<PAGE>
RULE NO. 424(b)(5)
REGISTRATION NO. 33-50291
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED APRIL 20, 1994)
$280,021,471.35
NAVISTAR FINANCIAL 1994-A OWNER TRUST
$270,220,000 ASSET BACKED NOTES
$9,801,471.35 ASSET BACKED CERTIFICATES
NAVISTAR FINANCIAL RETAIL RECEIVABLES CORPORATION
SELLER
NAVISTAR FINANCIAL CORPORATION
SERVICER
The Navistar Financial 1994-A Owner Trust (the "Trust" or the "Issuer") will
be formed pursuant to a Trust Agreement, to be dated as of May 3, 1994 (the
"Closing Date"), between the Seller and Chemical Bank Delaware, as Owner
Trustee, and will issue two classes of Asset Backed Notes (the "Notes") in the
respective aggregate principal amounts set forth below pursuant to an Inden-
ture, to be dated as of the Closing Date, between the Issuer and The Bank of
New York, as Indenture Trustee. The Trust will also issue the 6.260% Asset
Backed Certificates (the "Certificates").
Interest on both classes of Notes will accrue at the fixed interest rates
specified below. Interest on the Notes will accrue at the applicable Interest
Rate and will generally be payable monthly on the fifteenth day of each month,
or, if any such day is not a Business Day, on the next succeeding Business
Day, commencing on May 16, 1994 (each, a "Distribution Date"). Principal on
the Notes will be payable on [Continued on following page]
---------------------------------------------
PROCEEDS OF THE ASSETS OF THE TRUST AND AMOUNTS ON DEPOSIT IN THE RESERVE
ACCOUNT ARE THE SOLE SOURCES OF PAYMENTS ON THE SECURITIES. NONE OF THE
SECURITIES REPRESENTS AN INTEREST IN OR OBLIGATION OF, OR IS INSURED OR
GUARANTEED BY, NAVISTAR FINANCIAL CORPORATION, NAVISTAR FINANCIAL RETAIL
RECEIVABLES CORPORATION OR ANY OF THEIR RESPECTIVE AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FINAL
AGGREGATE SCHEDULED
PRINCIPAL INTEREST DISTRIBUTION PRICE UNDERWRITING PROCEEDS TO THE
AMOUNT RATE(1) DATE TO PUBLIC DISCOUNT SELLER(2)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A-1 Notes $ 89,606,000.00 4.531% May 15, 1995 100.00000% .125% 99.87500%
- ----------------------------------------------------------------------------------------------------------
Class A-2 Notes $180,614,000.00 5.930% October 15, 1999 99.96875% .250% 99.71875%
- ----------------------------------------------------------------------------------------------------------
Certificates (3) $ 9,801,471.35 6.260% October 15, 1999 99.96875%(4) .500% 99.46875%(4)
- ----------------------------------------------------------------------------------------------------------
Total $280,021,471.35 $279,863,525.94 $612,057.50 $279,251,468.44
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Pass Through Rate, in the case of Certificates.
(2) Before deducting expenses, estimated to be $400,000.
(3) The Seller will retain ownership of Certificates with an initial
Certificate Balance of $98,471.35.
(4) Plus accrued interest from April 15, 1994.
---------------------------------------------
The Securities are offered by the Underwriters, subject to prior sale, when,
as and if issued by the Issuer and accepted by the Underwriters, and subject
to approval of certain legal matters by counsel for the Underwriters. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that the Securities will be
delivered in book-entry form on or about the Closing Date through the
facilities of DTC, against payment therefor in immediately available funds.
CHEMICAL SECURITIES INC. J. P. MORGAN SECURITIES INC.
The date of this Prospectus Supplement is April 26, 1994.
<PAGE>
[Continued from previous page]
each Distribution Date, except that no principal payments on the Class A-2
Notes will be made until the Class A-1 Notes have been paid in full. Each class
of Notes will be payable in full on the applicable Final Scheduled Distribution
Date. However, the actual payment in full of either class of Notes could occur
sooner.
The Certificates represent fractional undivided interests in the Trust.
Interest to the extent of the Pass Through Rate of 6.260% per annum will be
distributed to the Certificateholders on each Distribution Date. Payments in
respect of the Certificate Balance will be made on and after the date on which
the Class A-1 Notes have been paid in full. Distributions on the Certificates
will be subordinated in priority to payments due on the Notes as described
herein. The Final Scheduled Distribution Date for the Certificates will be
October 15, 1999.
The Trust Property will include a pool of Retail Notes, certain monies due
thereunder on and after April 1, 1994, security interests in the vehicles
financed thereby and certain other property. The Initial Aggregate Receivables
Balance is $280,021,471.35.
There is currently no secondary market for the Securities. There can be no
assurance that a secondary market for the Securities will develop or, if it
does develop, that it will continue. The Securities will not be listed on any
securities exchange.
The Securities initially will be represented by Securities registered in the
name of Cede & Co., the nominee of DTC. The interests of beneficial owners of
the Securities will be represented by book entries on the records of DTC and
participating members thereof. Definitive Securities will be available only
under limited circumstances.
S-2
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus. Certain
capitalized terms used in this summary but not otherwise defined in this
summary have the meanings assigned such terms elsewhere herein or in the
Prospectus. Listings of the pages on which such terms are defined are found in
the "Index of Terms" in each of this Prospectus Supplement and the Prospectus.
Issuer................................ Navistar Financial 1994-A Owner Trust,
a Delaware business trust to be formed
by the Seller and the Owner Trustee
pursuant to the Owner Trust Agreement.
Seller................................ Navistar Financial Retail Receivables
Corporation.
Servicer.............................. Navistar Financial Corporation.
Indenture Trustee..................... The Bank of New York, as trustee under
the Indenture.
Owner Trustee......................... Chemical Bank Delaware, as trustee un-
der the Owner Trust Agreement.
The Notes............................. The Trust will issue Notes as follows:
Class A-1 4.531% Asset Backed Notes
(the "CLASS A-1 NOTES") in the aggre-
gate principal amount of $89,606,000.
Class A-2 5.930% Asset Backed Notes
(the "CLASS A-2 NOTES") in the aggre-
gate principal amount of $180,614,000.
The Certificates...................... The Trust will issue Certificates with
an aggregate initial Certificate Bal-
ance of $9,801,471.35.
The Trust Property.................... The Trust Property will include a pool
of Retail Notes, certain monies due or
received thereunder on and after April
1, 1994 (the "CUTOFF DATE"), security
interests in the vehicles financed
thereby, certain accounts and the pro-
ceeds thereof, the proceeds, if any,
of Dealer Liability, NITC Purchase Ob-
ligations and any Guaranties, any pro-
ceeds from claims on certain insurance
policies, the benefits of any lease
assignments and certain rights of the
Seller under the related Purchase
Agreement and the related Custodian
Agreement. The Initial Aggregate Re-
ceivables Balance is $280,021,471.35.
Terms of the Notes.................... The principal terms of the Notes will
be as described below:
A. Distribution Dates............... Payments of interest and principal on
the Notes will be made on each Distri-
bution Date. Payments will be made to
Noteholders of record as of the day
immediately preceding such Distribu-
tion Date (or, if Definitive Certifi-
cates are issued, the last day of the
preceding Monthly Period).
S-3
<PAGE>
B. Interest......................... Interest on the outstanding principal
amount of the Notes will accrue at the
applicable Interest Rate from the
Closing Date or from the most recent
Distribution Date on which interest
has been paid to but excluding the
following Distribution Date.
The Interest Rate for each class of
Notes is as specified on the cover
page of this Prospectus Supplement.
Interest on the Notes will be calcu-
lated on the basis of a 360-day year
consisting of twelve 30-day months.
See "The Notes--Payments of Interest."
C. Principal........................ Principal of the Notes will be payable
on each Distribution Date in an amount
equal to the sum of the Aggregate
Noteholders' Principal Distributable
Amount for the Monthly Period preced-
ing such Distribution Date to the ex-
tent of funds available therefor. The
Aggregate Noteholders' Principal Dis-
tributable Amount for a Monthly Period
will be the Noteholders' Percentage of
the Principal Distributable Amount for
such Monthly Period plus, until the
Class A-1 Notes have been paid in
full, the Accelerated Principal Dis-
tributable Amount, and will be calcu-
lated by the Servicer as described
herein under "The Transfer and Servic-
ing Agreements-Distributions." The
Noteholders' Percentage will be 100%
until the Class A-1 Notes have been
paid in full and generally 95.5%
thereafter until all of the Class A-2
Notes have been paid in full. See "The
Notes--Payments of Principal."
Payments of principal on the Notes will
be made on each Distribution Date in
the amounts and subject to the priori-
ties described in "The Notes--Payments
of Principal." After an Event of De-
fault and acceleration of the Notes,
principal payments will be made rata-
bly to all Noteholders. See "The
Transfer and Servicing Agreements--
Distributions."
The unpaid principal balance of a class
of Notes will be payable on the Final
Scheduled Distribution Date for such
class of Notes specified on the cover
page of this Prospectus Supplement.
D. Redemption....................... If the Servicer exercises its option to
purchase the Receivables when the Ag-
gregate Receivables Balance declines
to 10% or less of the Initial Aggre-
gate Receivables Balance, the holders
of Class A-2 Notes will be redeemed in
whole, but not in
S-4
<PAGE>
part, on any Distribution Date at a
redemption price equal to the unpaid
principal amount of such Notes, plus
accrued and unpaid interest thereon.
See "The Notes--Redemption."
Terms of the Certificates............. The principal terms of the Certificates
will be as described below:
A. Distribution Dates............... Distributions with respect to the Cer-
tificates will be made on each Distri-
bution Date. Distributions will be
made to Certificateholders of record
as of the day immediately preceding
such Distribution Date (or, if Defini-
tive Certificates are issued, the last
day of the preceding Monthly Period).
B. Pass Through Rate................ 6.260% per annum, payable monthly on
each Distribution Date at one-twelfth
of the annual rate.
C. Interest......................... On each Distribution Date, the Owner
Trustee will distribute pro rata to
Certificateholders accrued interest at
the Pass Through Rate with respect to
the outstanding Certificate Balance.
Interest on the Certificates will ac-
crue from April 15, 1994, or from the
most recent Distribution Date on which
interest has been paid to but exclud-
ing the next Distribution Date (calcu-
lated on the basis of a 360-day year
of twelve 30-day months).
D. Distributions in Respect of On each Distribution Date on and after
Certificate Balance................ the date on which the Class A-1 Notes
have been paid in full,
Certificateholders will receive, in
respect of the Certificate Balance, an
amount equal to the Cer-
tificateholders' Principal Distributa-
ble Amount for the Monthly Period pre-
ceding such Distribution Date, to the
extent of funds available therefor.
The Certificateholders' Principal Dis-
tributable Amount will be the
Certificateholders' Percentage (100%
minus the Noteholders' Percentage) of
the Principal Distributable Amount and
will be calculated by the Servicer in
the manner described under "The Trans-
fer and Servicing Agreements--Distri-
butions."
On and after any Distribution Date on
which all of the Notes have been paid
in full, funds in the Reserve Account
will be applied to reduce the Certifi-
cate Balance to zero if, after giving
effect to all distributions to the
Servicer and the Securityholders on
such Distribution Date, the amount on
deposit in the Reserve Account is
equal to or greater than the Certifi-
cate Balance. See "The Certificates--
Distributions of Interest and Certifi-
cate Balance."
S-5
<PAGE>
E. Optional Purchase................ If the Servicer exercises its option to
purchase the Receivables when the Ag-
gregate Receivables Balance declines
to 10% or less of the Initial Aggre-
gate Receivables Balance, the
Certificateholders will receive an
amount in respect of the Certificates
equal to the Certificate Balance to-
gether with accrued and unpaid inter-
est at the Pass Through Rate. See "The
Certificates--Distributions of Inter-
est and Certificate Balance."
Priority of Distributions............. Funds available for payment to the
Securityholders will generally be dis-
tributed in the following order of
priority: (i) interest on the Notes;
(ii) interest with respect to the Cer-
tificates; (iii) principal on the
Notes; and (iv) payments in respect of
the Certificate Balance. See "The
Transfer and Servicing Agreements--
Distributions" and "--Reserve Ac-
count." Upon the occurrence of an
Event of Default and the acceleration
of the Notes under the Indenture, the
Notes will be paid in full prior to
making any further payments on or with
respect to the Certificates.
Reserve Account....................... The Reserve Account will be created
with the Reserve Account Initial De-
posit. The Reserve Account will be in-
creased on each Distribution Date by
the deposit in the Reserve Account of
amounts remaining after payment to the
Servicer of the Total Servicing Fee
and deposits to the Note Distribution
Account and to the Certificate Distri-
bution Account of amounts to be dis-
tributed to Securityholders.
Amounts in the Reserve Account on any
Distribution Date (after giving effect
to all distributions to be made to the
Servicer and the Securityholders on
such Distribution Date) in excess of
the Specified Reserve Account Balance
for such Distribution Date will be
paid to the Seller.
Funds will be withdrawn from cash in
the Reserve Account on the day preced-
ing each Distribution Date to pay the
Total Servicing Fee and to make re-
quired distributions on the Securities
to the extent funds are not otherwise
available, as described herein. See
"The Transfer and Servicing Agree-
ments--Distributions" and "--Reserve
Account."
Tax Status............................ In the opinion of Tax Counsel, for fed-
eral income tax purposes, the Notes
will be characterized as indebtedness,
and the Certificates should be charac-
terized as equity interests in a part-
nership
S-6
<PAGE>
which will not be taxable as an asso-
ciation or a publicly traded partner-
ship taxable as a corporation. Each
Noteholder and Certificateholder, by
the acceptance of a Note or Certifi-
cate, will agree to treat the Notes as
indebtedness and the Certificates as
an equity interest in a partnership
which will not be taxable as an asso-
ciation or a publicly traded partner-
ship taxable as a corporation for fed-
eral, state and local income and fran-
chise tax purposes. See "Certain Fed-
eral Income Tax Consequences" herein
and in the Prospectus and "Certain
State Tax Matters" in the Prospectus
for additional information concerning
the application of federal and state
tax laws.
ERISA Considerations.................. Subject to the considerations discussed
under "ERISA Considerations" herein
and in the Prospectus, the Notes are
eligible for purchase by a Benefit
Plan.
The Certificates may not be acquired by
any Benefit Plan subject to ERISA or
by an individual retirement account.
See "ERISA Considerations" herein and
"ERISA Considerations" in the Prospec-
tus.
Legal Investment...................... The Class A-1 Notes will be eligible
securities for purchase by money mar-
ket funds under Rule 2a-7 under the
Investment Company Act of 1940, as
amended.
Ratings............................... As a condition of issuance, the Class
A-1 Notes will be rated in one of the
two highest rating categories for
short-term debt obligations by at
least two nationally recognized rating
agencies, the Class A-2 Notes will be
rated in the highest rating category
for long-term debt obligations and the
Certificates will be rated at least
"A' or its equivalent, in each case,
by at least one nationally recognized
rating agency. There is no assurance
that a rating will not be lowered or
withdrawn by a rating agency if cir-
cumstances so warrant. In the event
that the rating initially assigned to
any Security is subsequently lowered
for any reason, no person or entity
will be obligated to provide any addi-
tional credit enhancement with respect
to such Security.
----------------
S-7
<PAGE>
THE TRUST
The Issuer, Navistar Financial 1994-A Owner Trust, is a business trust formed
under the laws of the State of Delaware pursuant to a Trust Agreement dated as
of the Closing Date between the Seller and the Owner Trustee, acting thereunder
not in its individual capacity but solely as trustee of the Trust (as amended
and supplemented from time to time, the "OWNER TRUST AGREEMENT"). After its
formation, the Trust will not engage in any activity other than (i) acquiring,
holding and managing the Receivables and the other assets of the Trust and
proceeds therefrom, (ii) issuing the Securities, (iii) making payments or
distributions on the Securities and (iv) engaging in other activities that are
necessary, suitable, desirable or convenient to accomplish the foregoing or are
incidental thereto or connected therewith.
The Certificate Balance represents the equity of the Trust. The Seller will
retain approximately 1% of the initial Certificate Balance and the remaining
equity interest is being sold pursuant to this Prospectus Supplement to third
party investors that are expected to be unaffiliated with the Seller, the
Servicer or the Trust. The Trust will deliver the Securities to the Seller in
exchange for the Receivables pursuant to the Pooling and Servicing Agreement.
The Trust's principal offices are in Wilmington, Delaware, in care of
Chemical Bank Delaware, as Owner Trustee, at the address listed in "--The Owner
Trustee" below.
CAPITALIZATION OF THE TRUST
The following table illustrates the capitalization of the Trust as of the
Cutoff Date, as if the issuance and sale of the Securities offered hereby had
taken place on such date:
<TABLE>
<S> <C>
Class A-1 4.531% Asset Backed Notes...................... $ 89,606,000.00
Class A-2 5.930% Asset Backed Notes...................... $180,614,000.00
6.260% Asset Backed Certificates......................... $ 9,801,471.35
Total................................................ $280,021,471.35
</TABLE>
THE OWNER TRUSTEE
Chemical Bank Delaware is the Owner Trustee under the Owner Trust Agreement.
Chemical Bank Delaware is a Delaware banking corporation and a wholly-owned
subsidiary of Chemical Banking Corp., a Delaware corporation, and its principal
offices are located at 1201 Market Street, Wilmington, Delaware 19801.
THE RECEIVABLES POOL
The Receivables were acquired by Navistar Financial Corporation ("NFC") from
(i) NITC dealers, (ii) other dealers, including those selling other
manufacturers' vehicles and equipment and (iii) retail customers. The
Receivables were selected randomly for inclusion in the Receivables Pool from
those Retail Notes in NFC's portfolio of owned Retail Notes which satisfied
several criteria, including that each Receivable (i) has a first payment due
date on or before April 30, 1994, (ii) has an original term to maturity of 12
to 84 months and a remaining term to maturity of 12 to 60 months, (iii)
provides for finance charges at an APR of no less than 6.50%, (iv) as of the
Cutoff Date, was not more than 60 days past due, (v) other than an Equal
Payment Skip Receivable or a Level Principal Skip Receivable, provides for
monthly payments and (vi) satisfies the other criteria set forth in the
Prospectus under the caption "The Receivables Pools."
The composition, distribution by annual percentage rate, distribution by
remaining maturity, distribution by payment terms and geographic distribution
of the Receivables Pool are as set forth in the following tables. Due to
rounding, the percentages shown in these tables may not add to 100.00%.
S-8
<PAGE>
COMPOSITION OF THE RECEIVABLES POOL
<TABLE>
<CAPTION>
WEIGHTED AVERAGE WEIGHTED WEIGHTED
ANNUAL PERCENTAGE INITIAL AGGREGATE AVERAGE AVERAGE AVERAGE
RATE OF AGGREGATE ORIGINAL NUMBER OF INITIAL ORIGINAL REMAINING
RECEIVABLES RECEIVABLES PRINCIPAL RECEIVABLES RECEIVABLE MATURITY MATURITY
(RANGE) BALANCE BALANCE IN POOL BALANCE (RANGE) (RANGE)
- ----------------- --------------- --------------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
9.135% $280,021,471.35 $334,257,553.36 6,581 $42,549.98 50.74 43.32
months months
(12 to 84 (12 to 60
(6.50%-24.99%)(1) months) months)
</TABLE>
- --------
(1) Excludes four Receivables with APRs above 24.99%.
DISTRIBUTION BY ANNUAL PERCENTAGE RATE OF THE RECEIVABLES POOL
<TABLE>
<CAPTION>
ANNUAL PERCENTAGE OF
PERCENTAGE NUMBER OF INITIAL INITIAL AGGREGATE
RATE RANGE RECEIVABLES RECEIVABLES BALANCE RECEIVABLES BALANCE
---------- ----------- ------------------- -------------------
<S> <C> <C> <C>
6.50-7.49%................ 491 $ 29,793,473.59 10.64%
7.50-8.49%................ 2,327 126,724,144.37 45.26%
8.50-9.49%................ 1,199 52,244,761.42 18.66%
9.50-10.49%............... 627 22,681,015.50 8.10%
10.50-11.49%............... 338 10,610,946.46 3.79%
11.50-12.49%............... 386 10,860,412.09 3.88%
12.50-13.49%............... 335 8,980,249.62 3.21%
13.50-14.49%............... 274 5,458,914.52 1.95%
14.50-15.49%............... 281 5,959,655.15 2.13%
15.50-16.49%............... 141 2,998,417.73 1.07%
16.50 & Over............... 182 3,709,480.90 1.32%
Total.................... 6,581 $280,021,471.35 100.00%
</TABLE>
DISTRIBUTION BY REMAINING MATURITY OF THE RECEIVABLES POOL
<TABLE>
<CAPTION>
REMAINING PERCENTAGE OF
MATURITY NUMBER OF INITIAL INITIAL AGGREGATE
(MONTHS) RECEIVABLES RECEIVABLES BALANCE RECEIVABLES BALANCE
--------- ----------- ------------------- -------------------
<S> <C> <C> <C>
1-12...................... 98 $ 2,484,950.21 .89%
13-24...................... 1,402 30,713,252.25 10.97%
25-36...................... 1,572 54,640,648.66 19.51%
37-48...................... 1,832 91,877,192.78 32.81%
49-60...................... 1,677 100,305,427.45 35.82%
Total.................. 6,581 $280,021,471.35 100.00%
</TABLE>
DISTRIBUTION BY PAYMENTS TERMS OF RECEIVABLES
<TABLE>
<CAPTION>
PERCENTAGE OF INITIAL AGGREGATE
TYPE OF RECEIVABLE RECEIVABLES BALANCE
------------------ -------------------------------
<S> <C>
Equal Payment Fully Amortizing............ 64.34%
Equal Payment Balloon..................... 4.18%
Equal Payment Skip........................ 5.02%
Level Principal Fully Amortizing.......... 13.30%
Level Principal Balloon................... .36%
Level Principal Skip...................... 8.52%
Other..................................... 4.28%
Total................................. 100.00%
</TABLE>
S-9
<PAGE>
The Receivables Pool includes Receivables originated in 47 states and The
District of Columbia. The following table sets forth the percentage of the
Initial Aggregate Receivables Balance in the states with the largest
concentration of Receivables. No other state accounts for more than 3.58% of
the Initial Aggregate Receivables Balance. None of the Receivables were
originated in Alaska, Hawaii or Montana.
GEOGRAPHIC DISTRIBUTION OF THE RECEIVABLES POOL
<TABLE>
<CAPTION>
PERCENTAGE OF INITIAL
AGGREGATE RECEIVABLES
STATE(1) BALANCE
-------- ---------------------
<S> <C>
Texas............................................... 8.05%
Ohio................................................ 7.80%
Illinois............................................ 7.27%
New York............................................ 6.99%
California.......................................... 6.30%
Wisconsin........................................... 4.60%
Tennessee........................................... 4.59%
Alabama............................................. 3.89%
Other............................................... 50.52%
Total........................................... 100.00%
</TABLE>
- --------
(1) Based on billing addresses of the obligors on the Receivables.
No single obligor accounts for more than 1.89% of the Initial Aggregate
Receivables Balance. As of the Cutoff Date, approximately 79.25% of the Initial
Aggregate Receivables Balance, constituting 70.08% of the aggregate number of
Receivables, represent Receivables secured by new vehicles. The remainder are
secured by used vehicles.
USE OF PROCEEDS
The net proceeds to be received by the Seller from the sale of the Securities
(after making the Reserve Account Initial Deposit) will be applied to the
purchase of the Receivables from NFC. NFC will use the proceeds of its sale of
the Receivables to the Seller (a) for general working capital purposes and (b)
to repay amounts owing to a group of lenders, including affiliates of each of
the Underwriters, under one or more credit agreements.
S-10
<PAGE>
THE SERVICER
DELINQUENCIES, REPOSSESSIONS AND NET LOSSES
Set forth below is certain information concerning NFC's experience in the
United States pertaining to delinquencies, repossessions and net losses on its
entire portfolio of Retail Notes (including Retail Notes previously sold which
NFC continues to service). Fluctuations in retail delinquencies, repossessions
and losses generally follow cycles in the overall business environment.
Although NFC believes retail delinquencies, repossessions and net losses are
particularly sensitive to the industrial sector, which generates a significant
portion of the freight tonnage hauled, NFC does not track such data and is
unable to ascertain the specific causes of such fluctuations. Higher net losses
for 1989, 1990 and 1991 reflect the prolonged weakness of the U.S. economy
during that time. The Prospectus sets forth an explanation of the bases on
which these numbers have been calculated. See "The Servicer--Delinquencies,
Repossessions and Net Losses" in the Prospectus. There can be no assurance that
the delinquency, repossession and net loss experience on the Receivables Pool
will be comparable to that set forth below. Due to rounding, the percentages
shown for NFC and NITC separately in these tables may not add to the percentage
shown for NFC and NITC combined.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JANUARY
NFC RETAIL NOTES YEAR ENDED OCTOBER 31 31
- ---------------- -------------------------------------- --------------
1989 1990 1991 1992 1993 1993 1994
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross Balance Outstand-
ing at end of Period
(in millions).......... $1,481 $1,432 $1,414 $1,330 $1,437 $1,312 $1,435
Gross Balance Past Due
as a Percentage of
Gross Balance Outstand-
ing at end of
Period
31-60 days............ 1.53% 1.49% 1.25% 1.03% 0.67% 1.91% 1.48%
over 60 days.......... 0.48% 0.43% 0.21% 0.19% 0.09% 0.48% 0.34%
Average Gross Balance
(in millions).......... $1,414 $1,439 $1,397 $1,320 $1,341 $1,318 $1,441
------ ------ ------ ------ ------ ------ ------
Net losses (in millions)
NFC................... $ 2.3 $ 1.9 $ 3.0 $ 2.3 $ (0.1) $ 1.0 $ 0.0
NITC.................. 13.0 14.5 14.4 10.5 4.8 0.4 (0.1)
Combined.............. 15.3 16.4 17.4 12.8 4.7 1.4 (0.2)
------ ------ ------ ------ ------ ------ ------
Liquidations minus Net
Losses (in millions)... $ 665 $ 724 $ 719 $ 794 $ 713 $ 170 $ 239
------ ------ ------ ------ ------ ------ ------
Net Losses as a Percent-
age of Liquidations mi-
nus Net Losses
NFC................... 0.34% 0.26% 0.40% 0.29% (0.01)% 0.55% (0.01)%
NITC.................. 1.95% 2.00% 2.01% 1.32% 0.67% 0.26% (0.06)%
Combined.............. 2.29% 2.26% 2.41% 1.61% 0.66% 0.81% (0.07)%
------ ------ ------ ------ ------ ------ ------
Net Losses as a Percent-
age of Average Gross
Balance*
NFC................... 0.16% 0.13% 0.21% 0.18% 0.00% 0.10% (0.01)%
NITC.................. 0.92% 1.00% 1.03% 0.79% 0.35% 0.13% (0.04)%
Combined.............. 1.08% 1.13% 1.24% 0.97% 0.35% 0.23% (0.05)%
------ ------ ------ ------ ------ ------ ------
Repossessions as a Per-
centage of Average
Gross Balance*......... 3.21% 5.61% 4.54% 3.70% 1.95% 2.13% 1.28%
</TABLE>
- --------
* annualized
S-11
<PAGE>
THE NOTES
GENERAL
The Notes will be issued pursuant to the terms of an Indenture to be dated as
of the Closing Date between the Trust and the Indenture Trustee (as amended and
supplemented from time to time, the "INDENTURE"), a form of which has been
filed as an exhibit to the Registration Statement of which this Prospectus
Supplement and the Prospectus form a part. A copy of the Indenture will be
available from the Seller upon request to holders of Securities and will be
filed with the Commission following the issuance of the Securities. The
following summary describes certain terms of the Notes and the Indenture. The
summary does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all of the provisions of the Notes, the Indenture
and the Prospectus. 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 such summary. The Bank of New York, a New
York banking association, will be the Indenture Trustee.
The "INTEREST RATE" and the "FINAL SCHEDULED DISTRIBUTION DATE" for each
class of Notes will be as set forth below.
<TABLE>
<CAPTION>
INTEREST RATE FINAL SCHEDULED
(PER ANNUM) DISTRIBUTION DATE
------------- -----------------
<S> <C> <C>
Class A-1 Notes......................... 4.531% May 15, 1995
Class A-2 Notes......................... 5.930% October 15, 1999
</TABLE>
PAYMENTS OF INTEREST
Interest on the unpaid principal balance of each class of Notes will accrue
at the applicable Interest Rate and will be payable monthly on each
Distribution Date commencing May 16, 1994. All references in the Prospectus to
"Payment Date" or "Payment Dates" shall be deemed references to "Distribution
Date" or "Distribution Dates", as applicable, for purposes of this Prospectus
Supplement.
PAYMENTS OF PRINCIPAL
On each Distribution Date, principal will be paid on the Notes, to the extent
of the Noteholders' Percentage of the Principal Distributable Amount plus,
until the Class A-1 Notes are paid in full, the Accelerated Principal
Distributable Amount for the related Monthly Period, in the following priority:
(i) First, to the Class A-1 Notes, until the Class A-1 Notes are paid in
full; and
(ii) Second, to the Class A-2 Notes, until the Class A-2 Notes are paid
in full.
The remaining outstanding principal amount of each class of Notes will be due
in full on the Final Scheduled Distribution Date for such class.
REDEMPTION
If the Servicer exercises its option to purchase the Receivables when the
Aggregate Receivables Balance declines to 10% or less of the Initial Aggregate
Receivables Balance, the Class A-2 Notes will be redeemed in whole, but not in
part, on any Distribution Date, as described in the Prospectus under "Transfer
and Servicing Agreements--Termination." The redemption price will be equal to
the unpaid principal amount of Class A-2 Notes, plus accrued and unpaid
interest thereon.
PARITY AND PRIORITY OF NOTES
Interest payments to all classes of Noteholders will have the same priority.
Under certain circumstances, the amount available for such payments could be
less than the amount of interest payable on the Notes on
S-12
<PAGE>
any Distribution Date, in which case each class of Noteholders will receive
their ratable share (based upon the aggregate amount of interest due to such
class of Noteholders) of the aggregate amount available to be distributed in
respect of interest on the Notes. See "The Transfer and Servicing Agreements--
Distributions" and "--Reserve Account."
In general, no payments of principal on the Class A-2 Notes will be made
until the Class A-1 Notes have been paid in full. However, if an Event of
Default occurs as a result of which the Notes are declared immediately due and
payable, each class of Notes will be entitled to ratable repayment of principal
on the basis of their respective unpaid principal balances.
THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the terms of an Owner Trust
Agreement, a form of which has been filed as an exhibit to the Registration
Statement of which this Prospectus Supplement and the Prospectus form a part. A
copy of the Owner Trust Agreement will be filed with the Commission following
the issuance of the Securities. The following summary describes certain terms
of the Certificates and the Owner Trust Agreement. The summary does not purport
to be complete and is subject to, and qualified in its entirety by reference
to, all of the provisions of the Certificates, the Owner Trust Agreement and
the Prospectus. Where particular provisions or terms used in the Owner Trust
Agreement are referred to, the actual provisions (including definitions of
terms) are incorporated by reference as part of such summary.
DISTRIBUTIONS OF INTEREST AND CERTIFICATE BALANCE
Interest. On each Distribution Date, commencing May 16, 1994, interest will
be distributed to Certificateholders at the Pass Through Rate with respect to
the Certificate Balance. Any Certificateholders' Interest Distributable Amount
with respect to a Distribution Date which is not distributed on such
Distribution Date will be distributed on the next Distribution Date. Interest
with respect to the Certificates will accrue from April 15, 1994 (or from the
most recent Distribution Date on which interest has been paid) to but excluding
the following Distribution Date and will be calculated on the basis of a 360-
day year of twelve 30-day months. See "The Transfer and Servicing Agreements--
Distributions" and "--Reserve Account."
Certificate Balance. Certificateholders will be entitled to distributions on
each Distribution Date in an amount equal to the Certificateholders' Principal
Distributable Amount. The Certificateholders' Principal Distributable Amount
will be zero until the Class A-1 Notes have been paid in full, at which time it
will generally be 4.5% of the Principal Distributable Amount until all of the
Class A-2 Notes have been paid in full. Thereafter, until the Certificate
Balance is reduced to zero, the Certificateholders' Principal Distributable
Amount will be 100% of the Principal Distributable Amount. If the Servicer
exercises its option to purchase the Receivables when the Aggregate Receivables
Balance declines to 10% or less of the Initial Aggregate Receivables Balance,
Certificateholders will receive an amount in respect of the Certificates equal
to the Certificate Balance together with accrued interest at the Pass Through
Rate, which distribution shall effect early retirement of the Certificates. See
"The Transfer and Servicing Agreements-Termination" in the Prospectus. In
addition, on and after any Distribution Date on which all of the Notes have
been paid in full, funds in the Reserve Account will be applied to reduce the
Certificate Balance to zero if, after giving effect to all distributions to the
Servicer and the Securityholders on such Distribution Date, the amount on
deposit in the Reserve Account is equal to or greater than the Certificate
Balance. Under certain circumstances, the Certificateholders' Principal
Distributable Amount will not be deposited in the Certificate Deposit Account
and paid to the Certificateholders, but will instead be paid to the Noteholders
or deposited into the Reserve Account. See "The Transfer and Servicing
Agreements--Distributions" and "--Reserve Account."
S-13
<PAGE>
THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes certain terms of 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 Supplement and
the Prospectus form a part. A copy of the Transfer and Servicing Agreements
will be available from the Seller upon request to Securityholders. The summary
does not purport to be complete and is subject to, and qualified in its
entirety by reference to, all of the provisions of the Transfer and Servicing
Agreements and the Prospectus. Where particular provisions or terms used in the
Transfer and Servicing Agreements are referred to, the actual provisions
(including definitions of terms) are incorporated by reference as part of such
summary.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
On each Distribution Date, the Servicer will be entitled to receive the Total
Servicing Fee, which consists of the Basic Servicing Fee for the related
Monthly Period and any unpaid Basic Servicing Fees from prior Distribution
Dates. In addition, the Servicer will receive any Supplemental Servicing Fees.
The Basic Servicing Fee Rate will be 1% per annum.
DISTRIBUTIONS
Unless the Servicer satisfies the conditions for monthly remittances
described in "The Transfer and Servicing Agreements--Collections" in the
Prospectus, it will transfer all collections on the Receivables (including all
Prepayments) to the Collection Account within two Business Days of receipt
thereof. The Indenture Trustee will make distributions to the Note Distribution
Account and the Certificate Distribution Account out of the amounts on deposit
in the Collection Account. The amount to be distributed to the Note
Distribution Account and the Certificate Distribution Account will be
determined in the manner described below.
Determination of Available Amounts. The "TOTAL AVAILABLE AMOUNT" for a
Distribution Date will be the sum of the Available Amount and all cash or other
immediately available funds on deposit in the Reserve Account immediately prior
to such Distribution Date. See "The Transfer and Servicing Agreements--
Distributions; Determination of Available Amount" in the Prospectus.
Monthly Withdrawals and Deposits. On or before the tenth day of each calendar
month, or if such day is not a Business Day, the next succeeding Business Day,
with respect to the preceding Monthly Period and the related Distribution Date,
the Servicer will calculate the Total Available Amount, Collected Interest,
Collected Principal, the Total Servicing Fee, the Aggregate Noteholders'
Interest Distributable Amount, the Aggregate Noteholders' Principal
Distributable Amount, the Certificateholders' Interest Distributable Amount,
the Certificateholders' Principal Distributable Amount and certain other items.
Based on such calculations, the Servicer will deliver to the Indenture Trustee
a certificate specifying such amounts and instructing the Indenture Trustee to
make withdrawals, deposits and payments of the following amounts on the day
preceding such Distribution Date:
(i) the amount, if any, to be withdrawn from the Reserve Account and
deposited in the Collection Account;
(ii) the amounts to be withdrawn from the Collection Account and paid to
the Servicer in respect of reimbursement of Outstanding Monthly Advances
and payments in respect of Liquidation Expenses with respect to Receivables
which became Liquidating Receivables during the related Monthly Period (and
any unpaid Liquidation Expenses from prior periods);
(iii) the amount to be withdrawn from the Collection Account and paid to
the Servicer in respect of the Total Servicing Fee for such Distribution
Date;
S-14
<PAGE>
(iv) the amounts to be withdrawn from the Collection Account in respect
of the Aggregate Noteholders' Interest Distributable Amount and the
Aggregate Noteholders' Principal Distributable Amount and deposited in the
Note Distribution Account for payment to Noteholders on such Distribution
Date;
(v) the amounts to be withdrawn from the Collection Account in respect of
the Certificateholders' Interest Distributable Amount and the
Certificateholders' Principal Distributable Amount and deposited in the
Certificate Distribution Account for distribution to Certificateholders on
such Distribution Date;
(vi) the amount, if any, to be withdrawn from the Collection Account and
deposited in the Reserve Account; and
(vii) the amount, if any, to be withdrawn from the Reserve Account and
paid to the Seller.
The amount, if any, to be withdrawn from the Reserve Account and deposited to
the Collection Account on the day preceding any Distribution Date as specified
in clause (i) above will be the lesser of (i) the amount of cash or other
immediately available funds therein on the day preceding such Distribution Date
and (ii) the amount, if any, by which (a) the sum of the Total Servicing Fee,
the Aggregate Noteholders' Interest Distributable Amount, the
Certificateholders' Interest Distributable Amount, the Aggregate Noteholders'
Principal Distributable Amount and the Certificateholders' Principal
Distributable Amount exceeds (b) the Available Amount for such Distribution
Date. The amount, if any, to be withdrawn from the Reserve Account and paid to
the Seller as specified in clause (vi) above will equal the amount, if any, by
which the amount on deposit in the Reserve Account after all other deposits and
withdrawals on the day preceding such Distribution Date exceeds the Specified
Reserve Account Balance for such Distribution Date.
Priorities for Withdrawals from Collection Account. Withdrawals of funds from
the Collection Account on the day preceding a Distribution Date will be made
first for reimbursements of Outstanding Monthly Advances and payments in
respect of Liquidation Expenses. Thereafter, withdrawals of funds from the
Collection Account will be made for application as described in clauses (iii),
(iv) and (v) under "--Distributions--Monthly Withdrawals and Deposits" above,
but only to the extent of the Total Available Amount allocated to such
application for such Distribution Date. In calculating the amounts which can be
withdrawn from the Collection Account and applied as specified in such clauses
(iii), (iv) and (v), the Indenture Trustee, at the direction of the Servicer,
will allocate the Total Available Amount in the following order of priority:
(i) the Total Servicing Fee;
(ii) the Aggregate Noteholders' Interest Distributable Amount;
(iii) the Certificateholders' Interest Distributable Amount;
(iv) the Aggregate Noteholders' Principal Distributable Amount; and
(v) the Certificateholders' Principal Distributable Amount.
Notwithstanding the foregoing, at any time that the Notes have not been paid
in full and the principal balance of the Notes has been declared due and
payable following the occurrence of an Event of Default, until such time as the
Notes have been paid in full or such declaration has been rescinded and any
continuing Events of Default have been waived pursuant to the Indenture, no
amounts will be deposited in or distributed to the Certificate Distribution
Account. Any such amounts otherwise distributable to the Certificate
Distribution Account will be deposited instead into the Note Distribution
Account as payments of principal on the Notes.
"ACCELERATED PRINCIPAL DISTRIBUTABLE AMOUNT" means, with respect to the Class
A-1 Notes on a Distribution Date, the portion, to the extent greater than zero,
of the Total Available Amount remaining after payment of the Total Servicing
Fee, the Aggregate Noteholders' Interest Distributable
S-15
<PAGE>
Amount, the Certificateholders' Interest Distributable Amount and the Principal
Distributable Amount and after deduction from the Total Available Amount of the
Specified Reserve Account Balance on the prior Distribution Date (computed
after giving effect to all distributions to be made on such date).
"AGGREGATE NOTEHOLDERS' INTEREST DISTRIBUTABLE AMOUNT" means, with respect to
any Distribution Date, the sum of the Noteholders' Interest Distributable
Amounts for all classes of Notes and the Noteholders' Interest Carryover
Shortfall as of the preceding Distribution Date.
"AGGREGATE NOTEHOLDERS' PRINCIPAL DISTRIBUTABLE AMOUNT" means, with respect
to any Distribution Date, the sum of the Noteholders' Principal Distributable
Amounts for all classes of Notes and the Noteholders' Principal Carryover
Shortfall as of the preceding Distribution Date.
"CERTIFICATE BALANCE" means, initially, $9,801,471.35 (3.5% of the Initial
Aggregate Receivables Balance) and, on any Distribution Date thereafter, will
equal the initial Certificate Balance, reduced by (i) all distributions in
respect of Certificate Balance actually made on or prior to such date to
Certificateholders and (ii) the excess, if any, of the sum of (a) the
Noteholders' Principal Carryover Shortfall as of the preceding Distribution
Date and (b) the Certificateholders' Principal Carryover Shortfall as of the
preceding Distribution Date over the aggregate of all Accelerated Principal
Distributable Amounts theretofore distributed with respect to the Class A-1
Notes.
"CERTIFICATEHOLDERS' INTEREST CARRYOVER SHORTFALL" means, as of the close of
any Distribution Date, the excess of the Certificateholders' Interest
Distributable Amount for such Distribution Date over the amount that was
actually deposited in the Certificate Distribution Account on the day preceding
such current Distribution Date in respect of interest on the Certificates.
"CERTIFICATEHOLDERS' INTEREST DISTRIBUTABLE AMOUNT" means, with respect to
any Distribution Date, the sum of (i) the Certificateholders' Monthly Interest
Distributable Amount for such Distribution Date, (ii) the Certificateholders'
Interest Carryover Shortfall as of the close of the preceding Distribution Date
and (iii) one month's interest at the Pass Through Rate on the excess, if any,
of the sum of (a) the Noteholders' Principal Carryover Shortfall as of the
preceding Distribution Date and (b) the Certificateholders' Principal Carryover
Shortfall as of the preceding Distribution Date over the aggregate of all
Accelerated Principal Distributable Amounts theretofore distributed with
respect to the Class A-1 Notes.
"CERTIFICATEHOLDERS' MONTHLY INTEREST DISTRIBUTABLE AMOUNT" means, with
respect to any Distribution Date, interest equal to one-twelfth of the Pass
Through Rate multiplied by the Certificate Balance as of the last day of the
related Monthly Period (or in the case of the first Distribution Dates, as of
the Closing Date).
"CERTIFICATEHOLDERS' MONTHLY PRINCIPAL DISTRIBUTABLE AMOUNT" means, with
respect to any Distribution Date, the lesser of (a) the Certificateholders'
Percentage of the Principal Distributable Amount and (b) the Certificate
Balance as of the close of the preceding Distribution Date.
"CERTIFICATEHOLDERS' PERCENTAGE" means, with respect to any Distribution
Date, 100% minus the Noteholders' Percentage.
"CERTIFICATEHOLDERS' PRINCIPAL CARRYOVER SHORTFALL" means, as of the close of
any Distribution Date, the excess of the Certificateholders' Principal
Distributable Amount for such Distribution Date over the amount that was
actually deposited in the Certificate Distribution Account on the day preceding
such current Distribution Date in respect of Certificate Balance.
"CERTIFICATEHOLDERS' PRINCIPAL DISTRIBUTABLE AMOUNT" means, with respect to
any Distribution Date, the sum of the Certificateholders' Monthly Principal
Distributable Amount for such Distribution Date and any outstanding
Certificateholders' Principal Carryover Shortfall as of the close of the
preceding Distribution Date. In addition, on October 15, 1999 (with respect to
the Certificates, the "FINAL SCHEDULED DISTRIBUTION
S-16
<PAGE>
DATE"), the amount required to be distributed to Certificateholders in respect
of the Certificate Balance will include the lesser of (a) the sum of any
principal due and remaining unpaid on each Receivable in the Trust as of the
last day of the related Monthly Period, and (b) the amount that is necessary
(after giving effect to the other amounts to be deposited in the Certificate
Distribution Account on the day preceding such Distribution Date and allocable
to payments in respect of the Certificate Balance) to reduce the Certificate
Balance to zero, in either case after giving effect to any required
distribution of the Aggregate Noteholders' Principal Distributable Amount to
the Note Distribution Account. In addition, on any Distribution Date on which,
after giving effect to all distributions to the Servicer and the
Securityholders on such Distribution Date, (i) the outstanding principal
balance of the Notes is zero and (ii) the amount on deposit in the Reserve
Account is equal to or greater than the Certificate Balance,
Certificateholders' Principal Distributable Amount shall include an amount
equal to such Certificate Balance.
"NOTEHOLDERS' INTEREST CARRYOVER SHORTFALL" means, as of the close of any
Distribution Date, the excess of the Aggregate Noteholders' Interest
Distributable Amount for such Distribution Date over the amount that was
actually deposited in the Note Distribution Account on the day preceding such
current Distribution Date in respect of interest.
"NOTEHOLDERS' INTEREST DISTRIBUTABLE AMOUNT" means, with respect to any class
of Notes and any Distribution Date, the product of (i) the outstanding
principal balance of such class of Notes on the preceding Distribution Date
after giving effect to all payments of principal in respect of such class of
Notes on such preceding Distribution Date (or, in the case of the first
Distribution Date, the outstanding principal balance on the Closing Date) and
(ii) the product of the Interest Rate for such class and a fraction, the
numerator of which is 30, and the denominator of which is 360.
"NOTEHOLDERS' PERCENTAGE" means 100% until the principal balance of the Class
A-1 Notes is paid in full, 95.5% thereafter until the principal balance of the
Class A-2 Notes is paid in full and zero thereafter; provided, however, that if
the amount on deposit in the Reserve Account is less than 1.00% of the Initial
Aggregate Receivables Balance on any Distribution Date, then Noteholders'
Percentage means 100% until the Notes are paid in full or the amount on deposit
in the Reserve Account exceeds the Specified Reserve Account Balance.
"NOTEHOLDERS' PRINCIPAL CARRYOVER SHORTFALL" means, as of the close of any
Distribution Date, the excess of the Aggregate Noteholders' Principal
Distributable Amount for such Distribution Date over the amount that was
actually deposited in the Note Distribution Account on the day preceding such
current Distribution Date in respect of principal.
"NOTEHOLDERS' PRINCIPAL DISTRIBUTABLE AMOUNT" means, with respect to a class
of Notes on a Distribution Date, the lesser of (i) the remainder of (A) the sum
of Noteholders' Percentage of the Principal Distributable Amount plus, with
respect to the Class A-1 Notes only, the Accelerated Principal Distributable
Amount minus (B) the Noteholders' Principal Distributable Amount for each class
of Notes then having priority of payment and (ii) the outstanding principal
balance of such class of Notes (after giving effect to the distribution to the
Noteholders of amounts deposited in the Note Distribution Account on the
previous Distribution Date). In addition, on the Final Scheduled Distribution
Date for any class of Notes, the Noteholders' Principal Distributable Amount
for such Notes will also include the amount necessary to reduce the outstanding
principal balance of such class of Notes to zero.
"PASS THROUGH RATE" means, with respect to the Certificates, 6.260% per
annum.
"PRINCIPAL DISTRIBUTABLE AMOUNT" means, with respect to any Distribution
Date, the sum of the following items: (a) the principal portion of all
Scheduled Payments due with respect to the related Monthly Period on
Receivables held by the Trust (other than Liquidating Receivables), (b) the
principal portion of all Prepayments received during the related Monthly Period
(except to the extent included in (a) above) and (c) the Receivable Balance of
each Receivable that the Servicer purchased, the Seller repurchased or that
became a Liquidating Receivable during the related Monthly Period (except to
the extent included in (a) or (b) above).
S-17
<PAGE>
On each Distribution Date, all amounts on deposit in the Note Distribution
Account will be distributed to the Noteholders, and all amounts on deposit in
the Certificate Distribution Account will be distributed to the
Certificateholders.
RESERVE ACCOUNT
Pursuant to the Pooling and Servicing Agreement, the Seller will establish
the Reserve Account with the Indenture Trustee. The Reserve Account will be
funded by an initial deposit by the Seller on the Closing Date of cash or
Eligible Investments having a value equal to at least $18,201,395.64 (6.5% of
the Initial Aggregate Receivables Balance) (the "RESERVE ACCOUNT INITIAL
DEPOSIT"). If on the day preceding any Distribution Date the amount on deposit
in the Reserve Account is less than the Specified Reserve Account Balance, an
amount equal to the lesser of such insufficiency and the Available Amount
remaining with respect to such Distribution Date after the payment of the Total
Servicing Fee, the deposit of the Aggregate Noteholders' Interest Distributable
Amount and the Aggregate Noteholders' Principal Distributable Amount in the
Note Distribution Account and the deposit of the Certificateholders' Interest
Distributable Amount and the Certificateholders' Principal Distributable Amount
in the Certificate Distribution Account (see "Distributions--Monthly
Withdrawals and Deposits") shall be deposited in the Reserve Account.
"SPECIFIED RESERVE ACCOUNT BALANCE" with respect to any Distribution Date
means the greater of:
(a) 6.5% of the Aggregate Receivables Balance as of the close of business
on the last day of the related Monthly Period, except that if on any
Distribution Date (i) the product (expressed as a percentage) of (A) twelve
and (B) a fraction, the numerator of which is equal to the sum of the
Aggregate Losses plus Liquidation Proceeds for each of the Monthly Periods
which are the fifth, fourth and third Monthly Periods preceding the Monthly
Period related to such Distribution Date, minus the sum of the Liquidation
Proceeds for the Monthly Periods which are the first, second and third
Monthly Periods preceding the Monthly Period related to such Distribution
Date, and the denominator of which is the sum of the Remaining Gross
Balances of all outstanding Receivables as of the last day of each of the
sixth, fifth and fourth Monthly Periods preceding the Monthly Period
related to such Distribution Date, exceeds 1.5% or (ii) the average of the
Delinquency Percentages for the preceding three months exceeds 2.0%, then
the percentage of the Aggregate Receivables Balance referred to in this
clause (a) shall be equal to 10%; and
(b) 2.0% of the Initial Aggregate Receivables Balance.
If the amount on deposit in the Reserve Account on any Distribution Date
(after giving effect to all deposits or withdrawals therefrom on the day
preceding such Distribution Date) is greater than the Specified Reserve Account
Balance for such Distribution Date, subject to certain limitations, the
Servicer will instruct the Indenture Trustee to distribute the amount of the
excess to the Seller. Upon any distribution to the Seller of amounts from the
Reserve Account, the Securityholders will not have any rights in, or claims to,
such amounts. In certain circumstances, funds in the Reserve Account will be
used to reduce the Certificate Balance to zero. See "The Certificates--
Distributions of Interest and Certificate Balance." The Seller may at any time,
without consent of the Securityholders, sell, transfer, convey or assign in any
manner its rights to and interests in distributions from the Reserve Account,
including interest earnings thereon, provided that certain conditions are
satisfied, including: (i) such action will not result in a reduction or
withdrawal of the rating of either class of the Notes or the Certificates, (ii)
the Seller provides to the Owner Trustee and the Indenture Trustee an opinion
of independent counsel that such action will not cause the Trust to be treated
as an association (or publicly traded partnership) taxable as a corporation for
Federal income tax purposes, and (iii) such transferee or assignee agrees to
take positions for tax purposes consistent with the tax positions agreed to be
taken by the Seller.
S-18
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Tax Counsel, the Trust will not be taxable as an
association or publicly traded partnership taxable as a corporation, but should
be classified as a partnership under the Code. It is Tax Counsel's opinion that
the Notes will be treated as indebtedness and the Certificates should
constitute the equity of the Trust. For a discussion of the anticipated
material federal income tax consequences of the purchase, ownership and
disposition of the Securities, see "Certain Federal Income Tax Consequences,"
particularly the sections entitled "The Notes" and "Partnership Certificates,"
and "Certain State Tax Matters" in the Prospectus. For purposes of such
discussion, the Trust is a Tax Partnership and the Certificates are Partnership
Certificates.
ERISA CONSIDERATIONS
THE NOTES
Although there is little guidance on the subject, the Seller believes the
Notes should be treated as indebtedness without substantial equity features for
purposes of the Plan Assets Regulation. Therefore, the Notes are available for
investment by a Benefit Plan, subject to a determination by such Benefit Plan's
fiduciary that the Notes are suitable investments for such Benefit Plan under
ERISA and the Code. For additional information regarding treatment of the Notes
under ERISA, see "ERISA Considerations" in the Prospectus.
THE CERTIFICATES
The Seller believes that the Certificates would be treated as plan assets
under the Plan Assets Regulation. Accordingly, the Certificates may not be
acquired by (a) a Benefit Plan that is subject to the provisions of Title 1 of
ERISA, (b) a Benefit Plan described in Section 4975(e)(1) of the Code or (c)
any entity whose underlying assets include assets of a Benefit Plan described
under (a) or (b). By its acceptance of a Certificate, each Certificateholder
will be deemed to have represented and warranted that it is not subject to the
foregoing limitation.
UNDERWRITING
Subject to the terms and conditions set forth in 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 from the Seller, the
principal amount of securities set forth opposite its name below:
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL AMOUNT TO BE PURCHASED
---------------------------------------------------------
CLASS A-1 NOTES CLASS A-2 NOTES CERTIFICATES TOTAL
--------------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
Chemical Securities
Inc.................... $44,803,000 $ 90,307,000 $4,851,500 $139,961,500
J. P. Morgan Securities
Inc.................... $44,803,000 $ 90,307,000 $4,851,500 $139,961,500
----------- ------------ ---------- ------------
Total............... $89,606,000 $180,614,000 $9,703,000 $279,923,000
=========== ============ ========== ============
</TABLE>
The Seller has been advised by the Underwriters that they propose initially
to offer the Securities to the public at the prices set forth on the cover page
hereof, and to certain dealers at such prices less a selling concession not in
excess of the percentage set forth below for each class of securities. The
Underwriters may allow, and such dealers may reallow to certain other dealers,
a subsequent concession not in excess of the percentage set forth below for
each class of securities. After the initial public offering, the public
offering price and such concessions may be changed.
<TABLE>
<CAPTION>
SELLING
CONCESSION REALLOWANCE
---------- -----------
<S> <C> <C>
Class A-1 Notes.................................... 0.075% 0.050%
Class A-2 Notes.................................... 0.150% 0.100%
Certificates....................................... 0.300% 0.250%
</TABLE>
S-19
<PAGE>
The Seller has agreed not to offer for sale, sell, contract to sell or
otherwise dispose of, directly or indirectly, or file a registration statement
for, or announce any offering of, any securities collateralized by, or
evidencing an ownership interest in, a pool of Retail Notes (other than the
Securities and any Retail Notes sold pursuant to NFC's existing retail
receivables purchase facility with a bank group) for a period of 30 days from
the date of this Prospectus Supplement, without the prior written consent of
the Underwriters.
In the ordinary course of their respective businesses, the Underwriters and
their respective affiliates have engaged and may in the future engage in
commercial banking and investment banking transactions with affiliates of the
Seller, including the Seller's parent, NFC.
As discussed under "Use of Proceeds," NFC intends to use the proceeds of its
sale of the Receivables to the Seller to repay amounts owing to a group of
lenders, including affiliates of each of the Underwriters, under one or more
credit agreements. Accordingly, because more than 10% of the net offering
proceeds may be paid to an affiliate of a member of the National Association of
Securities Dealers, Inc. (the "NASD") which is participating in the
distribution of the Securities, the offering of the Securities is being made
pursuant to the provisions of Article III, Section 44(c)(8) of the NASD Rules
of Fair Practice.
LEGAL OPINIONS
In addition to the legal opinions described in the Prospectus, certain legal
matters relating to the Securities will be passed upon for the Underwriters by
Simpson Thacher & Bartlett (a partnership which includes professional
corporations).
S-20
<PAGE>
INDEX OF TERMS
Set forth below is a list of the capitalized terms defined in this Prospectus
Supplement and the pages on which the definitions of such terms may be found
herein. Certain capitalized terms used but not otherwise defined herein shall
have the meanings assigned such terms in the Prospectus.
<TABLE>
<S> <C>
Accelerated Principal Distributable Amount........................... S-15
Aggregate Noteholders' Interest Distributable Amount................. S-16
Aggregate Noteholders' Principal Distributable Amount................ S-16
Certificate Balance.................................................. S-16
Certificateholders' Interest Carryover Shortfall..................... S-16
Certificateholders' Interest Distributable Amount.................... S-16
Certificateholders' Monthly Interest Distributable Amount............ S-16
Certificateholders' Monthly Principal Distributable Amount........... S-16
Certificateholders' Percentage....................................... S-16
Certificateholders' Principal Carryover Shortfall.................... S-16
Certificateholders' Principal Distibutable Amount.................... S-16
Certificates......................................................... S-1
Class A-1 Notes...................................................... S-3
Class A-2 Notes...................................................... S-3
Closing Date......................................................... S-1
Distribution Date.................................................... S-1
Final Scheduled Distribution Date.................................... S-12, S-16
Indenture............................................................ S-12
Interest Rate........................................................ S-12
Issuer............................................................... S-1
NFC.................................................................. S-8
Noteholders' Interest Carryover Shortfall............................ S-17
Noteholders' Interest Distributable Amount........................... S-17
Noteholders' Percentage.............................................. S-17
Noteholders' Principal Carryover Shortfall........................... S-17
Noteholders' Principal Distributable Amount.......................... S-17
Notes................................................................ S-1
OID.................................................................. S-19
Owner Trust Agreement................................................ S-8
Pass Through Rate.................................................... S-17
Principal Distributable Amount....................................... S-17
Reserve Account Initial Deposit...................................... S-18
Specified Reserve Account Balance.................................... S-18
Total Available Amount............................................... S-14
Trust................................................................ S-1
</TABLE>
S-21
<PAGE>
PROSPECTUS
NAVISTAR FINANCIAL RETAIL RECEIVABLES ASSET TRUSTS
ASSET BACKED NOTES
ASSET BACKED CERTIFICATES
----------------
NAVISTAR FINANCIAL RETAIL RECEIVABLES CORPORATION
SELLER
----------------
NAVISTAR FINANCIAL CORPORATION
SERVICER
----------------
The Asset Backed Notes (the "NOTES") and the Asset Backed Certificates (the
"CERTIFICATES" and, collectively with the Notes, the "SECURITIES") described
herein may be sold from time to time in one or more series, in amounts, at
prices and on terms to be determined at the time of sale and to be set forth in
a supplement to this Prospectus (a "PROSPECTUS SUPPLEMENT"). The Securities of
each series will be issued by a trust formed under the Delaware business trust
law (an "OWNER TRUST" or a "TRUST") or by a common law trust (a "GRANTOR TRUST"
or a "TRUST"), as set forth in the related Prospectus Supplement. Each series
of Securities issued by an Owner Trust will include one or more classes of
Notes and one or more classes of Certificates ("OWNER CERTIFICATES" and,
collectively with the Notes, the "OWNER SECURITIES"). Each series of
Certificates issued by a Grantor Trust will consist of two classes of
Certificates, the Class A Certificates (the "CLASS A CERTIFICATES") and the
Class B Certificates (the "CLASS B CERTIFICATES" and, collectively with the
Class A Certificates, the "GRANTOR CERTIFICATES"). With respect to any Grantor
Trust, only the Class A Certificates will be offered hereby and by the related
Prospectus Supplements.
The property of each Trust will include a pool of retail instalment sale
contracts for, and retail loans evidenced by notes secured by, medium and heavy
duty trucks, buses and trailers (the "RECEIVABLES"), certain monies due or
received thereunder on and after the Cutoff Date set forth in the related
Prospectus Supplement, security interests in the vehicles financed thereby and
certain other property. Each Owner Trust will be formed pursuant to a Trust
Agreement (an "OWNER TRUST AGREEMENT") to be entered into between Navistar
Financial Retail Receivables
(continued on next page)
----------------
EXCEPT AS OTHERWISE PROVIDED IN THE RELATED PROSPECTUS SUPPLEMENT, PROCEEDS OF
THE ASSETS OF THE TRUST FOR ANY SERIES AND AMOUNTS ON DEPOSIT IN THE RESERVE
ACCOUNT OR THE SUBORDINATION SPREAD ACCOUNT, AS APPLICABLE, ARE THE ONLY
SOURCES OF PAYMENTS ON SECURITIES FOR SUCH SERIES. THE SECURITIES WILL NOT
REPRESENT AN INTEREST IN OR OBLIGATION OF, AND ARE NOT INSURED OR
GUARANTEED BY, NAVISTAR FINANCIAL CORPORATION, NAVISTAR FINANCIAL RETAIL
RECEIVABLES CORPORATION, ANY OTHER TRUST OR ANY OF THEIR RESPECTIVE
AFFILIATES, EXCEPT AS SET FORTH IN THE RELATED PROSPECTUS SUPPLEMENT.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Retain this Prospectus for future reference. This Prospectus may not be used
to consummate sales of securities offered hereby unless accompanied by a
Prospectus Supplement.
The date of this Prospectus is April 20, 1994.
<PAGE>
(continued from previous page)
Corporation, as Seller (the "SELLER"), and the Owner Trustee specified in the
related Prospectus Supplement (the "OWNER TRUSTEE"). Each Grantor Trust will be
formed pursuant to a Pooling and Servicing Agreement which incorporates the
Navistar Financial Grantor Trust Standard Terms and Conditions of Agreement
(together, a "GRANTOR TRUST POOLING AND SERVICING AGREEMENT" or a "POOLING AND
SERVICING AGREEMENT") to be entered into among the Seller, Navistar Financial
Corporation, as Servicer (the "SERVICER"), and the Grantor Trustee specified in
the related Prospectus Supplement (the "GRANTOR TRUSTEE"; the Owner Trustee and
the Grantor Trustee are each sometimes referred to as a "TRUSTEE"). In the case
of an Owner Trust, the Notes of each series will be issued and secured pursuant
to an Indenture (the "INDENTURE") between the Owner Trust and the Indenture
Trustee specified in the related Prospectus Supplement (the "INDENTURE
TRUSTEE").
With respect to each Owner Trust, the right of each class of Owner Securities
to receive payments may be senior or subordinate to the rights of one or more
of the other classes of such series. A series of Owner Securities may include
two or more classes of Notes or Owner Certificates which differ as to the
timing and priority of payment, interest rate or amount of distributions in
respect of principal or Certificate Balance, as applicable, or interest or
both. A series of Owner Securities may include one or more classes of Notes or
Owner Certificates entitled to (i) principal payments or distributions in
respect of Certificate Balance, with disproportionate, nominal or no interest
distributions, or (ii) interest distributions, with disproportionate, nominal
or no principal payments or distributions in respect of Certificate Balance.
Distributions on Owner Certificates of a series will be subordinated in
priority to payments due on the related Notes to the extent described herein
and in the related Prospectus Supplement. The Owner Certificates of any series
will represent fractional undivided ownership interests in the related Owner
Trust.
With respect to each Grantor Trust, the rights of Class B Certificateholders
to receive distributions will be subordinated to the rights of the related
Class A Certificateholders to the extent described herein and in the related
Prospectus Supplement. The Class A Certificates of any series will represent
fractional undivided ownership interests equal in the aggregate to the Class A
Percentage (as defined in the related Prospectus Supplement) of the related
Grantor Trust.
EXCEPT AS OTHERWISE PROVIDED IN THE RELATED PROSPECTUS SUPPLEMENT, THE ONLY
OBLIGATIONS OF THE SELLER OR OF NAVISTAR FINANCIAL CORPORATION AS ORIGINATOR OF
RECEIVABLES WITH RESPECT TO A SERIES OF SECURITIES WILL BE PURSUANT TO CERTAIN
REPRESENTATIONS AND WARRANTIES MADE BY SUCH PARTY. NAVISTAR FINANCIAL
CORPORATION WILL BE THE SERVICER FOR EACH SERIES. THE OBLIGATIONS OF THE
SERVICER WILL BE LIMITED TO ITS CONTRACTUAL SERVICING OBLIGATIONS (WHICH
INCLUDE ITS LIMITED OBLIGATION TO MAKE ADVANCES IN THE EVENT OF CERTAIN
DELINQUENCIES AND EXTENSIONS IN PAYMENTS ON RECEIVABLES).
Except as otherwise provided in the related Prospectus Supplement, each class
of Securities of any series will represent the right to receive a specified
amount of payments of principal and interest on the related Receivables at the
rates, on the dates and in the manner described herein and in the related
Prospectus Supplement. The rate of payment in respect of principal on Notes and
distributions in respect of Certificate Balance on Certificates of any class
will depend on the priority of payment of such class and the rate and timing of
payments (including prepayments, defaults, liquidations and repurchases of
Receivables) on the related Receivables. A rate of payment lower or higher than
that anticipated may affect the weighted average life of each class of
Securities in the manner described herein and in the related Prospectus
Supplement.
There will be no secondary market for any class of Securities prior to the
offering thereof. There can be no assurance that a secondary market for any
class of Securities will develop or, if it does develop, that it will continue.
No class of Securities will be listed on any securities exchange.
Unless otherwise provided in the related Prospectus Supplement, each class of
Securities initially will be represented by Securities registered in the name
of Cede & Co. ("CEDE"), the nominee of The Depository Trust Company ("DTC").
The interests of beneficial owners of each class of Securities will be
represented by book entries on the records of DTC and participating members
thereof. Definitive Securities will be available only under limited
circumstances.
2
<PAGE>
AVAILABLE INFORMATION
Navistar Financial Retail Receivables Corporation, as originator of each
Trust, has filed with the Securities and Exchange Commission (the "COMMISSION")
a Registration Statement (together with all amendments and exhibits thereto,
referred to herein as the "REGISTRATION STATEMENT") under the Securities Act of
1933, as amended (the "SECURITIES ACT"), with respect to the Securities offered
pursuant to this Prospectus. For further information, reference is made to the
Registration Statement which may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549; and at the Commission's regional offices at 500 West
Madison Street, 14th Floor, Chicago, Illinois 60661 and 75 Park Place, New
York, New York 10007. Copies of the Registration Statement may be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
REPORTS TO SECURITYHOLDERS
Unless otherwise provided in the related Prospectus Supplement, unless and
until Definitive Securities are issued, monthly, quarterly and annual unaudited
reports containing information concerning the Receivables will be prepared by
the Servicer and sent on behalf of each Trust only to Cede, as nominee of DTC
and registered holder of the Securities. See "Certain Information Regarding The
Securities--Book-Entry Registration", "Definitive Securities" and "--Reports to
Securityholders". Such reports will not constitute financial statements
prepared in accordance with generally accepted accounting principles. Each
Trust will file with the Commission such periodic reports as are required under
the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and the
rules and regulations of the Commission thereunder.
OWNER TRUSTS/GRANTOR TRUSTS
This Prospectus provides for the issuance and sale of Securities by both
Owner Trusts and Grantor Trusts pursuant to various Prospectus Supplements.
Each Prospectus Supplement will provide for the issuance and sale of either (i)
Owner Securities issued pursuant to an Owner Trust or (ii) Class A Certificates
issued pursuant to a Grantor Trust. Where appropriate, this Prospectus
distinguishes the terms, conditions and other information which would be
applicable to Owner Securities and Owner Trusts only or to Class A Certificates
and Grantor Trusts only. No Prospectus Supplement will contain information
which represents a fundamental change from the information contained in this
Prospectus.
3
<PAGE>
PROSPECTUS SUMMARY
This Prospectus Summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to the Securities contained in the related
Prospectus Supplement to be prepared and delivered in connection with the
offering of such Securities. Certain capitalized terms used in this Prospectus
Summary are defined elsewhere in this Prospectus. A listing of the pages on
which some of such terms are defined is found in the "Index of Terms."
GENERALLY APPLICABLE TERMS
Seller.................... Navistar Financial Retail Receivables Corporation
("NFRRC"), a wholly-owned subsidiary of Navistar
Financial Corporation.
Servicer.................. Navistar Financial Corporation ("NFC"), a wholly-
owned subsidiary of Navistar International Trans-
portation Corp. ("NITC").
The Trust Property........ The property of each Trust will include a pool of
retail instalment sale contracts for, and retail
loans evidenced by notes and secured by, new and
used medium and heavy duty trucks, buses and trail-
ers, certain monies due or received thereunder on
and after the Cutoff Date specified in the related
Prospectus Supplement (a "CUTOFF DATE"), security
interests in the vehicles financed thereby, the
proceeds, if any, of Dealer Liability, NITC Pur-
chase Obligations and any Guaranties, the proceeds
from claims on certain insurance policies, the ben-
efit of any lease assignments and certain rights of
the Seller under the related Purchase Agreement and
the related Custodian Agreement. For each Trust,
the Aggregate Receivables Balance as of the related
Cutoff Date (the "INITIAL AGGREGATE RECEIVABLES
BALANCE") will be specified in the related Prospec-
tus Supplement. All of the Receivables will be
prepayable at any time without penalty to the Obli-
gor. See "The Receivables Pools." Information with
respect to each Receivables Pool, including the
weighted average APR of the Receivables and the
weighted average remaining maturity of the Receiv-
ables, will be set forth in the related Prospectus
Supplement.
TERMS APPLICABLE TO EACH OWNER TRUST
Issuer.................... With respect to each series of Owner Securities, an
Owner Trust to be formed by the Seller and the
Owner Trustee pursuant to the Owner Trust Agreement
to be dated the Closing Date (as defined in the re-
lated Prospectus Supplement).
Indenture Trustee......... The Indenture Trustee specified in the related Pro-
spectus Supplement.
Owner Trustee............. The Owner Trustee specified in the related Prospec-
tus Supplement.
The Notes................. Each series of Owner Securities will include one or
more classes of Notes to be issued pursuant to an
Indenture between the Owner Trust and the Indenture
Trustee.
Unless otherwise specified in the related Prospec-
tus Supplement, Notes will be available for pur-
chase in denominations of $1,000 and
4
<PAGE>
integral multiples thereof, and will be available
in book-entry form only. Unless otherwise specified
in the related Prospectus Supplement, Noteholders
will be able to receive Definitive Notes only in
the limited circumstances described herein or in
the related Prospectus Supplement. See "Certain In-
formation Regarding the Securities--Definitive Se-
curities."
Unless otherwise specified in the related Prospec-
tus Supplement, each class of Notes will have a
stated principal amount and will bear interest at a
specified rate or rates (with respect to each class
of Notes, the "INTEREST RATE"). Each class of Notes
may have a different Interest Rate, which may be a
fixed, variable or adjustable Interest Rate, or any
combination of the foregoing. The related Prospec-
tus Supplement will specify the Interest Rate for
each class of Notes, or the initial Interest Rate
and the method for determining subsequent changes
to the Interest Rate.
A series of Owner Securities may include two or
more classes of Notes which differ as to the timing
and priority of payment, seniority, allocations of
loss, Interest Rate or amount of payments of prin-
cipal or interest, or as to which payments of prin-
cipal or interest may or may not be made upon the
occurrence of specified events or on the basis of
collections from designated portions of the Receiv-
ables Pool. In addition, a series may include one
or more classes of Notes ("STRIP NOTES") entitled
to (i) principal payments with disproportionate,
nominal or no interest payments, or (ii) interest
payments with disproportionate, nominal or no prin-
cipal payments.
If the Servicer exercises its option to purchase
the Receivables of an Owner Trust on the terms and
conditions described below under "The Transfer and
Servicing Agreements--Termination," the outstanding
Notes will be redeemed as set forth in the related
Prospectus Supplement.
The Owner Certificates.... Each series of Owner Securities will include one or
more classes of Owner Certificates to be issued
pursuant to an Owner Trust Agreement between the
Seller and the Owner Trustee.
Unless otherwise specified in the related Prospec-
tus Supplement, Owner Certificates will be avail-
able for purchase in minimum denominations of
$20,000 and in integral multiples of $1,000 in ex-
cess thereof and will be available in book-entry
form only. Unless otherwise specified in the re-
lated Prospectus Supplement, holders of Owner Cer-
tificates (the "OWNER CERTIFICATEHOLDERS") will be
able to receive Definitive Certificates only in the
limited circumstances described herein or in the
related Prospectus Supplement. See "Certain Infor-
mation Regarding the Securities--Definitive Securi-
ties."
Unless otherwise specified in the related Prospec-
tus Supplement, each class of Owner Certificates
will have a stated Certificate Balance (as defined
in the related Prospectus Supplement) and will ac-
crue interest on such Certificate Balance at a
specified rate (with respect to each class of Owner
Certificates, the "PASS THROUGH RATE"), which
5
<PAGE>
may be a fixed, variable or adjustable Pass Through
Rate. Each class of Owner Certificates may have a
different Pass Through Rate. The related Prospectus
Supplement will specify the Pass Through Rate for
each class of Owner Certificates, or the initial
Pass Through Rate and the method for determining
subsequent changes to the Pass Through Rate.
A series of Owner Certificates may include two or
more classes of Owner Certificates which differ as
to timing of distributions, sequential order, pri-
ority of payment, seniority, allocation of loss,
Pass Through Rate or amount of distributions in re-
spect of Certificate Balance or interest, or as to
which distributions in respect of Certificate Bal-
ance or interest on any class may or may not be
made upon the occurrence of specified events or on
the basis of collections from designated portions
of the Receivables Pool. In addition, a series may
include one or more classes of Owner Certificates
("STRIP CERTIFICATES") entitled to (i) distribu-
tions in respect of Certificate Balance with dis-
proportionate, nominal or no interest distribu-
tions, or (ii) interest distributions, with dispro-
portionate, nominal or no distributions in respect
of Certificate Balance.
To the extent specified in the related Prospectus
Supplement, distributions in respect of the Owner
Certificates will be subordinated in priority of
payment to payments on the Notes.
If the Servicer exercises its option to purchase
the Receivables of an Owner Trust on the terms and
conditions described below under "The Transfer and
Servicing Agreements--Termination," Owner
Certificateholders will receive an amount in re-
spect of the Owner Certificates as specified in the
related Prospectus Supplement.
Credit Enhancement........ If and to the extent specified in the related Pro-
spectus Supplement, credit enhancement with respect
to an Owner Trust or any class of Owner Securities
may include any one or more of the following: sub-
ordination of one or more other classes of Securi-
ties, a Reserve Account, over collateralization,
letters of credit, credit or liquidity facilities,
repurchase obligations, third party payments or
other support, cash deposits or other arrangements.
Unless otherwise specified in the related Prospec-
tus Supplement, any form of credit enhancement will
have certain limitations and exclusions from cover-
age thereunder, which will be described in the re-
lated Prospectus Supplement.
Reserve Account........... Unless otherwise specified in the related Prospec-
tus Supplement, a Reserve Account will be created
for each Owner Trust with an initial deposit by the
Seller of cash or certain investments having a
value equal to the Reserve Account Initial Deposit
(as defined in the related Prospectus Supplement).
To the extent specified in the related Prospectus
Supplement, the funds in the Reserve Account will
thereafter be supplemented by the deposit of
amounts remaining after payment to the Servicer of
the Total Servicing Fee and providing for amounts
to be distributed to the Noteholders and the Owner
Certificateholders (collectively, the "OWNER
SECURITYHOLDERS"). Un-
6
<PAGE>
less otherwise provided in the related Prospectus
Supplement, amounts in the Reserve Account (after
giving effect to all distributions to be made to
the Servicer and the Owner Securityholders) in ex-
cess of the Specified Reserve Account Balance (as
defined in the related Prospectus Supplement) will
be paid to the Seller.
Transfer and Servicing With respect to each series of Owner Securities,
Agreements................ the Seller will purchase the Receivables from NFC
pursuant to a Purchase Agreement and the Seller
will transfer such Receivables to the related Owner
Trust pursuant to a Pooling and Servicing Agreement
to be entered into among the Seller, the Servicer
and the Owner Trust (an "OWNER TRUST POOLING AND
SERVICING AGREEMENT" or a "POOLING AND SERVICING
AGREEMENT"). With respect to each series of Notes,
the rights and benefits of the Seller under the
Purchase Agreement and of the Owner Trust under the
Pooling and Servicing Agreement will be assigned to
the Indenture Trustee as collateral for the related
Notes. With respect to each series of Owner Securi-
ties, the Servicer will agree to be responsible for
servicing, managing, maintaining custody of and
making collections on Receivables. Each Owner Trust
will be created pursuant to an Owner Trust Agree-
ment and the Servicer will undertake certain admin-
istrative duties with respect to each Owner Trust
under an Administration Agreement.
TERMS APPLICABLE TO EACH GRANTOR TRUST
Issuer.................... With respect to each series of Grantor Certifi-
cates, a Grantor Trust to be formed by the Seller
pursuant to a Grantor Trust Pooling and Servicing
Agreement to be dated the Closing Date (as defined
in the related Prospectus Supplement).
Grantor Trustee........... The Grantor Trustee specified in the related Pro-
spectus Supplement.
The Certificates.......... Each series of Grantor Certificates will consist of
two classes, the Class A Certificates and the Class
B Certificates, in each case as designated in the
related Prospectus Supplement. Each Grantor Certif-
icate will represent an undivided ownership inter-
est in the related Grantor Trust. Only the Class A
Certificates will be offered hereby and by the re-
lated Prospectus Supplements. Unless otherwise
specified in the related Prospectus Supplement, the
Class A Certificates will be issued in minimum de-
nominations of $1,000 or integral multiples there-
of.
For any series of Grantor Certificates, the Class A
Certificates will evidence in the aggregate an un-
divided ownership interest equal to the Class A
Percentage (as defined in the related Prospectus
Supplement) of the related Grantor Trust, and the
Class B Certificates will evidence in the aggregate
an undivided ownership interest equal to the Class
B Percentage (as defined in the related Prospectus
Supplement) of the related Grantor Trust.
Unless otherwise specified in the related Prospec-
tus Supplement, Class A Certificates will be avail-
able in book-entry form only and
7
<PAGE>
Class A Certificateholders will be able to receive
Definitive Certificates only in the limited circum-
stances described herein or in the related Prospec-
tus Supplement. See "Certain Information Regarding
the Securities--Definitive Securities."
If the Servicer exercises its option to purchase
the Receivables of a Grantor Trust on the terms and
conditions described below under "The Transfer and
Servicing Agreements--Termination," Class A
Certificateholders will receive an amount in re-
spect of the Class A Certificates as specified in
the related Prospectus Supplement.
Interest.................. With respect to each series of Class A Certifi-
cates, on each Distribution Date, interest will be
passed through to the holders of record of Class A
Certificates (the "CLASS A CERTIFICATEHOLDERS") as
of the day immediately preceding such Distribution
Date (or, if Definitive Certificates are issued,
the last day of the preceding Monthly Period) (the
"RECORD DATE") at the Pass Through Rate (as defined
in the related Prospectus Supplement) on the Class
A Certificate Balance. Interest on the Class A Cer-
tificates will accrue from the most recent Distri-
bution Date on which interest has been paid to but
excluding the current Distribution Date, to the ex-
tent of funds available from (i) the Class A Per-
centage of the Collected Interest, (ii) the Subor-
dination Spread Account and (iii) the Class B Dis-
tributable Amount. See "Class A Certificates."
Principal................. With respect to each series of Class A Certifi-
cates, on each Distribution Date, the Grantor
Trustee will pass through and distribute pro rata
to Class A Certificateholders as of the Record
Date, all Scheduled Payments of principal, the
principal portion of all Full Prepayments and Par-
tial Prepayments received during the related
Monthly Period in each case to the extent funds
available from (i) the Class A Percentage of the
Collected Principal, (ii) the Subordination Spread
Account and (iii) the remainder of the Available
Amount. See "Class A Certificates" and "The Receiv-
ables Pools."
Credit Enhancement........ Unless otherwise specified in the related Prospec-
tus Supplement, credit enhancements with respect to
Class A Certificates will include subordination of
the Class B Certificates and a Subordination Spread
Account. If and to the extent specified in the re-
lated Prospectus Supplement, credit enhancement
with respect to a Grantor Trust or a class of
Grantor Certificates may also include any one or
more of the following: over collateralization, let-
ters of credit, credit or liquidity facilities, re-
purchase obligations, third party payments or other
support, cash deposits or other arrangements. Un-
less otherwise specified in the related Prospectus
Supplement, any form of credit enhancement will
have certain limitations and exclusions from cover-
age thereunder, which will be described in the re-
lated Prospectus Supplement.
Subordination............. The rights of the holders of Class B Certificates
(the "CLASS B CERTIFICATEHOLDERS") to receive dis-
tributions to which they would otherwise be enti-
tled with respect to the Receivables held by the
related
8
<PAGE>
Grantor Trust will be subordinated to the rights of
the Class A Certificateholders (together with the
Class B Certificateholders, collectively, the
"GRANTOR CERTIFICATEHOLDERS"), as described more
fully herein.
Subordination Spread Unless otherwise specified in the related Prospec-
Account................... tus Supplement, a Subordination Spread Account will
be created for each series of Grantor Certificates
with an initial deposit by the Seller of cash or
certain investments maturing on or prior to the re-
lated initial Distribution Date and having a value
equal to the Subordination Initial Deposit (as de-
fined in the related Prospectus Supplement). The
funds in each Subordination Spread Account will
thereafter be supplemented by the deposit of
amounts otherwise distributable to the related
Class B Certificateholders until the amount of
funds in such Subordination Spread Account reaches
an amount equal to the applicable Specified Subor-
dination Spread Account Balance. Thereafter,
amounts otherwise distributable to the Class B
Certificateholders will be deposited in the Subor-
dination Spread Account to the extent necessary to
maintain the amount of funds in such Subordination
Spread Account at an amount equal to the Specified
Subordination Spread Account Balance. Amounts in
each Subordination Spread Account on any Distribu-
tion Date (after giving effect to all distributions
made on such Distribution Date) in excess of the
Specified Subordination Spread Account Balance for
such Distribution Date generally will be released
to the Class B Certificateholders of the related
Grantor Trust. The "SPECIFIED SUBORDINATION SPREAD
ACCOUNT BALANCE" with respect to any Distribution
Date will be equal to the Minimum Subordination
Spread Amount (as defined in the related Prospectus
Supplement), subject to adjustment in the manner
described more fully herein and in the related Pro-
spectus Supplement. See "The Transfer and Servicing
Agreements--Credit Enhancement--Grantor Trust: Sub-
ordination of the Class B Certificates; Subordina-
tion Spread Account." In no event will the Speci-
fied Subordination Spread Account Balance be more
than the Maximum Subordination Spread Amount or
less than the Minimum Subordination Spread Amount
(each as defined in the related Prospectus Supple-
ment). As of any Distribution Date, the amount of
funds actually on deposit in the Subordination
Spread Account may, in certain circumstances, be
less than the Specified Subordination Spread Ac-
count Balance.
Each Subordination Spread Account will be main-
tained with the Grantor Trustee as a segregated
trust account, but will not be part of the related
Grantor Trust.
Transfer and Servicing With respect to each series of Grantor Certifi-
Agreements................ cates, the Seller will purchase the Receivables
from NFC pursuant to a Purchase Agreement and the
Seller will transfer such Receivables to the re-
lated Grantor Trust pursuant to a Grantor Trust
Pooling and Servicing Agreement. With respect to
each series of Grantor Certificates, the
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Servicer will agree to be responsible for servic-
ing, managing, maintaining custody of and making
collections on the Receivables. Each Grantor Trust
will be created pursuant to a Grantor Trust Pooling
and Servicing Agreement.
ADDITIONAL GENERALLY APPLICABLE TERMS
Monthly Advances.......... Unless otherwise specified in the related Prospec-
tus Supplement, the Servicer will be obligated to
make Monthly Advances to the Trust. With respect to
each Receivable, the Servicer will make a Monthly
Advance of that portion of Scheduled Payments due
on such Receivable and not received by the end of
the month in which it is due. The Servicer will be
entitled to reimbursement of all Monthly Advances
from subsequent payments and collections on or with
respect to the Receivables. The Servicer will not
be obligated to make any Monthly Advance in respect
of a Receivable to the extent that it does not ex-
pect to recover such advance from subsequent col-
lections or recoveries on such Receivable. See "The
Transfer and Servicing Agreements--Monthly Advanc-
es."
Total Servicing Fee....... Unless otherwise specified in the related Prospec-
tus Supplement, the Servicer will be entitled to
receive a monthly fee for servicing the Receivables
of each Trust equal to the product of (a) one-
twelfth of the Basic Servicing Fee Rate specified
in the related Prospectus Supplement and (b) the
Aggregate Receivables Balance of such Receivables
as of the first day of each Monthly Period. In ad-
dition, the Servicer will be entitled each month to
Supplemental Servicing Fees to the extent specified
herein or in the related Prospectus Supplement. See
"The Transfer and Servicing Agreements--Servicing
Compensation and Payment of Expenses."
Optional Purchase......... With respect to each series of Securities, the
Servicer may purchase all of the property of the
related Trust as of the last day of the related
Monthly Period on or after which the Aggregate Re-
ceivables Balance declines to or below 10% of the
Initial Aggregate Receivables Balance. In each such
case, the purchase price will be equal to the
amount specified in "The Transfer and Servicing
Agreements--Termination."
Certain Federal Income
Tax Consequences.........
Upon the issuance of each series of Securities, ex-
cept as otherwise provided in the related Prospec-
tus Supplement, Kirkland & Ellis, special tax coun-
sel to the Seller, will deliver an opinion to the
effect that, for federal income tax purposes: (i)
the Notes will constitute indebtedness; and (ii)
with respect to each series of Certificates, that
(a) such Certificates will constitute interests in
a trust fund which will not be treated as an asso-
ciation taxable as a corporation or publicly traded
partnership taxable as a corporation; (b) if iden-
tified as Partnership Certificates, such Certifi-
cates will constitute interests in a
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partnership; and (c) if identified as Trust Certif-
icates, such Certificates should constitute inter-
ests in a grantor trust. By acquiring a Security, a
Securityholder will be deemed to agree to the
treatment thereof for purposes of federal, state
and local income and franchise taxes. See "Certain
Federal Income Tax Consequences" and "Certain State
Tax Matters" for additional information concerning
the application of federal and state laws.
ERISA Considerations...... Subject to the considerations discussed under
"ERISA Considerations," herein and in the related
Prospectus Supplement, and unless otherwise speci-
fied in the Prospectus Supplement, the Notes and
the Class A Certificates issued by a Grantor Trust
will be eligible for purchase by Benefit Plans.
Unless otherwise specified in the related Prospec-
tus Supplement, the Owner Certificates may not be
acquired by (i) any Benefit Plan subject to ERISA,
(ii) an individual retirement account, or (iii) any
entity who is deemed to hold assets of any Benefit
Plan described in clauses (i) or (ii) above. See
"ERISA Considerations" herein and in the related
Prospectus Supplement.
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THE TRUSTS
With respect to each series of Securities, the Seller will establish a Trust
by selling and assigning the Trust Property to the Owner Trust or the Grantor
Trustee, as applicable, in exchange for the related Securities. The property of
each Trust (the "TRUST PROPERTY") will include (i) a pool (a "RECEIVABLES
POOL") of Receivables and all payments paid thereon and due thereunder on and
after the Cutoff Date, (ii) such amounts as from time to time may be held in
certain separate trust accounts established and maintained pursuant to the
related Pooling and Servicing Agreement and the proceeds of such accounts,
(iii) security interests in the vehicles financed by the Receivables and, to
the extent permitted by law, any accessions thereto which are financed by NFC
(the "FINANCED VEHICLES"), (iv) the proceeds of Dealer Liability with respect
to the Receivables, (v) the proceeds, if any, of NITC Purchase Obligations with
respect to the Receivables (subject to certain limitations set forth in the
related Transfer and Servicing Agreements), (vi) the proceeds of credit life,
credit disability, physical damage or other insurance policies covering the
Financed Vehicles, (vii) the proceeds of any personal or commercial guaranties
of an Obligor's performance with respect to the Receivables (the "GUARANTIES"),
(viii) the benefit of any lease assignments with respect to the Financed
Vehicles and (ix) certain rights of the Seller under the related Purchase
Agreement and the related Custodian Agreement between the Seller and the
Servicer (the "CUSTODIAN AGREEMENT"). The Reserve Account (if any) for a series
of Owner Securities will, unless otherwise specified in the Prospectus
Supplement, also be included in the property of the related Owner Trust and
will be a segregated trust account held by the Indenture Trustee for the
benefit of the related Owner Securityholders. The Subordination Spread Account
(if any) for a series of Grantor Certificates issued will not be included in
the property of the related Grantor Trust and will be a segregated trust
account held by the Grantor Trustee for the benefit of the holders of the
related Grantor Certificates.
The Servicer will continue to service the Receivables held by each Trust and
will receive fees for such services. See "The Transfer and Servicing
Agreements--Servicing Compensation and Payment of Expenses." To facilitate the
servicing of the Receivables, each Custodian Agreement will authorize the
Servicer to retain physical possession of the related Receivables and other
documents relating thereto as custodian. Due to the administrative burden and
expense, the certificates of title to the Financed Vehicles will not be amended
to reflect the sale and assignment of the security interest in the Financed
Vehicles to the Trust. In the absence of such an amendment, the applicable
Trust may not have a perfected security interest in the Financed Vehicles in
all states, which could impair the Trust's ability to repossess and sell the
collateral securing defaulted Receivables. The applicable Trust will not be
responsible for the legality, validity or enforceability of any security
interest in any Financed Vehicles. See "Certain Legal Aspects of the
Receivables," "The Transfer and Servicing Agreements--Sale and Assignment of
Receivables" and "--The Trustees" below.
If (a) the protection provided to Noteholders by the subordination of the
related Owner Certificates and by the related Reserve Account or other credit
enhancement for such series, (b) the protection provided to Owner
Certificateholders by such Reserve Account or other credit enhancement, or (c)
the protection provided to Class A Certificateholders by the subordination of
the related Class B Certificates and by the related Subordination Spread
Account or other credit enhancement is insufficient, such Securityholders would
have to look principally to the Obligors on the related Receivables, the
proceeds from the repossession and sale of Financed Vehicles which secure
defaulted Receivables, the proceeds of Dealer Liability with respect to such
Receivables and the proceeds, if any, of NITC Purchase Obligations with respect
to such Receivables. In such event, certain factors, such as the unavailability
of proceeds from Dealer Liability or NITC Purchase Obligations, and the
applicable Trust's not having perfected security interests in the Financed
Vehicles in all states, may affect the ability to repossess and sell the
collateral securing the Receivables, and thus may reduce the proceeds to be
distributed to the holders of the Securities. See "The Transfer and Servicing
Agreements-- Distributions" and "--Credit Enhancement" and "Certain Legal
Aspects of the Receivables."
The principal offices of each Trust will be specified in the related
Prospectus Supplement.
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THE TRUSTEES
The Trustee for each Trust will be specified in the related Prospectus
Supplement. The Trustee's liability in connection with the issuance and sale of
the Securities issued pursuant to the related Trust is limited solely to the
express obligations of such Trustee set forth in the related Owner Trust
Agreement or Grantor Trust Pooling and Servicing Agreement, as applicable.
The Trustee will make no representations as to the validity or sufficiency of
any Owner Trust Agreement, Owner Trust Pooling and Servicing Agreement or
Grantor Trust Pooling and Servicing Agreement, as applicable, the Securities or
any Receivables or related documents, and will not be 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 Securities or the Receivables, or the investment
of any monies by the Servicer before such monies are deposited into the related
Certificate Distribution Account or (in the case of an Owner Trust) the related
Note Distribution Account. The Trustee will not independently verify any
Receivables. If no Servicer Default has occurred, the Trustee will be required
to perform only those duties specifically required of it under the related
Owner Trust Agreement, Owner Trust Pooling and Servicing Agreement or Grantor
Trust Pooling and Servicing Agreement, as applicable. Generally, those duties
will be limited to the receipt of the various certificates, reports or other
instruments required to be furnished to the Trustee, in which case it will only
be required to examine them to determine whether they conform to the
requirements of the related Owner Trust Agreement, Owner Trust Pooling and
Servicing Agreement or Grantor Trust or Pooling and Servicing Agreement, as
applicable.
The Trustee will be under no obligation to exercise any of the trusts or
powers vested in it by an Owner Trust Agreement and the related Owner Trust
Pooling and Servicing Agreement or a Grantor Trust Pooling and Servicing
Agreement, as applicable, or to make any investigation of matters arising
thereunder or to institute, conduct or defend any litigation thereunder or in
relation thereto at the request, order or direction of any of the Noteholders
or Certificateholders (collectively, the "SECURITYHOLDERS"), unless such
Securityholders have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which may be incurred therein or
thereby. No Securityholder will have any right under the applicable Pooling and
Servicing Agreement to institute any proceeding with respect to such Agreement,
unless such holder previously has given to the Trustee written notice of
default and unless, in the case of an Owner Trust, the holders of Notes
evidencing not less than 25% of the outstanding principal amount and Owner
Certificates evidencing not less than 25% of the voting interests of such
series or, in the case of a Grantor Trust, the holders of Class A Certificates
evidencing not less than 25% of the voting interest thereof have made written
request upon the Trustee to institute such proceeding in its own name as
Trustee thereunder and have offered to the Trustee reasonable indemnity and the
Trustee for 60 days has neglected or refused to institute any such proceedings.
Each Owner Trust Agreement and related Owner Trust Pooling and Servicing
Agreement and each Grantor Trust Pooling and Servicing Agreement will provide
that the Servicer will pay the Trustee's fees. Each Owner Trust Agreement and
related Owner Trust Pooling and Servicing Agreement and each Grantor Trust
Pooling and Servicing Agreement will further provide that the Trustee will be
entitled to indemnification by the Servicer for, and will be held harmless
against, any loss, liability or expense incurred by the Trustee (other than
through its own wilful misfeasance, bad faith or negligence (other than errors
in judgment) or by reason of a breach of any of its representations or
warranties set forth in such Owner Trust Agreement and related Owner Trust
Pooling and Servicing Agreement and each Grantor Trust Pooling and Servicing
Agreement, as applicable).
The Trustee and any of its affiliates may hold Securities in their own names.
In addition, for the purpose of meeting the legal requirements of certain local
jurisdictions, the Trustee, with the consent of the Servicer, will have the
power to appoint co-trustees or separate trustees of all or any part of each
Trust. In the event of such appointment, all rights, powers, duties and
obligations conferred or imposed upon the Trustee by an Owner Trust Agreement
or a Grantor Trust Pooling and Servicing Agreement, as applicable, will be
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conferred or imposed upon the Trustee and such separate trustee or co-trustee
jointly, or, in any jurisdiction in which the Trustee will be incompetent or
unqualified to perform certain acts, singly upon such separate trustee or co-
trustee who will exercise and perform such rights, powers, duties and
obligations solely at the direction of the Trustee.
A Trustee may give notice of its intent to resign at any time, in which event
the Servicer, or its successor, will be obligated to appoint a successor
trustee. The Administrator (in the case of an Owner Trust) or the Servicer (in
the case of a Grantor Trust) may also remove the Trustee if the Trustee ceases
to be eligible to continue as Trustee under the related Owner Trust Agreement
or Grantor Trust Pooling and Servicing Agreement, as applicable, or if the
Trustee becomes insolvent. In such circumstances, the Administrator (in the
case of an Owner Trust) or the Servicer (in the case of a Grantor Trust) will
be obligated to appoint a successor trustee. Any resignation or removal of a
Trustee and appointment of a successor trustee will not become effective and no
such resignation shall be deemed to have occurred until acceptance of the
appointment by the successor trustee.
THE RECEIVABLES POOLS
The Receivables in each Receivables Pool have been or will be acquired by NFC
from (i) NITC dealers, (ii) other dealers, including those selling other
manufacturers' vehicles and equipment, and (iii) retail customers. NFC also
finances receivables which were originated by NITC for sales to fleet
purchasers and for sales of used vehicles, but none of such NITC-originated
receivables are or will be included in the Receivables Pool. See "The Seller"
and "The Servicer."
The Receivables have been or will be acquired by NFC in the ordinary course
of business and in accordance with NFC's underwriting standards, which
emphasize the prospective purchasers' ability to pay and creditworthiness, as
well as the asset value of the vehicle to be financed. NFC's standards also
require physical damage insurance to be maintained on each Financed Vehicle,
except in the case of certain fleet customers which are permitted to be self-
insured in accordance with NFC's customary procedures.
The Receivables to be held by each Trust will be selected from those retail
instalment sale contracts and retail loans evidenced by notes (collectively,
the "RETAIL NOTES") owned by NFC by applying several criteria, including
(except as otherwise provided in the Prospectus Supplement) that each
Receivable (i) is secured by one or more new or used medium or heavy duty
trucks, buses or trailers, (ii) was originated in the United States, (iii) is
not more than 60 days past due as of the related Cutoff Date, (iv) was
originated by a NITC dealer, a non-NITC dealer or NFC, and (v) satisfies the
other criteria set forth in the related Prospectus Supplement. The related
Prospectus Supplement will specify whether the Receivables in the Receivables
Pool will be selected from all Retail Notes satisfying the selection criteria
(i) on a random basis, (ii) in reverse order of acquisition by NFC, or (iii) by
another method. No selection criteria believed by NFC to be adverse to the
Securityholders will be utilized in selecting the Receivables.
The Receivables in each Receivables Pool will come from one or more of the
following categories, which group the Receivables according to their provisions
for the payment of principal and interest: Equal Payment Fully Amortizing
Receivables, Equal Payment Skip Receivables, Equal Payment Balloon Receivables,
Level Principal Fully Amortizing Receivables, Level Principal Skip Receivables,
Level Principal Balloon Receivables, and Other Receivables. "EQUAL PAYMENT
FULLY AMORTIZING RECEIVABLES" are Receivables that provide for equal monthly
payments that fully amortize the amount financed over its original term to
maturity. "EQUAL PAYMENT SKIP RECEIVABLES" are Receivables that provide for
equal monthly payments in eleven or fewer months of each twelve-month period
that fully amortize the amount financed over its original term to maturity.
"EQUAL PAYMENT BALLOON RECEIVABLES" are Receivables that provide for equal
monthly payments except that a larger payment becomes due on the final maturity
date for such Receivables. "LEVEL PRINCIPAL FULLY AMORTIZING RECEIVABLES" are
Receivables that provide for monthly payments consisting of level principal
amounts together with accrued and unpaid interest on the unpaid Receivable
Balances. "LEVEL
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PRINCIPAL SKIP RECEIVABLES" are Receivables that provide for monthly payments
in eleven or fewer months of each twelve-month period consisting of level
principal amounts together with accrued and unpaid interest on the unpaid
Receivable Balances. "LEVEL PRINCIPAL BALLOON RECEIVABLES" are Receivables that
provide for monthly payments consisting of level principal amounts together
with accrued and unpaid interest on the unpaid Receivable Balances, exept that
a larger principal payment becomes due on the final maturity date for such
Receivables. "OTHER RECEIVABLES" are Receivables not described above, including
Receivables that provide for level monthly payments in eleven or fewer months
of each twelve-month period that amortize a portion of the amount financed over
its original term to maturity with a larger payment that becomes due on the
final maturity date for such Receivables.
"SCHEDULED PAYMENT" means a payment which (i) is the amount required under
the terms of a Receivable in effect as of the Cutoff Date, except, in the case
of any Receivable secured by more than one Financed Vehicle, including any
changes in the terms of such Receivable resulting from a Full Prepayment with
respect to fewer than all of the Financed Vehicles related thereto, (ii) is
payable by the purchaser or any co-purchaser of the Financed Vehicle or
Financed Vehicles securing such Receivable or by any other Person who owes
payments under such Receivable (all such parties with respect to a Receivable
other than a guarantor being the "OBLIGOR"), and (iii) includes finance charges
which accrue at the APR. When Scheduled Payment is used with reference to a
Distribution Date or Payment Date, it means the payment which is due in the
related Monthly Period; provided, however, that in the case of the first
Monthly Period, the Scheduled Payment shall include all such payments due from
the Obligor on or after the Cutoff Date.
"INITIAL RECEIVABLE BALANCE" means, with respect to a Receivable, the
aggregate amount advanced toward the purchase price of all Financed Vehicles
related to such Receivable, including insurance premiums, service and warranty
contracts, federal excise taxes, sales taxes and other items customarily
financed as part of Retail Notes and related costs, less payments received from
the Obligor prior to the related Cutoff Date allocable (on the basis of the
actuarial method) to principal.
"INITIAL GROSS RECEIVABLE BALANCE" means, with respect to a Receivable as of
the Cutoff Date, the Initial Receivable Balance plus, in the case of a
Receivable classified by the Servicer as a "finance charge--included contract,"
the finance charges included in the Scheduled Payments due on or after the
Cutoff Date.
"RECEIVABLE BALANCE" means, as of the last day of the related Monthly Period,
with respect to any Receivable, the Initial Receivable Balance minus the sum,
in each case computed in accordance with the actuarial method, of (i) that
portion of all Scheduled Payments due on or after the Cutoff Date and on or
prior to the last day of the related Monthly Period allocated to principal,
(ii) that portion of all Warranty Payments or Administrative Purchase Payments
with respect to the Receivable allocated to principal, (iii) any Prepayments
applied by the Servicer to reduce the Receivable Balance of the Receivable and
(iv) that portion of the following received and allocated to principal by the
Servicer: benefits of any lease assignments, proceeds from any insurance
policies covering the Financed Vehicle or Financed Vehicles, Liquidation
Proceeds, proceeds from any Dealer Liability, proceeds from any NITC Purchase
Obligations and proceeds from any Guaranties. The Obligor on a Receivable
secured by multiple Financed Vehicles may prepay an amount corresponding to the
outstanding principal balance for one or more of such Financed Vehicles and the
security interests in such vehicles will generally be released.
"AGGREGATE RECEIVABLES BALANCE" means, as of any date, the sum of the
Receivable Balances of all outstanding Receivables (other than Liquidating
Receivables) held by the Trust on such date.
All of the Receivables will be prepayable at any time without penalty to the
Obligor and will contain due on sale provisions. If an Obligor elects to make a
Full Prepayment on a Receivable, the Obligor is entitled to a rebate of the
portion, if any, of the Scheduled Payments attributable to unearned finance
charges. The amount of the rebate is generally determined by one of two
methods, the actuarial method or the "Rule of 78s" method, in accordance with
applicable state law. With minor variations based on state law, the actuarial
method requires the rebate to be calculated on the basis of a constant interest
rate. Under the "Rule of 78s" method, the rebate is calculated on a sum-of-the-
digits basis generally and is always smaller than the
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corresponding rebate under the actuarial method. A portion of the Receivables
provide for "Rule of 78s" rebates. Distributions to Securityholders will not be
affected by "Rule of 78s" rebates under any of the Receivables because such
distributions are determined using the actuarial method.
Information with respect to each Receivables Pool will be set forth in the
related Prospectus Supplement, including, to the extent appropriate, the
composition, distribution by type of payment terms, distribution by annual
percentage rate ("APR"), distribution by remaining maturity, geographic
distribution and portion of such Receivables Pool secured by new vehicles and
by used vehicles.
WEIGHTED AVERAGE LIFE OF THE SECURITIES
The weighted average life of the Securities 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, in addition to voluntary
prepayments, liquidations due to defaults and repurchases by the Seller or the
Servicer pursuant to the applicable Pooling and Servicing Agreement, as well as
receipt of proceeds from credit life, credit disability and casualty insurance
policies.) Any reinvestment risk resulting from the rate of prepayments of the
Receivables and the distribution of such prepayments to Securityholders will be
borne entirely by the Securityholders. In addition, early retirement of certain
classes of Securities with respect to a Trust may be effected by the exercise
by the Servicer of its option to purchase all of the Receivables remaining in
such Trust when the Aggregate Receivables Balance is 10% or less of the Initial
Aggregate Receivables Balance for such Trust. See "The Transfer and Servicing
Agreements--Termination."
It is generally recognized by the industry that the average actual maturity
of a receivable similar to a Retail Note tends to be less than the average
stated contractual maturity. However, the rate of prepayments on the
Receivables may be influenced by a variety of economic, social and other
factors. Also, NFC maintains limited records of the historical prepayment
experience of the Retail Notes included in its portfolio and is not aware of
any publicly available statistics that set forth principal prepayment
experience for receivables similar to the Receivables over an extended period
of time. Due to the limitations of the data maintained by NFC, no meaningful
and accurate historical information regarding prepayments is available.
Therefore, no prediction can be made as to the rate of prepayments on the
Receivables. See also "The Receivables Pools" and "The Transfer and Servicing
Agreements--Collections."
POOL FACTORS AND TRADING INFORMATION
The "NOTE POOL FACTOR" for each class of Notes will be a seven-digit decimal
which the Servicer will compute prior to each distribution with respect to such
Notes indicating the remaining outstanding principal balance of such Notes, as
of the close of such date, as a fraction of the initial outstanding principal
balance of such Notes. The "OWNER TRUST CERTIFICATE POOL FACTOR" for each class
of Owner Certificates will be a seven-digit decimal which the Servicer will
compute prior to each distribution with respect to such Owner Certificates
indicating the remaining Certificate Balance as of the close of such date, as a
fraction of the initial Certificate Balance. The "CLASS A CERTIFICATE POOL
FACTOR" for each series of Class A Certificates will be a seven-digit decimal
which the Servicer will compute prior to each distribution with respect to such
Class A Certificates indicating the remaining Class A Certificate Balance as of
the close of such date, as a fraction of the initial Class A Certificate
Balance. Each Note Pool Factor, each Owner Trust Certificate Pool Factor and
each Class A Certificate Pool Factor will initially be 1.0000000; thereafter
the Note Pool Factor, the Owner Trust Certificate Pool Factor and the Class A
Certificate Pool Factor will decline to reflect reductions in the outstanding
principal balance of the Notes, reductions of the Certificate Balance of the
Owner Certificates, or reductions of the Class A Certificate Balance, as the
case may be. A Noteholder's portion of the aggregate outstanding principal
balance of the related class of Notes is the product of (i) the original
denomination of such Noteholder's Note and (ii) the Note Pool Factor. An Owner
Certificateholder's portion
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of the aggregate outstanding Certificate Balance for the related class of Owner
Certificates is the product of (a) the original denomination of the Owner
Certificateholder's Owner Certificate and (b) the Owner Trust Certificate Pool
Factor. A Class A Certificateholder's portion of the aggregate outstanding
Class A Certificate Balance is the product of (a) the original denomination of
the Class A Certificateholder's Certificate and (b) the Class A Certificate
Pool Factor.
With respect to each Owner Trust, the holder or holders of record of the
Notes (the "NOTEHOLDERS") will receive reports on or about each Payment Date
concerning payments received on the Receivables, the Aggregate Receivables
Balance, each Note Pool Factor, and various other items of information. Unless
otherwise provided in the related Prospectus Supplement, with respect to each
Trust, the holder or holders of record of the Certificates (the
"CERTIFICATEHOLDERS") will receive reports on or about each Distribution Date
concerning payments received on the Receivables, the Aggregate Receivables
Balance, each Owner Trust Certificate Pool Factor or Class A Certificate Pool
Factor, as applicable, and various other items of information. Securityholders
of record during any calendar year will be furnished information for tax
reporting purposes not later than the latest date permitted by law. See
"Certain Information Regarding the Securities--Reports to Securityholders."
USE OF PROCEEDS
Unless otherwise provided in the related Prospectus Supplement, the net
proceeds to be received by the Seller from the sale of the Securities (after
any necessary deposit of funds into a Reserve Account or Subordination Spread
Account) will be applied to the purchase of the Receivables from NFC. The
related Prospectus Supplement will specify the purpose for which NFC will use
the proceeds of each sale of Receivables to the Seller.
THE SELLER
The Seller, a wholly-owned subsidiary of NFC, was incorporated in the State
of Delaware on November 12, 1991. The Seller is organized for the limited
purposes of purchasing receivables from NFC and transferring such receivables
to third parties, and conducting any activities incidental to and necessary or
convenient for the accomplishment of such purposes. The principal executive
offices of the Seller are located at Corporation Trust Center, 1209 Orange
Street, Wilmington, Delaware 19801, telephone (302) 658-7581.
The Seller has taken steps in structuring the transactions contemplated
hereby that are intended to make it unlikely that the voluntary or involuntary
application for relief by NFC 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 NFC.
These steps include the creation of the Seller as a separate, limited-purpose
subsidiary pursuant to a certificate of incorporation containing certain
limitations (including restrictions on the nature of the Seller's business and
a restriction on the Seller's ability to commence a voluntary case or
proceeding under any Insolvency Law without the unanimous affirmative vote of
all of its directors) and a provision that requires the Seller to have two
directors who qualify under the Seller's certificate of incorporation and
bylaws as "Independent Directors."
If, notwithstanding the foregoing measures, a court concluded that the assets
and liabilities of the Seller should be consolidated with the assets and
liabilities of NFC in the event of a bankruptcy of NFC, or a filing were made
under any Insolvency Laws by or against the Seller, or an attempt were made to
litigate the consolidation issue, then delays in distributions on Securities
(and possible reductions in the amount of such distributions) could occur.
It is intended by NFC and the Seller that each transfer of Receivables by NFC
to the Seller constitute a "true sale" of such Receivables to the Seller. If
such transfer constitutes a "true sale," such Receivables and
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the proceeds thereof would not be part of NFC's bankruptcy estate under Section
541 of the United States Bankruptcy Code should NFC become the subject of a
bankruptcy case subsequent to such transfer.
In a recent decision, Octagon Gas Systems, Inc., v. Rimmer, 995 F.2d 948
(10th Cir. 1993), the United States Court of Appeals for the Tenth Circuit held
that, under the Uniform Commercial Code, accounts sold by a debtor remain
property of the debtor's estate under Section 541. In the event of a bankruptcy
of NFC and a determination by a court that the sale of the Receivables to the
Seller should be recharacterized as a pledge of such Receivables to secure a
borrowing, not as a "true sale," including as a result of the application by a
court of the Octagon court's reasoning to NFC's sale of Receivables to the
Seller, delays in distributions on Securities (and possible reductions in the
amount of distributions) could occur.
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<PAGE>
THE SERVICER
NFC, a Delaware corporation, is a wholly-owned subsidiary of NITC. NFC
provides (i) retail and lease financing for sales of new and used trucks, buses
and trailers sold by NITC dealers, non-NITC dealers and third parties, (ii)
wholesale financing for NITC dealers, (iii) retail financing for sales of new
and used trucks and buses by NITC and (iv) selected accounts receivable
financing for NITC. Harco National Insurance Company, NFC's wholly-owned
consolidated insurance subsidiary, provides commercial physical damage and
liability insurance coverage to NITC dealers and retail customers, and to the
public through the independent insurance agency system.
NFC conducts its financing operations through six district offices located
throughout the United States and through its executive and administrative
office located at 2850 West Golf Road, Rolling Meadows, Illinois 60008,
telephone (708) 734-4000.
DELINQUENCIES, REPOSSESSIONS AND NET LOSSES
Set forth below is certain information concerning NFC's experience in the
United States pertaining to delinquencies, repossessions and net losses on its
entire portfolio of Retail Notes (including Retail Notes previously sold which
NFC continues to service). Fluctuations in retail delinquencies, repossessions
and losses generally follow cycles in the overall business environment.
Although NFC believes that retail delinquencies, repossessions and net losses
are particularly sensitive to the industrial sector, which generates a
significant portion of the freight tonnage hauled, NFC does not track such data
and is unable to ascertain the specific causes of such fluctuations. Higher net
losses for 1989, 1990 and 1991 reflect the weakness of the U.S. economy during
that time. There can be no assurance that the delinquency, repossession and net
loss experience on any Receivables Pool will be comparable to that set forth
below or to any similar information contained in the related Prospectus
Supplement.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
--------------------------------------
NFC RETAIL NOTES 1988 1989 1990 1991 1992
---------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Gross Balance Outstanding at end of
Period (in millions)................. $1,389 $1,481 $1,432 $1,414 $1,330
Gross Balance Past Due as a Percentage
of Gross Balance Outstanding at end
of Period
31-60 Days.......................... 1.72% 1.53% 1.49% 1.25% 1.03%
Over 60 Days........................ 0.55 0.48 0.43 0.21 0.19
------ ------ ------ ------ ------
Average Gross Balance (in millions)... $1,253 $1,414 $1,439 $1,397 $1,320
------ ------ ------ ------ ------
Net Losses (in millions)
NFC................................. $ 1.1 $ 2.3 $ 1.9 $ 3.0 $ 2.3
NITC................................ 7.7 13.0 14.5 14.4 10.5
Combined............................ 8.8 15.3 16.4 17.4 12.8
------ ------ ------ ------ ------
Liquidations minus Net Losses (in
millions)............................ $ 605 $ 665 $ 724 $ 719 $ 794
------ ------ ------ ------ ------
Net Losses as a Percentage of
Liquidations minus Net Losses
NFC................................. 0.18% 0.34% 0.26% 0.40% 0.29%
NITC................................ 1.28 1.95 2.00 2.01 1.32
Combined............................ 1.46 2.29 2.26 2.41 1.61
------ ------ ------ ------ ------
Net Losses as a Percentage of Average
Gross Balance
NFC................................. 0.08% 0.16% 0.13% 0.21% 0.18%
NITC................................ 0.62 0.92 1.00 1.03 0.79
Combined............................ 0.70 1.08 1.13 1.24 0.97
------ ------ ------ ------ ------
Repossessions as a Percentage of
Average Gross Balance................ 3.04% 3.21% 5.61% 4.54% 3.70%
</TABLE>
For purposes of the table set forth above and the following discussion,
"GROSS BALANCE" means, with respect to a Retail Note as of a specified date,
the sum of the unpaid principal balance as of such date and, for Retail Notes
classified by the Servicer as "finance charge-included contracts," the finance
charges included
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<PAGE>
in the payments due on or after such date; "GROSS BALANCE PAST DUE" means the
Gross Balance for all Retail Notes that have instalments past due by the
indicated number of days; "LIQUIDATIONS" means, with respect to the related
period, the Gross Balance of Retail Notes outstanding at the beginning of the
period plus the Gross Balance of Retail Notes acquired during the period, minus
the Gross Balance of Retail Notes outstanding at the end of the period; and
"NET LOSSES" means, with respect to all Retail Notes written off during the
period, the sum of unpaid principal plus accrued and unpaid interest at the
time of repossession of the truck(s), bus(es) or trailer(s) securing all such
written-off Retail Notes, net of all recoveries with respect to such Retail
Notes.
Dealer Liability. Retail Notes financing new vehicles originated by NITC
dealers generally contain an obligation of the dealer to pay NFC an amount
equal to a percentage of the unpaid principal balance of a defaulted Retail
Note if NFC repossesses the vehicle within a specified time. The extent of a
particular dealer's obligation is adjusted based on several factors, including
the amount of Retail Notes originated by the dealer which are significantly
past due, a limitation of the dealer's liability for any single customer,
whether the Financed Vehicle was new or used, and participation by the dealer
in a limited liability program with NFC. After NFC repossesses a vehicle, the
dealer who originally sold the vehicle may elect either to repurchase the
vehicle for the unpaid principal balance of the Retail Note, or to pay the
applicable amount. For purposes hereof, all of the NITC dealers' obligations
described in this paragraph are referred to as "DEALER LIABILITY." The extent
and terms of Dealer Liability are subject to change as market conditions may
require. In the event of a dealer's bankruptcy, a bankruptcy trustee might
attempt to characterize such dealer's sales of Retail Notes to NFC subject to
the related Dealer Liability as loans to the dealer secured by the Retail
Notes. Such an attempt, if successful, could result in payment delays or losses
on the affected Receivables.
NITC Purchase Obligations. If NFC repossesses a vehicle within 180 days of
default (or longer in certain limited circumstances) an agreement between NFC
and NITC obligates NITC to purchase (i) new vehicles which were originally sold
by NITC dealers and financed by Retail Notes, (ii) certain used vehicles sold
by dealers under programs announced by NITC from time to time and financed by
Retail Notes and (iii) new and used vehicles which were originally sold by NITC
and which secure Retail Notes, in each case for the unpaid principal balance of
the related defaulted Receivable net of Dealer Liability, if any ("NITC
PURCHASE OBLIGATIONS"). NITC resells such vehicles in accordance with its
customary procedures. The foregoing NITC Purchase Obligations in any fiscal
year are limited to the extent that NITC's aggregate losses upon resale of such
repossessed Financed Vehicles in such year equal either (a) 10.0 percent of
liquidations by NFC of all outstanding Retail Notes which NFC, the Seller or
certain of NFC's affiliates own or in which they have an economic interest
during such fiscal year, or (b) if the Gross Balance minus unearned interest of
Retail Notes acquired by NFC during such fiscal year is less than $50,000,000,
then 10.0 percent of the Gross Balance at the beginning of such fiscal year of
all Retail Notes which NFC, the Seller or such affiliates own or in which they
have an economic interest. See "The Transfer and Servicing Agreements--Credit
Enhancement--Owner Trust: Reserve Account" and "--Credit Enhancement--Grantor
Trust: Subordination of the Class B Certificates; Subordination Spread
Account." The agreement between NFC and NITC providing for NITC Purchase
Obligations may be amended from time to time. Such an amendment could, among
other things, (i) modify the NITC Purchase Obligations relating to Receivables
then outstanding or (ii) otherwise modify, limit or eliminate the NITC Purchase
Obligations. The rights under the agreement providing for the NITC Purchase
Obligations are personal to NFC, and only the proceeds of such rights will be
assigned to the Seller and the Trust pursuant to the related Transfer and
Servicing Agreements. The Seller and the Trust will not
be third-party beneficiaries of such rights and, accordingly, such rights will
not be exercisable by, enforceable by or for the benefit of, or preserved for
the benefit of, the Seller or the Trust.
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<PAGE>
The NFC net loss figures set forth above reflect the fact that NFC had the
benefit of Dealer Liability or NITC Purchase Obligations, or both ("LOSS
PROTECTION") on a substantial portion of its Retail Notes. NFC applies the same
underwriting standards to the acquisition of Retail Notes without regard to
whether Loss Protection is provided. Based on its experience, NFC believes that
there is no material difference between the rates of delinquency and
repossession on Retail Notes with Loss Protection as compared to Retail Notes
without Loss Protection. However, NFC's net loss experience on Retail Notes
without Loss Protection is higher than that on Retail Notes with Loss
Protection because of the payments made to NFC by the Dealers and NITC.
THE NOTES
GENERAL
With respect to each Owner Trust, one or more classes of Notes will be issued
pursuant to the terms of an Indenture, a form of which has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
The following summary does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all of the provisions of the Notes
and the Indenture. 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 this summary.
PRINCIPAL AND INTEREST ON THE NOTES
The timing and priority of payment, seniority, allocations of loss, Interest
Rate and amount of or method of determining payments of principal and interest
on the Notes will be described in the related Prospectus Supplement. The right
of holders of any class of Notes to receive payments of principal and interest
may be senior or subordinate to the rights of holders of any other class or
classes of Notes in the series, as described in the related Prospectus
Supplement. Unless otherwise provided in the related Prospectus Supplement,
payments of interest on the Notes will be made prior to payments of principal
thereon. A series may include one or more classes of Strip Notes entitled to
(i) principal payments with disproportionate, nominal or no interest payments,
or (ii) interest payments with disproportionate, nominal or no principal
payments. Each class of Notes may have a different Interest Rate, which may be
a fixed, variable or adjustable Interest Rate (and which may be zero for
certain classes of Strip Notes), or any combination of the foregoing. The
related Prospectus Supplement will specify the Interest Rate for each class of
Notes, or the initial Interest Rate and the method for determining the Interest
Rate. One or more classes of Notes of a series may be redeemable under the
circumstances specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, payments to
Noteholders of all classes within a series in respect of interest will have the
same priority. Under certain circumstances, the amount available for such
payments could be less than the amount of interest payable on the Notes on any
of the dates specified for payments in the related Prospectus Supplement (each,
a "PAYMENT DATE"), in which case each class of Noteholders will receive their
ratable share (based upon the aggregate amount of interest due to such class of
Noteholders) of the aggregate amount available to be distributed in respect of
interest on the Notes. See "The Transfer and Servicing Agreements--
Distributions" and "--Credit Enhancement."
In the case of a series of Notes which includes two or more classes of Notes,
the sequential order and priority of payment in respect of principal and
interest, and any schedule or formula or other provisions applicable to the
determination thereof, of each such class will be set forth in the related
Prospectus Supplement. Unless otherwise specified in the related Prospectus
Supplement, payments in respect of principal and interest of any class of Notes
will be made on a pro rata basis among all of the Notes of such class.
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<PAGE>
THE INDENTURE
A form of Indenture has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. The Seller will provide a copy
of the applicable Indenture (without exhibits) upon request to a holder of
Notes issued thereunder.
Modification of Indenture Without Noteholder Consent. Each Owner Trust and
related Indenture Trustee (on behalf of such Owner Trust) may, without consent
of the related Noteholders, enter into one or more supplemental indentures for
any of the following purposes: (i) to correct or amplify the description of the
collateral or add additional collateral; (ii) to provide for the assumption of
the Notes and the Indenture obligations by a permitted successor to the Owner
Trust; (iii) to add additional covenants for the benefit of the related
Securityholders, or to surrender any rights or power conferred upon the Owner
Trust; (iv) to convey, transfer, assign, mortgage or pledge any property to or
with the Indenture Trustee; (v) to cure any ambiguity or correct or supplement
any provision in the Indenture or in any supplemental indenture which may be
inconsistent with any other provision in the Indenture, any supplemental
indenture or any of the Transfer and Servicing Agreements or certain other
agreements; (vi) to provide for the acceptance of the appointment of a
successor Indenture Trustee or to add to or change any of the provisions of the
Indenture as shall be necessary and permitted to facilitate the administration
by more than one trustee; (vii) to modify, eliminate or add to the provisions
of the Indenture in order to comply with the Trust Indenture Act of 1939, as
amended; and (viii) to add any provisions to, change in any manner, or
eliminate any of the provisions of, the Indenture or modify in any manner the
rights of Noteholders under such Indenture; provided that any action specified
in clause (viii) shall not, as evidenced by an opinion of counsel, adversely
affect in any material respect the interests of any related Noteholder unless
Noteholder consent is otherwise obtained as described below.
Modification of Indenture With Noteholder Consent. With respect to each Owner
Trust, with the consent of the holders of a majority of the outstanding related
Notes, the Owner Trust and the Indenture Trustee may execute a supplemental
indenture to add provisions to, change in any manner or eliminate any
provisions of, the related Indenture, or modify in any manner the rights of the
related Noteholders.
Without the consent of the holder of each outstanding related Note affected
thereby, however, no supplemental indenture will: (i) change the due date of
any instalment of principal of or interest on any Note or reduce the principal
amount thereof, the interest rate specified thereon or the redemption price
with respect thereto or change any place of payment where or the coin or
currency in which any Note or any interest thereon is payable; (ii) impair the
right to institute suit for the enforcement of certain provisions of the
Indenture regarding payment; (iii) reduce the percentage of the aggregate
amount of the outstanding Notes the consent of the holders of which is required
for (a) any such supplemental indenture, (b) any waiver of compliance with
certain provisions of the Indenture or of certain defaults thereunder and their
consequences as provided for in the Indenture or (c) certain other actions
described in the Indenture; (iv) modify any of the provisions of the Indenture
in such manner as to affect the calculation of the amount of any payment of
interest or principal due on any Note on any Payment Date (including the
calculation of any of the individual components of such calculation); (v)
modify or alter the provisions of the Indenture regarding the voting of Notes
held by the related Owner Trust, any other obligor on the Notes, the Seller or
an affiliate of any of them; (vi) modify or alter in certain aspects the
definition of the term "Outstanding" as defined in the related Transfer and
Servicing Agreements or reduce the percentage of the aggregate outstanding
amount of the Notes the consent of the holders of which is required to direct
the Indenture Trustee to sell or liquidate the Receivables if the proceeds of
such sale would be insufficient to pay the principal amount and accrued but
unpaid interest on the outstanding Notes; or (vii) permit the creation of any
lien ranking prior to or on a parity with the lien of the Indenture with
respect to any of the collateral for the Notes or, except as otherwise
permitted or contemplated in the Indenture, terminate the lien of the Indenture
on any such collateral or deprive the holder of any Note of the security
afforded by the lien of the Indenture.
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<PAGE>
Events of Default; Rights Upon Event of Default. With respect to each Owner
Trust, unless otherwise specified in the related Prospectus Supplement, "EVENTS
OF DEFAULT" under the Indenture will consist of: (i) any failure to pay
interest on the related Notes as and when the same becomes due and payable,
which failure continues unremedied for five days; (ii) any failure (a) to make
any required payment of principal on the Notes or (b) to observe or perform in
any material respect any other covenants or agreements in the Indenture, which
failure in the case of a default under clause (ii)(b) materially and adversely
affects the rights of related Noteholders, and which failure in either case
continues for 30 days after the giving of written notice of such failure to the
Owner Trust and Seller or the Servicer, as applicable, by the Indenture Trustee
or to the Seller or the Servicer, as applicable, and the Indenture Trustee by
the holders of not less than 25% of the principal amount of the related Notes;
(iii) failure to pay the unpaid principal balance of any related class of Notes
by the respective final scheduled Payment Date for such class; and (iv) certain
events of insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings and certain actions by the Owner Trust
indicating its insolvency, reorganization pursuant to bankruptcy proceedings or
inability to pay its obligations. The amount of principal required to be paid
to Noteholders on any Payment Date under the related Indenture will generally
be limited to amounts available to be deposited in the Note Distribution
Account. Therefore, unless otherwise specified in the related Prospectus
Supplement, the failure to pay principal on a class of Notes on any Payment
Date generally will not result in the occurrence of an Event of Default unless
such class of Notes has a final scheduled Payment Date, and then not until such
final scheduled Payment Date for such class of Notes.
If an Event of Default should occur and be continuing with respect to the
Notes of any series, the related Indenture Trustee or holders of a majority in
principal amount of such Notes then outstanding may declare the principal of
the Notes to be immediately due and payable. Such declaration may, under
certain circumstances, be rescinded by the holders of a majority in principal
amount of the Notes then outstanding.
If the Notes of any series are declared to be 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 Trust Property or elect to have
the Owner Trust maintain possession of the related Receivables and continue to
apply collections on such Receivables as if there had been no declaration of
acceleration. The Indenture Trustee, however, is prohibited from selling the
Trust Property following an Event of Default, unless (i) the holders of all the
outstanding related Notes consent to such sale, (ii) the proceeds of such sale
are sufficient to pay in full the principal of and the accrued interest on such
outstanding Notes and the Certificate Balance of and accrued interest on the
Certificates, in each case at the date of such sale, or (iii) there has been an
Event of Default arising from a failure to make a required payment of principal
or interest on any Notes, the Indenture Trustee determines that the Trust
Property would not be sufficient on an ongoing basis to make all payments on
the Notes as such payments would have become due if such obligations had not
been declared due and payable, and the Indenture Trustee obtains the consent of
the holders of a majority of the aggregate outstanding amount of the Notes.
Following a declaration of acceleration upon an Event of Default, (i)
Noteholders will be entitled to ratable repayment of principal on the basis of
their respective unpaid principal balances and (ii) repayment in full of the
accrued interest on and unpaid principal balances of the Notes will be made
prior to any further payment of interest on the Owner Certificates or in
respect of the Certificate Balance.
Subject to the provisions of the Indenture relating to the duties of the
Indenture Trustee, if an Event of Default occurs and is continuing with respect
to a series of Notes, the Indenture Trustee will be under no obligation to
exercise any of the rights or powers under the Indenture at the request or
direction of any of the holders of such Notes, if the Indenture Trustee
reasonably believes it will not be adequately indemnified against the costs,
expenses and liabilities which might be incurred by it in complying with such
request. Subject to the provisions for indemnification and certain limitations
contained in the Indenture, the holders of a majority in principal amount of
the outstanding Notes in a series will have the right to direct the time,
method and place of conducting any proceeding or any remedy available to the
Indenture Trustee and the holders of a majority in principal amount of such
Notes then outstanding may, in certain cases, waive any default with respect
thereto, except a default in the payment of principal or interest or a default
in respect of
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<PAGE>
a covenant or provision of the Indenture that cannot be modified without the
waiver or consent of all of the holders of such outstanding Notes.
No holder of a Note of any series will have the right to institute any
proceeding with respect to the related Indenture, unless (i) such holder
previously has given to the Indenture Trustee written notice of a continuing
Event of Default, (ii) the holders of not less than 25% in principal amount of
the outstanding Notes of such series have made written request of the Indenture
Trustee to institute such proceeding in its own name as Indenture Trustee,
(iii) such holder or holders have offered the Indenture Trustee reasonable
indemnity, (iv) the Indenture Trustee has for 60 days failed to institute such
proceeding and (v) no direction inconsistent with such written request has been
given to the Indenture Trustee during such 60-day period by the holders of a
majority in principal amount of such outstanding Notes.
If the Indenture Trustee knows that an Event of Default has occurred and is
continuing, the Indenture Trustee will mail to each Noteholder notice of the
Event of Default within 30 days after obtaining knowledge of such Event of
Default. Except in the case of a failure to pay principal of or interest on any
Note, the Indenture Trustee may withhold the notice if and so long as it
determines in good faith that withholding the notice is in the interests of
Noteholders.
In addition, each Indenture Trustee and the related Noteholders, by accepting
the related Notes, will covenant that they will not, for a period of one year
after the termination of the Indenture, institute against the related Owner
Trust any bankruptcy, reorganization or other proceeding under any federal or
state bankruptcy or similar law.
Neither the Indenture Trustee nor the Owner Trustee in its individual
capacity, nor any holder of an Owner Certificate including, without limitation,
the Seller, nor any of their respective owners, beneficiaries, agents,
officers, directors, employees, affiliates, successors or assigns will, in the
absence of an express agreement to the contrary, be personally liable for the
payment of the principal of or interest on the related Notes or for the
agreements and covenants of the related Owner Trust contained in the Indenture.
Certain Covenants. Each Indenture provides that the related Owner Trust may
not consolidate with or merge into any other entity, unless (i) the entity
formed by or surviving such consolidation or merger is organized under the laws
of the United States, any state or the District of Columbia, (ii) such entity
expressly assumes the Owner Trust's obligation to make due and punctual
payments upon the Notes and the performance or observance of every agreement
and covenant of the Owner Trust under the Indenture, (iii) no Event of Default
shall have occurred and be continuing immediately after such merger or
consolidation, (iv) any action as is necessary to maintain the lien and
security interest created by the Indenture shall have been completed, (v) the
Owner Trust has been advised that the rating of the related Notes or Owner
Certificates then in effect would not be reduced or withdrawn by the Rating
Agencies as a result of such merger or consolidation and (vi) the Owner Trust
has received an opinion of counsel to the effect that, among other things, such
consolidation or merger would have no material adverse tax consequence to the
Owner Trust or to any related Securityholder.
Each Owner Trust will not, among other things, (i) except as expressly
permitted by the Indenture, the Transfer and Servicing Agreements or certain
related documents for such Owner Trust (collectively, the "RELATED DOCUMENTS"),
sell, convey, transfer, exchange or otherwise dispose of any of the assets of
the Owner Trust, (ii) claim any credit on or make any deduction from the
principal and interest payable in respect of the related Notes (other than
amounts withheld under the Code or applicable state law) or assert any claim
against any present or former holder of such Notes because of the payment of
taxes levied or assessed upon any part of the Trust Property, (iii) dissolve or
liquidate in whole or in part (to the extent the Owner Trust may lawfully make
such covenant), (iv) permit the validity or effectiveness of the related
Indenture to be impaired or permit any person to be released from any covenants
or obligations with respect to the related Notes under such Indenture except as
may be expressly permitted thereby, (v) permit any lien, charge, excise, claim,
security interest, mortgage or other encumbrance to be created on or extend to
or otherwise arise upon
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<PAGE>
or burden the assets of the Owner Trust or any part thereof, or any interest
therein or the proceeds thereof or (vi) permit the lien of the related
Indenture not to constitute a valid first priority security interest in the
Trust Property.
No Owner Trust may engage in any activity other than as specified under this
Prospectus and the related Prospectus Supplement. No Owner Trust will incur,
assume or guarantee any indebtedness other than indebtedness incurred pursuant
to the related Notes and the related Indenture or otherwise in accordance with
the Related Documents.
Annual Compliance Statement. Each Owner Trust will be required to file
annually with the related Indenture Trustee a written statement as to the
fulfillment of its obligations under the Indenture.
Indenture Trustee's Annual Report. The Indenture Trustee will be required, if
and as required by Sections 313(a) and (c) of the Trust Indenture Act of 1939
as in force on the date of the related Pooling and Servicing Agreement (the
"TIA"), to mail to all related Noteholders within sixty days after each
February 1, beginning with February 1, 1994 a brief report relating to its
eligibility and qualification to continue as Indenture Trustee under the
related Indenture, any amounts advanced by it under the Indenture, the amount,
interest rate and maturity date of certain indebtedness owing by the Owner
Trust to the Indenture Trustee in its individual capacity, the property and
funds physically held by the Indenture Trustee as such and any action taken by
it that materially affects the Notes and that has not been previously reported.
The Indenture Trustee shall also comply with Section 313(b) of the TIA.
Satisfaction and Discharge of Indenture. The Indenture will be discharged
with respect to the related Notes (but not with respect to the
Certificateholders) upon the delivery to the related Indenture Trustee for
cancellation of all such Notes or, with certain limitations, upon deposit with
the Indenture Trustee of funds sufficient for the payment in full of all of
such Notes.
THE INDENTURE TRUSTEE
The Indenture Trustee for a series of Notes will be specified in the related
Prospectus Supplement. The Indenture Trustee may give notice of its intent to
resign at any time, in which event the Servicer, or its successor, will be
obligated to appoint a successor trustee. The Servicer may also remove the
Indenture Trustee if the Indenture Trustee ceases to be eligible to continue as
such under the Indenture or if the Indenture Trustee becomes insolvent. In such
circumstances, the Servicer will be obligated to appoint a successor trustee.
Any resignation or removal of the Indenture Trustee and appointment of a
successor trustee does not become effective until acceptance of the appointment
by the successor trustee.
OWNER CERTIFICATES
GENERAL
The Owner Certificates will be issued pursuant to the terms of an Owner Trust
Agreement, a form of which has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. The following summary does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, all of the provisions of the Owner Certificates and the Owner
Trust Agreement. Where particular provisions or terms used in the Owner Trust
Agreement are referred to, the actual provisions (including definitions of
terms) are incorporated by reference as part of this summary.
Owner Certificates owned by the Seller or its affiliates will be entitled to
equal and proportionate benefits under the Owner Trust Agreement except that
such Owner Certificates will be deemed not to be outstanding for the purpose of
determining whether the requisite percentage of Owner Certificateholders have
given, made or taken any request, demand, authorization, direction, notice,
consent or other action under the Related Documents (other than the
commencement by the Owner Trust of a voluntary proceeding in bankruptcy as
described in "The Transfer and Servicing Agreements--Owner Trust: Insolvency
Event").
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<PAGE>
DISTRIBUTIONS OF INTEREST AND CERTIFICATE BALANCE
The timing and priority of distributions, seniority, allocations of loss,
Pass Through Rate and amount of or method of determining distributions with
respect to Certificate Balance and interest (or, where applicable, with respect
to Certificate Balance only or interest only) on the Owner Certificates of any
series will be described in the related Prospectus Supplement. Distributions of
interest on the Owner Certificates will be made on the dates specified in the
related Prospectus Supplement (each, a "DISTRIBUTION DATE") and will be made
prior to distributions with respect to Certificate Balance. A series may
include one or more classes of Strip Certificates entitled to (i) distributions
in respect of Certificate Balance with disproportionate, nominal or no interest
distributions, or (ii) interest distributions, with disproportionate, nominal
or no distributions in respect of Certificate Balance. Each class of Owner
Certificates may have a different Pass Through Rate, which may be a fixed,
variable or adjustable Pass Through Rate (and which may be zero for certain
classes of Strip Certificates), or any combination of the foregoing. The
related Prospectus Supplement will specify the Pass Through Rate for each class
of Owner Certificates, or the initial Pass Through Rate and the method for
determining the Pass Through Rate. Unless otherwise specified in the related
Prospectus Supplement, interest on the Owner Certificates will be calculated on
the basis of a 360-day year consisting of twelve 30-day months. Distributions
in respect of any class of Owner Certificates will be subordinate to payments
in respect of the Notes as more fully described in the related Prospectus
Supplement. Distributions in respect of Certificate Balance of any class of
Owner Certificates will be made on a pro rata basis among all of the Owner
Certificateholders of such class.
In the case of a series of Owner Certificates which includes two or more
classes of Owner Certificates, the timing, sequential order, priority of
payment or amount of distributions in respect of principal, and any schedule or
formula or other provisions applicable to the determination thereof, of each
such class shall be as set forth in the related Prospectus Supplement.
CLASS A CERTIFICATES
GENERAL
The Class A Certificates will be issued pursuant to a Pooling and Servicing
Agreement. The following summary does not purport to be complete and is subject
to, and qualified in its entirety by reference to, all of the provisions of the
Class A Certificates and the related Pooling and Servicing Agreement. Where
particular provisions or terms used in the related Pooling and Servicing
Agreement are referred to, the actual provisions (including definitions of
terms) are incorporated by reference as part of this summary.
The Grantor Certificates will evidence interests in the Grantor Trust created
pursuant to the related Pooling and Servicing Agreement. The Class A
Certificates will evidence in the aggregate an undivided ownership interest of
the Class A Percentage of the related Grantor Trust and the Class B
Certificates will evidence in the aggregate an undivided ownership interest of
the Class B Percentage of the related Grantor Trust. The "voting interests" of
the Class A Certificates will be allocated among the Class A Certificateholders
in accordance with the Class A Certificate Balance represented thereby, except
that in certain circumstances any Class A Certificates held by the Seller, the
Servicer or any of their respective affiliates shall be excluded from such
determination.
Grantor Certificates owned by the Seller or its affiliates will be entitled
to equal and proportionate benefits under the related Pooling and Servicing
Agreement except that such Grantor Certificates will be deemed not to be
outstanding for the purpose of determining whether the requisite percentage of
Grantor Certificateholders have given, made or taken any request, demand,
authorization, direction, notice, consent or other action under the Related
Documents.
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DISTRIBUTIONS OF INTEREST AND CERTIFICATE BALANCE
The timing and priority of distributions, Pass Through Rate and amount of or
method of determining distributions with respect to Certificate Balance and
interest on the Class A Certificates of any series will be described in the
related Prospectus Supplement. Interest will be passed through to the holders
of the Class A Certificates on the Distribution Dates specified in the related
Prospectus Supplement and will be made prior to distributions with respect to
Certificate Balance. Each class of Grantor Certificates may have a different
Pass Through Rate. The related Prospectus Supplement will specify the Pass
Through Rate for the Class A Certificates, or the initial Pass Through Rate and
the method for determining changes to the Pass Through Rate. Unless otherwise
specified in the related Prospectus Supplement, interest on the Class A
Certificates will be calculated on the basis of a 360-day year consisting of
twelve 30-day months. Distributions in respect of Certificate Balance of the
Class A Certificates of any series will be made on a pro rata basis among all
of the related Class A Certificateholders.
CERTAIN INFORMATION REGARDING THE SECURITIES
BOOK-ENTRY REGISTRATION
DTC is a limited purpose trust company organized under the laws of the State
of New York, a member of the Federal Reserve System, a "CLEARING CORPORATION"
within the meaning of the New York UCC and a "CLEARING AGENCY" registered
pursuant to Section 17A of the Exchange Act. DTC was created to hold securities
for its Participants and to facilitate the clearance and settlement of
securities transactions between Participants through electronic book-entries,
thereby eliminating the need for physical movement of certificates.
"PARTICIPANTS" include securities brokers and dealers, banks, trust companies,
clearing corporations or other Persons for whom from time to time DTC effects
book entry transfers and pledges of Securities deposited with DTC. Indirect
access to the DTC system also is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("INDIRECT
PARTICIPANTS").
Unless otherwise specified in the related Prospectus Supplement, 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 (together with any successor
depository selected by the Owner Trust, the "DEPOSITORY") except as provided in
this Prospectus or any Prospectus Supplement. Unless otherwise specified in the
related Prospectus Supplement, Notes will be available for purchase in
denominations of $1,000 and integral multiples thereof in book-entry form only.
Each class or series of Certificates to be sold by the Certificate Underwriters
(as defined in the related Prospectus Supplement) will initially be represented
by a single Certificate registered in the name of the Depository, except as
provided in this Prospectus or any Prospectus Supplement. Unless otherwise
specified in the related Prospectus Supplement, the Owner Certificates will be
available for purchase in minimum denominations of $20,000 and integral
multiples of $1,000 in excess thereof in book-entry form only and resales or
other transfers will not be permitted in amounts of less than $20,000, and
Class A Certificates will be available for purchase in minimum denominators of
$1,000 and integral multiples thereof in book-entry form only and resales or
other transfers will not be permitted in amounts less than $1,000. Unless and
until Definitive Securities are issued under the limited circumstances
described herein or in the related Prospectus Supplement, no person acquiring a
beneficial interest in a Security (a "Security Owner") (other than the Seller)
will be entitled to receive a physical certificate representing a Security.
Unless otherwise specified in the related Prospectus Supplement, Security
Owners (other than the Seller) that are not Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of,
or other interests in, Securities may do so only through Participants and
Indirect Participants. In addition, Security Owners having a beneficial
interest in Notes will receive all distributions of principal and interest and
Security Owners having a beneficial interest in Certificates will receive all
distributions in respect of interest and Certificate Balance through
Participants and Indirect Participants. The Seller has been informed by DTC
that DTC's nominee will be Cede. Accordingly, Cede is expected to be the holder
of record of the
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Securities that are not retained by the Seller. Under a book-entry format,
Security Owners may experience some delay in their receipt of payments, since
such payments will be forwarded by the trustees to Cede, as nominee for DTC.
DTC will forward such payments to its Participants, which thereafter will
forward them to Indirect Participants or Security Owners. Except for the
Seller, it is anticipated that the only "Noteholder" and "Certificateholder"
will be Cede, as nominee of DTC. Security Owners having a beneficial interest
in Notes will not be recognized by the Indenture Trustee as Noteholders, as
such term is used in the Indenture, and such Security Owners will be permitted
to exercise the rights of Noteholders only indirectly through DTC and its
Participants. Likewise, Security Owners having a beneficial interest in
Certificates will not be recognized by the related Trustee as
Certificateholders as such term is used in each related Owner Trust Agreement
or Grantor Trust Pooling and Servicing Agreement, as the case may be, and such
Security Owners will be permitted to exercise the rights of Certificateholders
only indirectly through DTC and its Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (collectively, the "RULES"), DTC is required to make book-entry
transfers of Securities among Participants on whose behalf it acts with respect
to the Securities and to receive and transmit distributions of principal of,
and interest on, the Notes and distributions in respect of interest and
Certificate Balance on the Certificates. Participants and Indirect Participants
with which Security Owners have accounts with respect to the Securities
similarly are required to make book-entry transfers and receive and transmit
such payments on behalf of their respective Security Owners. Accordingly,
although Security Owners will not possess Securities, the Rules provide a
mechanism by which Participants will receive payments and will be able to
transfer Security Owners' interests.
Because DTC can only act on behalf of Participants, who in turn act on behalf
of Indirect Participants and certain banks, the ability of a Security Owners to
pledge Securities to persons or entities that do not participate in the DTC
system, or to otherwise act with respect to such Securities, may be limited due
to the lack of a physical certificate for such Securities.
DTC has advised the Seller that it will take any action permitted to be taken
by a Noteholder under the related Indenture or a Certificateholder under the
related Owner Trust Agreement or Grantor Trust Pooling and Servicing Agreement,
as applicable, only at the direction of one or more Participants to whose
accounts with DTC the Notes or Certificates are credited. DTC may take
conflicting actions with respect to other undivided interests to the extent
that such actions are taken on behalf of Participants whose holdings include
such undivided interests.
All references herein to actions by Securityholders refer to actions taken by
DTC upon instructions from the Participants and all references herein to
distributions, notices, reports and statements to Securityholders refer to
distributions, notices, reports and statements to DTC or Cede, as the case may
be, for distribution to Security Owners in accordance with DTC's procedures
with respect thereto. See "Definitive Securities" below. Except as required by
law, neither the Administrator, the Seller, the Trustee nor the Indenture
Trustee (as applicable) will have any liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests of
the Securities of any series held by Cede, as nominee for DTC, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
DEFINITIVE SECURITIES
Unless otherwise specified in the related Prospectus Supplement, Securities
(other than Securities held by the Seller) will be issued in fully registered,
certificated form ("DEFINITIVE NOTES" or "DEFINITIVE CERTIFICATES," as the case
may be, and, collectively, the "DEFINITIVE SECURITIES") to Security Owners, or
their respective nominees, rather than to DTC or its nominee, only if (i) the
related Administrator, in the case of an Owner Trust, or the Seller, in the
case of a Grantor Trust, advises the appropriate Trustee in writing that DTC is
no longer willing or able to discharge properly its responsibilities as
depository with respect to such Securities and the Administrator or the Seller,
as applicable, is unable to locate a qualified successor, (ii) the
Administrator or the Seller, as applicable, at its option, advises the
appropriate Trustee in writing that it
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elects to terminate the book-entry system through DTC or (iii) after the
occurrence of an Event of Default or a Servicer Default, holders representing
at least a majority of the outstanding principal amount of such Securities (or,
in the case of the Class A Certificates, holders representing in the aggregate
not less than 51% of the voting interest of the Class A Certificates of such
series) advise the appropriate Trustee and DTC through Participants in writing
that the continuation of a book-entry system through DTC (or a successor
thereto) is no longer in the best interest of the holders of such Securities.
The "voting interests" of the Class A Certificates will be allocated among the
holders of Class A Certificates in accordance with the Class A Certificate
Balance represented thereby, except that in certain circumstances any Class A
Certificates held by the Seller, the Servicer or any of their respective
affiliates shall be excluded from such determination.
Upon the occurrence of any event described in the immediately preceding
paragraph, the appropriate trustee will be required to notify DTC of the
availability of Definitive Securities. Upon surrender by DTC of the definitive
certificates representing the securities and receipt of instructions for re-
registration, the appropriate trustee will reissue such securities as
Definitive Securities to holders thereof.
Distributions on or in respect of the Definitive Securities will be made in
accordance with the procedures set forth in the related Indenture, the related
Owner Trust Agreement or the related Grantor Trust 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
day before the related Payment Date or Distribution Date, as applicable. Such
distributions will be made by check mailed to the address of such holder as it
appears on the register maintained by the Indenture Trustee or Trustee, as
applicable. The final payment on any Definitive Security, however, will be made
only upon presentation and surrender of such Definitive Security at the office
or agency specified in the notice of final distribution to the holders of such
class.
Definitive Securities will be transferable and exchangeable at the offices of
the appropriate 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 appropriate trustee may require
payment of a sum sufficient to cover any tax or other governmental charge
imposed in connection therewith.
REPORTS TO SECURITYHOLDERS
On or prior to each Payment Date, the Servicer will prepare and provide to
the Indenture Trustee a statement to be delivered to the related Noteholders on
such Payment Date and on or prior to each Distribution Date, the Servicer will
prepare and provide to the Trustee a statement to be delivered to the related
Certificateholders (other than Class B Certificateholders). With respect to
each series (to the extent applicable) each such statement to be delivered to
Noteholders will include the following information as to the Notes with respect
to such Payment Date or the period since the previous Payment Date, as
applicable, and each such statement to be delivered to Certificateholders will
include the following information as to the Certificates with respect to such
Distribution Date or the period since the previous Distribution Date, as
applicable:
(i) Information Applicable to all Trusts:
(a) the amount of the distribution allocable to interest on or with
respect to each class of Securities;
(b) the Aggregate Receivables Balance as of the close of business on the
last day of such Monthly Period;
(c) the amount of Monthly Advances on such date;
(d) the amount of the Total Servicing Fee paid to the Servicer with
respect to the related Monthly Period;
(e) the amount of Aggregate Losses for the related Monthly Period;
(f) the Delinquency Percentage for the related Monthly Period; and
(g) the sum of all Administrative Purchase Payments and all Warranty
Payments made for the related Monthly Period.
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(ii) Information Applicable to Owner Trusts:
(a) the amount of the distribution allocable to principal of each class
of the Notes and to the Certificate Balance of each class of Owner
Certificates;
(b) the aggregate outstanding principal balance and the Note Pool Factor
for each class of Notes, and the Certificate Balance and the Owner Trust
Certificate Pool Factor for each class of Owner Certificates, each after
giving effect to all payments reported under (ii)(a) above on such date;
(c) the amount, if any, paid to the Servicer or distributed to
Noteholders and Owner Certificateholders from amounts on deposit in the
Reserve Account or from other forms of credit enhancement;
(d) 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 related Prospectus Supplement), if any, and the change in
such amounts from the preceding statement;
(e) the Interest Rate or Pass Through Rate for the next period for any
class of Notes or Owner Certificates with variable or adjustable rates; and
(f) the balance (if any) of the Reserve Account on such date, after
giving effect to distributions or deposits made on such date, and the
change in such balance from that of the prior Payment Date or Distribution
Date, as the case may be.
(iii) Information Applicable to Grantor Trusts:
(a) the amount of the distribution allocable to the Certificate Balance;
(b) the Class A Certificate Balance and the Class A Certificate Pool
Factor for the Class A Certificates, each after giving effect to all
payments reported under (iii)(a) above on such date;
(c) the amount of the Class A Interest Carryover Shortfall and Class A
Principal Carryover Shortfall, if any, on such Distribution Date and the
change in such amounts from those of the prior Distribution Date;
(d) the Class A Percentage of the Total Servicing Fee;
(e) the balance (if any) of the Subordination Spread Account on such
Distribution Date, after giving effect to distributions or deposits made on
such date, and the change in such balance from that of the prior
Distribution Date; and
(f) the amount otherwise distributable to the Class B Certificateholders
that is distributed to Class A Certificateholders on such Distribution
Date.
Each amount set forth pursuant to subclauses (i)(a), (i)(d), (ii)(a),
(ii)(d), (iii)(a), (iii)(c) and (iii)(d) with respect to Securities will be
expressed as a dollar amount per $1,000 of the initial principal balance of the
Notes or the initial Certificate Balance, as applicable.
Within the prescribed period of time for tax reporting purposes after the end
of each calendar year during the term of each Trust, the Trustees will mail to
each holder of a class of Securities who at any time during such calendar year
has been a Securityholder, and received any payment thereon, a statement
containing certain information for the purposes of such Securityholder's
preparation of federal income tax returns. See "Certain Federal Income Tax
Consequences."
The "AGGREGATE LOSSES" with respect to a Monthly Period and the related
Distribution Date will equal the sum of (i) the aggregate of the Receivable
Balances of all Receivables in such Trust newly designated during such Monthly
Period as Liquidating Receivables and (ii) the aggregate principal portion of
Scheduled Payments due but not received with respect to all such Receivables
prior to the date any such Receivable was designated a Liquidating Receivable
minus Liquidation Proceeds collected during such Monthly Period with respect to
all Liquidating Receivables. The "DELINQUENCY PERCENTAGE" with respect to a
Monthly Period will
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equal the aggregate Remaining Gross Balance of all outstanding Receivables
which have installments past due 61 days or more as of the last day of such
Monthly Period, determined in accordance with the Servicer's normal practices,
expressed as a percentage of the aggregate Remaining Gross Balance of
outstanding Receivables on the last day of such Monthly Period. With respect to
any Trust, the "REMAINING GROSS BALANCE" as of the last day of any Monthly
Period, with respect to any Receivable in such Trust (other than a Liquidating
Receivable), will be equal to the Initial Gross Receivable Balance thereof
minus the sum of the following: (i) all payments received by the Servicer from
or for the account of the Obligor which are not late fees, prepayment charges
or certain other similar fees or charges, (ii) any Warranty Payment or
Administrative Purchase Payment with respect to such Receivable, (iii) any
Prepayments applied to reduce the Initial Gross Receivable Balance of any such
Receivable, (iv) proceeds received by the Servicer from any insurance policies
with respect to such Receivable and (v) for any Receivable not classified by
the Servicer as a "finance charge-included contract," the portion of the
payments specified in the preceding clauses (i), (ii), (iii) or (iv) above
allocable in accordance with the actuarial method to finance charges; provided,
however, that the Remaining Gross Balance of any Receivable that has been
designated a Liquidating Receivable during the related Monthly Period shall
equal zero.
"LIQUIDATION PROCEEDS" shall mean all proceeds of the liquidation of any
Receivable (a "LIQUIDATING RECEIVABLE") as to which (i) the Servicer (a) has
reasonably determined in accordance with its customary servicing procedures
that eventual payment of amounts owing on such Receivable is unlikely, or (b)
has repossessed the Financed Vehicle or Financed Vehicles securing such
Receivable or (ii) any related Scheduled Payment is at least 210 days past due.
THE TRANSFER AND SERVICING AGREEMENTS
GENERAL
Except as otherwise specified in the related Prospectus Supplement, the
following summary describes certain terms of (i) the Purchase Agreement
applicable to each Trust pursuant to which the Seller will purchase Receivables
from the Servicer, (ii) the Owner Trust Pooling and Servicing Agreement
pursuant to which each Owner Trust will acquire the Receivables purchased by
the Seller under the related Purchase Agreement and the Servicer will agree to
service such Receivables, (iii) the Owner Trust Agreement pursuant to which
each Owner Trust will be created and Owner Certificates will be issued, (iv)
the Grantor Trust Pooling and Servicing Agreement pursuant to which (a) each
Grantor Trust will be created, (b) such Grantor Trust will acquire the
Receivables purchased by the Seller under the related Purchase Agreement, (c)
the Servicer will agree to service such Receivables and (d) Grantor
Certificates will be issued and (v) with respect to each Owner Trust, the
Administration Agreement pursuant to which NFC will undertake certain
administrative duties with respect to such Owner Trust.
The term "TRANSFER AND SERVICING AGREEMENTS" means (i) with respect to any
Owner Trust, the related Purchase Agreement, Pooling and Servicing Agreement,
Owner Trust Agreement, Indenture and Administration Agreement and (ii) with
respect to any Grantor Trust, the related Purchase Agreement and Pooling and
Servicing Agreement. Forms of the Transfer and Servicing Agreements have been
filed as exhibits to the Registration Statement of which this Prospectus forms
a part. The Seller will provide a copy of the Transfer and Servicing Agreements
(without exhibits) upon request to a holder of Securities described therein.
This summary does not purport to be complete and is subject to, and qualified
in its entirety by reference to, all of the provisions of the Transfer and
Servicing Agreements. Where particular provisions or terms used in the Transfer
and Servicing Agreements are referred to, the actual provisions (including
definitions of terms) are incorporated by reference as part of such summary.
SALE AND ASSIGNMENT OF RECEIVABLES
On the closing date specified in the related Prospectus Supplement (the
"CLOSING DATE"), pursuant to a Purchase Agreement between NFC and the Seller (a
"PURCHASE AGREEMENT"), NFC will sell and assign to
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the Seller, without recourse, its entire interest in the related Receivables,
including its security interests in the Financed Vehicles, the proceeds of
certain insurance policies, the proceeds of Dealer Liability with respect to
the Receivables, the proceeds of NITC Purchase Obligations with respect to the
Receivables, the proceeds of any Guaranties and the benefit of any lease
assignments with respect to the Financed Vehicles. On the Closing Date,
pursuant to the applicable Pooling and Servicing Agreement, the Seller will
transfer and assign to the Owner Trust or the Grantor Trustee, as applicable,
without recourse, its entire interest in the related Receivables, including its
security interests in the Financed Vehicles, the proceeds of certain insurance
policies, the proceeds of Dealer Liability with respect to the Receivables, any
proceeds of NITC Purchase Obligations with respect to the Receivables, the
proceeds of any Guaranties, the benefit of any lease assignments with respect
to the Financed Vehicles, the related Purchase Agreement and the related
Custodian Agreement.
Each Receivable with respect to a Trust will be identified in a schedule
which will be on file at the locations set forth in an exhibit to the
applicable Pooling and Servicing Agreement (a "SCHEDULE OF RECEIVABLES"). The
applicable Trustee will, concurrently with such transfer and assignment,
execute, authenticate (if necessary) and deliver the related Securities to the
Seller in exchange for such Receivables. The Seller will sell the Certificates
(other than those Certificates it is retaining) and (if applicable) the Notes
to the respective underwriters set forth in the related Prospectus Supplement.
See "Plan of Distribution." Unless otherwise provided in the related Prospectus
Supplement, the Seller will apply the net proceeds received from the sale of
the Securities to fund the Reserve Account or Subordination Spread Account and
then to the purchase of the related Receivables from NFC. The remainder of the
purchase price for the Receivables will be funded by an intercompany loan from
NFC.
In each Purchase Agreement, NFC will represent and warrant to the Seller,
among other things, that: (i) the information provided in the related Schedule
of Receivables is correct in all material respects; (ii) the Obligor on each
Receivable is required to maintain physical damage insurance covering the
Financed Vehicle in accordance with NFC's normal requirements, except for
certain fleet customers which NFC, in accordance with its customary procedures,
permits to be self-insured; (iii) as of the related Closing Date, the related
Receivables are free and clear of all security interests, liens, charges and
encumbrances (except from security interests, liens, charges or encumbrances
which may arise from accessions to the Financed Vehicles not financed by NFC)
and no offsets, defenses or counterclaims have been asserted or threatened;
(iv) as of the Closing Date, each of such Receivables is or will be secured by
a first perfected security interest in favor of NFC in the Financed Vehicle or
Financed Vehicles related thereto; and (v) each related Receivable, at the time
it was originated complied, and as of the related Closing Date complies, in all
material respects with applicable federal and state laws. In each applicable
Pooling and Servicing Agreement, the Seller will assign the representations and
warranties of NFC, as set forth above, to the Owner Trust or the Grantor
Trustee, as applicable, and will represent and warrant to the Owner Trust or
the Grantor Trustee, as applicable, that the Seller has taken no action which
would cause such representations and warranties of NFC to be false in any
material respect as of the Closing Date.
As of the last day of the second (or, if the Seller elects, the first) month
following the discovery by the Seller, the Servicer, the Trustee or (if
applicable) the Indenture Trustee of a breach of any representation or warranty
of the Seller or NFC that materially and adversely affects the interests of the
related Trust or Securityholders in any Receivable, the Seller, unless the
breach is cured, will repurchase such Receivable (a "WARRANTY RECEIVABLE") from
the Trust at a price equal to the sum of all remaining Scheduled Payments on
such Receivable, plus all past due Scheduled Payments with respect to which a
Monthly Advance has not been made, plus all outstanding Monthly Advances on
such Receivable, plus an amount equal to any reimbursements of outstanding
Monthly Advances made to the Servicer with respect to such Receivable from the
proceeds of other Receivables, minus (i) the rebate, calculated in accordance
with the actuarial method, that would be payable to the Obligor on such
Receivable were the Obligor to prepay such Receivable in full on such day and
(ii) any proceeds of the liquidation of such Receivable previously received (to
the extent applied to reduce the Receivable Balance of such Receivable) (the
"WARRANTY PAYMENT"). The Seller or NFC,
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as applicable, will be entitled to receive any amounts held by the Servicer
with respect to such Warranty Receivable. The repurchase obligation constitutes
the sole remedy available to the Securityholders, the Trustee, and, as
applicable, the Indenture Trustee for any such uncured breach.
In each applicable Pooling and Servicing Agreement, the Servicer will
covenant that (i) except as contemplated in such Agreement, the Servicer will
not release any Financed Vehicle from the security interest, (ii) the Servicer
will do nothing to impair the rights of the Securityholders, the Trustee, or,
as applicable, the Indenture Trustee in the related Receivables and (iii) the
Servicer will not amend any such Receivable such that the Initial Receivable
Balance, the APR or the total number of Scheduled Payments is altered or such
that the final scheduled payment on such Receivable will be due later than the
last day of the Monthly Period preceding the latest final scheduled
distribution date on any Securities (or such other date as is set forth in the
Prospectus Supplement). As of the last day of the second (or, if the Servicer
so elects, the first) month following the discovery by the Servicer, the
Trustee or (if applicable) the Indenture Trustee of a breach of any covenant
that materially and adversely affects any Receivable and unless such breach is
cured in all material respects, the Servicer will, with respect to such
Receivable (an "ADMINISTRATIVE RECEIVABLE"): (i) release all claims for
reimbursement of Monthly Advances made on such Administrative Receivable, and
(ii) purchase such Administrative Receivable from the Owner Trust or Grantor
Trustee, as applicable, at a price equal to the sum of all remaining Scheduled
Payments on such Administrative Receivable, plus an amount equal to any
reimbursements of outstanding Monthly Advances made to the Servicer with
respect to such Administrative Receivable from the proceeds of other
Receivables, plus all past due Scheduled Payments with respect to which a
Monthly Advance has not been made, minus the rebate, calculated in accordance
with the actuarial method, that would be payable to the Obligor on such
Administrative Receivable were the Obligor to prepay such Administrative
Receivable in full on such day (the "ADMINISTRATIVE PURCHASE PAYMENT"). In
addition, the Servicer will be entitled to retain any amounts held by the
Servicer with respect to such Administrative Receivable. This repurchase
obligation constitutes the sole remedy available to the Securityholders, the
Trustee and, as applicable, the Indenture Trustee for any such uncured breach.
Pursuant to each applicable Pooling and Servicing Agreement, the related
Trust or Trustee will designate the Servicer as custodian to maintain
possession, as the Owner Trust's or Grantor Trustee's agent, as applicable, of
the related Retail Notes and any other documents relating to the Receivables
held by the related Trust. To assure uniform quality in servicing both the
Receivables and the Servicer's own portfolio of receivables, as well as to
facilitate servicing and save administrative costs, the documents will not be
physically segregated from other similar documents that are in the Servicer's
possession or otherwise stamped or marked to reflect the transfer to the
related Trust so long as the Servicer is the custodian of such documents.
However, Uniform Commercial Code ("UCC") financing statements reflecting the
sale and assignment of such Receivables to the Owner Trust or Grantor Trustee,
as applicable, will be filed, and the Servicer's accounting records and
computer files will reflect such sale and assignment. Because such Receivables
will remain in the Servicer's possession and will not be stamped or otherwise
marked to reflect the assignment to the Owner Trust or Grantor Trustee, as
applicable, if a subsequent purchaser were able to take physical possession of
the Receivables without knowledge of the assignment, the Owner Trust's or
Grantor Trustee's interests in such Receivables could be defeated.
ACCOUNTS
With respect to each Trust, the Servicer will establish and maintain with the
Indenture Trustee or the Grantor Trustee, as applicable, one or more accounts,
(i) in the name of the Indenture Trustee on behalf of the related
Securityholders in the case of an Owner Trust, and (ii) in the name of the
Grantor Trustee on behalf of the Grantor Certificateholders in the case of a
Grantor Trust, into which all payments made on or with respect to the related
Receivables will be deposited (a "COLLECTION ACCOUNT"). With respect to each
Owner Trust, the Servicer will also establish and maintain with the Indenture
Trustee for each series (i) an account, in the name of the Indenture Trustee on
behalf of the related Noteholders, in which amounts released from the
Collection Account and any Reserve Account or other credit enhancement for
payment to such Noteholders will be deposited and from which all distributions
to such Noteholders will be made (the "NOTE
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DISTRIBUTION ACCOUNT"), and (ii) an account, in the name of the Owner Trustee
on behalf of the related Owner Certificateholders, in which amounts released
from the Collection Account and any Reserve Account or other credit enhancement
for distribution to such Owner Certificateholders will be deposited and from
which all distributions to such Certificateholders will be made (a "CERTIFICATE
DISTRIBUTION ACCOUNT"). With respect to each Grantor Trust, the Servicer will
also establish in the name of the Grantor Trustee on behalf of the Grantor
Certificateholders an account, in the name of the Grantor Trustee on behalf of
the related Grantor Certificateholders, in which amounts released from the
Collection Account and any Subordinated Spread Account or other credit
enhancement for payment to such Grantor Certificateholders will be deposited
and from which all distributions to such Certificateholders will be made (also,
a "CERTIFICATE DISTRIBUTION ACCOUNT").
For any series of Securities, funds in the Collection Account, the Note
Distribution Account, any Reserve Account and any Subordination Spread Account
and other accounts identified as such in the related Prospectus Supplement
(collectively, the "DESIGNATED ACCOUNTS") will be invested as provided in the
applicable Pooling and Servicing Agreement in Eligible Investments. "ELIGIBLE
INVESTMENTS" are generally limited to investments acceptable to the rating
agencies rating the related Securities at the request of the Seller (the
"RATING AGENCIES") as being consistent with the rating of such Securities.
Except as described below or in the related Prospectus Supplement, Eligible
Investments are limited to obligations or securities that mature prior to the
next Distribution Date or, in the case of the Note Distribution Account, the
next Payment Date. To the extent permitted by the Rating Agencies, funds in any
Reserve Account may be invested in related Notes that will not mature prior to
the date of the next distribution with respect to the Notes. Except as
otherwise specified in the related Prospectus Supplement, such Notes will not
be sold to meet any shortfalls unless they are sold at a price equal to or
greater than the unpaid principal balance thereof if, following such sale, the
amount on deposit in any Reserve Account would be less than the Specified
Reserve Account Balance. 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 Receivables (as provided in the related Prospectus
Supplement) exceeds the amount of cash in the Reserve Account, a temporary
shortfall in the amounts distributed to the Noteholders and Owner
Certificateholders could result, which could, in turn, increase the average
life of the Owner Securities. Except as otherwise specified in the related
Prospectus Supplement, investment earnings on funds deposited in the Designated
Accounts, net of losses and investment expenses (collectively, "INVESTMENT
EARNINGS"), will be payable to the Seller.
The Designated Accounts will be maintained as Eligible Deposit Accounts;
provided, however, that (i) each Collection Account will be maintained with the
Indenture Trustee or the Grantor Trustee, as applicable, so long as (a) the
Indenture Trustee's or Grantor Trustee's (as applicable) 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 Corporation (the "REQUIRED DEPOSIT RATING")
or (b) such accounts are maintained in the trust department of the Indenture
Trustee or Grantor Trustee and (ii) unless otherwise provided in the related
Prospectus Supplement, each Collection Account, each Note Distribution Account
and each Certificate Distribution Account, as applicable, will initially be
maintained in the trust department of the related Indenture Trustee or Grantor
Trustee, as applicable. If the conditions set forth in clause (i) of the
immediately preceding sentence are not satisfied, the Servicer will, with the
Indenture Trustee or Grantor Trustee's assistance as necessary, cause the
applicable Collection Account to be moved to a bank whose short-term unsecured
debt obligations have the Required Deposit Rating. "ELIGIBLE DEPOSIT ACCOUNT"
means either (a) a segregated account with an Eligible Institution or (b) a
segregated trust account with the corporate trust department of a depository
institution organized under the laws of the United States of America or any one
of the states thereof or the District of Columbia (or any domestic branch of a
foreign bank), having corporate trust powers and acting as trustee for funds
deposited in such account, so long as any of the securities of such depository
institution have a credit rating from each Rating Agency in one of its generic
rating categories which signifies investment grade. "ELIGIBLE INSTITUTION"
means, with respect to a Trust, (a) the corporate trust department of the
related Indenture Trustee or the Grantor Trustee, as applicable, or (b) a
depository
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institution organized under the laws of the United States of America or any one
of the states thereof or the District of Columbia (or any domestic branch of a
foreign bank), (i) which has either (A) a long-term unsecured debt rating
acceptable to the Rating Agencies or (B) a short-term unsecured debt rating or
certificate of deposit rating acceptable to the Rating Agencies and (ii) whose
deposits are insured by the FDIC.
Any other accounts to be established with respect to a Trust will be
described in the related Prospectus Supplement.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
With respect to each Trust, unless otherwise provided in the related
Prospectus Supplement, on each Distribution Date, the Servicer will receive a
servicing fee (the "BASIC SERVICING FEE") for the preceding Monthly Period
equal to one-twelfth of the Basic Servicing Fee Rate specified in the related
Prospectus Supplement multiplied by the Aggregate Receivables Balance of all
Receivables held by such Trust as of the first day of such Monthly Period. On
each Distribution Date, the Servicer will be paid the Basic Servicing Fee and
any unpaid Basic Servicing Fees from all prior Distribution Dates
(collectively, the "TOTAL SERVICING FEE") to the extent of funds available
therefor. In addition, unless otherwise provided in the related Prospectus
Supplement, with respect to each Trust, the Servicer will be entitled to
receive any late fees, prepayment charges or certain similar fees and charges
collected during a Monthly Period (the "SUPPLEMENTAL SERVICING FEE"). A
"MONTHLY PERIOD" with respect to a Distribution Date will be the calendar month
preceding the month in which such Distribution Date occurs.
The foregoing amounts with respect to each Trust are intended to compensate
the Servicer for performing the functions of a third party servicer of truck,
bus and trailer receivables as an agent for their beneficial owner, including
collecting and posting all payments, responding to inquiries of Obligors on the
Receivables, investigating delinquencies, sending payment coupons to Obligors,
reporting tax information to Obligors, paying costs of collections and policing
the collateral. Such amounts will also compensate the Servicer for its services
as the Receivables Pool administrator, including making Monthly Advances,
accounting for collections, furnishing monthly and annual statements to the
Trustee and the Indenture Trustee with respect to distributions and generating
federal income tax information for the Trust, and the Securityholders. Such
amounts also will reimburse the Servicer for certain taxes, the fees of the
Trustee and (if applicable) the Indenture Trustee, accounting fees, outside
auditor fees, data processing costs and other costs incurred in connection with
administering the related Receivables Pool. The Servicer will not be required
to pay Federal, state and local income and franchise taxes, if any, of the
Owner Trust or any Securityholder.
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 Pooling and Servicing Agreement, follow such collection procedures as
it follows with respect to its own Retail Notes. See "Certain Legal Aspects of
the Receivables." The Servicer is authorized to grant certain rebates,
adjustments or extensions with respect to a Receivable. However, if any such
modification of a Receivable alters the Initial Receivable Balance, the APR or
the total number of Scheduled Payments, the Servicer will be obligated to
purchase such Receivable.
If the Servicer determines that eventual payment in full of a Receivable is
unlikely, the Servicer will follow its normal practices and procedures to
realize upon the Receivable, including the repossession and disposition of the
Financed Vehicle securing the Receivable at a public or private sale, or the
taking of any other action permitted by applicable law. The Servicer will be
entitled to receive an amount specified in the applicable Pooling and Servicing
Agreement as an allowance for amounts charged to the account of the Obligor, in
keeping with the Servicer's customary procedures, for repossession,
refurbishing and disposition of any Financed Vehicle and other out-of-pocket
costs related to the liquidation (collectively, "LIQUIDATION EXPENSES").
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COLLECTIONS
The Servicer will deposit all payments received from Obligors, all proceeds
of insurance policies, Guaranties, Dealer Liability and NITC Purchase
Obligations, and all Liquidation Proceeds collected during each Monthly Period
with respect to the Receivables held by any Trust into the appropriate
Collection Account not later than two business days after receipt. However, in
the event that (i) the Servicer satisfies the requirements for monthly
remittances of such collections established by the rating agencies initially
rating the Securities, and upon satisfaction of such requirements, the rating
agencies that initially rated the Securities reaffirm the rating of the
Securities at the level at which they would be rated if collections were
remitted within two Business Days or (ii) the short-term unsecured debt of the
Servicer is rated at least A-1+ by Standard & Poor's Corporation and P-1 by
Moody's Investors Service, Inc., then, so long as NFC is the Servicer and
provided that there exists no Event of Default, the Servicer will not be
required to deposit such amounts into the appropriate Collection Account until
on or before the business day preceding the Distribution Date with respect to
the Certificates or the Payment Date with respect to the Notes. 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.
Collections on a Receivable held by any Trust made during a Monthly Period
(including Warranty Payments and Administrative Purchase Payments) which are
not late fees, prepayment charges or certain other similar fees or charges will
be applied first to any outstanding Monthly Advances made by the Servicer with
respect to such Receivable, and then to the Scheduled Payment. Collections on a
Receivable remaining after such applications will be deemed a "PREPAYMENT." A
"FULL PREPAYMENT" is a Prepayment of the entire Receivable or of the entire
principal balance outstanding with respect to any Financed Vehicle related
thereto. Upon a Full Prepayment, the Obligor is entitled to a "rebate" of the
unearned finance charges contained in the remaining Scheduled Payments, which
will not accrue due to the prepayment. A "PARTIAL PREPAYMENT" is a Prepayment
other than a Full Prepayment the amount of which is equal to one or more
Scheduled Payments and which results in a rebate to the Obligor of unearned
finance charges in accordance with the Servicer's customary procedures. A
Partial Prepayment is applied to reduce the remaining Scheduled Payments of the
related Receivable in inverse order of maturity, beginning with the final
Scheduled Payment. The Servicer's general practice with respect to a Full
Prepayment is to require payment by the Obligor of accrued and unpaid finance
charges through the date on which such Full Prepayment is received and to
rebate the remaining finance charges. The Servicer will not reimburse any Trust
for the difference between such accrued and unpaid finance charges and the
amount of finance charges that would have been payable under the actuarial
method if such Full Prepayment were made at the end of the billing month under
the related Receivable.
MONTHLY ADVANCES
Unless otherwise provided in the related Prospectus Supplement, if the full
Scheduled Payment due on any Receivable is not received by the end of the month
in which it is due, whether as the result of any extension granted to the
Obligor or otherwise, the Servicer will be obligated to make an advance (a
"MONTHLY ADVANCE") to the related Trust equal to the amount of such shortfall
to the extent that the Servicer, in its sole discretion, expects to recoup such
Monthly Advance from subsequent collections or recoveries on such Receivable.
The Servicer will be reimbursed for any Monthly Advances from subsequent
payments or collections relating to such Receivables. Upon the determination
that reimbursement from the preceding sources is unlikely, the Servicer will be
entitled to recoup its Monthly Advances from collections on other Receivables
in the Trust.
DISTRIBUTIONS
General. With respect to each Trust, beginning on the Payment Date or
Distribution Date, as applicable, specified in the related Prospectus
Supplement, distributions of principal and interest (or, where applicable, in
respect of principal or interest only) with respect to the Notes and
distributions in respect of Certificate Balance and interest (or, where
applicable, of Certificate Balance or interest only) with respect to the
Certificates on each class of Securities entitled thereto will be made by the
Indenture Trustee or the Trustee, as applicable, to the Securityholders. The
timing, calculation, allocation, order, source, priorities of and requirements
(i) for all payments and distributions to each class of Owner Securityholders
and (ii) for all distributions on the Class A Certificates will be made as set
forth herein, in the related Prospectus Supplement and in the related Pooling
and Servicing Agreement.
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Distributions on Owner Securities. With respect to each Owner Trust, on the
day preceding each Distribution Date, collections on the Receivables will be
transferred from the Collection Account to the Note Distribution Account and
the Certificate Distribution Account for distribution to Owner Securityholders
on the dates set forth herein or in the Prospectus Supplement. Credit
enhancement, such as a Reserve Account, will be available to cover any
shortfalls in the amount available for distribution on such date to the extent
specified in the related Prospectus Supplement. Distributions in respect of
principal and Certificate Balance (as such term is defined in the related
Prospectus Supplement) of Owner Certificates will be subordinate to
distributions in respect of interest, and distributions in respect of the Owner
Certificates will be subordinate to payments in respect of the Notes, as more
fully described in the related Prospectus Supplement.
Distributions on Grantor Certificates. With respect to each series of Grantor
Certificates, on or before each Distribution Date, the Servicer or the Grantor
Trustee, as the case may be, will transfer the portion of collections on the
related Receivables which constitute all or a portion of Scheduled Payments for
the related Monthly Period and all Prepayments to the related Certificate
Distribution Account. The Grantor Trustee shall make distributions to the
Grantor Certificateholders out of the amounts on deposit in the Certificate
Distribution Account. The amount to be distributed to the Grantor
Certificateholders shall be determined in the manner described below.
Calculation of Distributable Amounts. With respect to any series of Grantor
Certificates, the "CLASS A DISTRIBUTABLE AMOUNT" with respect to a Distribution
Date will equal the sum of (i) the "CLASS A PRINCIPAL DISTRIBUTABLE AMOUNT,"
consisting of the Class A Percentage of the following items, each computed in
accordance with the actuarial method: (a) the principal portion of all
Scheduled Payments due during the related Monthly Period on Receivables held by
the related Grantor Trust (other than Liquidating Receivables), (b) the
principal portion of all Prepayments received during the related Monthly Period
(except to the extent included in (a) above) and (c) the Receivable Balance of
each Receivable that the Servicer elected or became obligated to purchase, the
Seller became obligated to repurchase or that became a Liquidating Receivable
during the related Monthly Period (except to the extent included in (a) or (b)
above), and (ii) the "CLASS A INTEREST DISTRIBUTABLE AMOUNT," consisting of one
month's interest at the Pass-Through Rate on the Class A Certificate Balance as
of the last day of the related Monthly Period.
The "CLASS A CERTIFICATE BALANCE" with respect to any series of Grantor
Certificates will equal, initially, the Class A Percentage of the Initial
Aggregate Receivables Balance and, thereafter, except as provided in the
related Pooling and Servicing Agreement, will equal such initial Class A
Certificate Balance reduced by all distributions of Class A Principal
Distributable Amounts actually made to the Class A Certificateholders.
With respect to any series of Grantor Certificates, the "CLASS B
DISTRIBUTABLE AMOUNT" with respect to a Distribution Date will be an amount
equal to the sum of (i) the "CLASS B PRINCIPAL DISTRIBUTABLE AMOUNT,"
consisting of the Class B Percentage of the amounts set forth under (i) above
with respect to the Class A Principal Distributable Amount, and (ii) the "CLASS
B INTEREST DISTRIBUTABLE AMOUNT," consisting of (a) one month's interest at the
Pass-Through Rate on the Class B Certificate Balance as of the last day of the
related Monthly Period and (b) all Prepayment Surplus with respect to the
Receivables.
The "CLASS B CERTIFICATE BALANCE" with respect to any series of Grantor
Certificates will equal, initially, the Class B Percentage of the Initial
Aggregate Receivables Balance and, thereafter, will equal the initial Class B
Certificate Balance, reduced by (i) all distributions of Class B Principal
Distributable Amounts actually made on or prior to such date to Class B
Certificateholders (or deposited on or prior to such date in the Subordination
Spread Account, not including the Subordination Initial Deposit), (ii) the
current Class A Principal Carryover Shortfall and (iii) any shortfalls from
prior Distribution Dates in principal distributions to the Class B
Certificateholders. The term "CERTIFICATE BALANCE" means, with respect to any
Grantor Trust, the Class A Certificate Balance and the Class B Certificate
Balance.
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Calculation of Amounts to be Distributed. Prior to each Distribution Date,
the Servicer will calculate the amount to be distributed to the Class A
Certificateholders. The Class A Certificateholders will receive on each
Distribution Date, to the extent of available funds, an amount equal to the sum
of the Class A Distributable Amount and any outstanding Class A Interest
Carryover Shortfall (plus, to the extent permitted by law, one month's interest
on such Class A Interest Carryover Shortfall at the applicable Pass-Through
Rate from such preceding Distribution Date to the current Distribution Date)
and Class A Principal Carryover Shortfall (each as defined below). Such sum
shall be paid from the Class A Percentage of the Collected Interest (available
after payment of the Total Servicing Fee and any unpaid Total Servicing Fees
with respect to prior Monthly Periods) and the Class A Percentage of the
Collected Principal. On each Distribution Date on which such sum exceeds the
related Class A Percentage of the Collected Interest (after payment of the
Total Servicing Fee and any unpaid Total Servicing Fees with respect to prior
Monthly Periods), the Class A Certificateholders will be entitled to receive
such excess: first, from the related Class B Percentage of the Collected
Interest, second, if such amounts are insufficient, from amounts on deposit in
the related Subordination Spread Account, and third, if such amounts are
insufficient, from the Class B Percentage of the Collected Principal.
With respect to any series of Grantor Certificates, the "CLASS A INTEREST
CARRYOVER SHORTFALL" as of the close of any Distribution Date means the excess
of (a) the Class A Interest Distributable Amount for such Distribution Date
plus any outstanding Class A Interest Carryover Shortfall from the preceding
Distribution Date, plus one month's interest on such outstanding Class A
Interest Carryover Shortfall, to the extent permitted by law, at the applicable
Pass-Through Rate from such preceding Distribution Date through the current
Distribution Date, over (b) the amount of interest that was actually deposited
in the Certificate Distribution Account on such current Distribution Date in
respect of interest on the Class A Certificates.
With respect to any series of Grantor Certificates, on each Distribution
Date, the sum of the Class A Principal Distributable Amount and any outstanding
Class A Principal Carryover Shortfall shall be paid from the Class A Percentage
of the Collected Principal to the extent remaining after application as
described in the preceding paragraph. On each Distribution Date on which the
sum of the Class A Principal Distributable Amount and any outstanding Class A
Principal Carryover Shortfall from the preceding Distribution Date exceeds the
Class A Percentage of the Collected Principal remaining after application as
described in the preceding paragraph on such Distribution Date, the Class A
Certificateholders will be entitled to receive such excess: first, to the
extent remaining after application as described in the preceding paragraph,
from the related Class B Percentage of the Collected Principal, second, if such
amounts are insufficient, from amounts on deposit in the related Subordination
Spread Account, and third, if such amounts are insufficient, from any Collected
Interest remaining after application as described in the preceding paragraph.
With respect to any series of Grantor Certificates, the "CLASS A PRINCIPAL
CARRYOVER SHORTFALL" as of the close of any Distribution Date means the excess
of (a) the Class A Principal Distributable Amount plus any outstanding Class A
Principal Carryover Shortfall from the preceding Distribution Date over (b) the
amount of principal that was actually deposited in the Certificate Distribution
Account on such current Distribution Date in respect of Certificate Balance.
The holders of the Class B Certificates will be entitled to receive on any
Distribution Date an amount equal to the sum of the Class B Interest
Distributable Amount and the Class B Principal Distributable Amount (and any
shortfalls from prior Distribution Dates in payments to the Class B
Certificateholders), after giving effect to (i) amounts required to pay the
Total Servicing Fee payable to the Servicer on such Distribution Date, and (ii)
any amounts required to be distributed to the holders of Class A Certificates
pursuant to the subordination of the rights of the holders of Class B
Certificates.
Determination of Available Amount. The "AVAILABLE AMOUNT" for each
Distribution Date will be the sum of the Collected Interest and the Collected
Principal.
The "COLLECTED INTEREST" with respect to each series of Certificates for each
Distribution Date will be the sum, with respect to the related Monthly Period
and in each case computed in accordance with the actuarial method, of: (i) that
portion of all collections on the Receivables held by the related Trust (other
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than Liquidating Receivables) allocable to interest or to Prepayment Surplus,
(ii) all Liquidation Proceeds to the extent attributable to interest in
accordance with the Servicer's customary procedures, (iii) that portion of all
Monthly Advances made by the Servicer allocable to interest due on the
Receivables and (iv) the Warranty Payment, the Administrative Purchase Payment
or the Optional Purchase Proceeds of each Receivable that the Seller
repurchased or the Servicer purchased during such related Monthly Period, to
the extent attributable to accrued interest or Prepayment Surplus thereon.
The "COLLECTED PRINCIPAL" with respect to each series of Certificates for
each Distribution Date will be the sum, with respect to the related Monthly
Period and in each case computed in accordance with the actuarial method, of:
(i) that portion of all collections on the Receivables held by the related
Trust (other than Liquidating Receivables) allocable to principal, (ii) all
Liquidation Proceeds to the extent attributable to principal in accordance with
the Servicer's customary procedures, (iii) that portion of all Monthly Advances
made by the Servicer allocable to principal on the Receivables, (iv) the
Warranty Payment, the Administrative Purchase Payment or the Optional Purchase
Proceeds received with respect to each Receivable that the Seller repurchased
or the Servicer purchased during such related Monthly Period to the extent
attributable to principal and (v) the principal portion of all Prepayments.
The Collected Interest and the Collected Principal with respect to each
series of Certificates on any Distribution Date will exclude: (i) amounts
received on any Receivable to the extent that the Servicer has previously made
an unreimbursed Monthly Advance and (ii) Liquidation Proceeds with respect to a
particular Receivable to the extent of any unreimbursed Monthly Advances and
Liquidation Expenses.
With respect to any series of Securities, the "PREPAYMENT SURPLUS" with
respect to any Distribution Date on which a Prepayment is to be applied with
respect to a Receivable, will equal that portion of such Prepayment, net of any
rebate to the Obligor of the portion of the Scheduled Payments attributable to
unearned finance charges, which is not attributable to principal in accordance
with the actuarial method.
CREDIT ENHANCEMENT
The amounts and types of credit enhancement arrangements and the provider
thereof, if applicable, with respect to each class of Securities will be set
forth in the related Prospectus Supplement. If and to the extent provided in
the related Prospectus Supplement, credit enhancement may be in the form of
subordination of one or more classes of Securities, Reserve Accounts,
Subordination Spread Accounts, overcollateralization, letters of credit, credit
or liquidity facilities, repurchase obligations, third party payments or other
support, cash deposits or such other arrangements as may be described in the
related Prospectus Supplement or any combination of two or more of the
foregoing. If specified in the applicable Prospectus Supplement, credit
enhancement for a series of Securities may cover one or more other series of
Securities.
The presence of a Reserve Account, Subordination Spread Account and other
forms of credit enhancement is intended to enhance the likelihood of receipt by
the Securityholders of the full amount of principal or Certificate Balance, as
the case may be, and interest due thereon and to decrease the likelihood that
the Securityholders will experience losses. Unless otherwise specified in the
related Prospectus Supplement, the credit enhancement for a class of Securities
will not provide protection against all risks of loss and will not guarantee
repayment of the entire principal balance or Certificate Balance, as the case
may be, and interest thereon. If losses occur which exceed the amount covered
by any credit enhancement or which are not covered by any credit enhancement,
Securityholders will bear their allocable share of deficiencies. In addition,
if a form of credit enhancement covers more than one series of Securities,
Securityholders of any such series will be subject to the risk that such credit
enhancement will be exhausted by the prior claims of Securityholders of other
series.
Owner Trust: Reserve Account. If so provided in the related Prospectus
Supplement, with respect to each Owner Trust, pursuant to the Owner Trust
Pooling and Servicing Agreement, the Seller will establish for a series an
account, as specified in the related Prospectus Supplement (the "RESERVE
ACCOUNT"), which will be
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maintained with the Indenture Trustee. Unless otherwise provided in the related
Prospectus Supplement, the Reserve Account will be included in the property of
the related Owner Trust and will be a segregated trust account held by the
Indenture Trustee for the benefit of Securityholders. Unless otherwise provided
in the related Prospectus Supplement, the Reserve Account will be funded by an
initial deposit by the Seller on the Closing Date of the Reserve Account
Initial Deposit (in the amount set forth in the related Prospectus Supplement).
As further described in the related 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
related Prospectus Supplement) by the deposit therein of the amount of
collections on the related Receivables remaining on each such Distribution Date
after the payment of the Total Servicing Fee and the distributions to the
Securityholders required on such date. Unless otherwise provided in the related
Prospectus Supplement, amounts on deposit in the Reserve Account after payments
to Securityholders and the Servicer will be paid to the Seller to the extent
that such amounts exceed the Specified Reserve Account Balance. Upon any
distribution to the Seller of amounts from the Reserve Account, the
Securityholders will not have any rights in, or claims to, such amounts.
Grantor Trust: Subordination of the Class B Certificates; Subordination
Spread Account. In the case of a Grantor Trust, the rights of the Class B
Certificateholders to receive distributions with respect to the Receivables
will be subordinated to the rights of the Class A Certificateholders in the
event of defaults and delinquencies on the Receivables as provided in the
related Grantor Trust Pooling and Servicing Agreement. The protection afforded
to the Class A Certificateholders will be effected both by the preferential
right of the Class A Certificateholders to receive current distributions with
respect to the Receivables and by the establishment of the Subordination Spread
Account. The Subordination Spread Account will be created with an initial
deposit by the Seller of the Subordination Initial Deposit (in the amount set
forth in the related Prospectus Supplement) and will thereafter be increased by
deposit therein of amounts otherwise distributable to Class B
Certificateholders until the amount in the Subordination Spread Account reaches
an amount equal to the Specified Subordination Spread Account Balance (in the
amount set forth in the related Prospectus Supplement). Thereafter, amounts
otherwise distributable to the Class B Certificateholders will be deposited in
the Subordination Spread Account to the extent necessary to restore the amount
in the Subordination Spread Account to the Specified Subordination Spread
Account Balance. See "The Servicer--Delinquencies, Repossessions and Net
Losses."
With respect to any series of Grantor Certificates and unless otherwise
specified in the related Prospectus Supplement, the "SPECIFIED SUBORDINATION
SPREAD ACCOUNT BALANCE" with respect to any Distribution Date will be the
Minimum Subordination Spread Amount, except that, unless otherwise provided in
the related Prospectus Supplement, if on any Distribution Date (i) the product
(expressed as a percentage) of (a) twelve and (b) a fraction, the numerator of
which is equal to the sum of the Aggregate Losses plus Liquidation Proceeds for
each of the Monthly Periods which are the fifth, fourth and third Monthly
Periods preceding the Monthly Period related to such Distribution Date, minus
the sum of the Liquidation Proceeds for the Monthly Periods which are the
first, second and third Monthly Periods preceding the Monthly Period related to
such Distribution Date, and the denominator of which is the sum of the
Remaining Gross Balance as of the last day of each of the sixth, fifth and
fourth Monthly Periods related to such Distribution date, which product exceeds
1.5% (or such other percentage as is specified in the related Prospectus
Supplement) or (ii) the average of the Delinquency Percentages for the
preceding three months exceeds 2% (or such other percentage as is specified in
the related Prospectus Supplement), then the Specified Subordination Spread
Account Balance for such Distribution Date will be an amount equal to a
specified percentage of the aggregate Remaining Gross Balance. Such specified
percentage shall be determined by deducting from the Specified Subordination
Percentage (as defined in the related Prospectus Supplement) the following
fraction, expressed as a percentage: (x) 1 minus (y) a fraction, the numerator
of which is the Class A Certificate Balance and the denominator of which is the
Aggregate Receivables Balance. Notwithstanding the foregoing, in no event will
the Specified Subordination Spread Account Balance be more than the Maximum
Subordination Spread Amount or less than the Minimum Subordination Spread
Amount (each as specified in the related Prospectus Supplement). As of any
Distribution Date, the amount of funds actually on deposit in the Subordination
Spread Account may, in certain circumstances, be less than the Specified
Subordination Spread Account Balance.
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Unless otherwise specified in the related Prospectus Supplement, a
Subordination Spread Account will not be included in the related Grantor Trust
and will be a segregated trust account held by the Grantor Trustee. With
respect to any series of Grantor Certificates, on each Distribution Date, (i)
if the amount on deposit in the Subordination Spread Account is less than the
Specified Subordination Spread Account Balance for such Distribution Date, the
Grantor Trustee will, after payment of any amounts required to be distributed
to holders of the Class A Certificates and the payment of the Total Servicing
Fee due with respect to the related Monthly Period (including any unpaid Total
Servicing Fees with respect to prior Monthly Periods), withdraw from the
Certificate Distribution Account and deposit in the Subordination Spread
Account the amount remaining in the Certificate Distribution Account that would
otherwise be distributed to the holders of the Class B Certificates, or such
lesser portion thereof as is sufficient to bring the amount in the
Subordination Spread Account up to such Specified Subordination Spread Account
Balance and (ii) if the amount on deposit in the Subordination Spread Account
on such Distribution Date (after giving effect to all deposits or withdrawals
therefrom on such Distribution Date) is greater than the Specified
Subordination Spread Account Balance for such Distribution Date, the Grantor
Trustee will release and distribute any such excess to the holders of the Class
B Certificates. Upon any such distribution to the Class B Certificateholders,
the Class A Certificateholders will have no further rights in, or claims to,
such amounts.
Amounts held from time to time in the Subordination Spread Account will
continue to be held for the benefit of holders of the Grantor Certificates.
Funds in the Subordination Spread Account will be invested as provided in the
related Grantor Trust Pooling and Servicing Agreement. The Seller will be
entitled to receive all investment earnings on amounts in the Subordination
Spread Account. Investment income on amounts in the Subordination Spread
Account will not be available for distribution to the holders of the
Certificates or otherwise subject to any claims or rights of the holders of the
Certificates.
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 (including interest thereon) and the Class A Principal
Carryover Shortfall for such Distribution Date (after giving effect to any
amounts applied to such deficiency which were withdrawn from the Subordination
Spread Account and the Class B Distributable Amount), the holders of the Class
B Certificates will not receive any portion of the Available Amount.
The subordination of the Class B Certificates and the Subordination Spread
Account is intended to enhance the likelihood of receipt by the Class A
Certificateholders of the full amount of principal and interest on the
Receivables due them and to decrease the likelihood that the Class A
Certificateholders will experience losses. However, in certain circumstances,
the Subordination Spread Account could be depleted and shortfalls could result.
The amounts available for distribution to Grantor Certificateholders as
described above could be reduced if certain indemnification or reimbursement
payments were required to be made from the Certificate Distribution Account as
described under "The Transfer and Servicing Agreements--Monthly Advances," and
"--Certain Matters Regarding the Servicer" and "The Trusts--The Trustees."
NET DEPOSITS
Owner Trusts. For so long as the conditions described above under "--
Collections" are satisfied and the Servicer is not required to remit
collections within two Business Days of receipt thereof, then (i) as an
administrative convenience the Servicer will be permitted to make the deposit
of collections, aggregate Monthly Advances, Warranty Purchase Payments and
Administrative Purchase Payments net of distributions to be made to the
Servicer with respect to the related Monthly Period, provided, however, that
the Servicer will account to the Indenture Trustee, the Owner Trustee and the
Owner Securityholders as if all deposits, distributions and other remittances
were made individually, and (ii) the Servicer may retain collections allocable
to the Notes or the Note Distribution Account until the day preceding the
related Payment Date, and pending deposit into the Collection Account, such
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. On or before
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each Payment Date, the Servicer, the Seller, the Indenture Trustee and the
Owner Trustee will make all distributions, deposits and other remittances with
respect to the Notes or the Note Distribution Account of an Owner Trust for the
periods since the previous distribution was to have been made. If Payment Dates
do not coincide with Distribution Dates, all distributions, deposits or other
remittances made on a Payment Date will be treated as having been distributed,
deposited or remitted on the Distribution Date for the applicable Monthly
Period for purposes of determining other amounts required to be distributed,
deposited or otherwise remitted on such Distribution Date.
Grantor Trusts. For so long as the conditions described above under "--
Collections" are satisfied and the Servicer is not required to remit
collections within two Business Days of receipt thereof, as an administrative
convenience the Servicer will be permitted to make the deposit of collections,
aggregate Monthly Advances, Warranty Purchase Payments and Administrative
Purchase Payments, net of distributions to be made to the Servicer with respect
to the related Monthly Period. Similarly, the Seller is entitled to net its
payment obligations to the Grantor Trustee against any amounts distributable on
the Class B Certificates on any Distribution Date. The Servicer, however, will
account to the Grantor Trustee and the Grantor Certificateholders as if all
deposits, distributions and other remittances were made individually.
STATEMENTS TO TRUSTEES AND TRUST
Prior to each Distribution Date with respect to each Trust, the Servicer will
provide to the applicable Trustee and (if applicable) the Indenture Trustee as
of the close of business on the last day of the preceding Monthly Period a
statement setting forth substantially the same information as is required to be
provided in the periodic reports provided to securityholders described under
"Certain Information Regarding the Securities--Reports to Securityholders."
EVIDENCE AS TO COMPLIANCE
Each related Pooling and Servicing Agreement will provide that a firm of
independent public accountants will furnish to the Owner Trust and the
Indenture Trustee or the Grantor Trustee, as applicable, on or before February
1 of each year, beginning the first February 1 which is at least twelve months
after the related Closing Date, a statement as to compliance by the Servicer
during the twelve months ended the preceding October 31 (or in the case of the
first such certificate, the period from the Closing Date to October 31 of such
year) with certain standards relating to the servicing of the Receivables, the
Servicer's accounting records and computer files with respect thereto and
certain other matters.
Each related Pooling and Servicing Agreement will also provide for delivery
to the Owner Trust and the Indenture Trustee or the Grantor Trustee, as
applicable, on or before February 1 of each year, beginning the first February
1 which is at least twelve months after the related Closing Date, of a
certificate signed by an officer of the Servicer stating that the Servicer has
fulfilled its obligations under such Pooling and Servicing Agreement throughout
the twelve months ended the preceding October 31 (or in the case of the first
such certificate, the period from the Closing Date to October 31 of such year)
or, if there has been a default in the fulfillment of any such obligation,
describing each such default. The Servicer has agreed to give the Indenture
Trustee and the related Trustee notice of certain Servicer Defaults under the
applicable Pooling and Servicing Agreement.
Copies of such statements and certificates may be obtained by Securityholders
by a request in writing addressed to the Indenture Trustee or the Trustee, as
applicable.
CERTAIN MATTERS REGARDING THE SERVICER
Each Pooling and Servicing Agreement will provide that NFC may not resign
from its obligations and duties as Servicer thereunder except upon
determination that NFC's performance of such duties is no longer permissible
under applicable law. No such resignation will become effective until the
related Indenture
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Trustee, Grantor Trustee or a successor servicer has assumed NFC's servicing
obligations and duties under the related Transfer and Servicing Agreements.
Each Pooling and Servicing Agreement will further provide that neither the
Servicer nor any of its directors, officers, employees and agents will be under
any liability to the related Trust or the related Securityholders for taking
any action or for refraining from taking any action pursuant to the related
Transfer and Servicing Agreements or for errors in judgment; except that
neither the Servicer nor any such person will be protected against any
liability that would otherwise be imposed by reason of wilful misfeasance, bad
faith or negligence (except errors in judgment) in the performance of the
Servicer's duties thereunder or by reason of reckless disregard of its
obligations and duties thereunder. In addition, each Pooling and Servicing
Agreement will provide that the Servicer is under no obligation to appear in,
prosecute or defend any legal action that is not incidental to the Servicer's
servicing responsibilities under the related Transfer and Servicing Agreements
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 Transfer and Servicing
Agreements and the rights and duties of the parties thereto and the interests
of the Securityholders thereunder. In such event, the legal expenses and costs
of such action and any liability resulting therefrom will be expenses, costs
and liabilities of the related Trust, and the Servicer will be entitled to be
reimbursed therefor out of the related Collection Account in the case of an
Owner Trust or the related Certificate Distribution Amount in the case of a
Grantor Trust. Any such indemnification or reimbursement will reduce the amount
otherwise available for distribution to the Securityholders.
Under the circumstances specified in each Pooling and Servicing Agreement,
any entity into which the Servicer or the Seller, as the case may be, may be
merged or consolidated, or any entity resulting from any merger or
consolidation to which the Servicer or the Seller, as the case may be, is a
party, or any entity succeeding to the business of the Servicer or, with
respect to its obligations as Servicer, any corporation 50% or more of the
voting stock of which is owned, directly or indirectly, by Navistar
International Corporation, a Delaware corporation ("NIC"), which corporation or
other entity in each of the foregoing cases assumes the obligations of the
Servicer or the Seller, as the case may be, will be the successor of the
Servicer or the Seller, as the case may be, under such Pooling and Servicing
Agreement. The Servicer may at any time subcontract any duties as Servicer
under any Pooling and Servicing Agreement to any corporation in which more than
50% of the voting stock is owned, directly or indirectly, by NIC. In the event
of any such subcontract, the Servicer will remain responsible for the
subcontractor's performance in accordance with such Pooling and Servicing
Agreement.
SERVICER DEFAULT
Except as otherwise provided in the related Prospectus Supplement, "SERVICER
DEFAULT" under each Pooling and Servicing Agreement will consist of (i) any
failure by the Servicer to deliver to the Indenture Trustee for deposit in any
of the Designated Accounts or to the Owner Trustee for deposit in the
Certificate Distribution Account any required payment or to direct the
Indenture Trustee to make any required distributions therefrom, or any failure
by the Servicer to deliver to the Grantor Trustee for distribution to the
Grantor Certificateholders any required payment, in each case which failure
continues unremedied for five Business Days after written notice from the
Indenture Trustee or the Trustee, as applicable, is received by the Servicer or
after discovery of such failure by an officer of the Servicer; (ii) any failure
by the Servicer or the Seller, as the case may be, duly to observe or perform
in any material respect any other covenant or agreement in such Pooling and
Servicing Agreement or the related Purchase Agreement, Trust Agreement or
Indenture, as applicable, which failure materially and adversely affects the
rights of the Noteholders or the Certificateholders and which continues
unremedied for 60 days after the giving of written notice of such failure (A)
to the Servicer or the Seller, as the case may be, by the Indenture Trustee or
the Trustee, as applicable, or (B) to the Servicer or the Seller, as the case
may be, and to the Indenture Trustee and the Trustee, as applicable, by, in the
case of an Owner Trust, the holders of Notes evidencing not less than 25% of
the outstanding principal amount thereof (or, if the Notes have been paid in
full, by the holders of Owner
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Certificates evidencing not less than 25% of the voting interests of such
series) and, in the case of a Grantor Trust, the holders of Class A
Certificates evidencing not less than 25% of the voting interest thereof; and
(iii) certain events of insolvency, readjustment of debt, marshalling of assets
and liabilities or similar proceedings with respect to the Servicer or the
Seller and certain actions by the Servicer or the Seller indicating its
insolvency, reorganization pursuant to bankruptcy proceedings, or inability to
pay its obligations (each, an "INSOLVENCY EVENT"). A "BUSINESS DAY" is any day
other than a Saturday, Sunday or any other day on which banks in New York, New
York or Chicago, Illinois may, or are required to, remain closed.
RIGHTS UPON SERVICER DEFAULT
As long as a Servicer Default under a Pooling and Servicing Agreement remains
unremedied, either (i) in the case of an Owner Trust, the related Indenture
Trustee or holders of related Notes evidencing not less than a majority in
principal amount of such then outstanding Notes (or, if the Notes have been
paid in full and the Indenture has been discharged in accordance with its
terms, by the Owner Trustee or holders of Owner Certificates evidencing not
less than a majority of the voting interests thereof) or (ii) in the case of a
Grantor Trust, the related Grantor Trustee or holders of Class A Certificates
evidencing a majority of the voting interests thereof, as applicable, may, in
addition to other rights and remedies available in a court of law or equity to
damages, injunctive relief and specific performance, terminate all the rights
and obligations of the Servicer under such Pooling and Servicing Agreement,
whereupon such Indenture Trustee or Grantor Trustee, as applicable, will
succeed to all the responsibilities, duties and liabilities of the Servicer
under such agreements and will be entitled to similar compensation
arrangements. If, however, a bankruptcy trustee or similar official has been
appointed for the Servicer, and no Servicer Default other than such appointment
has occurred, such trustee or official may have the power to prevent the
Indenture Trustee or the Noteholders, or the Grantor Trustee or Class A
Certificateholders, as applicable, from effecting a transfer of servicing. In
the event that the Indenture Trustee or the Grantor Trustee, as applicable, is
unwilling or unable to so act, it may appoint, or petition a court of competent
jurisdiction for the appointment of, a successor with a net worth of at least
$100,000,000 and whose regular business includes the servicing of medium and
heavy duty truck receivables. The Indenture Trustee or the Grantor Trustee, as
applicable, may make such arrangements for compensation to be paid, which in no
event may be greater than the servicing compensation to the Servicer under such
related Pooling and Servicing Agreement.
WAIVER OF PAST DEFAULTS
In the case of (a) each Owner Trust, the holders of related Notes evidencing
at least a majority of the outstanding principal amount thereof (or, if all of
the Notes have been paid in full and the Indenture has been discharged in
accordance with its terms, the holders of related Owner Certificates evidencing
not less than a majority of the voting interests thereof), or (b) each Grantor
Trust, holders of Class A Certificates evidencing not less than a majority of
the voting interest thereof may, on behalf of all such Securityholders, waive
any default by the Servicer in the performance of its obligations under the
applicable Pooling and Servicing Agreement and its consequences, except a
Servicer Default in making any required deposits to or payments from the
related Collection Account, Note Distribution Account or Certificate
Distribution Account in accordance with the applicable Pooling and Servicing
Agreement. No such waiver will impair such Securityholders' rights with respect
to subsequent defaults.
AMENDMENT
Each of the Transfer and Servicing Agreements may be amended by the parties
thereto without the consent of the related Securityholders (i) to cure any
ambiguity, (ii) to correct or supplement any provision therein that may be
defective or inconsistent with any other provision therein or in any of the
Transfer and Servicing Agreements or certain other agreements, (iii) to add or
supplement any credit enhancement for the benefit of Securityholders (provided
that if any such addition affects any class of Securityholders differently than
any other class of Securityholders, then such addition will not, as evidenced
by an opinion of counsel, adversely affect in any material respect the
interests of any class of Securityholders), (iv) to add to the
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covenants, restrictions or obligations of the Seller, the Servicer, the related
Trustee or the Indenture Trustee, or (v) to add, change or eliminate any other
provisions of such agreement in any manner that will not, as evidenced by an
opinion of counsel, adversely affect in any material respect the interests of
the Securityholders. Each such Agreement may also be amended by the parties
thereto with the consent of the holders of at least a majority in principal
amount of such then outstanding Notes and the holders of such Certificates
evidencing at least a majority of the Certificate Balance in the case of an
Owner Trust or a majority of the voting interests thereof in the case of a
Grantor Trust for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of such agreement or of modifying
in any manner the rights of such Securityholders; except that no such amendment
may (i) increase or reduce in any manner the amount of, or accelerate or delay
the timing of, collection of payments on Receivables or distributions that are
required to be made on any Note or Certificate, any Interest Rate, any Pass
Through Rate, the Specified Reserve Account Balance or the Specified
Subordination Spread Account Balance, as applicable or (ii) reduce the
aforesaid percentage required of holders of a class or series of Securities to
consent to any such amendment without the consent of all of the holders of such
class or series of Securities.
OWNER TRUST: INSOLVENCY EVENT
With respect to any Owner Trust, if an Insolvency Event occurs with respect
to the Seller, the Owner Trust shall terminate, subject to the liquidation,
winding-up and dissolution procedures described below, and provided that the
rights and obligations of the parties to the related Owner Trust Agreement
shall not terminate during such procedures. Promptly after the occurrence of
any Insolvency Event with respect to the Seller, notice thereof is required to
be given to holders of Owner Securities; except that any failure to give such
required notice will not prevent or delay termination of any Owner Trust.
Ninety days after the Seller gives the notice described in the preceding
sentence, unless the Owner Trustee shall have received written instructions
from (i) holders (other than the Seller) of such Owner Certificates evidencing
at least a majority of the Certificate Balance, and (ii) holders of at least a
majority in principal amount of such then outstanding Notes to the effect that
each such party disapproves of the liquidation of such Receivables and
termination of such Owner Trust and wishes to reconstitute such Owner Trust
pursuant to terms corresponding to the terms of the related Owner Trust
Agreement, the Owner Trustee shall direct the Indenture Trustee promptly to
sell the assets of such Owner Trust (other than the Designated Accounts and the
Certificate Distribution Account) in a commercially reasonable manner and on
commercially reasonable terms (which may include continuing to hold the
Receivables and receiving collections thereon). The proceeds from any such
sale, disposition or liquidation of the Receivables will be treated as
collections on the Receivables and deposited in the related Collection Account
and thereupon such Owner Trust Agreement and the respective obligations and
responsibilities of the Seller, the Servicer, the Owner Trustee and the
Indenture Trustee shall terminate (except as otherwise expressly provided in
such Owner Trust Agreement). With respect to any series, if the proceeds from
the liquidation of the Receivables and any amounts on deposit in the Reserve
Account, the Note Distribution Account and the Certificate Distribution Account
are not sufficient to pay the Notes in full, the amount of principal returned
to holders of Owner Securities will be reduced and the Securityholders will
incur a loss.
With respect to each Owner Trust, each Owner Trust Agreement will provide
that the Owner Trustee shall not have the power to commence a voluntary
proceeding in bankruptcy relating to the related Owner Trust without the
unanimous prior approval of all Owner Certificateholders (including the Seller)
unless the Owner Trustee reasonably believes that such Owner Trust is
insolvent.
OWNER TRUST: SELLER LIABILITY
Under each Owner 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 holder of Owner Securities in the
capacity of an investor) arising out of or based on the arrangement created by
such Owner Trust Agreement as though such arrangement created a partnership
under the Delaware Revised Uniform Limited Partnership Act in which the Seller
were a general partner.
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TERMINATION
With respect to each Trust, the respective obligations and responsibilities
of the Servicer, the Seller, the related Trustee and (if applicable) the
Indenture Trustee pursuant to the Transfer and Servicing Agreements will
terminate (a) in the case of an Owner Trust, upon the earlier of (i) the
maturity or other liquidation of the last related Receivable and the
disposition of any amounts received upon liquidation of any such remaining
Receivables or (ii) the payment to related Securityholders of all amounts
required to be paid to them pursuant to the Transfer and Servicing Agreements
and (b) in the case of a Grantor Trust, upon the distribution to the Grantor
Certificateholders of all amounts required to be distributed to them pursuant
to the related Grantor Trust Pooling and Servicing Agreement. Unless otherwise
provided in the related Prospectus Supplement, in order to avoid excessive
administrative expense, the Servicer, or its successor, will be permitted at
its option to purchase from each Trust, as of the last day of any Monthly
Period, if the then outstanding Aggregate Receivables Balance of the
Receivables held by such Trust is 10% or less of the Initial Aggregate
Receivables Balance, all remaining related Receivables at a price equal to (x)
if the Servicer's long term unsecured debt rating from Moody's Investors
Service, Inc. is less than Baa3 at the time that it seeks to exercise such
option, at a price equal to the appraised value for such Receivables, plus the
appraised value of any other property held by the Trust less Liquidation
Expenses, so long as such amount is sufficient to redeem the outstanding Notes
and pay the Certificate Balance and the Certificateholders' Interest
Distributable Amount for the Distribution Date related to the Monthly Period in
which such option is exercised, or (y) if the Servicer's long term unsecured
debt rating from Moody's Investors Service, Inc. is equal to or higher than
Baa3 at the time that it seeks to exercise such option, the aggregate
Administrative Purchase Payments for such Receivables plus the appraised value
of any other property held as part of the Trust less Liquidation Expenses
(collectively, "OPTIONAL PURCHASE PROCEEDS"), all as of the end of such Monthly
Period. As more fully described in the related Prospectus Supplement with
respect to an Owner Trust, any related outstanding Notes will be redeemed
concurrently therewith and the subsequent distribution to related Owner
Certificateholders of all amounts required to be distributed to them pursuant
to the Owner Trust Agreement will effect early retirement of the Owner
Certificates. Proceeds from the Servicer's purchase will be treated as
Collected Principal and Collected Interest with respect to the Receivables and
will be distributed to the Securityholders on the related Payment Date or
Distribution Date, as applicable. With respect to each Owner Trust, the
Indenture Trustee will give written notice of redemption to each related
Noteholder of record and the Owner Trustee will give written notice of
termination to each related Owner Certificateholder of record. With respect to
each Grantor Trust, the Grantor Trustee will give written notice of termination
to each related Class A Certificateholder of record. The final distribution to
any Owner Securityholder will be made only upon surrender and cancellation of
such Noteholder's Note at an office or agency of the Indenture Trustee
specified in the notice of redemption or such Certificateholder's Certificate
at an office or agency of the Trustee specified in the notice of termination.
With respect to each Owner Trust, after payment to the Indenture Trustee, the
Owner Trustee, the Owner Securityholders and the Servicer of all amounts
required to be paid under each of the related Pooling and Servicing Agreement,
Indenture and Owner Trust Agreement, any amounts on deposit in the related
Reserve Account and the related Collection Account (after all other
distributions required to be made from such accounts have been made) shall be
paid to the Seller and any other assets remaining in such Owner Trust shall be
distributed to the Seller.
OWNER TRUST: ADMINISTRATION AGREEMENT
NFC, in its capacity as administrator (the "ADMINISTRATOR"), will enter into
an agreement (an "ADMINISTRATION AGREEMENT") with each Owner Trust and the
related Indenture Trustee pursuant to which the Administrator will agree, to
the extent provided in such Administration Agreement, to provide the notices
and to perform other administrative obligations required by the related
Indenture. With respect to each Owner Trust, as compensation for the
performance of the Administrator's obligations under the Administration
Agreement, and as reimbursement for its expenses related thereto, the
Administrator will be entitled to a monthly administration fee in an amount
equal to $1,500 per month, which fee will be paid by the Servicer out of the
Total Servicing Fee.
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CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
SECURITY INTEREST IN VEHICLES
In all states in which the Receivables have been originated, Retail Notes
such as the Receivables evidence the credit sale of medium and heavy duty
trucks, buses and/or trailers by dealers to purchasers. The Retail Notes also
constitute personal property security agreements and include grants of security
interests in the vehicles under the UCC. Perfection of security interests in
the vehicles is generally governed by the motor vehicle registration laws of
the state in which the vehicle is located. In most states in which the
Receivables have been originated, a security interest in a vehicle is perfected
by a notation of the secured party's lien on the vehicle's certificate of
title. In a minority of other states, a security interest in a vehicle is
perfected by a filing of the secured party's lien with the secretary of state,
and no notation is made on the vehicle's certificate of title.
With respect to each Trust, pursuant to the applicable Purchase Agreement,
NFC will assign its security interest in the Financed Vehicles securing the
related Receivables to the Seller, and pursuant to the applicable Pooling and
Servicing Agreement, the Seller will assign its security interest in the
Financed Vehicles securing such Receivables to the Owner Trust or the Grantor
Trustee, as applicable. However, because of the administrative burden and
expense, neither the Servicer nor the Trustee will amend any certificate of
title to identify the Trust as the new secured party on such certificate of
title relating to a Financed Vehicle. Also, the Servicer will continue to hold
any certificates of title relating to the vehicles in its possession as
custodian for the Seller and the applicable Trustee pursuant to a custodian
agreement entered into pursuant to the applicable Purchase Agreement and
Pooling and Servicing Agreement. See "The Transfer and Servicing Agreements--
Sale and Assignment of Receivables."
In most states, an assignment such as that under both the related Purchase
Agreement and the related 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 thereby to the
assignor's rights as secured party. 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 the Servicer's lien on the certificates of title will
be sufficient to protect the related Trust against the rights of subsequent
purchasers of a Financed Vehicle from an Obligor or subsequent lenders to an
Obligor who take a security interest in a Financed Vehicle. If there are any
Financed Vehicles as to which the Servicer failed to obtain a perfected
security interest, its security interest would be subordinate to, among others,
subsequent purchasers of the Financed Vehicles and holders of perfected
security interests. Such a failure, however, would constitute a breach of the
warranties of the Servicer under the applicable Pooling and Servicing Agreement
and would create an obligation of the Servicer to repurchase the related
Receivable unless the breach is cured. The Seller will have no obligation to
repurchase a Receivable with respect to which the Trust's security interest, or
the priority of NFC's security interest, in the related Financed Vehicle or
Financed Vehicles is lost because of fraud or liens for taxes unpaid by the
Obligor or repairs to the related Financed Vehicle or Financed Vehicles. See
"The Transfer and Servicing Agreements--Sale and Assignment of Receivables."
Similarly, the security interest of the related Trust in the vehicle could be
defeated through fraud or negligence and, because the Trust is not identified
as the secured party on the certificate of title, by the bankruptcy petition of
the Obligor.
Under the laws of most states, the perfected security interest in a vehicle
would continue for four months after a vehicle is moved to a state other than
the state in which it is initially registered and thereafter until the vehicle
owner 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.
Accordingly, a secured party must surrender possession if it holds the
certificate of title to the vehicle or, 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, the secured party would receive notice of
surrender 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 vehicles in the state of relocation. In states that do not
require surrender of a certificate of title for registration of a motor
vehicle, re-registration could defeat
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perfection. In the ordinary course of servicing receivables, the Servicer takes
steps to effect re-perfection upon receipt of notice of re-registration or
information from the Obligors as to relocation. Similarly, when an Obligor
sells a vehicle, the Servicer must surrender possession of the certificate of
title or will receive notice as a result of its lien noted thereon and
accordingly will have an opportunity to require satisfaction of the related
Receivables before release of the lien. Under each applicable Pooling and
Servicing Agreement, the Servicer is obligated to take appropriate steps, at
the Servicer's expense, to maintain perfection of security interests in the
Financed Vehicles.
Under the laws of most states, liens for repairs performed on a motor vehicle
and liens for unpaid taxes take priority over even a perfected security
interest in a financed vehicle. The Code also grants priority to certain
federal tax liens over the lien of a secured party. The laws of certain states
and federal law permit the confiscation of motor vehicles by governmental
authorities under certain circumstances if used in unlawful activities, which
may result in the loss of a secured party's perfected security interest in the
confiscated motor vehicle. Under each Purchase Agreement, NFC will have
represented to the Seller that, as of the date of issuance of the related
Securities, each security interest in a Financed Vehicle is or will be prior to
all other present liens (other than tax liens and other liens that arise by
operation of law) upon and security interests in such Financed Vehicle. The
Seller will have assigned such representation, among others, to the applicable
Trustee pursuant to the related Pooling and Servicing Agreement. However, liens
for repairs or taxes, or the confiscation of a Financed Vehicle, could arise at
any time during the term of a Receivable. No notice will be given to the
applicable Trustee or, as applicable, the Indenture Trustee or the
Securityholder if such a lien or confiscation arises.
REPOSSESSION
In the event of default by vehicle purchasers, the holder of the Retail Note
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 self-help repossession unless such act
would constitute a breach of the peace. Self-help is the method employed by the
Servicer in most cases and is accomplished simply by retaking possession of the
Financed Vehicle. In the event of default by the Obligor, some jurisdictions
require that the Obligor be notified of the default and be given a time period
to cure the default prior to repossession. Generally, the right of
reinstatement may be exercised on a limited number of occasions in any one-year
period. In cases where the Obligor objects or raises a defense to repossession,
or if otherwise required by applicable state law, a court order must be
obtained from the appropriate state court, and the vehicle must then be
repossessed in accordance with that order. A secured party may be held
responsible for damages caused by a wrongful repossession of a vehicle.
NOTICE OF SALE; REDEMPTION RIGHTS
The UCC and other state laws require the secured party to provide the Obligor
with reasonable notice of the date, time and place of any public sale and/or
the date after which any private sale of the collateral may be held. The
Obligor has the right to redeem the collateral prior to actual sale by paying
the secured party the unpaid principal balance of 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, or, in some states, by payment of past due 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. In many instances, the remaining principal amount of such
indebtedness will exceed such proceeds. While some states impose prohibitions
or limitations on deficiency judgments if the net proceeds from resale do not
cover the full amount of the indebtedness, a deficiency judgment can be sought
in those states that do not prohibit or limit such judgments. However, the
deficiency judgment would be a personal judgment against the Obligor for the
shortfall, and a defaulting
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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.
Occasionally, after resale of a vehicle and payment of all expenses and all
indebtedness, there is a surplus of funds. In that case, the UCC requires the
creditor to remit the surplus to any holder of a lien with respect to the
vehicle or if no such lienholder exists or there are remaining funds, the UCC
requires the creditor to remit the surplus to the former owner of the vehicle.
LAWS GOVERNING CREDIT TRANSACTIONS
Numerous federal and state laws and regulations impose substantial
requirements upon creditors and servicers involved in credit transactions.
These laws include the Equal Credit Opportunity Act, the Federal Reserve
Board's Regulation B, the Soldiers' and Sailors' Civil Relief Act of 1940, and
state sales finance and other similar laws. Also, state laws impose finance
charge ceilings and other restrictions on credit transactions and require
contract disclosures not 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 Retail Notes such as the Receivables (or, if the Seller with respect to
a Receivable is not liable for indemnifying the Trust as assignee of the
Receivables from the Seller, failure to comply could impose liability on the
Trust in excess of the amount of the Receivable).
Courts have imposed general equitable principles upon 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 consumers.
Under each Purchase Agreement, NFC will represent to the Seller that each
Receivable complies with all requirements of law in all material respects. The
Seller will have assigned such representation, among others, to the related
Owner Trust or Grantor Trustee, as applicable. Accordingly, if an Obligor has a
claim against the related Trust for violation of any law and such claim
materially and adversely affects such Trust's interest in a Receivable, such
violation would constitute a breach of representation and would create an
obligation to repurchase the Receivable unless the breach is cured. See "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 may prevent a
creditor from repossessing the Financed Vehicle, and, as part of the
rehabilitation plan, reduce the amount of the secured indebtedness to the
market value of the Financed Vehicle at the time of bankruptcy, 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 Retail Note
or change the rate of finance charge and time of repayment of the indebtedness.
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TRANSFER OF VEHICLES
The Receivables prohibit the sale or transfer of a Financed Vehicle without
the Servicer's consent and permit the Servicer to accelerate the maturity of
the Receivable upon a sale or transfer without the Servicer's consent. The
Servicer will not consent to a sale or transfer and will require prepayment of
the Receivable. Although the Servicer, as agent of the Trustee, may enter into
a transfer of equity agreement with the secondary purchaser for the purpose of
effecting the transfer of the vehicle, the new obligation will not be included
in the related Receivables Pool.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
Set forth below is a discussion of the anticipated material United States
federal income tax consequences of the purchase, ownership and disposition of
the Notes and Certificates offered hereunder. This discussion is based upon
current provisions of the Internal Revenue Code of 1986, as amended (the
"CODE"), existing and proposed Treasury Regulations thereunder, current
administrative rulings, judicial decisions and other applicable authorities.
There 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 Securities. As a result, there can be no
assurance that the IRS will not challenge the conclusions reached herein, and
no ruling from the IRS has been or will be sought on any of the issues
discussed below. Furthermore, legislative, judicial or administrative changes
may occur, perhaps with retroactive effect, which could affect the accuracy of
the statements and conclusions set forth herein as well as the tax consequences
to Securityholders.
This discussion does not purport to deal with all aspects of federal income
taxation that may be relevant to the Securityholders in light of their personal
investment circumstances nor, except for certain limited discussions of
particular topics, to certain types of holders subject to special treatment
under the federal income tax laws (e.g., financial institutions, broker-
dealers, life insurance companies and tax-exempt organizations). This
information is directed to prospective purchasers who purchase Securities in
the initial distribution thereof, who are citizens or residents of the United
States, including domestic corporations and partnerships, and who hold the
Securities as "capital assets" within the meaning of Section 1221 of the Code.
Taxpayers and preparers of tax returns (including those filed by any
partnership or other issuer) should be aware that under applicable Treasury
regulations a provider of advice on specific issues of law is not considered an
income tax return preparer unless the advice is (i) given with respect to
events that have occurred at the time the advice is rendered and is not given
with respect to the consequences of contemplated actions, and (ii) is directly
relevant to the determination of an entry on a tax return. ACCORDINGLY,
TAXPAYERS SHOULD CONSULT THEIR OWN TAX ADVISORS AND TAX RETURN PREPARERS
REGARDING THE PREPARATION OF ANY ITEM ON A TAX RETURN, EVEN WHERE THE
ANTICIPATED TAX TREATMENT HAS BEEN DISCUSSED HEREIN. PROSPECTIVE INVESTORS
SHOULD CONSULT WITH THEIR OWN TAX ADVISORS AS TO THE FEDERAL, STATE, LOCAL,
FOREIGN AND ANY OTHER TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF SECURITIES.
The following discussion addresses Securities falling into three general
categories: (i) Notes (other than Strip Notes or any other series of Notes
specifically identified as receiving different tax treatment in the related
Prospectus Supplement) which the Seller, the Servicer and the Noteholders will
agree to treat as indebtedness secured by the related Receivables, (ii)
Certificates representing interests in a trust fund which the Seller, the
Servicer and the applicable Certificateholders will agree to treat as equity
interests in a grantor trust (a "TAX TRUST"), and (iii) Certificates (including
Strip Certificates) and Strip Notes, representing interests in a trust fund
which the Seller, the Servicer and the applicable holders will agree to treat
as equity interests in a partnership (a "TAX PARTNERSHIP"), in each case for
purposes of federal, state and local income and franchise taxes. Certificates
issued by a Tax Trust are referred to herein as "TRUST CERTIFICATES", and
Certificates (including Strip Certificates) and Strip Notes issued by a Tax
Partnership are referred to herein as
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"PARTNERSHIP CERTIFICATES." The Prospectus Supplement for each series of
Certificates will indicate whether the related trust fund is a Tax Trust or a
Tax Partnership. For purposes of this discussion, references to a
"CERTIFICATEHOLDER" or a "HOLDER" are to the beneficial owner of a Trust
Certificate, Partnership Certificate, or both, as the context may require.
The following discussion takes into consideration the rules governing
original issue discount ("OID") that are set forth in Sections 1271-1275 of the
Code and in Treasury regulations issued thereunder.
THE NOTES
Characterization as Debt. With respect to each series of Notes (except for
Strip Notes and any series which is specifically identified as receiving
different tax treatment in the applicable Prospectus Supplement), regardless of
whether such Notes are issued by a Tax Trust or a Tax Partnership, Kirkland &
Ellis, special tax counsel to the Seller ("TAX COUNSEL"), will deliver its
opinion to the effect that, although no specific authority exists with respect
to the characterization for federal income tax purposes of securities having
the same terms as the Notes, based on the terms of the Notes, the transactions
relating to the Receivables as set forth herein, and the discussions of Trust
Certificates and Partnership Certificates below, the Notes will be treated as
debt for federal income tax purposes. The Seller, the Servicer and each
Noteholder, by acquiring an interest in a Note, will agree to treat the Notes
as indebtedness for federal, state and local income and franchise tax purposes.
See "Trust Certificates--Classification of Trusts and Trust Certificates" or
"Partnership Certificates--Classification of Partnerships and Partnership
Certificates" below for a discussion of the potential federal income tax
consequences to Noteholders if the IRS were successful in challenging the
characterization of a Tax Trust or a Tax Partnership for federal income tax
purposes.
Treatment of Stated Interest. Based on the foregoing opinion, the stated
interest on the Notes will be taxable to a Noteholder as ordinary income when
received or accrued in accordance with such Noteholder's method of tax
accounting. Except to the extent indicated in the related Prospectus
Supplement, no series of Notes will be issued with OID. A holder who purchases
a Note after the initial distribution thereof at a discount that exceeds a
statutorily defined de minimis amount will be subject to the "market discount"
rules of the Code, and a holder who purchases a Note at a premium will be
subject to the bond premium amortization rules of the Code.
If any Notes were treated as being issued with OID, a Noteholder would be
required to include OID in income as interest over the term of the Notes under
a constant yield method. In general, OID must be included in income in advance
of the receipt of cash representing that income. Thus, each cash distribution
would be treated as an amount already included in income (to the extent OID has
accrued as of the date of the interest distribution and is not allocated to
prior distributions), or as a repayment of principal. This treatment would have
no significant effect on Noteholders using the accrual method of accounting.
However, cash method Noteholders may be required to report income with respect
to the Notes in advance of the receipt of cash attributable to such income.
A holder of a Note which has a fixed maturity date not more than one year
from the issue date of such Note (a "SHORT-TERM NOTE") will generally not be
required to include market discount on the Note in income as it accrues,
provided such holder is not an accrual method taxpayer, a bank, a broker or
dealer that holds the Note as inventory, a regulated investment company or
common trust fund, or the beneficial owner of certain pass-through entities
specified in the Code, or provided such holder does not hold the instrument as
part of a hedging transaction, or as a stripped bond or stripped coupon.
Instead, the holder of a Short-Term Note would include the market discount
accrued on the Note in gross income upon sale or exchange or at maturity, or if
such Note is payable in installments, as principal is paid thereon. Such a
holder would be required to defer deductions for any interest expense on an
obligation incurred to purchase or carry the Short-Term Note to the extent it
exceeds the sum of the interest income, if any, and market discount accrued on
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such Note. However, a holder may elect to include market discount in income as
it accrues on all obligations having a maturity of one year or less held by the
holder in that taxable year or thereafter, in which case the deferral rule of
the preceding sentence will not apply. For purposes of this paragraph, market
discount accrues on a Short-Term Note on a ratable (straight-line) basis,
unless the holder irrevocably elects (under regulations to be issued by the
Treasury Department) with respect to such obligation to apply a constant
interest method, using the holder's yield to maturity and daily compounding.
Disposition of Notes. 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 the Note to a particular Noteholder will equal the holder's cost for
the Note, increased by any OID, market discount and gain previously included by
such Noteholder in income with respect to the Note and decreased by any bond
premium previously amortized and any principal payments previously received by
such Noteholder with respect to such Note. Subject to the market discount rules
of the Code, any such gain or loss will be capital gain or loss if the Note was
held as a capital asset. Capital gain or loss will be long-term if the Note was
held by the holder for more than one year and otherwise will be short-term. Any
capital losses realized generally may be used by a corporate taxpayer only to
offset capital gains, and by an individual taxpayer only to the extent of
capital gains plus $3,000 of other income.
Information Reporting and Backup Withholding. Each Tax Trust or Tax
Partnership will be required to report annually to the IRS, and to each related
Noteholder of record, the amount of interest paid on the Notes (and the amount
of interest withheld for federal income taxes, if any) for each calendar year,
except as to exempt holders (generally, corporations, tax-exempt organizations,
qualified pension and profit-sharing trusts, individual retirement accounts, or
nonresident aliens who provide certification as to their status). Each holder
(other than holders who are not subject to the reporting requirements) will be
required to provide to the related Tax Trust or Tax Partnership, under
penalties of perjury, a certificate containing the holder's name, address,
correct federal taxpayer identification number and a statement that the holder
is not subject to backup withholding. Should a nonexempt Noteholder fail to
provide the required certification, the Tax Trust or Tax Partnership will be
required to withhold, from interest otherwise payable to the holder, 31% of
such interest and remit the withheld amount to the IRS as a credit against the
holder's federal income tax liability.
Because the Seller will treat each Tax Trust as a grantor trust, each Tax
Partnership as a partnership and all Notes (except Strip Notes and others as
specifically identified in the related Prospectus Supplement) as indebtedness
for federal income tax purposes, the Seller will not comply with the tax
reporting requirements that would apply under any alternative characterizations
of a Tax Trust or Tax Partnership.
Tax Consequences to Foreign Noteholders. If interest paid (or accrued) to a
Noteholder who is a nonresident alien, foreign corporation or other non-United
States person (a "FOREIGN PERSON") is not effectively connected with the
conduct of a trade or business within the United States by the foreign person,
the interest generally will be considered "portfolio interest," and generally
will not be subject to United States federal income tax and withholding tax, as
long as the foreign person (i) is not actually or constructively a "10 percent
shareholder" of the related Tax Trust, Tax Partnership, or the Seller
(including a holder of 10% of the applicable outstanding Certificates) or a
"controlled foreign corporation" with respect to which the related Tax Trust,
Tax Partnership or the Seller is a "related person" within the meaning of the
Code, and (ii) provides an appropriate statement, signed under penalties of
perjury, certifying that the beneficial owner of the Note is a foreign person
and providing that foreign person's name and address. If the information
provided in this statement changes, the foreign person must so inform the
related Tax Trust or Tax Partnership within 30 days of such change. The
statement generally must be provided in the year a payment occurs or in either
of the two preceding years. If such interest were not portfolio interest, then
it would be subject to United States federal income and withholding tax at a
rate of 30 percent unless such tax were reduced or eliminated pursuant to an
applicable tax treaty.
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Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States federal income and withholding tax, provided that (i) the gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person, and (ii) in the case of an individual foreign
person, the foreign person is not present in the United States for 183 days or
more in the taxable year.
If the interest, gain or income on a Note held by a foreign person is
effectively connected with the conduct of a trade or business in the United
States by the foreign person, the holder (although exempt from the withholding
tax previously discussed if an appropriate statement is furnished) generally
will be subject to United States federal income tax on the interest, gain or
income at regular federal income tax rates. In addition, if the foreign person
is a foreign corporation, it may be subject to a branch profits tax equal to 30
percent of its "effectively connected earnings and profits" within the meaning
of the Code for the taxable year, as adjusted for certain items, unless it
qualifies for a lower rate under an applicable tax treaty.
TRUST CERTIFICATES
Classification of Trusts and Trust Certificates. With respect to each series
of Certificates identified in the related Prospectus Supplement as Trust
Certificates, Tax Counsel will deliver its opinion to the effect that the
related Tax Trust will not be taxable as an association or publicly traded
partnership taxable as a corporation, but should be classified as a grantor
trust under Sections 671 through 679 of the Code. For each such series, the
Seller, the Servicer and the Certificateholders will express in the Indenture
and the Pooling and Servicing Agreement and on the Trust Certificates their
intent that, for federal, state and local income and franchise tax purposes,
the Trust Certificates will represent an equity interest in the Tax Trust. The
Seller and each Certificateholder, by acquiring an interest in any such Trust
Certificate, will agree to treat such Trust Certificates as an equity interest
in the Tax Trust, for federal, state and local income and franchise tax
purposes. However, the proper characterization of the arrangement involving the
Tax Trust, the Trust Certificates, the Seller and the Servicer is not clear
because there is no authority on transactions closely comparable to that
contemplated herein.
Although, as described above, Tax Counsel will opine that each such Tax Trust
should properly be characterized as a grantor trust for federal income tax
purposes, such opinion is not binding on the IRS or the courts and no assurance
can be given that this characterization would prevail. If the IRS were to
contend successfully that any such Tax Trust is not a grantor trust, such Tax
Trust should be classified for federal income tax purposes as a partnership
which is not taxable as a corporation. The income reportable by the holders of
such Trust Certificates as partners could differ from the income reportable by
the holders of such Trust Certificates as grantors of a grantor trust. However,
it is not expected that such differences would be material. See discussion of
Partnership Certificates below.
If, however, the IRS were to contend successfully that a Tax Trust is an
association taxable as a corporation for federal income tax purposes, such Tax
Trust would be subject to federal and state income tax at corporate rates on
the income from the Receivables (reduced by deductions, including interest on
any Notes unless the Notes were treated as an equity interest). Any such
corporate income tax could materially reduce or eliminate cash that would
otherwise be distributable with respect to the related Trust Certificates and
any related Notes. The Certificateholders and, if the Notes were also treated
as an equity interest in the taxable corporation, the Noteholders could be
liable for any such tax to the extent it is not paid by the related Tax Trust.
However, as described above, in the opinion of Tax Counsel, each Tax Trust will
not be classified as an association taxable as a corporation because it will
not have certain characteristics necessary for a trust to constitute an
association taxable as a corporation.
If a Tax Trust were classified for federal income tax purposes as a
partnership, the IRS might contend that it is a "publicly traded partnership"
taxable as a corporation. However, in the opinion of Tax Counsel, even if a Tax
Trust were treated as a publicly traded partnership, such Tax Trust would not
be taxable as a corporation because it would meet certain qualifying income
tests. Nonetheless, if the Tax Trust were treated
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as a publicly traded partnership and the Notes were treated as equity interests
in such a partnership, certain holders could suffer adverse tax consequences.
For example, income to certain tax-exempt entities (including pension funds)
would be "unrelated business taxable income," and individual holders might be
subject to certain limitations on their ability to deduct their share of such
Tax Trust's expenses.
Despite Tax Counsel's opinion that a Tax Trust should be classified as a
grantor trust, the lack of cases or rulings on similar transactions, as
discussed above, permits a variety of alternative characterizations in addition
to the position to be taken that the Trust Certificates represent equity
interests in a grantor trust. For example, because Trust Certificates will have
certain features characteristic of debt, the Trust Certificates might be
considered indebtedness of a Tax Trust, the Seller or the Issuer. Except as
described above, any such characterization would not result in materially
adverse tax consequences to Certificateholders as compared to the consequences
from treatment of Trust Certificates as equity in a trust, described below. The
following discussion assumes that Trust Certificates represent equity interests
in a grantor trust.
Grantor Trust Treatment. As a grantor trust, a Tax Trust will not be subject
to federal income tax. Assuming that the Receivables are not characterized as
"stripped bonds" or otherwise recharacterized, in Tax Counsel's opinion each
Certificateholder will be required to report on its federal income tax return
its pro rata share of the entire income from the Receivables and any other
property in the related Tax Trust for the period during which it owns a Trust
Certificate, including interest or finance charges earned on the Receivables
and any gain or loss upon collection or disposition of the Receivables, in
accordance with such Certificateholder's method of accounting. A
Certificateholder using the cash method of accounting should take into account
its pro rata share of income as and when received by the Trustee. A
Certificateholder using an accrual method of accounting should take into
account its pro rata share of income as it accrues or is received by the
Trustee, whichever is earlier.
Assuming that the market discount rules do not apply, the portion of each
payment to a Certificateholder that is allocable to principal on the
Receivables will represent a recovery of capital, which will reduce the tax
basis of such Certificateholder's undivided interest in the Receivables. In
computing its federal income tax liability, a Certificateholder will be
entitled to deduct, consistent with its method of accounting, its pro rata
share of interest paid on any related Notes, reasonable servicing fees, and
other fees paid or incurred by the related Tax Trust as provided in Section 162
or 212 of the Code. If a Certificateholder is an individual, estate or trust,
the deduction for such Certificateholder's pro rata share of such fees will be
allowed only to the extent that all of such Certificateholder's miscellaneous
itemized deductions, including such fees, exceed 2% of such Certificateholder's
adjusted gross income. In addition, in the case of Certificateholders who are
individuals, certain otherwise allowable itemized deductions will be reduced,
but not by more than 80%, by an amount equal to 3% of the Certificateholder's
adjusted gross income in excess of a statutorily defined threshold (which is
$111,800 in the case of a married couple filing jointly for a taxable year
beginning in 1994). Because the Servicer will not report to Certificateholders
the amount of income or deductions attributable to miscellaneous charges, such
a Certificateholder may effectively underreport its net taxable income. See
"Treatment of Fees" below for a discussion of other possible consequences if
amounts paid to the Servicer exceed reasonable compensation for services
rendered.
Treatment of Fees. The Servicer intends to report income to
Certificateholders on the assumption that the Certificateholders own a 100%
interest in all of the principal and interest derived from the related
Receivables. However, a portion of the amounts paid to the Servicer or the
Seller may exceed reasonable fees for services rendered, by reason of the
extent to which either the weighted average APR of the Receivables, or the
individual stated APRs of some of the Receivables, exceeds the Pass Through
Rate. There are no authoritative guidelines, for federal income tax purposes,
as to the maximum amount of compensation that may be considered reasonable for
servicing the Receivables or performing other services, in the context of this
or similar transactions; accordingly, Tax Counsel is unable to give an opinion
on this issue. If amounts paid to the Servicer or the Seller exceed reasonable
compensation for services provided, the Servicer or the Seller or both may be
viewed as having retained, for federal income tax purposes, an ownership
interest in a portion of each interest payment with respect to certain
Receivables. As a result, such Receivables may be treated as "stripped bonds"
within the meaning of the Code.
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To the extent that the Receivables were characterized as "stripped bonds,"
the income and deductions of the related Tax Trust allocable to
Certificateholders would not include the portion of the interest on the
Receivables treated as having been retained by the Servicer or the Seller, as
the case may be, and such Tax Trust's deductions would be limited to reasonable
servicing fees, interest paid on any related Notes and other fees. In addition,
a Certificateholder would not be subject to the market discount and premium
rules discussed below with respect to the stripped Receivables, but instead
would be subject to the OID rules of the Code. However, if the price at which a
Certificateholder were deemed to have acquired a stripped Receivable is less
than the remaining principal balance of such Receivable by an amount which is
less than a statutorily defined de minimis amount, such Receivable would not be
treated as having OID. In general, under Temporary Regulations it appears that
the amount of OID on a Receivable treated as a "stripped bond" will be de
minimis if it is less than 1/4 of 1% for each full year remaining after the
purchase date until the final maturity of the Receivable, although the IRS
could take the position that the weighted average maturity date, rather than
the final maturity date, should be used in performing this calculation. If the
amount of OID is de minimis under this rule, the actual amount of discount on
such a Receivable would be includible in income as principal payments are
received on the Receivable.
If the OID on a Receivable were not treated as de minimis, a
Certificateholder would be required to include any OID in income as it accrues,
regardless of when cash payments are received, using a method reflecting a
constant yield on the Receivables. It is possible that the IRS could assert
that a prepayment assumption should be used in computing the yield of a
stripped Receivable. If a stripped Receivable is deemed to be acquired by a
Certificateholder at a significant discount, such prepayment assumption could
accelerate the accrual of income by a Certificateholder. No representation is
made, nor is Tax Counsel able to give an opinion, that Receivables will prepay
at any particular rate. Prospective investors are urged to consult their own
tax advisors regarding the likelihood that a portion of the amounts paid to the
Servicer or Seller might be characterized other than as compensation for
services rendered for federal income tax purposes.
It is also possible that any fees deemed to be excessive could be
recharacterized as deferred purchase price payable to the Seller by
Certificateholders in exchange for the related Receivables. The likely effect
of such recharacterization would be to increase current taxable income to a
Certificateholder.
Discount and Premium. The following discussion generally assumes that the
fees and other amounts payable to the Servicer and the Seller will not be
recharacterized as being retained ownership interests in the Receivables (as
discussed above). A purchaser of a Trust Certificate should be treated as
purchasing an interest in each Receivable and any other property in the related
Tax Trust at a price determined by allocating the purchase price paid for the
Trust Certificate among the Receivables and other property in proportion to
their fair market values at the time of purchase of the Trust Certificate.
It is believed that the Receivables were not and will not be issued with OID
and, therefore, a Tax Trust should not have OID income. However, the purchase
price paid by said Tax 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 market discount, as
the case may be. The market discount on a Receivable will be considered to be
zero if it is less than the statutorily defined de minimis amount.
Any gain on the sale of a Trust Certificate attributable to the holder's
share of unrecognized accrued market discount on the related Receivables would
generally be treated as ordinary income to the holder and would give rise to
special tax reporting requirements. Moreover, a holder who acquires a Trust
Certificate representing an interest in Receivables acquired at a market
discount may be required to defer a portion of any interest expense otherwise
deductible with respect to indebtedness incurred or maintained to purchase or
carry the Trust Certificate until the holder disposes of the Trust Certificate
in a taxable transaction. Instead of recognizing market discount, if any, upon
a disposition of Trust Certificates (and deferring any applicable interest
expense), a holder may elect to include market discount in income currently as
the discount accrues. The current inclusion election, once made, applies to all
market discount obligations acquired on or after the first day of the first
taxable year to which the election applies, and may not be revoked without the
consent of the IRS.
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In the event that a Receivable is treated as purchased at a premium (i.e.,
the allocable portion of the Certificateholder's purchase price for the related
Trust Certificate exceeds the remaining principal balance of the Receivable),
such premium will be amortizable by a Certificateholder as an offset to
interest income (with a corresponding reduction in basis) under a constant
yield method over the term of the Receivable if the Certificateholder makes an
election under Section 171 of the Code with respect to the Receivables. Any
such election will also apply to debt instruments held by the Certificateholder
during the year in which the election is made and to all debt instruments
acquired thereafter.
Disposition of Trust Certificates. Generally, capital gain or loss will be
recognized on a sale of Trust Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Trust
Certificates sold. A Certificateholder's tax basis in a Trust Certificate will
generally equal his cost increased by his share of the Tax Trust's income
(includible in his income) and decreased by any distributions received with
respect to such Trust Certificate. Any gain on the sale of a Trust Certificate
attributable to the holder's share of unrecognized accrued market discount on
the related Receivables would generally be treated as ordinary income to the
holder and would give rise to special tax reporting requirements, unless a
Certificateholder makes the special election described under "Discount and
Premium" above.
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 Trust Certificates that exceeds the aggregate cash
distributions with respect thereto, such excess will generally give rise to a
capital loss upon the retirement of the Trust Certificates.
Backup Withholding. Distributions made on Trust Certificates and proceeds
from the sale of the Certificates will be subject to a "backup" withholding tax
of 31% if, as discussed above with respect to the Notes, the Certificateholder
fails to comply with certain identification procedures, unless the holder is an
exempt recipient under applicable provisions of the Code.
Tax Consequences to Foreign Trust Certificateholders. Interest attributable
to Receivables which is received by a Certificateholder which is a foreign
person will generally not be subject to the normal 30% withholding tax imposed
with respect to such payments, provided that such Certificateholder is not
engaged in a trade or business in the United States and that such
Certificateholder fulfills the certification requirements discussed above under
"--The Notes: Tax Consequences to Foreign Noteholders."
PARTNERSHIP CERTIFICATES
Classification of Partnerships and Partnership Certificates. With respect to
each series of Certificates identified in the related Prospectus Supplement as
Partnership Certificates, the Seller and the Servicer will agree, and the
Certificateholders will agree by their purchase of such Partnership
Certificates, to treat the Tax Partnership as a partnership for purposes of
federal, state and local income and franchise tax purposes, with the partners
of such Partnership being the Certificateholders and the Seller (in its
capacity as recipient of distributions from the Reserve Account), and any
related Notes being debt of such Tax Partnership. However, the proper
characterization of the arrangement involving the Tax Partnership, the
Partnership Certificates, the Seller and the Servicer is not clear because
there is no authority on transactions closely comparable to that contemplated
herein.
If the Tax Partnership were an association taxable as a corporation for
federal income tax purposes, such Tax Partnership would be subject to corporate
income tax. Any such corporate income tax could materially reduce or eliminate
cash that would otherwise be distributable with respect to the Partnership
Certificates (and Certificateholders could be liable for any such tax that is
unpaid by such Tax Partnership). However, upon the issuance of each series of
Partnership Certificates, Tax Counsel will deliver its opinion generally to the
effect that such Tax Partnership will not be classified as an association
taxable as a corporation because it will not have certain characteristics
necessary for a trust to be an association taxable as a corporation.
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Even if a Tax Partnership were not an association taxable as a corporation,
it would be subject to corporate income tax if it were a "publicly traded
partnership" taxable as a corporation. However, in the opinion of Tax Counsel,
even if such Tax Partnership were treated as a publicly traded partnership, it
would not be taxable as a corporation because it would meet certain qualifying
income tests. Nonetheless, if a Tax Partnership were treated as a publicly
traded partnership and the Partnership Certificates were treated as equity
interests in such a partnership, certain holders could suffer adverse
consequences. For example, income to certain tax-exempt entities (including
pension funds) would be "unrelated business taxable income," and individual
holders might be subject to certain limitations on their ability to deduct
their share of the Tax Partnership's expenses.
Despite Tax Counsel's opinion that a Tax Partnership will be classified as a
partnership and not as an association or publicly traded partnership taxable as
a corporation, the lack of cases or rulings on similar transactions, as
discussed above, permits a variety of alternative characterizations in addition
to the position to be taken that the Partnership Certificates represent equity
interests in a partnership. For example, because the Partnership Certificates
will have certain features characteristic of debt, the Partnership Certificates
might be considered indebtedness of the Tax Partnership, the Seller or the
Issuer. Except as described above, any such characterization would not result
in materially adverse tax consequences to Certificateholders as compared to the
consequences from treatment of the Partnership Certificates as equity in a
partnership, described below. The following discussion assumes that the
Partnership Certificates represent equity interests in a partnership.
Partnership Taxation. As a partnership, a Tax Partnership will not be subject
to federal income tax, but each Certificateholder will be required to take into
account separately such holder's allocated share of income, gains, losses,
deductions and credits of such Tax Partnership. The Tax Partnership's income
will consist primarily of interest and finance charges earned on the related
Receivables (including appropriate adjustments for market discount, OID, and
bond premium) and any gain upon collection or disposition of such Receivables.
The Tax Partnership's deductions will consist primarily of interest accruing
with respect to any related Notes, servicing and other fees, and losses or
deductions upon collection or disposition of the related Receivables.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement (with respect
to any series of Partnership Certificates, the Owner Trust Agreement and
related documents). Each Owner Trust Agreement for a Tax Partnership will
provide that the Certificateholders will be allocated taxable income of the
related Tax Partnership for each month equal to the sum of (i) the Pass Through
Rate on the related Partnership Certificates for such month; (ii) an amount
equivalent to interest that accrues during such month on amounts previously due
on such Partnership Certificates but not yet distributed; (iii) any Tax
Partnership income attributable to discount on the related Receivables that
corresponds to any excess of the principal amount of the Partnership
Certificates over their initial issue price; and (iv) any Prepayment Surplus
payable to holders of the Partnership Certificates for such month. If the Tax
Partnership issues any Strip Notes or Strip Certificates, it will also provide
that the related Certificateholders will be allocated taxable income of such
Tax Partnership for each month in the amounts described in the related
Prospectus Supplement. All taxable income of the Tax Partnership remaining
after the allocations to the Certificateholders will be allocated to the
Seller. It is believed that the allocations to Certificateholders will be valid
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, and holders of Strip Notes or Strip
Certificates may be allocated income equal to the amount described in the
related Prospectus Supplement, even though the related Tax Partnership might
not have sufficient cash to make current cash distributions of such amount.
Thus, cash basis holders will in effect be required to report income from the
Partnership Certificates on the accrual basis. In addition, because tax
allocations and tax reporting will be done on a uniform basis for all
Certificateholders but Certificateholders may be purchasing Partnership
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 related Tax Partnership.
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Additionally, all of the taxable income allocated to a Certificateholder that
is a pension, profit sharing or employee benefit plan or other tax-exempt
entity (including an individual retirement account) will constitute "unrelated
business taxable income" generally taxable to such a holder under the Code.
An individual taxpayer may generally deduct miscellaneous itemized deductions
(which do not include interest expense) only to the extent they exceed two
percent of adjusted gross income and certain additional limitations may apply.
Those limitations would apply to an individual Certificateholder's share of
expenses of a Tax Partnership (including fees to the Servicer) and might result
in such holder being taxed on an amount of income that exceeds the amount of
cash actually distributed to such holder over the life of such Tax Partnership.
Each Tax Partnership intends to make all tax calculations relating to income
and allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Receivable, a Tax
Partnership 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 and will
not be issued with OID and, therefore, a Tax Partnership should not have OID
income. However, the purchase price paid by such Tax Partnership for the
related Receivables may be greater or less than the remaining principal balance
of such Receivables at the time of purchase. If so, such Receivables will have
been acquired at a premium or market discount, as the case may be. (As
indicated above, each Tax Partnership will make this calculation on an
aggregate basis, but might be required to recompute it on a Receivable by
Receivable basis.)
Each Tax Partnership will make an election that will result in any market
discount on the related Receivables being included in income currently as such
discount accrues over the life of such Receivables. As indicated above, a
portion of such market discount income will be allocated to Certificateholders.
Section 708 Termination. Under Section 708 of the Code, a Tax Partnership
will be deemed to terminate for federal income tax purposes if 50% or more of
the capital and profits interests in such Tax Partnership are sold or exchanged
within a 12-month period. If such a termination occurs, a Tax Partnership will
be considered to distribute its assets to the partners (i.e.,
Certificateholders and the Seller), who would then be treated as recontributing
those assets to a Tax Partnership, as a new partnership. A Tax Partnership will
not comply with certain technical requirements that might apply when such a
constructive termination occurs. As a result, such Tax Partnership may be
subject to certain tax penalties and may incur additional expenses if it is
required to comply with those requirements. Furthermore, a Tax Partnership
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 or other taxable disposition of Partnership Certificates
in an amount equal to the difference between the amount realized and the
seller's tax basis in the Partnership Certificates sold. A Certificateholder's
tax basis in a Partnership Certificate will generally equal his cost increased
by his share of the related Tax Partnership's income (includible in his income)
and decreased by any distributions received with respect to such Partnership
Certificate. In addition, both tax basis in the Partnership Certificates and
the amount realized on a sale of a Partnership Certificate would include the
holder's share of any related Notes and other liabilities of such Tax
Partnership. A holder acquiring Partnership Certificates of the same series at
different prices may be required to maintain a single aggregate adjusted tax
basis in such Partnership Certificates, and, upon sale or other taxable
disposition of some of the Partnership Certificates, allocate a pro rata
portion of such aggregate tax basis to the Partnership Certificates sold
(rather than maintaining a separate tax basis in each Partnership Certificate
for purposes of computing gain or loss on a sale or other taxable disposition
of that Partnership Certificate).
Any gain on the sale or other taxable deposition of a Partnership Certificate
attributable to the holder's share of unrecognized accrued market discount on
the related Receivables would generally be treated as ordinary income to the
holder and would give rise to special tax reporting requirements. No Tax
Partnership
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expects to have any other assets that would give rise to such special reporting
requirements. Thus, to avoid those special reporting requirements, each Tax
Partnership 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 Partnership Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise
to a capital loss upon the retirement of the Partnership Certificates.
Allocations Between Transferors and Transferees. In general, each Tax
Partnership'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 the Partnership
Certificates or a fractional share of the Strip Notes or Strip Certificates
owned by them as of the first Record Date following the end of such month. As a
result, a holder purchasing Partnership Certificates may be allocated tax items
(which will affect its tax liability and tax basis) attributable to periods
before its actual purchase.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of a Tax Partnership might be reallocated among the Certificateholders. The
Trustee is authorized to revise a Tax Partnership'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
Partnership Certificate at a profit (loss), the purchasing Certificateholder
will have a higher (lower) basis in the Partnership Certificates than the
selling Certificateholder had. The tax basis of the related Tax Partnership's
assets would not be adjusted to reflect that higher (or lower) basis unless
such Tax Partnership 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, a Tax Partnership will not make such election. As a
result, Certificateholders might be allocated a greater or lesser amount of Tax
Partnership income than would be based on their own purchase price for
Partnership Certificates.
Administrative Matters. For each Tax Partnership, the related Trustee is
required to keep or have kept complete and accurate books of each Tax
Partnership. Such books will be maintained for financial reporting and tax
purposes on an accrual basis and the fiscal year of each Tax Partnership will
be the calendar year. The Trustee will file a partnership information return
(IRS Form 1065) with the IRS for each taxable year of such Tax Partnership and
will report each Certificateholder's allocable share of items of Tax
Partnership income and expense to holders and the IRS on Schedule K-1. Each Tax
Partnership will provide the Schedule K-1 information to nominees that fail to
provide such Tax Partnership with the information statement described below and
such nominees will be required to forward such information to the beneficial
owners of the related Partnership Certificates. Generally, holders must file
tax returns that are consistent with the information return filed by the
related Tax Partnership or be subject to penalties unless the holder notifies
the IRS of all such inconsistencies.
Under Code Section 6031, any person that holds Partnership Certificates as a
nominee at any time during a calendar year is required to furnish the related
Tax Partnership with a statement containing certain information on the nominee,
the beneficial owners and the Partnership Certificates so held. Such
information includes (i) the name, address and taxpayer identification number
of the nominee and (ii) as to each beneficial owner (x) the name, address and
taxpayer identification number of such person, (y) whether such person is a
United States person, a tax-exempt entity or a foreign government, an
international organization, or any wholly-owned agency or instrumentality of
any of the foregoing, and (z) certain information on Partnership Certificates
that were held, bought or sold on behalf of such person throughout the year. In
addition, brokers and financial institutions that hold Partnership Certificates
through a nominee are required to furnish directly to the related Tax
Partnership information as to themselves and their ownership of Partnership
Certificates.
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A clearing agency registered under Section 17A of the Exchange Act is not
required to furnish any such information statement to a Tax Partnership. The
information referred to above for any calendar year must be furnished to the
related Tax Partnership on or before the following January 31. Nominees,
brokers and financial institutions that fail to provide the Tax Partnership
with the information described above may be subject to penalties.
The Seller, as the tax matters partner for each Tax Partnership, will be
responsible for representing the Certificateholders in any dispute with the
IRS. The Code provides for administrative examination of a partnership as if
the partnership were a separate and distinct taxpayer. Generally, the statute
of limitations for partnership items does not expire before three years after
the date on which the partnership information return is filed. Any adverse
determination following an audit of the return of a Tax Partnership by the
appropriate taxing authorities could result in an adjustment of the returns of
the Certificateholders and, under certain circumstances, a Certificateholder
may be precluded from separately litigating a proposed adjustment to the items
of the related Tax Partnership. An adjustment could result in an audit of a
Certificateholder's returns and adjustments of items not related to the income
and losses of the related Tax Partnership.
Tax Consequences to Foreign Certificateholders. It is not clear whether any
Tax Partnership would be considered to be engaged in a trade or business in the
United States for purposes of Federal withholding taxes with respect to non-
U.S. persons because there is no clear authority regarding that issue under
facts substantially similar to those described herein. Although it is not
expected that any Tax Partnership would be engaged in a trade or business in
the United States for such purposes, such Tax Partnership will withhold as if
it were so engaged in order to protect such Tax Partnership from possible
adverse consequences of a failure to withhold. It is expected that each Tax
Partnership will withhold on the portion of its taxable income that is
allocable to foreign Certificateholders pursuant to Code Section 1446, as if
such income were effectively connected to a U.S. trade or business, at a rate
of 35% for foreign holders that are taxable as corporations and 39.6% for all
other foreign holders. Subsequent adoption of Treasury regulations or issuance
of other administrative pronouncements may require a Tax Partnership to change
its withholding procedures. In determining a holder's nonforeign status, a Tax
Partnership may rely on IRS Form W-8, IRS Form W-9 or the holder's
certification of nonforeign status signed under penalties of perjury.
Each foreign holder might be required to file a U.S. individual or corporate
income tax return and pay tax (including, in the case of a corporation, the
branch profits tax) on its share of the related Tax Partnership's income. Each
foreign holder must obtain a taxpayer identification number from the IRS and
submit that number to the related Tax Partnership on Form W-8 in order to
assure appropriate crediting of the taxes withheld. A foreign holder generally
would be entitled to file with the IRS a claim for refund with respect to taxes
withheld by the related Partnership, taking the position that no taxes were due
because such Tax Partnership was not engaged in a U.S. trade or business.
However, the IRS may assert that the tax liability should be based on gross
income, and no assurance can be given as to the appropriate amount of tax
liability.
Backup Withholding. Distributions made on any Partnership Certificates and
proceeds from sale of such Partnership Certificates will be subject to a
"backup" withholding tax of 31% if, as discussed above with respect to the
Notes, the Certificateholder fails to comply with certain identification
procedures, unless the holder is an exempt recipient under applicable
provisions of the Code.
CERTAIN STATE TAX MATTERS
The State of Illinois imposes a state income tax on individuals,
corporations, partners in partnerships and beneficiaries of trusts earning
income in, or as residents of, the State of Illinois. The State of Illinois
imposes a Personal Property Replacement Income Tax ("Illinois Replacement Tax")
on individuals, corporations, partnerships and trusts earning income in, or as
residents of, the State of Illinois. The State of Illinois also imposes a
franchise tax on corporations doing business in Illinois. Most of the
activities to be undertaken by the Servicer in servicing and collecting the
Receivables will take place in Illinois and, if such
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activities were attributed to a Tax Partnership, could result in the imposition
of the Illinois Replacement Tax on such Tax Partnership. This discussion is
based upon present provisions of Illinois statutes and the regulations
promulgated thereunder, and applicable judicial or ruling authority, all of
which are subject to change, which change may be retroactive. No ruling on any
of the issues discussed below will be sought from the Illinois Department of
Revenue.
THE NOTES
If the Notes are characterized as indebtedness for federal income tax
purposes, in the opinion of Tax Counsel, although the matter is not free from
doubt, this treatment would also apply for Illinois tax purposes. If the Notes
are characterized as debt, Noteholders not otherwise subject to taxation in
Illinois will not, although the matter is not free from doubt, become subject
to such taxes solely because of their ownership of Notes. Noteholders already
subject to taxation in Illinois, however, could be required to pay tax on or
measured by interest income (including original issue discount, if any)
generated by, and on gain from the disposition of, Notes.
TRUST CERTIFICATES
If the arrangement created by the Trust Agreement is a Tax Trust which is
treated as a grantor trust under Sections 671 through 679 of the Code for
federal income tax purposes, in the opinion of Tax Counsel, although the matter
is not free from doubt, the same treatment would also apply for Illinois tax
purposes. In such case, the Tax Trust should not be treated as earning income
in the State of Illinois, but rather should be viewed as a passive holder of
investments and, as a result, should not be subject to the Illinois Replacement
Tax (which, if applicable, could possibly result in reduced distributions to
Noteholders and Certificateholders).
PARTNERSHIP CERTIFICATES
If the arrangement created by the Trust Agreement is a Tax Partnership which
is treated as a partnership (not taxable as a corporation) for federal income
tax purposes, in the opinion of Tax Counsel, although the matter is not free
from doubt, the same treatment would also apply for Illinois tax purposes. In
such case, the Tax Partnership should not be treated as earning income in the
State of Illinois but rather should be viewed as a passive holder of
investments and, as a result, should not be subject to the Illinois Replacement
Tax (which, if applicable, could possibly result in reduced distributions to
Noteholders and Certificateholders).
Under current law, Certificateholders that are nonresidents of the State of
Illinois and are not otherwise subject to Illinois income tax and Illinois
Replacement Tax should not be subject to Illinois income tax and Illinois
Replacement Tax on income from a Tax Trust or a Tax Partnership. In any event,
classification of the arrangement as a "grantor trust" or a "partnership" would
not cause a Certificateholder not otherwise subject to taxation in Illinois to
pay Illinois tax on income beyond that derived from the Certificates.
Certificateholders already subject to taxation in Illinois, however, could be
required to pay tax on or measured by interest income (including original issue
discount, if any) generated by, and on gain from the disposition of, Notes and
Certificates.
RISKS OF ALTERNATIVE CHARACTERIZATION
If Trust Certificates or Partnership Certificates were instead treated as
ownership interests in an association taxable as a corporation or a "publicly
traded partnership" taxable as a corporation for federal income tax purposes,
then the hypothetical entity could be subject to the Illinois income tax, the
Illinois Replacement Tax, or the Illinois franchise tax (which, if applicable,
could result in reduced distributions to Certificateholders). A Noteholder or
Certificateholder not otherwise subject to tax in Illinois should not itself
become subject to Illinois income tax or Illinois Replacement Tax as a result
of its mere ownership of such an interest.
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OTHER STATES
Certain servicing and collection activities will be undertaken by the
Servicer in other jurisdictions throughout the United States, including
California, Georgia, New Jersey, Ohio, Texas and Wisconsin, and by the
Indenture Trustee in Delaware. The above discussion does not address the tax
treatment of any Tax Trust, Tax Partnership, Notes, Certificates, Noteholders
or Certificateholders under any of these, or any other, state or local tax
laws. Prospective investors are urged to consult with their own tax advisors
regarding the state and local tax treatment of any Tax Trust or Tax
Partnership, as well as any state and local tax consequences to them of
purchasing, holding and disposing of Notes or Certificates.
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 certain types of Keogh Plans, all as defined at Section 3(3) of
ERISA or described in Section 4975(e)(i) of the Code (each a "BENEFIT PLAN",
collectively, "Benefit Plans"), from engaging in certain transactions with
persons that are "parties in interest" under ERISA or "disqualified persons"
under the Code with respect to such Benefit Plan. A violation of these
"prohibited transaction" rules may generate excise tax and other liabilities
under ERISA and the Code for such persons.
The acquisition or holding of Securities by or on behalf of a Benefit Plan
could in some circumstances be considered to give rise to a prohibited
transaction if the Seller, the applicable Trustee, the Servicer or any of their
respective affiliates is or becomes a party in interest or a disqualified
person with respect to such Benefit Plan. Certain exemptions from the
prohibited transaction rules granted by the U.S. Department of Labor ("DOL")
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. Included among these exemptions are:
Prohibited Transaction Class Exemption ("PTCE") 90-1, regarding investments by
insurance company pooled separate accounts; PTCE 91-38, regarding investments
by bank collective investment funds; and PTCE 84-14, regarding transactions
effected by "qualified professional asset managers." In addition, it is
anticipated that the Underwriter's Exemption discussed below will apply to the
purchase of Class A Certificates.
Certain transactions involving a Trust might also be deemed to constitute
prohibited transactions under ERISA and the Code with respect to a Benefit Plan
that purchased Securities if assets of the Trust were deemed to be assets of
the Benefit Plan. Under a regulation issued by the DOL (the "PLAN ASSETS
REGULATION"), the assets of the Trust would be treated as plan assets of a
Benefit Plan for the purposes of ERISA and the Code only if the Benefit Plan
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 under the Plan Assets Regulation of Owner Securities is
discussed in the related Prospectus Supplement. It is anticipated that Notes
issued by an Owner Trust will not be subject to the Plan Assets Regulation and
that they will therefore be available for investment by a Benefit Plan subject
to a determination by the fiduciary of such Benefit Plan that such purchase
will not constitute a nonexempt prohibited transaction and is otherwise an
appropriate investment. It is not anticipated that Owner Certificates will be
available for purchase by a Benefit Plan.
It is anticipated that the Class A Certificates will be subject to the Plan
Assets Regulation. However, unless otherwise provided in an applicable
Prospectus Supplement, Class A Certificates issued by a Grantor Trust will be
made available for purchase by a Benefit Plan in reliance on an administrative
exemption (an "UNDERWRITER'S EXEMPTION") which has been granted by the DOL to
the underwriter specified in the related
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Prospectus Supplement. The Underwriter's Exemption prevents the application of
certain of the prohibited transaction and conflict of interest rules of ERISA
with respect to the initial purchase, the holding and the subsequent resale by
Benefit Plans of certificates in pass-through trusts with respect to which such
underwriter is the sole underwriter or the manager or co-manager of the
underwriting syndicate and that consist of certain receivables, loans and other
obligations that meet the conditions and requirements of such Underwriter's
Exemption. The receivables covered by an Underwriter's Exemption include motor
vehicle installment obligations such as the Receivables. An Underwriter's
Exemption will apply only if specific conditions (certain of which are
described below) are met. Unless otherwise provided in the related Prospectus
Supplement, the Seller believes that an Underwriter's Exemption will apply to
the acquisition and holding of each series of Class A Certificates by Benefit
Plans and that all conditions of such Underwriter's Exemption other than those
within the control of the investors have been or will be met.
Among the conditions which must be satisfied for an Underwriter's Exemption
to apply to the acquisition by a Benefit Plan of 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 the 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;
(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 related Grantor Trust;
(3) The Class A Certificates acquired by the Benefit Plan have received a
rating at the time of such acquisition that is in one of the three highest
generic rating categories from Standard & Poor's Corporation, Moody's
Investors Service, Inc., Duff & Phelps Credit Rating Co. or Fitch Investors
Service, Inc.;
(4) The sum of all payments made to the related underwriters in
connection with the distribution of such Class A Certificates represents
not more than reasonable compensation for underwriting such Class A
Certificates. The sum of all payments made to and retained by the Seller
pursuant to the sale of the Receivables to the related Grantor Trust
represents not more than the fair market value of such Receivables. The sum
of all payments made to and retained by the Servicer represents not more
than reasonable compensation for the Servicer's services as servicer under
the related Agreement and reimbursement of the Servicer's reasonable
expenses in connection therewith;
(5) The Grantor Trustee is not an "affiliate" (as defined in the
Exemption) of any other member of the Restricted Group (as defined below);
(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; and
(7) The related Grantor Trust satisfies the following requirements:
(a) the corpus of such Grantor Trust consists solely of assets of the
type which have been included in other investment pools,
(b) certificates in such other investment pools have been rated in
one of the three highest generic rating categories of Standard & Poor's
Corporation, Moody's Investors Service, Inc., Duff & Phelps Credit
Rating Co. or Fitch Investors Service, Inc. for at least one year prior
to the Benefit Plan's acquisition of Class A Certificates, and
(c) certificates evidencing interests in such other investment pools
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.
Certain transactions are not covered by an applicable exemption. An Exemption
does not exempt the acquisition and holding of Class A Certificates by Benefit
Plans sponsored by the Seller, the underwriters, the Grantor Trustee, the
Servicer or any "obligor" (as defined in the Exemption) with respect to
Receivables included in the related Grantor Trust constituting more than 5% of
the aggregate unamortized principal
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balance of the assets in such Grantor Trust or any affiliate of such parties
(the "RESTRICTED GROUP"). Unless otherwise provided in the related Prospectus
Supplement, as of the date thereof, no Obligor with respect to Receivables
included in any Grantor Trust will constitute more than five percent of the
aggregate unamortized principal balance of such Grantor Trust. Moreover, the
exemptive relief from the self-dealing/conflict of interest prohibited
transaction rules of ERISA is available, only if, among other requirements (i)
the person who has discretionary authority or renders investment advice with
respect to the investment of a Benefit Plan's assets in the Class A
Certificates (or such person's affiliate) is an Obligor with respect to five
percent or less of the fair market value of the assets contained in the related
Grantor Trust, (ii) a Benefit Plan's investment in such Class A Certificates
does not exceed 25% of all of the Class A Certificates of such series
outstanding at the time of the acquisition, (iii) immediately after the
acquisition, no more than 25% of the assets of a Benefit Plan with respect to
which the person who has discretionary authority or renders investment advice
are invested in certificates representing an interest in a trust containing
assets sold or serviced by the same entity and (iv) in the case of the
acquisition of Class A Certificates in connection with their initial issuance,
at least 50% of such Class A Certificates are acquired by persons independent
of the Restricted Group and at least 50% of the aggregate interest in the
related Grantor Trust is acquired by persons independent of the Restricted
Group.
An applicable Exemption will also apply to transactions in connection with
the servicing, management and operation of the related Grantor Trust, provided
that, in addition to the general requirements described above, (a) such
transactions are carried out in accordance with the terms of a binding pooling
and servicing agreement and (b) the pooling and servicing agreement is provided
to, or described in all material respects in the prospectus or private
placement memorandum provided to investing Benefit Plans before the Plans
purchase Class A Certificates issued by the related Grantor Trust. Each Grantor
Trust Pooling and Servicing Agreement is a pooling and servicing agreement as
defined in the Underwriter's Exemption. All transactions relating to the
servicing, management and operations of each Grantor Trust will be carried out
in accordance with the related Grantor Trust Pooling and Servicing Agreement,
which Grantor Trust Pooling and Servicing Agreement is described in all
material respects in "The Transfer and Servicing Agreements" and in the related
Prospectus Supplement.
Any Benefit Plan fiduciary considering the purchase of Securities should
consult with its counsel with respect to whether a Trust will be deemed to hold
plan assets and the applicability of the Underwriter's Exemption or other
exemption from the prohibited transaction rule and determine on its own whether
all conditions have been satisfied and whether the Securities are an
appropriate investment for a Benefit Plan under ERISA and the Code.
PLAN OF DISTRIBUTION
Upon on the terms and subject to the conditions set forth in an underwriting
agreement (the "UNDERWRITING AGREEMENT") with respect to each Trust, the Seller
will agree to sell to each of the underwriters named therein and in the related
Prospectus Supplement, and each of such underwriters will severally agree to
purchase from the Seller, the principal amount of each class of Securities of
the related series set forth therein and in the related Prospectus Supplement.
In each Underwriting Agreement, the several underwriters will agree, subject
to the terms and conditions set forth therein, to purchase all the Securities
described therein which are offered hereby and by the related Prospectus
Supplement if any of such Securities are purchased. In the event of a default
by any such underwriter, each Underwriting Agreement will provide that, in
certain circumstances, purchase commitments of the nondefaulting underwriters
may be increased or the Underwriting Agreement may be terminated.
Each Prospectus Supplement will either (i) set forth the price at which each
class of Securities being offered thereby will be offered to the public and any
concessions that may be offered to certain dealers participating in the
offering of such Securities or (ii) specify that the related Securities are to
be resold by the
64
<PAGE>
Underwriters in negotiated transactions at varying prices to be determined at
the time of such sale. After the initial public offering of any Securities, the
public offering price and such concessions may be changed.
Each Underwriting Agreement will provide that NFC and the Seller will
indemnify the underwriters against certain liabilities, including liabilities
under the Securities Act.
The Indenture Trustee may, from time to time, invest the funds in the
Designated Accounts in Eligible Investments acquired from the underwriters.
Under each Underwriting Agreement, the closing of the sale of any class of
Securities subject thereto will be conditioned on the closing of the sale of
all other such classes.
The place and time of delivery for the Securities in respect of which this
Prospectus is delivered will be set forth in the related Prospectus Supplement.
LEGAL OPINIONS
Certain legal matters relating to the Notes and the Certificates will be
passed upon for each Trust, the Seller and the Servicer by William W. Jones,
Esq., General Counsel of the Seller and the Servicer, and by Kirkland & Ellis,
special counsel to the Seller, each Trust and the Servicer. Certain federal
income tax matters will be passed upon for the Servicer, each Trust and the
Seller by Kirkland & Ellis.
65
<PAGE>
INDEX OF TERMS
Set forth below is a list of the defined terms used in this Prospectus and
the pages on which the definitions of such terms may be found herein.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Administration Agreement................................................... 46
Administrative Purchase Payment............................................ 33
Administrative Receivable.................................................. 33
Administrator.............................................................. 46
Aggregate Losses........................................................... 30
Aggregate Receivables Balance.............................................. 15
APR........................................................................ 16
Available Amount........................................................... 38
Balloon Receivables........................................................ 14
Basic Servicing Fee........................................................ 35
Benefit Plan............................................................... 62
Business Day............................................................... 44
Cede....................................................................... 2
Certificate Balance........................................................ 37
Certificate Distribution Account........................................... 34
Certificateholders......................................................... 17
Certificates............................................................... 1
Class A Certificate Balance................................................ 37
Class A Certificate Pool Factor............................................ 16
Class A Certificateholders................................................. 8
Class A Certificates....................................................... 1
Class A Distributable Amount............................................... 37
Class A Interest Carryover Shortfall....................................... 38
Class A Interest Distributable Amount...................................... 37
Class A Percentage......................................................... 2
Class A Principal Carryover Shortfall...................................... 38
Class A Principal Distributable Amount..................................... 37
Class B Certificate Balance................................................ 37
Class B Certificateholders................................................. 8
Class B Certificates....................................................... 1
Class B Distributable Amount............................................... 37
Class B Interest Distributable Amount...................................... 37
Class B Percentage......................................................... 7
Class B Principal Distributable Amount..................................... 37
Clearing Agency............................................................ 27
Clearing Corporation....................................................... 27
Closing Date............................................................... 31
Code....................................................................... 50
Collected Interest......................................................... 38
Collected Principal........................................................ 39
Collection Account......................................................... 33
Commission................................................................. 3
Custodian Agreement........................................................ 12
Cutoff Date................................................................ 4
Dealer Liability........................................................... 20
Definitive Certificates.................................................... 28
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Definitive Notes........................................................... 28
Definitive Securities...................................................... 28
Delinquency Percentage..................................................... 30
Depository................................................................. 27
Designated Accounts........................................................ 34
Distribution Date.......................................................... 26
DOL........................................................................ 62
DTC........................................................................ 2
Eligible Deposit Account................................................... 34
Eligible Institution....................................................... 34
Eligible Investments....................................................... 34
Equal Payment Balloon Receivables.......................................... 14
Equal Payment Fully Amortizing Receivables................................. 14
Equal Payment Skip Receivables............................................. 14
ERISA...................................................................... 62
Events of Default.......................................................... 23
Exchange Act............................................................... 3
Financed Vehicles.......................................................... 12
foreign person............................................................. 52
Full Prepayment............................................................ 36
Grantor Certificateholders................................................. 9
Grantor Certificates....................................................... 1
Grantor Trust.............................................................. 1
Grantor Trust Pooling and Servicing Agreement.............................. 2
Grantor Trustee............................................................ 2
Gross Balance.............................................................. 19
Gross Balance Past Due..................................................... 20
Guaranties................................................................. 12
Illinois Replacement Tax................................................... 60
Indenture.................................................................. 2
Indenture Trustee.......................................................... 2
Indirect Participants...................................................... 27
Initial Aggregate Receivables Balance...................................... 4
Initial Gross Receivable Balance........................................... 15
Initial Receivable Balance................................................. 15
Insolvency Event........................................................... 44
Insolvency Laws............................................................ 17
Interest Rate.............................................................. 5
Investment Earnings........................................................ 34
IRS........................................................................ 50
Level Principal Balloon Receivables........................................ 15
Level Principal Fully Amortizing Receivables............................... 14
Level Principal Skip Receivables........................................... 14
Liquidating Receivable..................................................... 31
Liquidation Expenses....................................................... 35
Liquidation Proceeds....................................................... 31
Liquidations............................................................... 20
Loss Protection............................................................ 21
Maximum Subordination Spread Amount........................................ 9
Minimum Subordination Spread Amount........................................ 9
Monthly Advance............................................................ 36
</TABLE>
67
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Monthly Period............................................................. 35
Net Losses................................................................. 20
NFC........................................................................ 4
NFRRC...................................................................... 4
NIC........................................................................ 43
NITC....................................................................... 4
NITC Purchase Obligations.................................................. 20
Note Distribution Account.................................................. 33
Note Pool Factor........................................................... 16
Noteholders................................................................ 17
Notes...................................................................... 1
Obligor.................................................................... 15
OID........................................................................ 51
Optional Purchase Proceeds................................................. 46
Other Receivables.......................................................... 15
Owner Certificateholders................................................... 5
Owner Certificates......................................................... 1
Owner Securities........................................................... 1
Owner Securityholders...................................................... 6
Owner Trust................................................................ 1
Owner Trust Agreement...................................................... 1
Owner Trust Certificate Pool Factor........................................ 16
Owner Trust Pooling and Servicing Agreement................................ 7
Owner Trustee.............................................................. 2
Partial Prepayment......................................................... 36
Participants............................................................... 27
Partnership Certificates................................................... 51
Pass Through Rate.......................................................... 5
Payment Date............................................................... 21
Plan Assets Regulation..................................................... 62
Pooling and Servicing Agreement............................................ 2, 7
Prepayment................................................................. 36
Prepayment Surplus......................................................... 39
Prospectus Supplement...................................................... 1
PTCE....................................................................... 62
Purchase Agreement......................................................... 31
Rating Agencies............................................................ 34
Receivable Balance......................................................... 15
Receivables................................................................ 1
Receivables Pool........................................................... 12
Record Date................................................................ 8
Registration Statement..................................................... 3
Related Documents.......................................................... 24
Remaining Gross Balance.................................................... 31
Required Deposit Rating.................................................... 34
Reserve Account............................................................ 39
Restricted Group........................................................... 64
Retail Notes............................................................... 14
Rules...................................................................... 28
Schedule of Receivables.................................................... 32
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Scheduled Payment......................................................... 15
Securities................................................................ 1
Securities Act............................................................ 3
Securityholders........................................................... 13
Securityowner............................................................. 27
Seller.................................................................... 2
Servicer.................................................................. 2
Servicer Default.......................................................... 43
Short-Term Note........................................................... 51
Specified Subordination Spread Account Balance............................ 9, 40
Strip Certificates........................................................ 6
Strip Notes............................................................... 5
Supplemental Servicing Fee................................................ 35
Tax Counsel............................................................... 51
Tax Partnership........................................................... 50
Tax Trust................................................................. 50
TIA....................................................................... 25
Total Servicing Fee....................................................... 35
Transfer and Servicing Agreements......................................... 31
Trust..................................................................... 1
Trust Certificates........................................................ 50
Trust Property............................................................ 12
Trustee................................................................... 2
UCC....................................................................... 33
Underwriter's Exemption................................................... 62
Underwriting Agreement.................................................... 64
Voting Interests.......................................................... 26
Warranty Payment.......................................................... 32
Warranty Receivable....................................................... 32
</TABLE>
69
<PAGE>
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NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMA-
TION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS SUPPLE-
MENT AND THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTA-
TIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE SELLER, THE
SERVICER OR THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE SE-
CURITIES OFFERED HEREBY TO ANYONE IN ANY JURISDICTION IN WHICH THE PERSON MAK-
ING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM
IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT INFORMATION HEREIN
OR THEREIN IS CORRECT AS OF ANY TIME SINCE THE DATE OF THIS PROSPECTUS SUPPLE-
MENT OR THE PROSPECTUS.
----------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.................................................................... S-3
The Trust.................................................................. S-8
The Receivables Pool....................................................... S-8
Use of Proceeds............................................................ S-10
The Servicer............................................................... S-11
The Notes.................................................................. S-12
The Certificates........................................................... S-13
The Transfer and Servicing Agreements...................................... S-14
Certain Federal Income Tax Consequences.................................... S-19
ERISA Considerations....................................................... S-19
Underwriting............................................................... S-19
Legal Opinions............................................................. S-20
Index of Terms............................................................. S-21
PROSPECTUS
Available Information...................................................... 3
Reports to Securityholders................................................. 3
Owner Trusts/Grantor Trusts................................................ 3
Prospectus Summary......................................................... 4
The Trusts................................................................. 12
The Receivables Pools...................................................... 14
Weighted Average Life of the Securities.................................... 16
Pool Factors and Trading Information....................................... 16
Use of Proceeds............................................................ 17
The Seller................................................................. 17
The Servicer............................................................... 19
The Notes.................................................................. 21
Owner Certificates......................................................... 25
Class A Certificates....................................................... 26
Certain Information Regarding the Securities............................... 27
The Transfer and Servicing Agreements...................................... 31
Certain Legal Aspects of the Receivables................................... 47
Certain Federal Income Tax Consequences.................................... 50
Certain State Tax Matters.................................................. 60
ERISA Considerations....................................................... 62
Plan of Distribution....................................................... 64
Legal Opinions............................................................. 65
Index of Terms............................................................. 66
</TABLE>
----------------
UNTIL AUGUST 1, 1994, ALL DEALERS EFFECTING TRANSACTIONS IN THE NOTES OR THE
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE RE-
QUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE PROSPECTUS TO WHICH IT RE-
LATES. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS
TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
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$280,021,471.35
NAVISTAR FINANCIAL 1994-A OWNER TRUST
$89,606,000
CLASS A-1 4.531% ASSET BACKED NOTES
$180,614,000
CLASS A-2 5.930% ASSET BACKED NOTES
$9,801,471.35
6.260% ASSET BACKED CERTIFICATES
NAVISTAR FINANCIAL RETAIL RECEIVABLES CORPORATION
SELLER
NAVISTAR FINANCIAL CORPORATION
SERVICER
- --------------------------
PROSPECTUS SUPPLEMENT
- --------------------------
CHEMICAL SECURITIES INC.
J.P. MORGAN SECURITIES INC.
APRIL 26, 1994
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