<PAGE>
As filed with the Securities and Exchange Commission on November _, 1995
Registration No.
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
Navistar Financial Retail Receivables Corporation
(Originator of the Trusts Described Herein)
A Delaware Corporation--I.R.S. Employee No. 51-0337491
c/o Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
(302-658-7581)
Agent for Service
William W. Jones, General Counsel
Navistar Financial Retail Receivables Corporation
2850 West Golf Road, Rolling Meadows, Illinois 60008
Copy to:
Kenneth P. Morrison
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Telephone: (312) 861-2000
------------------
Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this Registration Statement as determined in
light of market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under Securities Act of 1933,
other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=======================================================================================================================
Proposed Proposed
Amount Maximum Maximum
to be Offering Price Aggregate Offering Amount of
Securities Being Registered Registered(1) Per Unit(2) Price(2) Registration Fee
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asset Backed Securities.............. $2,000,000,000.00 100% $2,000,000,000.00 $400,000.00
=======================================================================================================================
</TABLE>
(1) $905,037,003.84 aggregate principal amount of Asset Backed Securities
registered by the Registrant under Registration Statement No. 33-55865
referred to below and not previously sold are consolidated in this
Registration Statement pursuant to Rule 429. All registration fees in
connection with such unsold amount of Asset Backed Securities have
previously been paid under Registration Statement No. 33-55865. The total
amount registered under this Registration Statement as so consolidated as
of the date of this filing is $2,905,037,003.84.
(2) Estimated solely for the purpose of calculating the registration fee.
------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Pursuant to Rule 429 under the Securities Act of 1933, the prospectus which
is part of this Registration Statement is a combined prospectus and includes all
of the information currently required in a prospectus relating to the securities
covered by Registration Statement No. 33-55865 previously filed by the
Registrant.
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER __, 1995
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. In addition, if so specified in the related Prospectus
Supplement, the property of the Owner Trust will include monies on deposit in a
trust account (the "PRE-FUNDING ACCOUNT") to be established with the Indenture
Trustee, which will be used to purchase additional retail installment sale
contracts for, and retail loans evidenced by notes, secured by, medium and
heavy duty trucks, buses and trailers
(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 November __, 1995.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. THESE
SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED WITHOUT DELIVERY OF
A FINAL PROSPECTUS SUPPLEMENT AND PROSPECTUS. THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL, OR SOLICITATION
OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE
IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
(continued from previous page)
(the "SUBSEQUENT RECEIVABLES") and related property from Navistar Financial
Retail Receivables Corporation (the "SELLER") from time to time during a period
specified in the related Prospectus Supplement (the "FUNDING PERIOD").
References herein to Receivables in respect of any Owner Trust, the property of
which will include a Pre-Funding Account, shall include the Subsequent
Receivables acquired with funds on deposit therein. Each Owner Trust will be
formed pursuant to a Trust Agreement (an "OWNER TRUST AGREEMENT") to be entered
into between Navistar Financial Retail Receivables 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
2
<PAGE>
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.
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 (such monies and
other assets, the "RELATED PROPERTY"). For each
Trust, the Aggregate Receivables Balance as of the
related Cutoff Date (the "INITIAL AGGREGATE RECEIV-
ABLES BALANCE") will be specified in the related
Prospectus Supplement. To the extent provided in
the related Prospectus Supplement, the Seller will
be obligated (subject only to the availability
thereof) to sell, and the related Owner Trust will
be obligated to purchase (subject to the satisfac-
tion of certain conditions described in the appli-
cable Transfer and Servicing Agreement), Subsequent
Receivables and the Related Property. During the
Funding Period, Subsequent Receivables having an
aggregate principal balance approximately equal to
the amount on deposit in the Pre-Funding Account
(the "PRE-FUNDED AMOUNT") will be sold and pur-
chased from time to time (as frequently as daily).
All of the Receivables will be prepayable at any
time without penalty to the Obligor. See "The Re-
ceivables Pools." Information with respect to each
Receivables Pool (excluding any Subsequent Receiv-
ables), including the weighted average APR of the
Receivables and the weighted average remaining ma-
turity of the Receivables, 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).
4
<PAGE>
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 integral mul-
tiples thereof, and will be available in book-entry
form only. Unless otherwise specified in the re-
lated Prospectus Supplement, Noteholders will be
able to receive Definitive Notes only in the lim-
ited circumstances described herein or in the re-
lated Prospectus Supplement. See "Certain Informa-
tion Regarding the Securities--Definitive Securi-
ties."
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. In addition, if the related
Prospectus Statement provides that the property of
an Owner Trust will include a Pre-Funding Account,
the outstanding Notes will be subject to partial
redemption on or immediately following the end of
the Funding Period in an amount and manner speci-
fied in the related Prospectus Supplement. In the
event of such partial redemption, the Noteholders
may be entitled to receive a prepayment premium
from the Owner Trust, in the amount and to the ex-
tent provided in the related Prospectus Supplement.
5
<PAGE>
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 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. In addition, if the
related Prospectus Supplement provides that the
property of an Owner Trust will include a Pre-Fund-
ing Account, Certificateholders may receive a par-
tial prepayment of principal on
6
<PAGE>
or immediately following the end of the Funding Pe-
riod in an amount and manner specified in the re-
lated Prospectus Supplement. In the event of such
partial prepayment, the Certificateholders may be
entitled to receive a prepayment premium from the
Owner Trust, in the amount and to the extent pro-
vided 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") and any amounts deposited from
time to time from the Pre-Funding Account (if any)
in connection with the purchase of Subsequent Re-
ceivables. Unless otherwise provided in the related
Prospectus Supplement, amounts in the Reserve Ac-
count (after giving effect to all distributions to
be made to the Servicer and the Owner Security-
holders) in excess of the Specified Reserve Account
Balance (as defined in the related Prospectus Sup-
plement) 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
7
<PAGE>
undertake certain administrative duties with re-
spect 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 Class A
Certificateholders will be able to receive Defini-
tive Certificates only in the limited circumstances
described herein or in the related Prospectus Sup-
plement. See "Certain Information Regarding the Se-
curities--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)
8
<PAGE>
the Class A Percentage of the Collected Interest,
(ii) the Subordination Spread Account and (iii) the
Class B Distributable Amount. See "Class A Certifi-
cates."
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 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
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Account on any Distribution Date (after giving ef-
fect 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 BAL-
ANCE" 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 Prospectus Supple-
ment. See "The Transfer and Servicing Agreements--
Credit Enhancement--Grantor Trust: Subordination of
the Class B Certificates; Subordination Spread Ac-
count." In no event will the Specified Subordina-
tion Spread Account Balance be more than the Maxi-
mum Subordination Spread Amount or less than the
Minimum Subordination Spread Amount (each as de-
fined 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 Speci-
fied Subordination Spread Account 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 Servicer
will agree to be responsible for servicing, manag-
ing, maintaining custody of and making collections
on the Receivables. Each Grantor Trust will be cre-
ated pursuant to a Grantor Trust Pooling and Ser-
vicing 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
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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 Re-
ceivables as of the first day of each Monthly Peri-
od. In addition, the Servicer will be entitled each
month to Supplemental Servicing Fees to the extent
specified herein or in the related Prospectus Sup-
plement. See "The Transfer and Servicing Agree-
ments--Servicing Compensation and Payment of Ex-
penses."
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 Upon the issuance of each series of Securities, ex-
Tax Consequences......... 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 partnership;
and (c) if identified as Trust Certificates, such
Certificates should constitute interests 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"). To the extent so provided in the related
Prospectus Supplement, Subsequent Receivables will be conveyed to an Owner
Trust as frequently as daily during the Funding Period. Any Subsequent
Receivables so conveyed, together with the Related Property with respect to
such Subsequent Receivables, will also be assets of the applicable Owner Trust.
References herein to Receivables in respect of any Owner Trust shall include
any such Subsequent Receivables. The Reserve Account and Pre-Funding 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."
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The principal offices of each Trust will be specified in the related
Prospectus Supplement.
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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<PAGE>
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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<PAGE>
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 (excluding any Subsequent
Receivables) 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. If the related Prospectus Supplement
provides that the property of an Owner Trust will include a Pre-Funding
Account, the outstanding Owner Securities will be subject to partial redemption
on or immediately following the end of the Funding Period in an amount and in
the manner specified in the related Prospectus Supplement. 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
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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 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 (i) to the purchase of the Receivables from NFC and
(ii) to the extent provided in the related Prospectus Supplement, to make the
deposit of the Pre-Funded Amount into the Pre-Funding Account. 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.
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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 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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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 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 1990 1991 1992 1993 1994
---------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Gross Balance Outstanding at end of
Period (in millions)................ $1,432 $1,414 $1,330 $1,437 $1,653
Gross Balance Past Due as a
Percentage of Gross Balance
Outstanding at end of Period
31-60 Days......................... 1.49% 1.25% 1.03% 0.67% 0.41%
Over 60 Days....................... 0.43 0.21 0.19 0.09 0.06
------ ------ ------ ------ ------
Average Gross Balance (in millions).. $1,439 $1,397 $1,320 $1,341 $1,515
------ ------ ------ ------ ------
Net Losses (in millions)
NFC................................ $ 1.9 $ 3.0 $ 2.3 $ (0.1) $ 0.6
NITC............................... 14.5 14.4 10.5 4.8 0.6
Combined........................... 16.4 17.4 12.8 4.7 1.2
------ ------ ------ ------ ------
Liquidations minus Net Losses (in
millions)........................... $ 724 $ 719 $ 794 $ 713 $ 790
------ ------ ------ ------ ------
Net Losses as a Percentage of Liqui-
dations minus Net Losses
NFC................................ 0.26% 0.40% 0.29% (0.01)% 0.08%
NITC............................... 2.00 2.01 1.32 0.67 0.07
Combined........................... 2.26 2.41 1.61 0.66 0.15
------ ------ ------ ------ ------
Net Losses as a Percentage of Average
Gross Balance
NFC................................ 0.13% 0.21% 0.18% 0.00% 0.04%
NITC............................... 1.00 1.03 0.79 0.35 0.04
Combined........................... 1.13 1.24 0.97 0.35 0.08
------ ------ ------ ------ ------
Repossessions as a Percentage of Av-
erage Gross Balance................. 5.61% 4.54% 3.70% 1.95% 0.97%
</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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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.
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
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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.
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
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<PAGE>
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.
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
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<PAGE>
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, and 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 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.
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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 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.
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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").
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
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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.
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.
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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 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
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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 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.
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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.
(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;
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(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;
(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;
(g) for each such date during the Funding Period (if any), the remaining
Pre-Funded Amount; and
(h) for the first such date that is on or immediately following the end
of the Funding Period (if any), the amount of any remaining Pre-Funded
Amount that has not been used to fund the purchase of Subsequent
Receivables and is being passed through as payments of principal on the
Securities.
(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 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
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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 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
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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,
to the extent specified in the related Prospectus Supplement, to the deposit of
the Pre-Funded Amount into the Pre-Funding 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. The related
Prospectus Supplement for a given Owner Trust will specify whether, and the
terms, conditions and manner under which, Subsequent Receivables and Related
Property will be acquired by the Seller from NFC and transferred by the Seller
to the Owner Trust from time to time during the Funding Period on the dates
specified as transfer dates in the related Prospectus Supplement (each, a
"SUBSEQUENT TRANSFER DATE").
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 or the
applicable Subsequent Transfer Date, if any, 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 or the applicable Subsequent Transfer Date, if any, 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 or the applicable Subsequent Transfer Date, if any,
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 or the applicable Subsequent
Transfer Date, if any.
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
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applied to reduce the Receivable Balance of such Receivable) (the "WARRANTY
PAYMENT"). The Seller or NFC, 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 for each series (i)
an account, in the name of the
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Indenture Trustee on behalf of the related Noteholders, in which amounts
released from the Collection Account and any Pre-Funding Account or 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 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 Pre-Funding Account or
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 Pre-Funding Account, 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
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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 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
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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").
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, (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. or (iii) a standby letter of credit has been
issued by an Eligible Institution which, as of each date during the period that
the Servicer is making monthly remittances of collections, has an undrawn
amount at least equal to 150% of all Scheduled Payments due for the latest
Monthly Period ended prior to the next succeeding Distribution Date (and the
aggregate amount of unremitted collections does not at any time exceed 90% of
the undrawn amount of such letter of credit), 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.
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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.
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.
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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.
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),
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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
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
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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 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)
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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.
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."
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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 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
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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 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
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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 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.
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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 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.
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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.
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.
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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.
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.
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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 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.
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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 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
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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.
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 Owner 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
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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 "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 under the OID provisions of the Code.
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.
Interest Income to Noteholders. Based on the foregoing opinion, interest on
the Notes will be taxable as ordinary income for Federal income tax purposes
when received by Noteholders utilizing the cash method of accounting and when
accrued by Noteholders utilizing the accrual method of accounting. Interest
received on the Notes may constitute "investment income" for purposes of
certain limitations of the Code concerning the deductibility of investment
interest expense.
Original Issue Discount.Although it is not anticipated that any series of
Notes will be issued at a greater than de minimis discount, a series of Notes
may nevertheless be deemed to have been issued with OID. First, under Treasury
regulations, interest payments on Notes may not be deemed payments of
"qualified stated interest" because (i) Noteholders do not have default
remedies ordinarily available to holders of debt instruments and (ii) no
penalties are imposed on the Seller or the applicable Trust as a result of any
failure to make timely interest payments. If a series of Notes does not pay
qualified stated interest, all of the taxable income thereon would be
includible in income as OID. Second, the IRS could take the position (under
regulations that have not yet been issued pursuant to section 1272(a)(6) of the
Code) that a series of Notes has OID. The holder of a Note that was treated as
having OID (including a cash method holder) would be required to include OID on
that Note in income for Federal income tax purposes on a constant yield basis,
resulting in the inclusion of income somewhat in advance of the receipt of cash
attributable to that income. These treatments would not significantly affect an
accrual method holder of Notes, although such treatments would somewhat
accelerate taxable income to a cash method holder by in effect requiring such
holder to report interest income on the accrual method. Finally, even if a Note
has OID falling within the de minimis exception, the holder must include such
OID in income proportionately as principal payments are made on such Note. 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.
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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
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
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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
reduced or eliminated pursuant to an applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States federal income and withholding tax, provided that (i) 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
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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 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 was
$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
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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.
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 Treasury 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.
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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.
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.
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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.
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
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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 method holders will in effect be
required to report income from the Partnership Certificates on the accrual
method. 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.
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
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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 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
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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. 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.
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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 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
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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.
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. For purposes of the "prohibited
transaction" rules and the following discussion, certain insurance company
accounts, bank collective funds and other entities whose assets include
significant investment by Benefit Plans are treated as if they are investing
directly on behalf of each such Benefit Plan, under a regulation issued by the
DOL (the "PLAN ASSETS REGULATION").
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
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deemed to be assets of the Benefit Plan. Under 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 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);
63
<PAGE>
(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 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,
Receivables attributable to a single Obligor included in any Grantor Trust will
not 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.
64
<PAGE>
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 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................................................. 47
Administrative Purchase Payment.......................................... 33
Administrative Receivable................................................ 33
Administrator............................................................ 47
Aggregate Losses......................................................... 30
Aggregate Receivables Balance............................................ 15
APR...................................................................... 16
Available Amount......................................................... 39
Basic Servicing Fee...................................................... 35
Benefit Plan............................................................. 62
Business Day............................................................. 44
Cede..................................................................... 2
Certificate Balance...................................................... 38
Certificate Distribution Account......................................... 34
Certificateholders....................................................... 17, 51
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, 8
Class A Principal Carryover Shortfall.................................... 38
Class A Principal Distributable Amount................................... 37
Class B Certificate Balance.............................................. 38
Class B Certificateholders............................................... 9
Class B Certificates..................................................... 1
Class B Distributable Amount............................................. 37
Class B Interest Distributable Amount.................................... 37
Class B Percentage....................................................... 8
Class B Principal Distributable Amount................................... 37
clearing agency.......................................................... 27
clearing corporation..................................................... 27
Closing Date............................................................. 31
Code..................................................................... 50
Collected Interest....................................................... 39
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........................................................ 25
DOL...................................................................... 62
DTC...................................................................... 3
Eligible Deposit Account................................................. 34
Eligible Institution..................................................... 35
Eligible Investments..................................................... 34
Equal Payment Balloon Receivables........................................ 14
Equal Payment Fully Amortizing Receivables............................... 14
Equal Payment Skip Receivables........................................... 14
ERISA.................................................................... 62
Events of Default........................................................ 22, 23
Exchange Act............................................................. 3
Financed Vehicles........................................................ 12
foreign person........................................................... 52
Full Prepayment.......................................................... 36
Funding Period........................................................... 2
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
holder................................................................... 51
Illinois Replacement Tax................................................. 61
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......................................... 15
Liquidating Receivable................................................... 31
Liquidation Expenses..................................................... 36
Liquidation Proceeds..................................................... 31
Liquidations............................................................. 20
Loss Protection.......................................................... 20
Maximum Subordination Spread Amount...................................... 10
</TABLE>
67
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Minimum Subordination Spread Amount........................................ 10
Monthly Advance............................................................ 36
Monthly Period............................................................. 35
Net Losses................................................................. 20
NFC........................................................................ 4
NFRRC...................................................................... 4
NIC........................................................................ 43
NITC....................................................................... 4
NITC Purchase Obligations.................................................. 20
Note Distribution Account.................................................. 34
Note Pool Factor........................................................... 16
Noteholders................................................................ 17
Notes...................................................................... 1
Obligor.................................................................... 15
OID........................................................................ 51
OID Regulations............................................................ 51
Optional Purchase Proceeds................................................. 46
Other Receivables.......................................................... 15
Owner Certificateholders................................................... 6
Owner Certificates......................................................... 1
Owner Securities........................................................... 1
Owner Securityholders...................................................... 7
Owner Trust................................................................ 1
Owner Trust Agreement...................................................... 2
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.......................................................... 6
Payment Date............................................................... 21
Plan Assets Regulation..................................................... 62
Pooling and Servicing Agreement............................................ 2, 7
Pre-Funded Amount.......................................................... 4
Pre-Funding Account........................................................ 1
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.................................................... 30
Required Deposit Rating.................................................... 34
Reserve Account............................................................ 40
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Restricted Group......................................................... 64
Retail Notes............................................................. 14
Rules.................................................................... 27
Schedule of Receivables.................................................. 32
Scheduled Payment........................................................ 15
Securities............................................................... 1
Securities Act........................................................... 3
Securityholders.......................................................... 13
Security Owner........................................................... 27
Seller................................................................... 1, 2
Servicer................................................................. 2
Servicer Default......................................................... 43
Short-Term Note.......................................................... 52
Specified Subordination Spread Account Balance........................... 10, 40
Strip Certificates....................................................... 6
Strip Notes.............................................................. 5
Subsequent Receivables................................................... 2
Subsequent Transfer Date................................................. 32
Supplemental Servicing Fee............................................... 35
Tax Counsel.............................................................. 51
Tax Partnership.......................................................... 51
Tax Trust................................................................ 51
TIA...................................................................... 25
Total Servicing Fee...................................................... 35
Transfer and Servicing Agreements........................................ 4, 31
Trust.................................................................... 1
Trust Certificates....................................................... 51
Trust Property........................................................... 12
Trustee.................................................................. 2
UCC...................................................................... 33
Underwriter's Exemption.................................................. 63
Underwriting Agreement................................................... 65
voting interests......................................................... 26
Warranty Payment......................................................... 33
Warranty Receivable...................................................... 32
</TABLE>
69
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses to be incurred in
connection with the offering of the Securities, other than underwriting
discounts and commissions, described in this Registration Statement:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee........... $ 400,000
Printing Expenses............................................. $ *
Legal Fees and Expenses....................................... $ *
Blue Sky Filing and Counsel Fees.............................. $ *
Accountants' Fees............................................. $ *
Trustee Fees and Expenses..................................... $ *
Rating Agencies' Fees......................................... $ *
Miscellaneous................................................. $ *
----------
Total..................................................... $ *
==========
</TABLE>
*To be filed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Each of NIC, NITC, NFC and the Registrant are incorporated under the laws of
Delaware. Section 145 of the Delaware General Corporation Law provides that a
Delaware corporation may indemnify any persons, including officers and
directors, who are, or are threatened to be made, parties to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
such corporation), by reason of the fact that such person was an officer,
director, employee or agent of such corporation, or is or was serving at the
request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, provided such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best interests
and, for criminal proceedings, had no reasonable cause to believe that his
conduct was illegal. A Delaware corporation may indemnify officers and
directors in an action by or in the right of the corporation under the same
conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the
corporation. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses which such officer or director actually and
reasonably incurred.
The Certificate of Incorporation or By-Laws of each of NIC, NITC, NFC and the
Registrant, provides, in effect, that, subject to certain limited exceptions,
each such corporation will indemnify its officers and directors to the extent
permitted by Delaware General Corporation Law. In addition, NIC maintains
insurance providing for payment, subject to certain exceptions, on behalf of
officers and directors of NIC and its subsidiaries of money damages incurred as
a result of legal actions instituted against them in their capacities as such
officers or directors (whether or not such person could be indemnified against
such expense, liability or loss under the Delaware General Corporation Law).
II-1
<PAGE>
ITEM 16. EXHIBITS.
The exhibits to this Registration Statement are listed in the Index to
Exhibits below.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) For the purpose of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the Indenture Trustee to act under
subsection (a) of section 310 of the Trust Indenture Act ("Act") in accordance
with the rules and regulations prescribed by the Commission under section
305(b)(2) of the Act.
II-2
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
------- ------- ------------
<C> <S> <C>
*1.1 Form of Underwriting Agreement for Notes and
Certificates.
*4.1 Form of Certificate of Trust of Navistar Financial
1993-A Owner Trust (included in Exhibit 4.4 hereto).
*4.2 Form of Indenture between the Owner Trust and the
Indenture Trustee.
*4.3 Form of Note (included in Exhibit 4.2 hereto).
*4.4 Form of Owner Trust Agreement between Navistar
Financial Retail Receivables Corporation and the
Owner Trustee.
*4.5 Form of Owner Certificate (included in Exhibit 4.4
hereto).
*4.6 Form of Class A Certificate (included in Exhibit
99.2 hereto).
**5.1 Opinion of Kirkland & Ellis with respect to
legality.
**8.1 Opinion of Kirkland & Ellis with respect to tax
matters.
**23.1 Consent of Kirkland & Ellis (included as part of
Exhibit 5.1 and 8.1).
24.1 Form of Powers of Attorney.
**25.1 Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939 of the Indenture Trustee
(bound separately).
*99.1 Form of Owner Trust Pooling and Servicing Agreement
between Navistar Financial Retail Receivables
Corporation, Navistar Financial Corporation and the
Owner Trustee.
*99.2 Form of Grantor Trust Pooling and Servicing
Agreement between Navistar Financial Retail
Receivables Corporation, Navistar Financial
Corporation and the Grantor Trustee.
*99.3 Form of Purchase Agreement between Navistar
Financial Corporation and Navistar Financial Retail
Receivables Corporation.
*99.4 Form of Administration Agreement between Navistar
Financial Corporation, the Owner Trust and the
Indenture Trustee.
*99.5 Certificate of Incorporation of Navistar Financial
Retail Receivables Corporation.
*99.6 By-Laws of Navistar Financial Retail Receivables
Corporation.
*99.7 Form of Custodian Agreement between Navistar
Financial Corporation and Navistar Financial Retail
Receivables Corporation.
</TABLE>
- --------
*Incorporated by reference to registrant's Registration Statement No. 33-50291.
**To be filed by amendment.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT HAS
DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF ROLLING MEADOWS, STATE OF
ILLINOIS, ON THE 14TH DAY OF NOVEMBER, 1995.
Navistar Financial Retail
Receivables Corporation
*
By:__________________________________
(John J. Bongiorno, Chief
Executive Officer, President)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW ON NOVEMBER 14, 1995 BY THE FOLLOWING PERSONS IN
THE CAPACITIES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* Chief Executive Officer, President and
- ------------------------------------------- Director (Principal Executive Officer and
(John J. Bongiorno) Principal Operating Officer)
* Vice President, Treasurer and Director
- ------------------------------------------- (Principal Financial Officer)
(R. Wayne Cain)
* Director
- -------------------------------------------
(James G. Froberg)
* Director
- -------------------------------------------
(Thomas M. Hough)
* Director
- -------------------------------------------
(Douglas A. Antonik)
* Director
- -------------------------------------------
(Robert C. Lannert)
* Controller and Director
- ------------------------------------------- (Principal Accounting Officer)
(Phyllis E. Cochran)
</TABLE>
/s/ William W. Jones
*By____________________________
Attorney-in-fact
II-4
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
The undersigned, being a director or officer or both of Navistar Financial
Retail Receivables Corporation, hereby constitutes and appoints William W.
Jones, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities (including his capacity as director and/or officer of
Navistar Financial Retail Receivables Corporation, to sign a Registration
Statement on Form S-3 covering Asset Backed Securities to be sold by Navistar
Financial Retail Receivables Corporation and any or all amendments (including
post-effective amendments) to such Registration Statement, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange commission, granting unto said attorney-in-
fact and agent full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this power of
attorney has been executed by the undersigned on October 7, 1994.
/s/ John J. Bongiorno /s/ Douglas Antonik
- ------------------------------------- -------------------------------------
John J. Bongiorno Douglas Antonik
/s/ R. Wayne Cain /s/ Robert C. Lannert
- ------------------------------------- -------------------------------------
R. Wayne Cain Robert C. Lannert
/s/ James G. Froberg /s/ Phyllis E. Cochran
- ------------------------------------- -------------------------------------
James G. Froberg Phyllis E. Cochran
/s/ Thomas M. Hough
- -------------------------------------
Thomas M. Hough
