supplement, there have been no significant developments
resulting from this alliance. Nissan's management expects that significant
developments will occur; however, there can be no assurance that such
developments will occur or that, should they occur, they will have a positive
impact on the financial condition of Nissan.
YEAR 2000
Many existing computer programs use only two digits to define a year
in the date field. These programs may recognize a date using "00" as the year
1900 rather than the year 2000, which could result in the program shutting down,
performing incorrect computations or performing inconsistently. In response to
this issue, NMAC has developed a comprehensive plan to ensure that its software
applications and systems are year 2000 compliant. The plan
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includes the assessment of "at risk" applications and systems, an assessment of
the interdependencies of various systems and the relative importance of each
system to NMAC's business to verify year 2000 compliance. In addition, the plan
requires testing with all of NMAC's outside vendors and banking institutions.
NMAC expects to complete substantially all year 2000 system upgrades and testing
by September 1999.
Costs associated with the year 2000 systems and software modification are
expensed as incurred. NMAC has budgeted a total of $3.0 million to complete the
necessary upgrades. The total estimated costs are not expected to have a
material impact on NMAC's operations, liquidity or capital reserves. The Trust
will not bear any of the expenses incurred in connection with NMAC's plan.
Despite NMAC's significant efforts to make its systems year 2000 compliant,
the ability of third parties, including utility companies, to be year 2000
compliant is beyond NMAC's control. Accordingly, there can be no assurances that
the systems of other companies on which NMAC relies will be timely converted or
compatible with NMAC's systems. The failure of these entities to comply on a
timely basis could have a material adverse effect on NMAC and the Trust.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The foregoing description under "Year 2000" contains various "forward
looking statements" within the meaning of Section 27A of the Securities Act and
Section 21E of the Securities Exchange Act of 1934, as amended, which represent
NMAC's expectations or beliefs concerning future events, including the
following: that NMAC's action plan for year 2000 compliance efforts will be
carried out as described under "Year 2000"; that NMAC expects to complete its
year 2000 compliance efforts on its critical systems on a timely basis; that the
total estimated cost in connection with the year 2000 issue is not expected to
exceed $3.0 million, and is not expected to have a material adverse effect on
NMAC's results of operations, liquidity or capital resources; and that deferral
of some information technology projects is not expected to have a material
adverse effect on NMAC's results of operations, liquidity or capital resources.
The foregoing statements relating to NMAC's expectations as to its
year 2000 efforts are based on its best estimates which may be updated as
additional information becomes available. NMAC's forward looking statements are
based on assumptions about many important factors, including the technical
skills of employees and independent contractors, representations and
preparedness of third parties and the effects of the Year 2000 issues on
business partners and customers. While NMAC believes its assumptions are
reasonable, it cautions that it is impossible to predict the impact of those
factors that could cause actual timetables to differ materially from the
expected results. See "Risk Factors - Complications associated with year 2000
date conversion could affect the servicer's operations, impairing its ability to
collect receivables, which may result in loss on your investments" in this
Prospectus Supplement.
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THE NOTES
GENERAL
The notes (the "Notes") will be issued pursuant to the terms of the
Indenture, a form of which has been filed as an exhibit to the Registration
Statement. A copy of the final signed Indenture will be filed with the SEC
following the issuance of the Securities. The following summary describes
material terms of the Notes and the Indenture. The summary does not purport to
be complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the Notes and the Indenture. Where particular provisions
or terms used in the Indenture are referred to, the actual provisions (including
definitions of terms) are incorporated by reference as part of the summary. The
following summary supplements, and to the extent inconsistent therewith
replaces, the description of the general terms and provisions of the Notes of
any given series and the related Indenture set forth in the accompanying
Prospectus, to which description reference is hereby made.
PAYMENTS OF INTEREST
Each class of Notes will constitute Fixed Rate Securities, as that
term is defined under "Material Information Regarding the Securities - Fixed
Rate Securities" in the accompanying Prospectus. Interest on the principal
balances of the classes of the Notes will accrue at the respective per annum
interest rates set forth in "Summary - Terms of the Notes - - Per Annum Interest
Rates" in this Prospectus Supplement (each, an "Interest Rate") and will be
payable to the Noteholders monthly on the fifteenth of each month (or, if that
date is not a Business Day, on the next succeeding Business Day) (a
"Distribution Date") commencing ______________. A "Business Day" is any day
except a Saturday, Sunday or a day on which banks in New York, New York,
Minneapolis, Minnesota, Wilmington, Delaware or Los Angeles, California are
authorized or obligated by law, regulation, executive order or decree to be
closed.
Interest on the outstanding principal amount of each class of Notes
will accrue at the related Interest Rate from and including the most recent
Distribution Date on which interest has been paid (or from and including the
Closing Date with respect to the first Distribution Date) to but excluding the
current Distribution Date (each, an "Interest Period").
Interest on the Class A-1 Notes will be calculated on the basis of the
actual number of days in the related Interest Period divided by 360, and
interest on the Class A-2 Notes, the Class A-3 Notes and the Class B Notes will
be calculated on the basis of a 360-day year consisting of twelve 30-day months.
Interest accrued but not paid on any Distribution Date will be due on the next
Distribution Date, together with interest on that amount at the applicable
Interest Rate (to the extent lawful). Interest payments on the Notes will
generally be made from Available Amounts and from amounts on deposit in the
Reserve Account, after the Total Servicing Fee and non-recoverable Advances have
been paid. See "Subordination; Reserve Account - Reserve Account" and
"Distributions on the Notes and the Certificates" in this Prospectus Supplement.
Interest payments to holders of the Class A-1 Notes, the Class A-2
Notes and the Class A-3 Notes (collectively, the "Class A Notes") will have the
same priority. Under specified circumstances, the amount available for interest
payments could be less than the amount of
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interest payable on the Notes on any Distribution Date, in which case the
holders of the Class A-1 Notes, the Class A-2 Notes and the Class A-3 Notes will
receive their ratable share (based upon the aggregate amount of interest due to
that class) of the aggregate amount available to be distributed in respect of
interest on the Notes.
Interest payments to the Class B Noteholders will be subordinated to
the interest payments on the Class A Notes. Interest on the Class B Notes will
not be paid until all accrued and unpaid interest on the Class A Notes have been
paid in full.
PAYMENTS OF PRINCIPAL
Until the Notes have been paid in full, principal payments to
Noteholders will be made on each Distribution Date in the amount and order of
priority described under "Distributions on the Notes and the Certificates -
Payment of Distributable Amounts." On each Distribution Date, principal of the
Notes will be payable generally in an amount equal to the Noteholders'
Percentage of the Principal Distributable Amount. Principal payments on the
Notes will be made from Available Amounts after the Total Servicing Fee and
non-recoverable Advances have been paid and after the Noteholders' Interest
Distributable Amount has been distributed. Principal payments will be allocated
among the Notes so that no principal payments will be made on:
1. the Class A-2 Notes until the Class A-1 Notes have been paid in
full;
2. the Class A-3 Notes until the Class A-1 Notes and Class A-2 Notes
have been paid in full; and
3. the Class B Notes until the Class A Notes have been paid in full.
Notwithstanding the foregoing, on each Distribution Date after the
acceleration of the Notes following an Event of Default, the Notes will receive
100% of the Principal Distributable Amount until the Notes are paid in full.
That Principal Distributable Amount will be paid first to holders of record of
each of the Class A-1 Notes, the Class A-2 Notes and the Class A-3 Notes on a
pro rata basis based on the principal balance of that class of outstanding
Notes. Beginning on the Distribution Date on which the Class A Notes have been
paid in full, the remainder of the Principal Distributable Amount, if any, and
on each subsequent Distribution Date, 100% of the Principal Distributable
Amount, will be paid to the holders of record of each of the Class B Notes
(together with the holders of record of the Class A Notes, the "Noteholders")
until the Class B Notes have been paid in full.
The actual Distribution Date on which the outstanding principal amount
of any class of Notes is paid may be significantly earlier than its Final
Scheduled Distribution Date based on a variety of factors, including the factors
described under "Weighted Average Life of the Securities" in the accompanying
Prospectus.
If the principal amount of a class of Notes has not been paid in full
on or prior to its Final Scheduled Distribution Date, the Noteholders' Principal
Distributable Amount for that Distribution Date will, to the extent the
remaining Available Amounts are sufficient, include an amount sufficient to
reduce the unpaid principal amount of that class of Notes to zero on that
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Distribution Date. See "Distribution on the Notes and the Certificates - Payment
of Distributable Amounts."
NOTICES
Noteholders will be notified in writing by the Indenture Trustee of
any Event of Default, Servicer Default or termination of, or appointment of a
successor to, the Servicer promptly upon a Responsible Officer (as defined in
the Transfer and Servicing Agreements) obtaining actual knowledge thereof.
If Notes are issued other than in book-entry form, those notices will
be mailed to the addresses of Noteholders as they appear in the register
maintained by the Indenture Trustee prior to mailing. Those notices will be
deemed to have been given on the date of that publication or mailing.
GOVERNING LAW
The Indenture and the Notes are governed by and shall be construed in
accordance with the laws of the State of New York applicable to agreements made
in and to be performed wholly within that jurisdiction.
THE CERTIFICATES
GENERAL
The certificates (the "Certificates") will be issued pursuant to the
terms of the Trust Agreement, a form of which has been filed as an exhibit to
the Registration Statement. A copy of the final signed Trust Agreement will be
filed with the SEC following the issuance of the Securities. The Certificates
will evidence undivided ownership interests in the Trust created pursuant to the
Trust Agreement.
The following summary describes material terms of the Certificates and
the Trust Agreement. The summary does not purport to be complete and is subject
to, and qualified in its entirety by reference to, all the provisions of the
Certificates and the Trust Agreement. The following summary supplements, and to
the extent inconsistent therewith replaces, the description of the general terms
and provisions of the Certificates of any given series and the related Trust
Agreement set forth in the accompanying Prospectus, to which description
reference is hereby made.
PAYMENTS OF INTEREST
Interest on the Certificate Balance will accrue during each Interest
Period at the per annum pass through rate set forth in "Summary - Terms of the
Certificates - - Per Annum Pass Through Rates" in this Prospectus Supplement
(the "Pass Through Rate") and will be payable to the holders of record of the
Certificates (the "Certificateholders") on the related Distribution Date.
The Certificates will constitute Fixed Rate Securities, as that term
is defined
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under "Material Information Regarding the Securities - Fixed Rate Securities" in
the accompanying Prospectus. Interest due on a Distribution Date will accrue
during the related Interest Period and will be calculated on the basis of a
360-day year consisting of twelve 30-day months. Interest distributions with
respect to the Class C Certificates generally will be made from Available
Amounts after:
1. payment of the Total Servicing Fee;
2. payment of non-recoverable Advances to the Servicer; and
3. distribution of the Noteholders' Distributable Amounts to the
Noteholders.
Interest distributions with respect to the Class D Certificates
generally will be made from Available Amounts after payment of all of the
foregoing and also after (1) distribution of interest and principal due and
payable in respect of the Class C Certificates and (2) depositing of funds in
the Reserve Account so that the amount on deposit in that account equals the
Specified Reserve Account Balance. See "Distributions on the Notes and the
Certificates - Payment of Distributable Amounts" in this Prospectus Supplement.
Interest payments due for any Distribution Date but not paid on that
Distribution Date will be due on the next Distribution Date increased by an
amount equal to interest on that amount at the Pass Through Rate (to the extent
lawful).
PAYMENTS OF PRINCIPAL
No principal will be paid on the Certificates until the Distribution
Date on which all of the Notes have been paid in full. On that Distribution Date
and each Distribution Date thereafter, principal payments of the Certificates
will be payable in an amount equal to the Certificateholders' Percentage of the
Principal Distributable Amount. Principal payments on the Class C Certificates
will be made from Available Amounts after:
1. payment of the Total Servicing Fee;
2. payment of non-recoverable Advances; and
3. distribution of the Noteholders' Distributable Amounts to the
Noteholders.
Principal payments will be allocated among the Certificates so that no
principal payments will be made on the Class D Certificates until the Class C
Certificates have been paid in full.
Principal payments of the Class D Certificates will be made from
Available Amounts after all payment of the foregoing and also after (1)
distribution of interest and principal due and payable in respect of the Class C
Certificates and (2) depositing of funds in the Reserve Account so that the
amount on deposit in that account equals the Specified Reserve Account Balance.
Notwithstanding the foregoing, on each Distribution Date after the
acceleration of
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the Notes following an Event of Default, the Certificates will not receive any
of the Principal Distributable Amount until the Notes have been paid in full.
NOTICES
Certificateholders will be notified in writing by the Owner Trustee of
any Event of Default, Servicer Default or termination of, or appointment of a
successor to, the Servicer promptly upon a Responsible Officer obtaining actual
knowledge thereof. Except for the monthly and annual reports to
Certificateholders described this Prospectus Supplement, the Owner Trustee is
not obligated under the Trust Agreement to forward any other notices to the
Certificateholders. There are no provisions in the Trust Agreement for the
regular or special meetings of Certificateholders.
GOVERNING LAW
The Trust Agreement and the Certificates are governed by and shall be
construed in accordance with the laws of the State of New York applicable to
agreements made in and to be performed wholly within that jurisdiction.
DISTRIBUTIONS ON THE NOTES AND THE CERTIFICATES
On or before the tenth calendar day of each month (or, if the tenth
day is not a Business Day, the next succeeding Business Day (each a
"Determination Date"), the Servicer will inform the Owner Trustee of, among
other things, the amount of funds collected on or in respect of the Receivables,
the amount of Advances to be made by and reimbursed to the Servicer and the
Total Servicing Fee and other servicing compensation payable to the Servicer, in
each case with respect to the immediately preceding Collection Period. On or
prior to each Distribution Date, the Servicer will also determine the following:
1. Available Amounts;
2. Noteholders' Distributable Amount;
3. Certificateholders' Distributable Amount;
4. Principal Distributable Amount;
5. Yield Supplement Amount, if any; and
6. based on the available funds and other amounts available for payment
on the related Distribution Date as described below, the amount to be
distributed to the Noteholders and Certificateholders.
The Owner Trustee will make payments to the Noteholders and
Certificateholders out of the amounts on deposit in the Collection Account. The
amounts to be distributed to the Noteholders and Certificateholders will be
determined in the manner described below.
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CALCULATION OF AVAILABLE AMOUNTS
The amount of funds available for distribution on a Distribution Date
will generally equal the sum of Available Interest and Available Principal
(collectively, "Available Amounts").
"Available Interest" for a Distribution Date will equal the sum of the
following amounts allocable to interest received or allocated by the Servicer on
or in respect of the Receivables during the related Collection Period:
1. all collections on or in respect of the Receivables other than
Defaulted Receivables;
2. all proceeds of the liquidation of Defaulted Receivables, net of
expenses incurred by the Servicer in accordance with its customary
servicing procedures in connection with the liquidation, including
amounts received in subsequent Collection Periods ("Net Liquidation
Proceeds");
3. all Advances made by the Servicer;
4. all Warranty Purchase Payments with respect to Warranty Receivables
repurchased by the Seller in respect of that Collection Period;
5. all Administrative Purchase Payments with respect to Administrative
Receivables purchased by the Servicer in respect of that Collection
Period; and
6. any Yield Supplement Amounts.
"Available Principal" for a Distribution Date will equal the sum of
the amounts described in clauses (1), (2), (4) and (5) above received or
allocated by the Servicer in respect of principal on or in respect of the
Receivables during the related Collection Period.
Available Interest and Available Principal on any Distribution Date
will exclude the following amounts:
1. amounts received on a particular Receivable (other than a Defaulted
Receivable) to the extent that the Servicer has previously made an
unreimbursed Advance in respect of that Receivable;
2. Net Liquidation Proceeds with respect to a particular Receivable to
the extent of unreimbursed Advances in respect of that Receivable; and
3. recoveries from collections with respect to Advances that the Servicer
has determined are unlikely to be repaid.
A "Defaulted Receivable" will be a Receivable (other than an
Administrative Receivable or a Warranty Receivable) which, by its terms, is
delinquent more than 120 days or, with respect to a Receivable that is
delinquent less than 120 days, the Servicer has (a) determined, in accordance
with its customary servicing procedures, that eventual payment in full is
unlikely, or (b) repossessed the Financed Vehicle.
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PAYMENT OF DISTRIBUTABLE AMOUNTS
Prior to each Distribution Date, the Servicer will calculate the
amount to be distributed to the Noteholders and Certificateholders. On each
Distribution Date, the Servicer will allocate amounts on deposit in the
Collection Account with respect to the related Collection Period as described
below and will instruct the Indenture Trustee to make the following payments and
distributions in the following amounts and order of priority:
1. to the Servicer, the Total Servicing Fee, including any unpaid Total
Servicing Fees with respect to one or more prior Collection Periods,
and non-recoverable Advances;
2. to the Noteholders, the Noteholders' Interest Distributable Amount,
from Available Amounts (after giving effect to the reduction in
Available Amounts described in clause (1) above);
3. to the Noteholders, the Noteholders' Principal Distributable Amount,
from Available Amounts (after giving effect to the reduction in
Available Amounts described in clauses (1) through (2) above);
4. to the holders of record of the Class C Certificates (the "Class C
Certificateholders"), the Certificateholders' Interest Distributable
Amount for the Class C Certificates, from Available Amounts (after
giving effect to the reduction in Available Amounts described in
clauses (1) through (3) above);
5. to the Class C Certificateholders, the Certificateholders' Principal
Distributable Amount for the Class C Certificates, from Available
Amounts (after giving effect to the reduction in Available Amounts
described in clauses (1) through (4) above);
6. to the Reserve Account, from Available Amounts (after giving effect to
the reduction in Available Amounts described in clauses (1) through
(5) above and that amount being the "Excess Amount"), that amount
until the amount on deposit in that account equals the Specified
Reserve Account Balance;
7. to the holders of record of the Class D Certificates (the "Class D
Certificateholders"), the Certificateholders' Interest Distributable
Amount for the Class D Certificates, from Available Amounts (after
giving effect to the reduction in Available Amounts described in
clauses (1) through (6) above);
8. after the Class C Certificateholders have been paid in full, to the
Class D Certificateholders, the Certificateholders' Principal
Distributable Amount for the Class D Certificates, from Available
Amounts (after giving effect to the reduction in Available Amounts
described in clauses (1) through (7) above); and
9. any Available Amounts remaining after giving effect to the reduction
in Available Amounts described in clauses (1) through (8) above, to
the Seller.
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Noteholders' Principal Distributable Amount will be allocated among
the Notes so that no principal payments will be made on:
1. the Class A-2 Notes until the Class A-1 Notes have been paid in full;
2. the Class A-3 Notes until the Class A-1 Notes and the Class A-2 Notes
have been paid in full; or
3. the Class B Notes until the Class A-1 Notes, the Class A-2 Notes and
the Class A-3 Notes have been paid in full.
Notwithstanding the foregoing, if amounts actually allocated to the
Noteholders on any Distribution Date is less than the Noteholders' Distributable
Amount, funds will be withdrawn from the Reserve Account so that an amount equal
to the Noteholders' Distributable Amount may be allocated to the Noteholders.
No principal payments on the Certificates will be made until all of
the Notes have been paid in full. Thereafter, Certificateholders' Principal
Distributable Amount will be allocated among the Certificates so that no
principal payments will be made on the Class D Certificates until the Class C
Certificates have been paid in full. Notwithstanding the foregoing, if amounts
actually allocated to the Class C Certificateholders on any Distribution Date is
less than the Certificateholders' Distributable Amount, funds will be withdrawn
from the Reserve Account (after funds have been withdrawn for the benefit of the
Noteholders) so that an amount equal to the Certificateholders' Distributable
Amount may be allocated to the Class C Certificateholders.
For the purposes of this Prospectus Supplement, the following terms
will have the following meanings:
The "Certificateholders' Distributable Amount" will mean, with respect
to any Distribution Date, the sum of the Certificateholders' Interest
Distributable Amount for all classes of Certificates plus the
Certificateholders' Principal Distributable Amount for that Distribution Date
for the most senior class of Certificates.
The "Certificateholders' Interest Distributable Amount" will mean,
with respect to any Distribution Date and a class of Certificates, the sum of
the Certificateholders' Monthly Interest Distributable Amount for that class and
the Certificateholders' Interest Carryover Shortfall for that class for one or
more prior Distribution Dates.
The "Certificateholders' Interest Carryover Shortfall" will mean, with
respect to any Distribution Date and a class of Certificates, the excess, if
any, of the sum of the Certificateholders' Monthly Interest Distributable Amount
for that class for the preceding Distribution Date plus any outstanding
Certificateholders' Interest Carryover Shortfall for that class on that
preceding Distribution Date, over the amount of interest that is actually paid
on the Certificates on that preceding Distribution Date, plus, to the extent
permitted by applicable law, interest on the Certificateholders' Interest
Carryover Shortfall at the related Pass Through Rate for the related Interest
Period.
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The "Certificateholders' Monthly Interest Distributable Amount" will
mean, with respect to any Distribution Date and a class of Certificates,
interest accrued for the related Interest Period at the related Pass Through
Rate for that class of Certificates on the Certificate Balance of that class on
the immediately preceding Distribution Date, after giving effect to all payments
of principal to Certificateholders of that class on or prior to that
Distribution Date (or, in the case of the first Distribution Date, on the
Initial Certificate Balance of that class of Certificates). The "Initial
Certificate Balance" will equal $______________ for the Class C Certificates and
$____________ for the Class D Certificates, and the "Certificate Balance," for
any Distribution Date and a class of Certificates, will equal the Initial
Certificate Balance of that class, reduced by all amounts distributed on or
prior to that Distribution Date on the Certificates of that class and allocable
to principal.
The "Certificateholders' Monthly Principal Distributable Amount" will
mean, with respect to any Distribution Date, the Certificateholders' Percentage
of the Principal Distributable Amount for that Distribution Date.
The "Certificateholders' Percentage" will mean the following:
1. for each Distribution Date until all of the Notes have been paid in
full, 0%; and
2. thereafter, 100%.
The "Certificateholders' Principal Carryover Shortfall" will mean,
with respect to any Distribution Date and a class of Certificates, the excess of
the Certificateholders' Monthly Principal Distributable Amount for that class
plus any outstanding Certificateholders' Principal Carryover Shortfall of that
class for the preceding Distribution Date, over the amount in respect of
principal that is actually distributed to the Certificateholders of that class
on that Distribution Date.
The "Certificateholders' Principal Distributable Amount" will mean,
with respect to any Distribution Date and a class of Certificates, the sum of:
1. the Certificateholders' Monthly Principal Distributable Amount for
that Distribution Date;
2. any outstanding Certificateholders' Principal Carryover Shortfall of
that class as of the close of the immediately preceding Distribution
Date; and
3. on the Final Scheduled Distribution Date for that class of
Certificates, the amount necessary to reduce the outstanding principal
amount of that class of Certificates to zero; provided, however, that
the Certificateholders' Principal Distributable Amount with respect to
a class of Certificates shall not exceed the Certificate Balance of
that class of Certificates.
The "Noteholders' Distributable Amount" will mean, with respect to any
Distribution Date, the sum of the Noteholders' Interest Distributable Amount for
all classes of Notes plus the Noteholders' Principal Distributable Amount for
that Distribution Date for the most senior class of Notes.
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The "Noteholders' Interest Carryover Shortfall" will mean, with
respect to any Distribution Date and a class of Notes, the excess, if any, of
the sum of the Noteholders' Monthly Interest Distributable Amount for that class
for the preceding Distribution Date plus any outstanding Noteholders' Interest
Carryover Shortfall for that class on that preceding Distribution Date, over the
amount in respect of interest that is actually paid on the Notes of that class
on that preceding Distribution Date, plus, to the extent permitted by applicable
law, interest on the Noteholders' Interest Carryover Shortfall at the related
Interest Rate for the related Interest Period.
The "Noteholders' Interest Distributable Amount" will mean, with
respect to any Distribution Date, the sum of the Noteholders' Monthly Interest
Distributable Amount for all classes of Notes and the Noteholders' Interest
Carryover Shortfall for all classes of Notes for one or more prior Distribution
Dates.
The "Noteholders' Monthly Interest Distributable Amount" will mean,
with respect to any Distribution Date and a class of Notes, interest accrued for
the related Interest Period at the related Interest Rate for that class on the
outstanding principal amount of that class on the immediately preceding
Distribution Date, after giving effect to all payments of principal to
Noteholders of that class on or prior to that Distribution Date (or, in the case
of the first Distribution Date, on the original principal amount of that class).
The "Noteholders' Monthly Principal Distributable Amount" will mean,
with respect to any Distribution Date, the Noteholders' Percentage of the
Principal Distributable Amount for that Distribution Date.
The "Noteholders' Percentage" will mean:
1. for each Distribution Date until the principal amounts of all of the
Notes have been paid in full, 100%; and
2. thereafter, 0%.
The "Noteholders' Principal Carryover Shortfall" will mean, with
respect to any Distribution Date and a class of Notes, the excess, if any, of
the Noteholders' Monthly Principal Distributable Amount plus any outstanding
Noteholders' Principal Carryover Shortfall for that class for the preceding
Distribution Date over the amount in respect of principal that is actually paid
as principal on that class on that Distribution Date.
The "Noteholders' Principal Distributable Amount" will mean, with
respect to any Distribution Date and a class of Notes, the sum of:
1. the Noteholders' Monthly Principal Distributable Amount;
2. any outstanding Noteholders' Principal Carryover Shortfall of that
class as of the close of the immediately preceding Distribution Date;
and
3. on the Final Scheduled Distribution Date for that class of Notes, the
amount necessary to reduce the outstanding principal amount of that
class of Notes to zero; provided, however, that the Noteholders'
Principal Distributable Amount with respect
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to a class of Notes shall not exceed the outstanding principal amount
of that class.
The "Principal Distributable Amount" will mean, with respect to any
Distribution Date and the related Collection Period, the sum of the following
amounts:
1. the principal portion of all payments actually received on the
Receivables during that Collection Period;
2. the principal portion of all prepayments and partial prepayments
received during that Collection Period (to the extent those amounts
are not included in clause (1) above); and
3. the Principal Balance of each Receivable that the Servicer became
obligated to purchase, the Seller became obligated to repurchase or
that became a Defaulted Receivable during that Collection Period (to
the extent those amounts are not included in clauses (1) or (2)
above).
SUBORDINATION; RESERVE ACCOUNT
The rights of the Noteholders and the Certificateholders to receive
payments with respect to the Receivables will be subordinated to the rights of
the Servicer to receive the Total Servicing Fee, any additional servicing
compensation described under "Description of the Transfer and Servicing
Agreements - Servicing Compensation" in this Prospectus Supplement and the
reimbursement of outstanding Advances.
SUBORDINATION
In addition, the rights of the Noteholders to receive distributions on
the Receivables will be subject to the priorities set forth under "Summary -
Terms of the Notes" and "Distributions on the Notes and the Certificates -
Payment of Distributable Amounts" in this Prospectus Supplement. The rights of
the Certificateholders to receive payments on the Receivables will be
subordinated to the rights of the Noteholders to the extent described herein.
The rights of the Class D Certificateholders to receive payments on the
Receivables will be further subordinated to the rights of the Class C
Certificateholders and the maintenance of amounts on deposit in the Reserve
Account at the Specified Reserve Account Balance, in each case to the extent
described herein.
RESERVE ACCOUNT
The protection afforded to the Noteholders through subordination will
be effected both by the preferential right of the Noteholders to receive, to the
extent described in this Prospectus Supplement, current distributions on the
Receivables and the establishment of the Reserve Account. Although the Class C
Certificates are subordinated to the rights of the Noteholders, the Class C
Certificateholders have a preferential right to receive current distributions on
the Receivables before the Class D Certificateholders to the extent described in
this Prospectus Supplement and the establishment of the Reserve Account. The
Reserve
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Account will be a segregated account in the name of the Indenture Trustee. The
Reserve Account will be created with an initial deposit by the Seller on the
Closing Date of an amount equal to $____________ (the "Reserve Account Initial
Deposit") which is less than the Specified Reserve Account Balance. The Reserve
Account will thereafter be funded by the deposit therein of all Excess Amounts,
if any, for each Distribution Date to the extent necessary to restore or bring
the amounts on deposit in the Reserve Account to the Specified Reserve Account
Balance.
Amounts held from time to time in the Reserve Account will continue to
be held for the benefit of holders of the Notes and the Class C
Certificateholders and may be invested in Eligible Investments. Investment
income on those investments (net of losses and expenses) will be paid to the
Seller, upon the direction of the Servicer, to the extent that funds on deposit
in the Reserve Account exceed the Specified Reserve Account Balance. If the
amount on deposit in the Reserve Account on any Distribution Date (after giving
effect to all deposits to and withdrawals from the Reserve Account on that
Distribution Date) is greater than the Specified Reserve Account Balance for
that Distribution Date, subject to limitations set forth in the Transfer and
Servicing Agreement, the Indenture Trustee will include the amount of the excess
in the amounts to be distributed to Class D Certificateholders pursuant to
clauses (7) and (10) in the first paragraph under "Distributions on the Notes
and the Certificates - Payment of Distributable Amounts" in this Prospectus
Supplement. Upon any distribution to the Class D Certificateholders of amounts
in excess of the Specified Reserve Account Balance, the Noteholders will not
have any rights in, or claims to, those amounts. Any excess amounts remaining
thereafter will be paid to the Seller.
The "Specified Reserve Account Balance" will initially be
[____________]. However, on any Distribution Date, the Specified Reserve Account
Balance will be an amount equal to [_____________].
The Servicer may, from time to time after the date of this Prospectus
Supplement, request each rating agency to approve a formula for determining the
Specified Reserve Account Balance that is different from those described above
or change the manner by which the Reserve Account is funded. If each rating
agency delivers a letter to the Owner Trustee to the effect that the use of any
new formula will not result in a qualification, reduction or withdrawal of its
then-current rating of any class of the Notes or the Class C Certificates, then
the Specified Reserve Account Balance will be determined in accordance with the
new formula. The Sale and Servicing Agreement will accordingly be amended,
without the consent of any Noteholder or Certificateholder, to reflect the new
calculation.
None of the Securityholders, the Indenture Trustee, the Owner Trustee
or the Seller will be required to refund any amounts properly distributed or
paid to them, whether or not there are sufficient funds on any subsequent
Distribution Date to make full distributions to the Securityholders.
The Reserve Account and the subordination of the Certificates are
intended to enhance the likelihood of receipt by Noteholders of the full amount
of principal and interest due them and to decrease the likelihood that the
Noteholders will experience losses. However, the Reserve Account could be
depleted. If the amount required to be deposited into or required to be
withdrawn from the Reserve Account to cover shortfalls in collections on the
Receivables exceeds the amount of available cash in the Reserve Account,
Noteholders could incur losses or
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suffer a temporary shortfall in the amounts distributed to the Noteholders. In
that event, the Class C Certificateholders will first incur the losses, but the
Class B Noteholders will be the second to incur those losses because payments of
principal of and interest on the Class B Notes are subordinated to payments of
principal of and interest on the Class A Notes.
To a lesser extent, the Reserve Account and the subordination of the
Class D Certificates are intended to enhance the likelihood of receipt by the
Class C Certificateholders of the full amount of principal and interest due them
and to decrease the likelihood that the Class C Certificateholders will
experience losses. However, the right of the Class C Certificateholders to the
amounts on deposit in the Reserve Account is subordinated to the similar right
of the Noteholders and, in any event, the Reserve Account could be depleted. If
the amount required to be deposited into or required to be withdrawn from the
Reserve Account to cover shortfalls in collections on the Receivables exceeds
the amount of available cash in the Reserve Account, the Class C
Certificateholders could incur losses or suffer a temporary shortfall in the
amounts distributed to the Certificateholders.
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
THE TRANSFER AND SERVICING AGREEMENTS
The description of the terms of the Indenture, the Sale and Servicing
Agreement, the Administration Agreement and the Trust Agreement (collectively,
the "Transfer and Servicing Agreements") in this Prospectus Supplement does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, all the provisions of the Transfer and Servicing Agreements. Forms
of the Transfer and Servicing Agreements have been filed as exhibits to the
Registration Statement. Copies of the final signed Transfer and Servicing
Agreements will be filed with the SEC following the issuance of the Securities.
Any description of the Transfer and Servicing Agreements in this Prospectus
Supplement supplements, and to the extent inconsistent replaces, the description
of the general terms and provisions of the Transfer and Servicing Agreements set
forth in the accompanying Prospectus, to which description reference is hereby
made.
SALE AND ASSIGNMENT OF RECEIVABLES
Information with respect to the conveyance of the Receivables from the
Seller to the Trust on the Closing Date pursuant to the Sale and Servicing
Agreement is set forth under "Description of the Transfer and Servicing
Agreements - Sale and Assignment of Receivables" in the accompanying Prospectus.
ACCOUNTS
In addition to the accounts referred to under "Description of the
Transfer and Servicing Agreements - Accounts" in the accompanying Prospectus,
the Servicer will also establish and will maintain with the Indenture Trustee
the Reserve Account in the name of the Owner Trustee on behalf of the
Noteholders and the Certificateholders.
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COLLECTIONS
The Servicer will deposit all payments on Receivables received from
Obligors and all proceeds of Receivables collected during each Collection Period
into the Collection Account not later than the Business Day after receipt.
However, so long as NMAC is the servicer, if each condition to making monthly
deposits as may be required by the Sale and Servicing Agreement (including the
satisfaction of specified ratings criteria by NMAC and the absence of any
Servicer Default) is satisfied, the Servicer may retain such amounts until the
related Distribution Date. The Servicer or the Seller, as the case may be, will
remit the aggregate Warranty Purchase Payments and Administrative Purchase
Payments of Receivables to be purchased from the Trust to the Collection Account
on the Business Day immediately preceding the Distribution Date. The Servicer
will be entitled to withhold, or to be reimbursed from amounts otherwise payable
into or on deposit in the Collection Account, amounts previously deposited in
the Collection Account but later determined to have resulted from mistaken
deposits or postings. Except in certain circumstances described in the Sale and
Servicing Agreement, pending deposit into the Collection Account, collections
may be employed by the Servicer at its own risk and for its own benefit and will
not be segregated from its own funds. The Servicer, at its own risk and for its
own benefit, may instruct the Owner Trustee to invest amounts held in the
Collection Account in Eligible Investments from the time deposited until the
related Distribution Date. See "Description of the Transfer and Servicing
Agreements-Collections" in the accompanying Prospectus.
"Eligible Investments" will be specified in the Indenture and will be
limited to investments which meet the criteria of each rating agency from time
to time as being consistent with its then-current ratings of the Securities.
Collections on or in respect of a Receivable made during a Collection
Period (including Warranty Purchase Payments and Administrative Purchase
Payments) will be applied first to interest accrued to date, second to principal
until the principal balance is brought current, third to reduce the unpaid late
charges as provided in the Receivable and finally to prepay principal of the
Receivable. See "Description of the Transfer and Servicing Agreements -
Collections" in the accompanying Prospectus.
ADVANCES
On or before the Business Day prior to each Distribution Date, the
Servicer will make a payment into the Collection Account for each Receivable of
an amount equal to the product of the principal balance of the Receivable as of
the first day of the related Collection Period and one-twelfth of its APR minus
the amount of interest actually received on the Receivable during the Collection
Period (an "Advance"). If the calculation results in a negative number, an
amount equal to the negative amount will be paid to the Servicer in
reimbursement of outstanding Advances. In addition, if a Receivable becomes a
Liquidated Receivable, the amount of accrued and unpaid interest on that
Receivable (but not including interest for the current Collection Period) will,
up to the amount of outstanding Advances in respect thereof, be withdrawn from
the Collection Account and paid to the Servicer in reimbursement of the
outstanding Advances. The Servicer will not be required to make any Advances
(other than the Advance of an interest shortfall arising from a prepaid
Receivable) to the extent that it does not expect to recoup the Advance from
subsequent collections or recoveries. No advances of
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principal will be made with respect to the Receivables. See "Description of the
Transfer and Servicing Agreements-Advances" in the accompanying Prospectus.
SERVICING COMPENSATION
The base servicing fee for the calendar month immediately preceding
any Distribution Date (a "Collection Period") will be one-twelfth of 1.00% (the
"Servicing Rate") of the Pool Balance as of the first day of the related
Collection Period or, in the case of the first Distribution Date, the Initial
Pool Balance (the "Base Servicing Fee"). The Base Servicing Fee, together with
any previously unpaid Base Servicing Fee, will be paid on each Distribution Date
solely to the extent of Available Interest. The Servicer will be entitled to
collect and retain as additional servicing compensation in respect of each
Collection Period any late fees, prepayment charges and any other administrative
fees and expenses or similar charges collected during that Collection Period,
plus any investment earnings or interest earned during that Collection Period
from the investment of monies on deposit in the Collection Account (the
"Supplemental Servicing Fee"). See "Description of the Transfer and Servicing
Agreements - Collections" in this Prospectus Supplement and "Description of the
Transfer and Servicing Agreements - Servicing Compensation" in the accompanying
Prospectus. The Servicer will be paid the Base Servicing Fee and the
Supplemental Servicing Fee (collectively the "Total Servicing Fee") for each
Collection Period on the following Distribution Date related to that Collection
Period. However, if it is acceptable to each rating agency without a reduction
in the rating of each class of Notes and the Class C Certificates, the Base
Servicing Fee in respect of a Collection Period (together with any portion of
the Base Servicing Fee that remains unpaid from prior Distribution Dates) will
be paid at the beginning of that Collection Period out of collections of
interest on the Receivables for that Collection Period. The Base Servicing Fee
will be paid from Available Interest prior to the payment of the Noteholders'
Distributable Amounts or Certificateholders' Distributable Amounts.
YIELD SUPPLEMENT ACCOUNT AND YIELD SUPPLEMENT AGREEMENT
Payments of the Yield Supplement Amounts will be made from funds on
deposit in a segregated trust account to be established by the Seller and
pledged to and maintained with the Indenture Trustee for the benefit of the
holders of the Notes and the Class C Certificateholders (the "Yield Supplement
Account"). The "Yield Supplement Amount" for each Collection Period means an
aggregate amount (if positive), calculated by the Servicer, by which (1) one
month's interest on the principal balance as of the first day of that Collection
Period of each Yield Supplemented Receivable (other than a Liquidated
Receivable, after the Collection Period in which that Receivable became a
Liquidated Receivable) at a rate equal to the Required Rate exceeds (2) one
month's interest on that principal balance at that Yield Supplemented
Receivable's APR. "Yield Supplemented Receivables" are Receivables that have
APRs which are less than the Required Rate. The "Required Rate" means, with
respect to any Distribution Date, the sum of the weighted average Interest Rate
for the Notes and the Pass Through Rate for the Class C Certificates and 1.00%.
If the Yield Supplement Amounts for any Distribution Date exceed the
amount available for withdrawal from the Yield Supplement Account on that
Distribution Date, the Seller will not have any further obligation under the
Yield Supplement Agreement to deposit any further amounts into the Yield
Supplement Account. The amount required to be on deposit in the Yield
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Supplement Account (the "Required Yield Supplement Amount") will be equal to the
lesser of (1) maximum aggregate Yield Supplement Amounts that will become due
under the Yield Supplement Agreement, assuming that payments on the Receivables
are made on their scheduled due dates and that no Receivable becomes a prepaid
Receivable, or (2) the Initial Yield Supplement Amount. The maximum aggregate
Yield Supplement Amounts may decline as a result of prepayments or repayments in
full of the Receivables. To the extent that on any Distribution Date the amount
on deposit in the Yield Supplement Account exceeds the Required Yield Supplement
Amount on that Distribution Date, the excess will be paid to the Seller. The
Yield Supplement Account will not be part of the Trust.
Simultaneously with the sale and assignment of the Receivables by NMAC to
the Seller, the Seller will enter into the Yield Supplement Agreement with the
Indenture Trustee and the Servicer. The Seller will assign the Yield Supplement
Agreement to the Trust.
NET DEPOSITS
As an administrative convenience and as long as specified conditions
are satisfied, the Servicer will be permitted to make the deposit of
collections, aggregate Advances and amounts deposited in respect of purchases of
Receivables by the Seller or the Servicer for or with respect to the related
Collection Period net of payments to be made to the Servicer with respect to
that Collection Period. The Servicer, however, will account to the Owner Trustee
and to the Certificateholders as if all of the foregoing deposits and payments
were made individually. See "Description of the Transfer and Servicing
Agreements - Net Deposits" in the accompanying Prospectus.
OPTIONAL PURCHASE
The outstanding Notes and the Certificates will be redeemed in whole,
but not in part, on any Distribution Date on which the Seller or the Servicer
exercises its option to purchase the Receivables. The Seller or any successor to
the Servicer may purchase the Receivables when the Pool Balance shall have
declined to 10% or less of the Initial Pool Balance, as described in the
accompanying Prospectus under "Description of the Transfer and Servicing
Agreements - Termination." The "Redemption Price" for the outstanding Notes will
be equal to the unpaid principal amount of the outstanding Notes plus accrued
and unpaid interest on those Notes and for the Certificates will equal the
Certificate Balance of the Class C Certificates and Class D Certificates on the
date of the optional purchase plus accrued and unpaid interest on the
Certificates.
REMOVAL OF SERVICER
The Indenture Trustee or Noteholders evidencing a majority of the
voting interests of Notes (voting as a single class) may terminate the rights
and obligations of the Servicer under the Sale and Servicing Agreement upon:
1. any failure by the Servicer (or the Seller, so long as NMAC is the
Servicer) to deliver to the Owner Trustee or the Indenture Trustee, as
applicable, for deposit in any Account any required payment or to
direct the Owner Trustee or the Indenture Trustee, as applicable, to
make any required distributions from that Account, and that failure
continues unremedied for three Business Days after (a) receipt by the
Servicer
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(or the Seller, so long as NMAC is the Servicer) of written notice of
the failure from the Owner Trustee or the Indenture Trustee, as
applicable, (b) receipt by the Servicer (or the Seller, so long as
NMAC is the Servicer) and the Owner Trustee or the Indenture Trustee,
as applicable, of written notice of the failure from the holders of
Notes or Certificates evidencing not less than 25% in principal amount
of those outstanding Notes and the Certificates, acting together as
the single class; or (b) discovery of that failure by any officer of
the Servicer;
2. any failure by the Servicer (or the Seller, as long as NMAC is the
Servicer) to duly observe or perform in any material respect any other
covenants or agreements of the Servicer (or the Seller, as long as
NMAC is the Servicer) set forth in the Sale and Servicing Agreement,
and that failure materially and adversely affects the rights of the
Noteholders or the Certificateholders, and that failure continues
unremedied for 90 days after the giving of written notice of the
failure to (a) the Servicer (or the Seller, so long as NMAC is the
Servicer) by the Owner Trustee or the Indenture Trustee, or (b) the
Servicer (or the Seller, so long as NMAC is the Servicer) and the
Owner Trustee or the Indenture Trustee, as applicable, by the holders
of Notes or Certificates evidencing not less than 25% in principal
amount of those outstanding Notes or Certificates, acting together as
a single class; and
3. the occurrence of an Insolvency Event of the Servicer.
Under those circumstances, authority and power shall, without further
action, pass to and be vested in the Indenture Trustee or a successor Servicer
appointed under the Sale and Servicing Agreement. If, however, a bankruptcy
trustee or similar official has been appointed for the Servicer, and no Servicer
Default other than the appointment of a bankruptcy trustee or similar official
has occurred, that trustee or official may have the power to prevent the
Indenture Trustee or the Noteholders from effecting a transfer of servicing.
Upon receipt of notice of the occurrence of a Servicer Default, the Indenture
Trustee shall give notice thereof to the rating agencies. Upon payment in full
of the principal and interest on the Notes, the Certificateholders will succeed
to the rights of the Noteholders with respect to removal of the Servicer.
DUTIES OF THE OWNER TRUSTEE AND THE INDENTURE TRUSTEE
The Owner Trustee will make no representations as to the validity or
sufficiency of the Trust Agreement, the Certificates (other than the
authentication of the Certificates), the Notes or of any Receivables or related
documents and is not accountable for the use or application by the Seller or the
Servicer of any funds paid to the Seller or the Servicer in respect of the
Notes, the Certificates or the Receivables, or the investment of any monies by
the Servicer before those monies are deposited into the Collection Account. The
Owner Trustee will not independently verify the Receivables. If no Servicer
Default has occurred, the Owner Trustee is required to perform only those duties
specifically required of it under the Trust Agreement. In addition to making
distributions to the Certificateholders, those duties generally are limited to
the receipt of the various certificates, reports or other instruments required
to be furnished to the Owner Trustee under the Trust Agreement, in which case it
will only be required to examine them to determine whether they conform to the
requirements of the Trust Agreement. The Owner Trustee shall not be charged with
knowledge of a failure by the Servicer to perform its duties under the Trust
Agreement or the Sale and Servicing Agreement which failure constitutes
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a Servicer Default unless the Owner Trustee obtains actual knowledge of the
failure as specified in the Trust Agreement.
The Owner Trustee will be under no obligation to exercise any of the
rights or powers vested in it by the Trust Agreement or to make any
investigation of matters arising under the Trust Agreement or to institute,
conduct or defend any litigation under the Trust Agreement or in relation
thereto at the request, order or direction of any of the Certificateholders,
unless those Certificateholders have offered to the Owner Trustee reasonable
security or indemnity against the costs, expenses and liabilities that may be
incurred by the Owner Trustee in connection with the exercise of those rights.
No Certificateholder will have any right under the Trust Agreement to institute
any proceeding with respect to the Trust Agreement, other than with respect to
the failure by the Seller or the Servicer, as applicable, to remit payment,
unless that Certificateholder has previously given to the Owner Trustee written
notice of default and unless the holders of Certificates evidencing not less
than 25% of the voting interests of the Certificates, acting together as a
single class, have made written request upon the Owner Trustee to institute that
proceeding in its own name as the Owner Trustee under the Trust Agreement and
have offered to the Owner Trustee reasonable indemnity and the Owner Trustee for
30 days has neglected or refused to institute that proceeding.
The Indenture Trustee will make no representations as to the validity
or sufficiency of the Indenture, the Certificates, the Notes (other than
authentication of the Notes) or of any Receivables or related documents, and is
not accountable for the use or application by the Seller or the Servicer of any
funds paid to the Seller or the Servicer in respect of the Notes, the
Certificates or the Receivables, or the investment of any monies by the Servicer
before those monies are deposited into the Collection Account. The Indenture
Trustee will not independently verify the Receivables. If no Event of Default or
Servicer Default has occurred, the Indenture Trustee is required to perform only
those duties specifically required of it under the Indenture. In addition to
making distributions to the Noteholders, those duties generally are limited to
the receipt of the various certificates, reports or other instruments required
to be furnished to the Indenture Trustee under the Indenture, in which case it
will only be required to examine them to determine whether they conform to the
requirements of the Indenture. The Indenture Trustee shall not be charged with
knowledge of a failure by the Servicer to perform its duties under the Trust
Agreement, the Sale and Servicing Agreement or the Administration Agreement
which failure constitutes an Event of Default or Servicer Default unless the
Indenture Trustee obtains actual knowledge of the failure as specified in the
Indenture.
The Indenture Trustee will be under no obligation to exercise any of
the rights or powers vested in it by the Indenture or to make any investigation
of matters arising under the Indenture or to institute, conduct or defend any
litigation under the Indenture or in relation thereto at the request, order or
direction of any of the Noteholders, unless those Noteholders have offered to
the Indenture Trustee reasonable security or indemnity against the costs,
expenses and liabilities that may be incurred by the Indenture Trustee in
connection with the exercise of those rights. No Noteholder will have any right
under the Indenture to institute any proceeding with respect to the Indenture,
other than with respect to the failure by the Seller or the Servicer, as
applicable, to remit payment, unless that Noteholder previously has given to the
Indenture Trustee written notice of the Event of Default and (1) the Event of
Default arises from the Servicer's failure to remit payments when due or (2) the
holders of the Notes evidencing not less than 25% of the voting interests of the
Notes, acting together as a single class, have made written
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request upon the Indenture Trustee to institute that proceeding in its own name
as the Indenture Trustee under the Indenture and have offered to the Indenture
Trustee reasonable indemnity and the Indenture Trustee for 30 days has neglected
or refused to institute that proceeding.
THE OWNER TRUSTEE AND THE INDENTURE TRUSTEE
[________________] will be the Owner Trustee under the Trust
Agreement. As a matter of [New York] law, the Trust will be viewed as a separate
legal entity, distinct from the Owner Trustee, and the Trust will be viewed as
the issuer of the Certificates. [________________] will be the Indenture Trustee
under the Indenture. The Owner Trustee, the Indenture Trustee and any of their
respective affiliates may hold Certificates in their own names or as pledgees.
For the purpose of meeting the legal requirements of some
jurisdictions, the Servicer and the Owner Trustee or the Servicer and the
Indenture Trustee, in each case acting jointly (or in some instances, the Owner
Trustee or the Indenture Trustee acting alone), will have the power to appoint
co-trustees or separate trustees of all or any part of the Trust. In the event
of an appointment of co-trustees or separate trustees, all rights, powers,
duties and obligations conferred or imposed upon the Owner Trustee by the Sale
and Servicing Agreement and the Trust Agreement or the Indenture Trustee by the
Indenture will be conferred or imposed upon the Owner Trustee or the Indenture
Trustee and each of their respective separate trustees or co-trustees jointly,
or, in any jurisdiction in which the Owner Trustee or the Indenture Trustee will
be incompetent or unqualified to perform specified acts, singly upon that
separate trustee or co-trustee who will exercise and perform those rights,
powers, duties and obligations solely at the direction of the Owner Trustee or
the Indenture Trustee.
The Owner Trustee and the Indenture Trustee may resign at any time, in
which event the Servicer will be obligated to appoint a successor thereto. The
Servicer may also remove the Owner Trustee or the Indenture Trustee if either
ceases to be eligible to continue as trustee under the Trust Agreement or the
Indenture, as the case may be, becomes legally unable to act or becomes
insolvent. In those circumstances, the Servicer will be obligated to appoint a
successor Owner Trustee or Indenture Trustee, as applicable. Any resignation or
removal of the Owner Trustee or the Indenture Trustee and appointment of a
successor thereto will not become effective until acceptance of the appointment
by the successor.
The Trust Agreement will provide that the Servicer will pay the fees
of the Owner Trustee and the Indenture Trustee in connection with their duties
under the Trust Agreement and Indenture, respectively. The Trust Agreement and
Indenture will further provide that the Owner Trustee and the Indenture Trustee
will be entitled to indemnification by NMAC and the Seller for, and will be held
harmless against, any loss, liability, fee, disbursement or expense incurred by
the Owner Trustee or the Indenture Trustee not resulting from its own willful
misfeasance, bad faith or negligence (other than by reason of a breach of any of
its representations or warranties set forth in the Trust Agreement or the
Indenture, as the case may be). The Trust Agreement and the Indenture will
further provide that the Seller and the Servicer will indemnify the Owner
Trustee and the Indenture Trustee for specified taxes that may be asserted in
connection with the transaction.
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MATERIAL INCOME TAX CONSEQUENCES
In the opinion of O'Melveny & Myers LLP, tax counsel to the Trust, for
federal income tax purposes, the Notes will be characterized as debt, and the
Trust will not be characterized as an association (or a publicly traded
partnership) taxable as a corporation.
The Seller and the Certificateholders will agree, and the Noteholders
will agree by their purchase of the Notes, to treat the Notes as debt for
federal income tax purposes. The Seller and the Servicer will agree, and the
Certificateholders will agree by their purchase of the Certificates, to treat
the Trust as a partnership for purposes of federal and state income tax,
franchise tax and any other tax measured in whole or in part by income, with the
assets of the partnership being the assets held by the Trust, the partners of
the partnership being the Certificateholders, and the Notes being debt of the
partnership. However, the proper characterization of the arrangement involving
the Trust, the Certificates, the Notes, the Seller and the Servicer is not clear
because there is no authority on transactions closely comparable to the
transaction described in this Prospectus Supplement.
See the discussion under "Material Income Tax Consequences - Tax
Treatment of Owner Trusts" in the accompanying Prospectus.
ERISA CONSIDERATIONS
THE NOTES
The Notes may be purchased by an employee benefit plan or an
individual retirement account (a "Plan") subject to ERISA or Section 4975 of the
Internal Revenue Code of 1986, as amended (the "Code"). A fiduciary of a Plan
must determine that the purchase of a Note is consistent with its fiduciary
duties under ERISA and does not result in a nonexempt prohibited transaction as
defined in Section 406 of ERISA or Section 4975 of the Code. For additional
information regarding treatment of the Notes under ERISA, see "ERISA
Considerations" in the accompanying Prospectus.
The Notes may not be purchased with the assets of a Plan if the
Seller, the Servicer, the Indenture Trustee, the Owner Trustee or any of their
affiliates:
1. is a "fiduciary" as defined in Section 3(21) of ERISA or Section
4975(e)(3) of the Code with respect to those Plan assets; or
2. is an employer maintaining or contributing to the Plan;
or if a Certificateholder is a fiduciary with respect to those Plan assets and
participates in the decision to acquire the Notes.
THE CERTIFICATES
The Certificates may not be acquired by a Plan or any entity whose
underlying assets include Plan assets by reason of a Plan's investment in the
entity or which uses Plan assets to acquire Certificates (a "Plan Investor"). By
its acceptance of a Certificate, each
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Certificateholder will be deemed to have represented and warranted that it is
not subject to the foregoing limitation. In addition, a purchaser of
Certificates other than a Plan Investor should be aware that a prohibited
transaction could occur if a Certificateholder (or any of its affiliates) is or
becomes a party in interest or a disqualified person with respect to a Plan
Investor that purchases and holds any Notes unless covered by one or more
applicable exemptions.
UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting
Agreement (the "Note Underwriting Agreement"), the Seller has agreed to cause
the Trust to sell to each of the Note Underwriters named below (collectively,
the "Note Underwriters"), and each of the Note Underwriters has severally agreed
to purchase, the principal amount of Notes set forth opposite its name below:
[TABLE]
In the Note Underwriting Agreement, the Note Underwriters have agreed,
subject to the terms and conditions set forth in the Note Underwriting
Agreement, to purchase all of the Notes if any of the Notes are purchased. This
obligation of the Note Underwriters is subject to specified conditions precedent
set forth in the Note Underwriting Agreement. The Seller has been advised by the
Note Underwriters that they propose initially to offer the Notes to the public
at the prices set forth on the cover of this Prospectus Supplement, and to
specified dealers at that price less the initial concession not in excess of
[___%] of the denominations of the Notes per Class A-1 Note, [___%] per Class
A-2 Note, [___%] per Class A-3 Note, and [___%] per Class B Note. The Note
Underwriters may allow, and those dealers may reallow, a concession not in
excess of [___%] per Class A-1 Note, [___%] per Class A-2 Note, [___%] per Class
A-3 Note and [___%] per Class B Note to some other dealers. After the initial
public offering of the Notes, the public offering price and those concessions
may be changed.
Subject to the terms and conditions set forth in an Underwriting
Agreement (the "Certificate Underwriting Agreement"), the Seller has agreed to
cause the Trust to sell to each of the Certificate Underwriters named below (the
"Certificate Underwriters" and, together with the Note Underwriters, the
"Underwriters"), and each of the Certificate Underwriters has severally agreed
to purchase, the principal amount of the Class C Certificates set forth opposite
its name below:
[TABLE]
In the Certificate Underwriting Agreement, the Certificate
Underwriters have agreed, subject to the terms and conditions set forth in the
Certificate Underwriting Agreement, to purchase all of the Class C Certificates
if any of the Class C Certificates are purchased. This obligation of the
Certificate Underwriters is subject to specified conditions precedent set forth
in the Certificate Underwriting Agreement. The Seller has been advised by the
Certificate Underwriters that they propose initially to offer the Class C
Certificates to the public at the price set forth on the cover of this
Prospectus Supplement, and to some other dealers at that price less the initial
concession not in excess of [___%] per Class C Certificate. The Certificate
Underwriters may allow, and those dealers may reallow, a concession not in
excess of [___%]
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per Class C Certificate to some other dealers. After the initial public offering
of the Class C Certificates, the public offering price and those concessions may
be changed.
The Seller and NMAC have agreed to indemnify the Underwriters against
specified liabilities, including liabilities under the Securities Act or to
contribute to payments which the Underwriters may be required to make in respect
thereof. However, in the opinion of the Commission, certain indemnification
provisions for liability arising under the federal securities law are contrary
to public policy and therefore unenforceable. In the ordinary course of their
respective businesses, the Underwriters and their respective affiliates have
engaged and may engage in investment banking and/or commercial banking
transactions with Nissan and its affiliates.
The Notes and the Certificates are new issues of securities with no
established trading markets. The Seller has been advised by the Note
Underwriters that they intend to make a market in the Notes of each class and
has been advised by the Certificate Underwriters that they intend to make a
market in the Certificates, in each case as permitted by applicable laws and
regulations. The Underwriters are not obligated, however, to make a market in
the Notes of any class or the Certificates, and that market-making may be
discontinued at any time without notice at the sole discretion of the
Underwriters. Accordingly, no assurance can be given as to the liquidity of,
or trading markets for, the Notes of any class or the Certificates.
The Trust may, from time to time, invest funds in the Accounts in
Eligible Investments acquired from the Underwriters.
The Underwriters have advised the Seller that, pursuant to Regulation
M under the Securities Act, specified persons participating in this offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the Securities of any class at
levels above those that might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of the Securities of any class on
behalf of the Underwriters for the purpose of fixing or maintaining the price of
those Securities. A "syndicate covering transaction" is the bid for or the
purchase of those Securities of any class on behalf of the Underwriters to
reduce a short position incurred by the Underwriters in connection with this
offering. A "penalty bid" is an arrangement permitting one of the Underwriters
to reclaim the selling concession otherwise accruing to another Underwriter or
syndicate member in connection with this offering if the Securities of any class
originally sold by the other Underwriter or syndicate member are purchased by
the reclaiming Underwriter in a syndicate covering transaction and has therefore
not been effectively placed by the other Underwriter or syndicate member.
Stabilizing bids and syndicate covering transactions may have the
effect of causing the price of the Securities of any class to be higher than it
might be in the absence thereof, and the imposition of penalty bids might also
have an effect on the price of any Security to the extent that it discourages
resale of that Security. Neither the Seller nor the Underwriters makes any
representation or prediction as to the direction or magnitude of any of that
effect on the prices for the Securities. Neither the Seller nor the Underwriters
makes any representation that the Underwriters will engage in any of those
transactions or that, once commenced, any of those transactions will not be
discontinued without notice.
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LEGAL OPINIONS
In addition to the legal opinions described in the accompanying
Prospectus, legal matters relating to the Notes and the Certificates and federal
income tax and California state income tax and other matters will be passed upon
for the Trust by O'Melveny & Myers LLP.
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<PAGE>
<TABLE>
<CAPTION>
INDEX OF TERMS
<S> <C>
Advance.....................................................................47
APR.........................................................................23
Available Amounts...........................................................39
Available Interest..........................................................39
Available Principal.........................................................39
Base Servicing Fee..........................................................48
Business Day................................................................34
Certificate Balance.........................................................42
Certificate Factor..........................................................31
Certificate Underwriters....................................................54
Certificate Underwriting Agreement..........................................54
Certificateholders..........................................................36
Certificateholders' Distributable Amount....................................41
Certificateholders' Interest Carryover Shortfall............................41
Certificateholders' Interest Distributable Amount...........................41
Certificateholders' Monthly Interest Distributable Amount...................42
Certificateholders' Monthly Principal Distributable Amount..................42
Certificateholders' Percentage..............................................42
Certificateholders' Principal Carryover Shortfall...........................42
Certificateholders' Principal Distributable Amount..........................42
Certificates................................................................36
Class A Notes...............................................................34
Class C Certificateholders..................................................40
Class D Certificateholders..................................................40
Closing Date................................................................23
Code........................................................................53
Collection Period...........................................................48
Cutoff Date.................................................................22
Dealer Recourse.............................................................21
Dealers.....................................................................22
Defaulted Receivable........................................................39
Determination Date..........................................................38
Distribution Date...........................................................34
Eligible Investments........................................................47
Excess Amount...............................................................40
fiduciary...................................................................53
Final Scheduled Distribution Date...........................................27
Financed Vehicles...........................................................22
forward looking statements..................................................33
Global Securities...........................................................58
Indenture Trustee...........................................................22
Initial Certificate Balance.................................................42
Interest Period.............................................................34
Interest Rate...............................................................34
Net Liquidation Proceeds....................................................39
NMAC........................................................................21
Non-U.S. Person.............................................................62
Note Factor.................................................................31
Note Underwriters...........................................................54
Note Underwriting Agreement.................................................54
Noteholders.................................................................35
Noteholders' Distributable Amount...........................................42
Noteholders' Interest Carryover Shortfall...................................43
Noteholders' Interest Distributable Amount..................................43
Noteholders' Monthly Interest Distributable Amount..........................43
Noteholders' Monthly Principal Distributable Amount.........................43
Noteholders' Percentage.....................................................43
Noteholders' Principal Carryover Shortfall..................................43
Noteholders' Principal Distributable Amount.................................43
Notes.......................................................................34
Obligors....................................................................22
Owner Trustee...............................................................21
Pass Through Rate...........................................................36
penalty bid.................................................................55
Plan........................................................................53
Plan Investor...............................................................53
Pool Factor.................................................................31
Principal Distributable Amount..............................................44
Receivables.................................................................22
Redemption Price............................................................49
Required Rate...............................................................48
Required Yield Supplement Amount............................................49
Reserve Account Initial Deposit.............................................45
Sale and Servicing Agreement................................................21
Seller......................................................................21
Servicer....................................................................21
Servicing Rate..............................................................48
Specified Reserve Account Balance...........................................45
stabilizing bid.............................................................55
Supplemental Servicing Fee..................................................48
syndicate covering transaction..............................................55
Total Servicing Fee.........................................................48
Transfer and Servicing Agreements...........................................46
Trust.......................................................................21
Trust Agreement.............................................................21
Underwriters................................................................54
Yield Supplement Account....................................................48
Yield Supplement Amount.....................................................48
Yield Supplemented Receivables..............................................48
</TABLE>
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<PAGE>
ANNEX A
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in specified circumstances, the globally offered Class A
Certificates (the "Global Securities") will be available only in book-entry
form. Investors in the Global Securities may hold those Global Securities
through DTC, Cedelbank or Euroclear. The Global Securities will be tradable 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 Cedelbank 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., three calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedure applicable to
U.S. corporate debt obligations and prior asset-backed securities issues.
Secondary cross-market trading between Cedelbank or Euroclear and DTC
Participants holding securities will be effected on a delivery-against-payment
basis through the depositaries of Cedelbank and Euroclear (in that capacity) and
as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless those holders meet specified 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, Cedelbank and Euroclear will hold
positions on behalf of their participants through their depositaries, which in
turn will hold those positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow DTC
settlement practice. 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 Cedelbank 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
securities custody accounts on the settlement date against payment in same-day
funds.
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<PAGE>
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 prior
asset-backed securities issues in same-day funds.
Trading between Cedelbank and/or Euroclear Participants. Secondary market
trading between Cedelbank Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC Seller and Cedelbank or Euroclear Participants. When
Global Securities are to be transferred from the account of a DTC Participant to
the account of a Cedelbank Participant or a Euroclear Participant, the purchaser
will send instructions to Cedelbank or Euroclear through a Cedelbank Participant
or Euroclear Participant at least one business day prior to settlement.
Cedelbank or Euroclear will instruct the respective Depositary, as the case may
be, to receive the Global Securities against payment. Payment will include
interest accrued on the Global Securities from and including the last coupon
payment date to and excluding the settlement date, on the basis of the actual
number of days in that accrual period and a year assumed to consist of 360 days.
For transactions settling on the 31st of the month, payment will include
interest accrued to and excluding the first day of the following month. Payment
will then be made by the respective Depositary to the DTC Participant's account
against delivery of the Global Securities. After settlement has been completed,
the Global Securities will be credited to the respective clearing system and by
the clearing system, in accordance with its usual procedures, to the Cedelbank
Participant's or Euroclear Participant's account. The securities credit will
appear the next day (European time) and the cash debt will be back-valued to,
and the interest on the Global Securities will accrue from, the value date
(which would be the preceding day when settlement occurred in New York). If
settlement is not completed on the intended value date (i.e., the trade fails),
the Cedelbank or Euroclear cash debt will be valued instead as of the actual
settlement date.
Cedelbank Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Cedelbank or Euroclear. Under
this approach, they may take on credit exposure to Cedelbank or Euroclear until
the Global Securities are credited to their accounts one day later.
As an alternative, if Cedelbank or Euroclear has extended a line of credit
to them, Cedelbank Participants or Euroclear Participants can elect not to
preposition funds and allow that credit line to be drawn upon to finance
settlement. Under this procedure, Cedelbank Participants or Euroclear
Participants purchasing Global Securities would incur overdraft charges for one
day, assuming they clear the overdraft when the Global Securities are credited
to their accounts.
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<PAGE>
However, interest on the Global Securities would accrue from the value date.
Therefore, in many cases the investment income on the Global Securities earned
during that one-day period may substantially reduce or offset the amount of
those overdraft charges, although this result will depend on each Cedelbank
Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective European Depositary for the benefit of Cedelbank Participants or
Euroclear Participants. The sale proceeds will be available to the DTC seller on
the settlement date. Thus, to the DTC Participants a cross-market transaction
will settle no differently than a trade between two DTC Participants.
TRADING BETWEEN CEDELBANK OR EUROCLEAR SELLER AND DTC PURCHASER. Due to
time zone differences in their favor, Cedelbank Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC Participant. The seller will send
instructions to Cedelbank or Euroclear through a Cedelbank Participant or
Euroclear Participant at least one business day prior to settlement. In these
cases, Cedelbank or Euroclear will instruct the Relevant Depositary, as
appropriate, to deliver the Global Securities to the DTC Participant's account
against payment. Payment will include interest accrued on the Global Securities
from and including the last coupon payment to and excluding the settlement date
on the basis of the actual number of days in that accrual period and a year
assumed to consist of 360 days. For transactions settling on the 31st of the
month, payment will include interest accrued to and excluding the first day of
the following month. The payment will then be reflected in the account of the
Cedelbank Participant or Euroclear Participant the following day, and receipt of
the cash proceeds in the Cedelbank Participant's or Euroclear Participant's
account would be back-valued to the value date (which would be the preceding
day, when settlement occurred in New York). Should the Cedelbank Participant or
Euroclear Participant have a line of credit with its respective clearing system
and elect to be in debt in anticipation of receipt of the sale proceeds in its
account, the back valuation will extinguish any overdraft incurred over that
one-day period. If settlement is not completed on the intended value date (i.e.,
the trade fails), receipt of the cash proceeds in the Cedelbank Participant's or
Euroclear Participant's account would instead be valued as of the actual
settlement date.
Finally, day traders that use Cedelbank or Euroclear and that purchase
Global Securities from DTC Participants for delivery to Cedelbank Participants
or Euroclear Participants should note that these trades would automatically fail
on the sale side unless affirmative action were taken. At least three techniques
should be readily available to eliminate this potential problem:
(1) borrowing through Cedelbank or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedelbank 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 Cedelbank or Euroclear
account in order to settle the sale side of the trade; or
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(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 Participant is at
least one day prior to the value date for the sale to the Cedelbank
Participant or Euroclear Participant.
MATERIAL U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through
Cedelbank 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 (as defined in the accompanying Prospectus), unless (1)
each clearing system, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business in the chain of
intermediaries between that beneficial owner and the U.S. entity required to
withhold tax complies with applicable certification requirements and (2) that
beneficial owner takes one of the following steps to obtain an exemption or
reduced tax rate:
EXEMPTION FOR NON-U.S. PERSONS (FORM W-8). Beneficial owners of Global
Securities that are Non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of that change.
EXEMPTION FOR NON-U.S. PERSONS WITH EFFECTIVELY CONNECTED INCOME (FORM
4224). A Non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
EXEMPTION OR REDUCED RATE FOR NON-U.S. PERSONS RESIDENT IN TREATY COUNTRIES
(FORM 1001). Non-U.S. Persons 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 Certificate Owners or their agents.
EXEMPTION FOR U.S. PERSONS (FORM W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. FEDERAL INCOME TAX REPORTING PROCEDURE. The Certificate Owner of a
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 though whom it holds (the
clearing agency, in the case of persons holding directly on the books of the
clearing agency). Form W-8 and Form 1001 are effective for three calendar years,
and Form 4224 is effective for one calendar year.
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<PAGE>
The term "Non-U.S. Person" means any person who is not a U.S. Person (as
defined in the accompanying Prospectus).
Recently, the Treasury Department issued new regulations (the "New
Regulations") which make certain modifications to the withholding rules
described above, and pursuant to which the certification procedures discussed
above will be modified. It is suggested that prospective investors consult their
own tax advisers regarding the New Regulations.
This summary does not deal with all aspects of U.S. federal income tax
withholding that may be relevant to foreign holders of Global Securities. It is
suggested that investors consult their tax advisors for specific tax advice
concerning their holding and disposing of Global Securities.
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<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*
The following is an itemized list of the estimated expenses to be incurred
in connection with the offering of the securities being offered hereunder other
than underwriting discounts and commissions.
Registration Fee..................................................$278.00.
Blue Sky Fees and Expenses..............................................$.**
Printing Expenses.......................................................$.**
Trustee Fees and Expenses...............................................$.**
Legal Fees and Expenses.................................................$.**
Accounting Fees and Expenses............................................$.**
Rating Agencies' Fees...................................................$.**
Miscellaneous...........................................................$.**
Total .................................................................$.**
* All amounts except registration fee are estimates.
** Amounts to be filed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Set forth below are certain provisions of law and of the Certificate of
Incorporation of Nissan Auto Receivables Corporation. The general effect of such
provisions is to provide indemnification to officers and directors of such
corporation for actions taken in good faith.
Section 145 of the General Corporation Law of Delaware provides as follows:
145. Indemnification of Officers, Directors, Employees and Agents; Insurance
(a) A corporation shall have power to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right
of the corporation) by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or proceeding
if the person acted in good faith and in a manner the person reasonably
believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe the person's conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did
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<PAGE>
not act in good faith and in a manner which the person reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had reasonable cause to
believe that the person's conduct was unlawful.
(b) A corporation shall have power to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that the person is
or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by the person in connection with the
defense or settlement of such action or suit if the person acted in good
faith and in a manner the person reasonably believed to be in or not
opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of
all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or
such other court shall deem proper.
(c) To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, such person
shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of
the present or former director, officer, employee or agent is proper in the
circumstances because the person has met the applicable standard of conduct
set forth in subsections (a) and (b) of this section. Such determination
shall be made, with respect to a person who is a director or officer at the
time of such determination, (1) by a majority vote of the directors who are
not parties to such action, suit or proceeding, even though less than a
quorum, or (2) by a committee of such directors designated by majority vote
of such directors, even though less than a quorum, or (3) if there are no
such directors, or if such directors so direct, by independent legal counsel
in a written opinion, or (4) by the stockholders.
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<PAGE>
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or
investigative action, suit or proceeding may be paid by the corporation
in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that
such person is not entitled to be indemnified by the corporation as
authorized in this section. Such expenses (including attorneys' fees)
incurred by former directors and officers or other employees and agents
may be so paid upon such terms and conditions, if any, as the corporation
deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any bylaw, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action
in such person's official capacity and as to action in another capacity
while holding such office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted
against such person and incurred by such person in any such capacity, or
arising out of such person's status as such, whether or not the corporation
would have the power to indemnify such person against such liability under
this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers, and
employees or agents, so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was serving at
the request of such constituent corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under this section with respect
to the resulting or surviving corporation as such person would have with
respect to such constituent corporation if its separate existence had
continued.
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<PAGE>
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include
any excise taxes assessed on a person with respect to any employee
benefit plan; and references to "serving at the request of the
corporation" shall include any service as a director, officer, employee
or agent of the corporation which imposes duties on, or involves services
by, such director, officer, employee, or agent with respect to an
employee benefit plan, its participants or beneficiaries; and a person
who acted in good faith and in a manner such person reasonably believed
to be in the interest of the participants and beneficiaries of an
employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interest of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
Article Five of the Restated Certificate of Incorporation of Nissan Auto
Receivables Corporation provides as follows:
"(a) A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability
(i) for any breach of the director's duty of loyalty to the
corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware General Corporation Law or
(iv) for any transaction from which the director derived an improper
personal benefit.
If the Delaware General Corporation Law is amended after approval by the
stockholders of this Article Five to authorize corporate action further
eliminating or limiting the personal liability of directors, then the
liability of a director of the corporation shall be eliminated or limited to
the fullest extent permitted by the Delaware General Corporation law, as so
amended.
(b) Any repeal or modification of paragraph (a) of this Article Five by
the stockholders of the corporation shall not adversely affect any right or
protection of a director of the corporation existing at the time of such
repeal or modification.
II-4
<PAGE>
(c)(i) Each person who was or is made a party or is threatened to be
made a party to or is involved in any action, suit or proceeding, whether
civil, criminal, administrative, investigative or otherwise (hereinafter
a "proceeding"), by reason of the fact that he or she, or a person of
whom he or she is the legal representative, is or was a director, officer
or employee of the corporation or is or was serving at the request of the
corporation as a director, officer or employee of another corporation or
of a partnership, joint venture, trust or other enterprise, including
service with respect to employee benefit plans, whether the basis of such
proceeding is alleged action in an official capacity as a director,
officer or employee or in any other capacity while serving as a director,
officer or employee, shall be indemnified and held harmless by the
corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment
permits the corporation to provide broader indemnification rights than
said law permitted the corporation to provide prior to such amendment),
against all expense, liability and loss (including penalties, fines,
judgments, attorneys' fees, amounts paid or to be paid in settlement and
excise taxes imposed on fiduciaries with respect to (i) employee benefit
plans, (ii) charitable organizations or (iii) similar matters) reasonably
incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a
director, officer or employee and shall inure to the benefit of his or
her heirs, executors and administrators; provided, however, that the
corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person
(other than pursuant to subparagraph (c)(ii) of this Article Five) only
if such proceeding (or part thereof) was authorized by the Board of
Directors of the corporation. The right to indemnification conferred in
this subparagraph (c)(i) of Article Five shall be a contract right and
shall include the right to be paid by the corporation the expenses
incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, if the Delaware General Corporation
Law requires, the payment of such expenses incurred by a director or
officer in his or her capacity as a director or officer (and not in any
other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an
employee benefit plan) in advance of the final disposition of a
proceeding shall be made only upon delivery to the corporation of an
undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this
subparagraph (c)(i) of Article Five or otherwise.
II-5
<PAGE>
(ii) If a claim which the corporation is obligated to pay under
subparagraph (c)(i) of this Article Five is not paid in full by the
corporation within 60 days after a written claim has been received by the
corporation, the claimant may at any time thereafter bring suit against
the corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid
also the expense of prosecuting such claim. It shall be a defense to any
such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition
where the required undertaking, if any is required, has been tendered to
the corporation) that the claimant has not met the standards of conduct
which make it permissible under the Delaware General Corporation Law for
the corporation to indemnify the claimant for the amount claimed, but the
burden of proving such defense shall be on the corporation. Neither the
failure of the corporation (including its Board of Directors, independent
legal counsel or its stockholders) to have made a determination prior to
the commencement of such action that indemnification of the claimant is
proper in the circumstances because he or she has not met the applicable
standard of conduct set forth in the Delaware General Corporation Law,
nor an actual determination by the corporation (including its Board of
Directors, independent legal counsel or its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a
defense to the action or create a presumption that the claimant has not
met the applicable standard of conduct.
(iii) The provisions of this paragraph (c) of Article Five shall
cover claims, actions, suits and proceedings, civil or criminal, whether
now pending or hereafter commenced, and shall be retroactive to cover
acts or omissions or alleged acts or omissions which heretofore have
taken place. If any part of this paragraph (c) of Article Five should be
found to be invalid or ineffective in any proceeding, the validity and
effect of the remaining provisions shall not be affected.
(iv) The right to indemnification and the payment of expenses
incurred in defending a proceeding in advance of its final disposition
conferred in this paragraph (c) of Article Five shall not be exclusive of
any other right which any person may have or hereafter acquire under any
statute, provision of the Restated Certificate of Incorporation, By-Law,
agreement, vote of stockholders or disinterested directors or otherwise.
(v) The corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the
corporation or another corporation, partnership, joint venture, trust or
other enterprise against any such expense, liability or loss, whether or
not the corporation would have the power to indemnify such person against
such expense, liability or loss under the Delaware General Corporation
Law.
II-6
<PAGE>
(vi) The corporation may, to the extent authorized from time to time
by the Board of Directors, grant rights to indemnification, and rights to
be paid by the corporation the expenses incurred in defending any
proceeding in advance of its final disposition, to any agent of the
corporation to the fullest extent of the provisions of this paragraph (c)
of Article Five with respect to the indemnification and advancement of
expenses of directors, officers and employees of the corporation."
[Remainder of Page Intentionally Left Blank]
II-7
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS
a. Exhibits:
4.1 Form of Trust Agreement between the Registrant and the Owner Trustee*
4.2 Form of Indenture between the Trust and the Indenture Trustee*
4.3 Form of Sale and Servicing Agreement among the Registrant, the
Servicer and the Owner Trust*
4.4 Form of Pooling and Servicing Agreement among the Registrant, the
Servicer and the Trustee*
4.5 Form of Purchase Agreement between Nissan Acceptance Motor
Corporation and the Registrant*
4.6 Form of Administration Agreement among the Trust, the Administrator
and the Indenture Trustee*
4.7 Form of Yield Supplement Agreement among the Registrant, the Servicer
and the Trust*
5.1(a) Opinion of O'Melveny and Myers LLP regarding Notes*
5.1(b) Opinion of O'Melveny and Myers LLP regarding Certificates*
8.1 Opinion of O'Melveny and Myers LLP with respect to tax matters*
23.1 Consent of O'Melveny and Myers LLP (included as part of
Exhibits 5.1(a) and (b))*
23.2 Consent of O'Melveny and Myers LLP (included as part of Exhibit 8.1)*
23.3 Consent of Deloitte & Touche LLP*
25.1 Statement of Eligibility on Form T-1 of Trustee under the Indenture*
- ------------------------------------------------------------------------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS
(a) As to Rule 415:
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made of the securities registered hereby, a post-effective amendment to this
registration statement:
(i) to include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933, as amended;
(ii) to reflect in the prospectus any facts or events
arising after the effective date of this registration statement (or the
most recent post-effective amendment hereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in this registration statement; and
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in this registration
statement or any material change to such information in this
registration statement.
PROVIDED, HOWEVER, that the undertakings set forth in clauses (i) and
(ii) above do not apply if the information required to be included in a
post-effective amendment by those clauses is contained in periodic
reports filed by the registrant pursuant to Section 13 or
II-8
<PAGE>
Section 15(d) of the Securities Exchange Act of 1934, as amended, that
are incorporated by reference in this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) As to documents subsequently filed that are incorporated by reference:
The undersigned registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, as amended, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, as amended, that is incorporated by reference
in this registration statement shall be deemed to be a new registration
statement relating to the securities offered herein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) As to indemnification: Insofar as indemnification for liabilities
arising under the Securities Act of 1933, as amended, may be permitted to
directors, officers and controlling persons of the registrant pursuant to the
provisions described under Item 15 above, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933, as amended, and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in such Securities
Act of 1933, as amended, and will be governed by the final adjudication of such
issue.
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Torrance, State of California, on July 13, 1999.
NISSAN AUTO RECEIVABLES CORPORATION
By: /s/ Yoichiro Nagashima
-----------------------------------------------
Yoichiro Nagashima
PRESIDENT AND CHAIRMAN OF THE BOARD
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/ Yoichiro Nagashima President, Chairman of the Board July 13, 1999
- ---------------------- and Director (principal
Yoichiro Nagashima executive officer)
/s/ Tomoaki Shimazu Treasurer, Assistant Secretary and July 13, 1999
- ------------------- Director (principal financial officer
Tomoaki Shimazu and principal accounting officer)
/s/ Joy Murakami Crose Secretary and Director July 13, 1999
- ----------------------
Joy Murakami Crose
II-10
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ------------ ----
4.1 Form of Trust Agreement between the Registrant and the Owner
Trustee
4.2 Form of Indenture between the Trust and the Indenture Trustee
4.3 Form of Sale and Servicing Agreement among the Registrant,
the Servicer and the Owner Trust
4.4 Form of Pooling and Servicing Agreement among the Registrant,
the Servicer and the Trustee
4.5 Form of Purchase Agreement between Nissan Acceptance Motor
Corporation and the Registrant
4.6 Form of Administration Agreement among the Trust,
the Administrator and the Indenture Trustee
4.7 Form of Yield Supplement Agreement among the Registrant,
the Servicer and the Trust
5.1(a) Opinion of O'Melveny and Myers LLP regarding Notes
5.1(b) Opinion of O'Melveny and Myers LLP regarding Certificates
8.1 Opinion of O'Melveny and Myers LLP with respect to tax matters
23.1 Consent of O'Melveny and Myers LLP (included as part of
Exhibits 5.1(a) and (b))
23.2 Consent of O'Melveny and Myers LLP (included as
part of Exhibit 8.1)
23.3 Consent of Deloitte & Touche LLP
25.1 Statement of Eligibility on Form T-1 of Trustee under
the Indenture
II-11
