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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION JULY 19, 1996
REGISTRATION NO. 333-03557
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 4
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NATIONSBANK, N.A.
NATIONSBANK, N.A. (SOUTH)
NATIONSBANK OF TEXAS, N.A.
(Originators of the Trust described herein)
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6090 UNITED STATES OF AMERICA 57-0236115, 58-0193243
(Primary Standard Industrial (State or other 75-2238693
Classification Code No.) jurisdiction of (IRS Employer Identification Nos.)
incorporation or
organization)
NATIONSBANK, N.A. NATIONSBANK, N.A. (SOUTH) NATIONSBANK OF TEXAS, N.A.
NATIONSBANK CORPORATE CENTER 600 PEACHTREE STREET, N.E. 901 MAIN STREET
100 NORTH TRYON STREET ATLANTA, GEORGIA 30308 DALLAS, TEXAS 75202
CHARLOTTE, NORTH CAROLINA 28255 (404) 581-2121 (214) 508-6262
(704) 386-5000
</TABLE>
(Address, including zip code, and telephone number, including area code, of each
Registrant's principal executive offices)
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ROBERT W. LONG, JR., ESQ.
ASSISTANT GENERAL COUNSEL
NATIONSBANK CORPORATION
NATIONSBANK CORPORATE CENTER
100 NORTH TRYON STREET
NC1-007-20-01
CHARLOTTE, NORTH CAROLINA 28255
(704) 386-2400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPIES TO:
RICHARD S. FORTUNATO, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / / x X
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT(2) OFFERING PRICE(2) FEE(1)
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Asset Backed Notes and Asset Backed
Certificates(1)............................... $4,000,000,000 100% 100% $1,379,310.35(3)
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</TABLE>
(1) An indeterminate amount of Asset Backed Certificates and Asset Backed Notes
(together, the "Securities") are also being registered for the purpose of
market-making transactions by an affiliate of the Registrants.
(2) Estimated solely for the purpose of calculating registration fee.
(3) Previously paid.
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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.
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INTRODUCTORY NOTE
This Registration Statement contains (i) a form of Prospectus relating to
the offering of series of Asset Backed Notes and/or Asset Backed Certificates by
various NationsBank Auto Trusts created from time to time by NationsBank, N.A.,
NationsBank, N.A. (South) and NationsBank of Texas, N.A. and (ii) two forms of
Prospectus Supplement relating to the offering by NationsBank Auto Trust 199 -
of the particular series of Asset Backed Certificates (such form of Prospectus
Supplement is identified on the outside front cover page thereof as the "Grantor
Trust Prospectus Supplement") or of Asset Backed Notes and Asset Backed
Certificates (such form of Prospectus Supplement is identified on the outside
front cover page thereof as the "Owner Trust Prospectus Supplement") described
therein and (iii) the form of Owner Trust Prospectus Supplement relating to the
offering by NationsBank Auto Owner Trust 1996-A of the particular series of
Asset Backed Notes and Asset Backed Certificates described therein (such form of
Prospectus Supplement is identifiable by the reference to NationsBank Auto Owner
Trust 1996-A on the outside front cover page thereof). Each form of Prospectus
Supplement relates only to the securities described therein and is a form which
may be used, among others, by the Originators to offer Asset Backed Notes and/or
Asset Backed Certificates under this Registration Statement. Because an
affiliate of the Originators of the Trust intends to make a market in the
Securities for which it acts as an underwriter, immediately following the form
of the Owner Trust Prospectus Supplement relating to the offering of Securities
by NationsBank Auto Owner Trust 1996-A there follow (a) alternate pages of the
form of Owner Trust Prospectus Supplement relating to the offering of Asset
Backed Notes and Asset Backed Certificates by NationsBank Auto Owner Trust
1996-A, (b) alternate pages of the Prospectus, (c) alternate pages of the form
of Owner Trust Prospectus Supplement and (d) alternate pages of the form of
Grantor Trust Prospectus Supplement, which will be used by such affiliate in
connection with any offers and sales relating to market-making transactions in
the Asset-Backed Notes and Asset-Backed Certificates. All other pages of the
form of Grantor Trust Prospectus Supplement, the form of Owner Trust Prospectus
Supplement and the Prospectus are also to be used for the market-making
Prospectus Supplement and Prospectus.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY 19, 1996
PROSPECTUS
NATIONSBANK AUTO TRUSTS
ASSET BACKED NOTES
ASSET BACKED CERTIFICATES
NATIONSBANK, N.A.
NATIONSBANK, N.A. (SOUTH)
NATIONSBANK OF TEXAS, N.A.
SELLERS
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NATIONSBANK, N.A.
SERVICER
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The Asset Backed Notes (the "Notes") and the Asset Backed Certificates (the
"Certificates" and, together 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"). Each series of
Securities, which may include one or more classes of Notes and/or one or more
classes of Certificates, will be issued by a trust to be formed with respect to
such series (each, a "Trust"). Each Trust will be formed pursuant to either a
Trust Agreement to be entered into between NationsBank, N.A., NationsBank, N.A.
(South) and NationsBank of Texas, N.A. as sellers (each, a "Seller" and
collectively, the "Sellers"), and the Trustee specified in the related
Prospectus Supplement (the "Trustee") or a Pooling and Servicing Agreement to be
entered into among the Trustee, the Sellers and NationsBank, N.A., as servicer
(the "Servicer"). If a series of Securities includes Notes, such Notes of a
series will be issued and secured pursuant to an Indenture between the Trust and
the Indenture Trustee specified in the related Prospectus Supplement (the
"Indenture Trustee") and will represent indebtedness of the related Trust. The
Certificates of a series will represent fractional undivided interests in the
related Trust. The related Prospectus Supplement will specify which class or
classes of Notes, if any, and which class or classes of Certificates, if any, of
the related series are being offered thereby. The property of each Trust will
include a pool of retail motor vehicle installment sales contracts originated by
Dealers and purchased by the Sellers and secured by new or used automobiles,
vans and light trucks (the "Receivables"), certain monies due or received
thereunder after the applicable Cut-Off Date set forth in the related Prospectus
Supplement, security interests in the vehicles financed thereby and certain
other property, all as described herein and in the related Prospectus
Supplement. See "The Trusts." In addition, if so specified in the related
Prospectus Supplement, the property of the Trust will include monies on deposit
in a trust account (the "Pre-Funding Account") to be established with the
Indenture Trustee or the applicable Trustee, as the case may be, which will be
used to purchase additional retail motor vehicle installment sales contracts
(the "Subsequent Receivables") from the Sellers from time to time during the
Funding Period specified in the related Prospectus Supplement. Certain
capitalized terms used in this Prospectus are defined elsewhere in this
Prospectus on the pages indicated in the "Index of Terms" beginning on page 68.
(continued on the following page)
PROSPECTIVE INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION
SET FORTH IN "RISK FACTORS" ON PAGE 14 HEREIN.
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ANY NOTES OF A SERIES REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES OF A SERIES
REPRESENT BENEFICIAL INTERESTS IN, THE RELATED TRUST ONLY AND DO NOT
REPRESENT OBLIGATIONS OF OR INTERESTS IN, AND ARE NOT GUARANTEED OR
INSURED BY, THE FEDERAL DEPOSIT INSURANCE CORPORATION, ANY
GOVERNMENTAL AGENCY, ANY OF THE SELLERS, THE SERVICER OR
NATIONSBANK CORPORATION OR ANY OF THEIR RESPECTIVE
AFFILIATES.
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THESE SECURITIES ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL AMOUNT INVESTED AND 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.
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The date of this Prospectus is , 1996.
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(continued from the cover page)
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. If a series includes multiple classes of
Securities, the rights of one or more classes of Securities to receive payments
may be senior or subordinate to the rights of one or more of the other classes
of such series. Distributions on one or more classes of Certificates of a series
may be subordinated in priority to payments due on one or more classes of Notes
or Certificates to the extent described herein and in the related Prospectus
Supplement. A series may include one or more classes of Notes and/or
Certificates which differ as to the timing and priority of payment, interest
rate or amount of distributions in respect of principal or interest or both. A
series may include one or more classes of Notes or Certificates entitled to
distributions in respect of principal with disproportionate, nominal or no
interest distributions, or to interest distributions, with disproportionate,
nominal or no distributions in respect of principal. The rate of payment in
respect of principal of any class of Notes and distributions in respect of the
Certificate Balance of the 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.
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TABLE OF CONTENTS
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PAGE
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Reports to Securityholders............................................................ 1
Available Information................................................................. 1
Incorporation of Certain Documents by Reference....................................... 1
Summary............................................................................... 3
Risk Factors.......................................................................... 14
The Trusts............................................................................ 21
The Receivables Pools................................................................. 23
Maturity and Prepayment Considerations................................................ 26
Pool Factors and Trading Information.................................................. 27
Use of Proceeds....................................................................... 27
The Banks, NationsBank Corporation and NAFC........................................... 28
The Servicer.......................................................................... 28
Description of the Notes.............................................................. 29
Description of the Certificates....................................................... 34
Description of Fixed and Floating Rate Options........................................ 35
Book-Entry and Definitive Securities; Reports to Securityholders...................... 39
Description of the Transfer and Servicing Agreements.................................. 44
Certain Legal Aspects of the Receivables.............................................. 57
Federal Income Tax Consequences....................................................... 61
ERISA Considerations.................................................................. 62
Plan of Distribution.................................................................. 66
Legal Opinions........................................................................ 67
Index of Terms........................................................................ 68
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REPORTS TO SECURITYHOLDERS
Unless and until Definitive Securities are issued, unaudited monthly and
annual reports concerning the Receivables and each Trust will be prepared by the
Servicer and sent by the Trustee, on behalf of each Trust, only to the
registered holders of the Certificates (the "Certificateholders") pursuant to
the applicable Trust Agreement and the registered holders of the Notes (the
"Noteholders") pursuant to the applicable Indenture. Unless and until Definitive
Securities are issued, the registered holder of the Certificates and the Notes
will be Cede & Co., as nominee of The Depository Trust Company ("DTC"). Such
reports will not contain audited financial statements with respect to the
applicable Trust. Owners of beneficial interests in the Certificates
("Certificate Owners") may obtain these reports free of charge (except for
copying and postage costs) by a request in writing to the Trustee at Bankers
Trust (Delaware) 1001 Jefferson Street, Suite 500, Wilmington, Delaware 19801,
Attention: Corporate Trust Department. Owners of beneficial interests in the
Notes ("Note Owners") may similarly obtain these reports free of charge (except
for copying and postage costs) by sending a request in writing to the Indenture
Trustee, The Chase Manhattan Bank, at 4 Chase MetroTech Center, Brooklyn, New
York 11245, Attention: Global Trust Services. The Sellers do not intend to send
any of their consolidated reports of condition and income or other information
required to be furnished to the Sellers' regulators to Certificateholders,
Noteholders, Certificate Owners or Note Owners. See "Book-Entry and Definitive
Securities; Reports to Securityholders -- Book-Entry Registration" and
"-- Reports to Securityholders." The Servicer intends to continue to file with
respect to each Trust periodic reports pursuant to the requirements of the
Securities Exchange Act of 1934, as amended, for the period after such filings
could be discontinued in reliance on Section 15(d) thereof until the Securities
issued by such Trust are no longer outstanding.
AVAILABLE INFORMATION
The Sellers, as the originators of each Trust, have 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 Notes and the Certificates offered
pursuant to this Prospectus and the Prospectus Supplement. Each of the Sellers
is a subsidiary of NationsBank Corporation, a multibank holding company
incorporated under the laws of North Carolina, headquartered in Charlotte, North
Carolina and registered under the Bank Holding Company Act of 1956, as amended.
NationsBank Corporation is subject to the periodic reporting requirements of the
Exchange Act, and in accordance therewith, files reports and other information
with the Commission. For further information, reference is made to the
Registration Statement, the exhibits thereto, and the reports and other
information filed by NationsBank Corporation 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,
including the Midwest Regional Office, located at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and the Northeast
Regional Office located at Seven World Trade Center, Suite 1300, New York, New
York 10048. Paper 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. In addition, the Commission
maintains a public access site on the Internet through a World Wide Web site at
which reports, information statements and other information, including all
electronic filings, regarding the Sellers and NationsBank Corporation may be
viewed. The Internet address of such World Wide Web site is http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by or on behalf of each Trust pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act, subsequent to the date of this
Prospectus and prior to the termination of the offering of the Securities, shall
be deemed to be incorporated by reference in this Prospectus. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in
<PAGE> 7
any subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Sellers will provide without charge to each person, including any
beneficial owner of Securities, to whom a copy of this Prospectus is delivered,
on the written or oral request of any such person, a copy of any or all of the
documents incorporated herein or in any related Prospectus Supplement by
reference, except the exhibits to such documents (unless such exhibits are
specifically incorporated by reference in such documents). Requests for such
copies should be directed to Carolyn Geiger, NationsBank Corporation,
NationsBank Plaza, 100 South Tryon Street, Charlotte, North Carolina 28255;
Telephone: (704)388-6203.
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SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to the Securities of any series 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 summary
are defined elsewhere in this Prospectus on the pages indicated in the "Index of
Terms."
ISSUER..................... With respect to each series of Securities, the
Trust to be formed pursuant to either a Trust
Agreement (as amended and supplemented from time
to time, a "Trust Agreement") among the Sellers
and the Trustee for such Trust (the "Trust" or
the "Issuer") or a Pooling and Servicing
Agreement (as amended and supplemented from time
to time, the "Pooling and Servicing Agreement")
among the Trustee, the Sellers and the Servicer.
SELLERS.................... NationsBank, N.A., NationsBank, N.A. (South)
("NationsBank South") and NationsBank of Texas,
N.A. ("NationsBank Texas"), each a national
banking association (each, in such capacity, a
"Seller" and a "Bank" and, collectively, the
"Sellers" and the "Banks").
SERVICER................... NationsBank, N.A. in its capacity as servicer (the
"Servicer").
TRUSTEE.................... With respect to each series of Securities, the
Trustee specified in the related Prospectus
Supplement.
INDENTURE TRUSTEE.......... With respect to any applicable series of
Securities, the Indenture Trustee specified in
the related Prospectus Supplement.
THE TRUST PROPERTY......... The property of each Trust will include a pool of
retail motor vehicle installment sales contracts
secured by new or used automobiles, vans or light
trucks (the "Receivables"), including rights to
receive certain payments made with respect to
such Receivables, security interests in the
vehicles financed thereby (the "Financed
Vehicles"), certain accounts, which will include
the Collection Account and may include a Reserve
Account and/or a Yield Supplement Account, and
the proceeds thereof and any proceeds from claims
on certain related insurance policies. On the
Closing Date specified in the related Prospectus
Supplement with respect to a Trust (the "Closing
Date"), the Sellers will sell or transfer
Receivables (the "Initial Receivables") having an
aggregate principal balance specified in the
related Prospectus Supplement as of the date
specified therein (the "Initial Cut-Off Date") to
such Trust pursuant to either a Sale and
Servicing Agreement among the Sellers, the
Servicer and the Trust (as amended and
supplemented from time to time, a "Sale and
Servicing Agreement") or, if the Trust is to be
treated as a grantor trust for federal income tax
purposes, the related Pooling and Servicing
Agreement among the Sellers, the Servicer and the
Trustee. The property of each Trust will also
include amounts on deposit in certain trust
accounts, including the related Collection
Account, any Pre-Funding Account, any Yield
Supplement Account, any Reserve Account and any
other account identified in the applicable
Prospectus Supplement.
THE RECEIVABLES............ The Receivables will consist of a pool of retail
motor vehicle installment sales contracts secured
by new or used automobiles, vans or light trucks.
The Receivables for any given Receivables Pool
arise or will arise from loans originated by
motor vehicle dealers (the "Dealers")
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and purchased by the Sellers pursuant to
agreements with the Dealers. The purchase price
for the Receivables purchased by the Trust from
the Sellers and by the Seller or Sellers from a
Dealer may be more or less than the aggregate
principal balance thereof.
Subsequent Receivables. To the extent provided in
the related Prospectus Supplement, the Sellers
will be obligated (subject only to the
availability thereof) to sell, and the related
Trust will be obligated to purchase (subject to
the satisfaction of certain conditions described
in the applicable Sale and Servicing Agreement or
Pooling and Servicing Agreement), additional
Receivables (the "Subsequent Receivables") from
time to time (as frequently as daily) during the
Funding Period specified in the related
Prospectus Supplement having an aggregate
principal balance approximately equal to the
amount on deposit in the Pre-Funding Account (the
"Pre-Funded Amount") on the Closing Date. See
"Risk Factors -- Risks Associated with Subsequent
Receivables and the Pre-Funding Account" and "The
Receivables Pools -- Subsequent Receivables."
Simple Interest Receivables. Simple Interest
Receivables are receivables secured by new or
used automobiles, vans or light trucks that
provide for the amortization of the amount
financed under the Receivable over a series of
fixed level monthly payments (except that the
last such payment may be different). Each monthly
payment includes an installment of interest which
is calculated on the basis of the outstanding
principal balance of the Receivable multiplied by
the stated Contract Rate and further multiplied
by the period elapsed (as a fraction of a
calendar year) since the preceding payment of
interest was made.
Balloon Receivables. Balloon Receivables are
monthly payment receivables secured by new or
used automobiles, vans or light trucks that
provide for the amortization of the amount
financed under the Receivable over a series of
fixed level monthly payments like a Simple
Interest Receivable, but also require a final
scheduled payment due after payment of such
monthly installments which differs significantly
from the preceding fixed level monthly
installments. In addition, the Balloon
Receivables provide that the related Obligor may
satisfy the final scheduled payment by (1) paying
the full amount due on its due date; (2)
refinancing the amount of the final scheduled
payment subject to certain conditions; or (3)
transferring the Financed Vehicle to the Seller
on behalf of the Trust in satisfaction of the
final scheduled payment and paying a disposition
fee to the Servicer and any applicable charges
for excess wear and tear and excess mileage. See
"Risk Factors -- Balloon Receivables; Final
Scheduled Payment Risk."
NATIONSBANC AUTO FUNDING
CORPORATION.............. Prior to the first issuance of a series of
Securities that includes Notes, NationsBank, N.A.
will form a wholly-owned limited purpose
subsidiary -- NationsBanc Auto Funding
Corporation, a Delaware corporation
("NAFC") -- for the purpose of purchasing a
portion of the Certificates issued by each Trust
that issues Notes, acting as the general partner
of each such Trust for federal income tax
purposes and engaging in incidental activities.
NAFC will purchase at least 1% of
4
<PAGE> 10
the Certificates issued by any such Trust; the
exact amount of such Certificates purchased by
NAFC will be specified in the related Prospectus
Supplement. Any such Certificates purchased by
NAFC will not be registered with the Commission
and may not be offered pursuant to the
Registration Statement, of which this Prospectus
forms a part, filed with the Commission.
NO RECOURSE TO SELLERS OR
SERVICER................. The Receivables sold and assigned to the applicable
Trust will be sold and assigned by the Sellers to
such Trust without recourse to the Sellers, the
Servicer or any of their respective affiliates
for credit losses on such Receivables. The Notes
of any series will represent obligations solely
of, and the Certificates of any series will
represent interests solely in, the related Trust
and, except as may be set forth in an applicable
Prospectus Supplement in connection with any
provided credit enhancement, neither the Notes
nor the Certificates of any series will be
insured or guaranteed by the Seller, the
Servicer, the applicable Trustee, any Indenture
Trustee or any other person or entity.
THE NOTES.................. The terms of the Notes generally are described
below.
A. GENERAL................. A series of Securities may include one or more
classes of Notes, which will be issued pursuant
to an Indenture between the Trust and the
Indenture Trustee (as amended, modified and
supplemented from time to time, an "Indenture").
The related Prospectus Supplement will specify
which class or classes, if any, of Notes of the
related series are being offered thereby.
B. DENOMINATIONS;
BOOK-ENTRY.............. Notes will be available for purchase in the
denominations specified in the related Prospectus
Supplement and will be available in book-entry
form only. Noteholders will be able to receive
Definitive Notes only in the limited
circumstances described herein or described in
the related Prospectus Supplement. See
"Book-Entry and Definitive Securities; Reports to
Securityholders -- Definitive Securities."
C. NOTE INTEREST RATE...... Each class of Notes may have a stated principal
amount or notional amount and may bear interest
at a specified rate or rates (with respect to
each class of Notes, the "Note Interest Rate") or
may not bear interest. Each class of Notes may
have a different Note Interest Rate, which may be
a fixed, variable or adjustable Note Interest
Rate, or any combination of the foregoing. The
related Prospectus Supplement will specify the
stated principal amount, if any, and the Note
Interest Rate, if any, for each class of Notes,
or the method for determining such Note Interest
Rate.
D. CHARACTERISTICS......... With respect to a series that includes two or more
classes of Notes, each class may differ as to the
timing and priority of payments, allocations of
losses, Note Interest Rate or amount of payments
of principal or interest, or payments of
principal or interest in respect of any such
class or classes 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 Notes ("Strip
Notes") entitled to (i) principal payments
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<PAGE> 11
with disproportionate, nominal or no interest
payments or (ii) interest payments with
disproportionate, nominal or no principal
payments.
E. CLEAN UP CALL;
REDEMPTION.............. If the Servicer exercises its option to purchase
the Receivables of a Trust, in the manner and on
the respective terms and conditions described
under "Description of the Transfer and Servicing
Agreements -- Termination," the outstanding Notes
will be redeemed as set forth in the related
Prospectus Supplement.
F. PRE-FUNDING ACCOUNT AND
REDEMPTION.............. In addition, if the related Prospectus Supplement
provides that the property of a Trust will
include a Pre-Funding Account (as such term is
defined in the related Prospectus Supplement, the
"Pre-Funding Account"), one or more classes of
the outstanding Notes will be subject to partial
redemption on or immediately following the end of
the Funding Period (as such term is defined in
the related Prospectus Supplement, the "Funding
Period") in an amount and manner specified in the
related Prospectus Supplement. In the event of
such partial redemption, the Noteholders may be
entitled to receive a prepayment premium from the
Trust, in the amount and to the extent provided
in the related Prospectus Supplement.
THE CERTIFICATES........... The terms of the Certificates generally are
described below.
A. GENERAL................. A series of Securities will include one or more
classes of Certificates and may or may not
include any Notes. The related Prospectus
Supplement will specify which class or classes,
if any, of the Certificates are being offered
thereby.
B. DENOMINATIONS;
BOOK-ENTRY OR REGISTERED
FORM.................... Certificates will be available for purchase in the
denominations specified in the related Prospectus
Supplement and may be available in book-entry
form. If Certificates are issued in book-entry
form, Certificateholders will be able to receive
Definitive Certificates only in the limited
circumstances described herein or in the related
Prospectus Supplement. See "Book-Entry and
Definitive Securities; Reports to
Securityholders -- Definitive Securities."
C. CERTIFICATE RATE........ Each class of Certificates may have a stated
Certificate Balance (with respect to each class
of Certificates, the "Certificate Balance") and
may accrue interest on such Certificate Balance
at a specified rate (with respect to each class
of Certificates, the "Certificate Rate"). Each
class of Certificates may have a different
Certificate Rate, which may be a fixed, variable
or adjustable Certificate Rate, or any
combination of the foregoing. The related
Prospectus Supplement will specify the
Certificate Balance and the Certificate Rate for
each class of Certificates or the method for
determining the Certificate Rate.
D. CHARACTERISTICS......... With respect to a series that includes two or more
classes of Certificates, each class may differ as
to the timing and priority of distributions,
allocation of losses, Certificate Rate or amount
of distributions in respect of principal or
interest, or distributions in respect of
principal or interest in respect of any such
class or classes 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
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addition, a series may include one or more
classes of Certificates ("Strip Certificates")
entitled to (i) distributions in respect of
principal with disproportionate, nominal or no
interest distributions or (ii) interest
distributions with disproportionate, nominal or
no distributions in respect of principal.
E. CERTIFICATES MAY BE
SUBORDINATED TO NOTES OF
THE SAME TRUST.......... If a series of Securities includes classes of
Notes, distributions in respect of a class of the
Certificates may be subordinated in priority of
payment to payments on the Notes or another class
of Certificates to the extent specified in the
related Prospectus Supplement.
F. CLEAN-UP CALL;
REDEMPTION................. If the Servicer exercises its option to purchase
the Receivables of a Trust, in the manner and on
the respective terms and conditions described
under "Description of the Transfer and Servicing
Agreements -- Termination," Certificateholders
will receive as a prepayment an amount in respect
of the Certificates as specified in the related
Prospectus Supplement.
G. PRE-FUNDING ACCOUNT AND
PARTIAL PREPAYMENT...... In addition, if the related Prospectus Supplement
provides that the property of a Trust will
include a Pre-Funding Account, Certificateholders
may receive a partial prepayment of principal on
or immediately following the end of the Funding
Period in an amount and in a manner specified in
the related Prospectus Supplement. In the event
of such partial prepayment, the
Certificateholders may be entitled to receive a
prepayment premium from the Trust, in the amount
and to the extent provided in the related
Prospectus Supplement.
BOOK-ENTRY REGISTRATION.... Each class of Securities of a given series may be
initially represented by one or more certificates
registered in the name of Cede & Co. ("Cede"), or
any other nominee for DTC set forth in the
related Prospectus Supplement (Cede, or such
other nominee, "DTC's Nominee"), and for each
such class, will not be registered in the names
of the holders of the Securities of such series
or their nominees. Because of this, unless and
until Definitive Securities for such series are
issued, holders of such Securities will not be
recognized by the Trustee or any Indenture
Trustee as "Certificateholders," "Noteholders" or
"Securityholders," as the case may be (as such
terms are used herein or in the related Pooling
and Servicing Agreement or the related Indenture
and Trust Agreement, as applicable). Hence, until
Definitive Securities are issued, holders of such
Securities will be able to exercise the rights of
Securityholders only indirectly through DTC and
its participating organizations. See "Risk
Factors -- Book-Entry Registration; Owners of
Securities Not Recognized as "Securityholders""
and "Book-Entry and Definitive Securities;
Reports to Securityholders -- Book-Entry
Registration,"and "-- Definitive Securities."
CREDIT AND CASH FLOW
ENHANCEMENT.............. If and to the extent specified in the related
Prospectus Supplement, credit enhancement with
respect to a Trust or any class or classes of
Securities may include any one or more of the
following: subordination of one or more other
classes of Securities, a Reserve Account, over-
collateralization, letters of credit, credit or
liquidity facilities, surety
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bonds, guaranteed investment contracts,
guaranteed rate agreements, swaps or other
interest rate protection agreements, repurchase
obligations, yield supplement agreements, other
agreements with respect to third party payments
or other support, cash deposits or other
arrangements. Any form of credit enhancement may
have certain limitations and exclusions from
coverage thereunder, which will be described in
the related Prospectus Supplement.
RESERVE ACCOUNT............ If so specified in the related Prospectus
Supplement, a Reserve Account may be created for
the related Trust with an initial deposit of cash
or certain investments having a value equal to
the amount specified in the related Prospectus
Supplement. To the extent specified in the
related Prospectus Supplement, funds in the
Reserve Account will thereafter be supplemented
by the deposit of amounts remaining on any
Distribution Date after making all other
distributions required on such date and any
amounts deposited from time to time from the
Pre-Funding Account in connection with a purchase
of Subsequent Receivables. Amounts in the Reserve
Account will be available to cover shortfalls in
amounts due to the holders of those classes of
Securities specified in the related Prospectus
Supplement in the manner and under the
circumstances specified therein. The related
Prospectus Supplement will also specify to whom
and the manner and circumstances under which
amounts on deposit in the Reserve Account (after
giving effect to all other required distributions
to be made by the applicable Trust) in excess of
the Specified Reserve Account Balance (as defined
in the related Prospectus Supplement) will be
distributed.
PRE-FUNDING ACCOUNT........ If so specified in the related Prospectus
Supplement, the property of each Trust may
include monies on deposit in a Pre-Funding
Account, which monies will be used to purchase or
otherwise acquire Subsequent Receivables from the
Sellers from time to time during the Funding
Period specified in the related Prospectus
Supplement. The amount that may be initially
deposited into a Pre-Funding Account may be up to
100% of the net proceeds from the sale of the
Securities issued by a Trust and the length of
the Funding Period may be up to one year. The
amount that may be initially deposited into a
Pre-Funding Account, and the length of a Funding
Period, will be specified in the related
Prospectus Supplement.
YIELD SUPPLEMENT ACCOUNT;
YIELD SUPPLEMENT
AGREEMENT................ If so specified in the related Prospectus
Supplement, the Sellers, NAFC or a third party
will enter into a yield supplement agreement (any
such agreement, as amended and supplemented from
time to time, a "Yield Supplement Agreement")
and/or establish a yield supplement account (a
"Yield Supplement Account") with the related
Indenture Trustee or applicable Trustee for the
benefit of the holders of the related Securities.
A Yield Supplement Agreement or Yield Supplement
Account will be designed to provide payments to
the Securityholders in respect of Receivables the
Contract Rate of which is less than the Required
Rate (as such term is defined in the related
Prospectus Supplement, the "Required Rate"). Any
Yield Supplement Account may be an asset of the
obligor under the Yield Supplement Agreement
which holds funds to secure the obligation of a
Seller or other person to make payments under a
Yield Supplement
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Agreement or, in the case of a Trust that is not
a grantor trust, may be an asset of the Trust
from which cash may periodically be withdrawn to
provide payments to the Securityholders in
respect of Receivables the Contract Rate of which
is less than the Required Rate.
If so specified in the related Prospectus
Supplement, the Yield Supplement Account, if any,
will be created with an initial deposit (the
"Yield Supplement Initial Deposit") in an amount
calculated according to the method specified in
the related Prospectus Supplement. One such
method of calculating the Yield Supplement
Initial Deposit will set the amount of such
deposit equal to the aggregate amount by which
interest on the principal balance of each Initial
Receivable for the period commencing on the
Initial Cut-Off Date and ending with the
scheduled maturity of each Receivable, assuming
that payments on such Receivables are made as
scheduled and no prepayments are made, at the
Required Rate exceeds interest on such principal
balances at the Contract Rate of each such
Receivable (the "Yield Supplement Amount" and,
with respect to the Initial Receivables, the
"Required Initial Yield Supplement Amount").
If a Pre-Funding Account is established with
respect to any Trust, the Servicer, the Sellers
and the related Indenture Trustee or applicable
Trustee, as the case may be, may enter into a
Yield Supplement Agreement pursuant to which, on
each Subsequent Transfer Date, the Sellers will
deposit into a Yield Supplement Account an amount
(the "Additional Yield Supplement Amount") equal
to the aggregate Yield Supplement Amounts, if
any, in respect of Subsequent Receivables for the
periods commencing with the related Subsequent
Cut-Off Date and ending with the scheduled
maturities of the related Subsequent Receivables,
assuming that payments on such Receivables are
made as scheduled and no prepayments are made.
The aggregate of the Additional Yield Supplement
Amounts in respect of the Subsequent Receivables
is referred to herein as the "Required Subsequent
Yield Supplement Amount" and, together with the
Required Initial Yield Supplement Amount, the
"Required Yield Supplement Amount." See
"Description of the Transfer and Servicing
Agreements -- Credit and Cash Flow
Enhancement -- Yield Supplement Account; Yield
Supplement Agreement."
TRANSFER AND SERVICING
AGREEMENTS............... With respect to each Trust, the Sellers will sell
the related Receivables to such Trust pursuant to
a Sale and Servicing Agreement or a Pooling and
Servicing Agreement. The rights and benefits of
any Trust under a Sale and Servicing Agreement
will be assigned to the Indenture Trustee, if
any, as collateral for the Notes of the related
series. The Servicer will agree with such Trust
to be responsible for servicing, managing,
maintaining custody of and making collections on
the Receivables. The Servicer will undertake
certain administrative duties under an
Administration Agreement with respect to any
Trust that has issued Notes.
To the extent provided in the related Prospectus
Supplement, with respect to Simple Interest
Receivables, the Servicer may advance interest
shortfalls (an "Advance") and may be entitled to
reimburse-
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ment of Advances from subsequent payments on or
with respect to the Receivables. If the related
Prospectus Supplement does not provide for the
making of Advances, such Prospectus Supplement
may provide that interest shortfalls may be paid
out of funds withdrawn from the Reserve Account
(each an "Advance Reserve Withdrawal").
The Sellers will be obligated to repurchase any
Receivable if the interest of the applicable
Trust in such Receivable is materially and
adversely affected by a breach of any
representation or warranty made by the Sellers
with respect to the Receivable, if the breach has
not been cured following the discovery by or
notice to the Sellers of the breach.
To the extent provided in the related Prospectus
Supplement, the Servicer will be obligated to
purchase any Receivable if, among other things,
it extends the date for final payment by the
Obligor of such Receivable beyond the date
specified in the related Prospectus Supplement,
changes the Contract Rate or the total amount or
number of scheduled payments of such Receivable
or fails to maintain a first priority perfected
security interest in the related Financed
Vehicle.
To the extent provided in the related Prospectus
Supplement, the Servicer will be entitled to
receive a fee for servicing the Receivables of
each Trust equal to a specified percentage of the
aggregate principal balance of the related
Receivables Pool, as set forth in the related
Prospectus Supplement, and may, in addition,
include certain late fees, prepayment charges and
other administrative fees or similar charges,
plus reinvestment proceeds on any payments
received in respect of the Receivables. See
"Description of the Transfer and Servicing
Agreements -- Servicing Compensation and
Expenses" herein and "Description of the Transfer
and Servicing Agreements -- Servicing
Compensation and Expenses; Certain Procedures" in
the related Prospectus Supplement.
MATERIAL LEGAL ASPECTS OF
THE RECEIVABLES............ Pursuant to the Transfer and Servicing Agreements,
NationsBanc Services, Inc. will hold the
Receivables and the Receivable Files as custodian
for the Trustee following the sale and assignment
of the Receivables to the applicable Trust. The
Receivables will not be segregated or stamped, or
otherwise marked, to indicate that they have been
sold to the Trust. If another party purchases (or
takes a security interest in) the Receivables for
new value in the ordinary course of business and
takes possession of the Receivables without
actual knowledge of the applicable Trust's
interest, the purchaser (or secured party) will
acquire an interest in the Receivables superior
to the interest of the Trust.
In connection with the sale of Receivables to a
Trust, security interests in the Financed
Vehicles securing such Receivables will be
assigned by the Sellers to such Trust; however,
the certificates of title to the Financed
Vehicles will not be amended to reflect the
assignment to such Trust. As a result, such Trust
may not have a first priority perfected security
interest in the Financed Vehicles securing the
Receivables in some states. If such Trust does
not have a first priority perfected security
interest in a Financed Vehicle, its ability to
realize on such Financed Vehicle in the event of
a default may be adversely affected. To the
extent the security interest is perfected, such
Trust
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will have a prior claim over subsequent
purchasers of such Financed Vehicles and holders
of subsequently perfected security interests.
However, as against subsequent purchasers who
were to obtain physical possession of the
Receivables without knowledge of their assignment
to the Trust or holders of liens for repairs of
Financed Vehicles or for taxes unpaid by an
Obligor, or because of fraud or negligence, such
Trust could lose the priority of its security
interest or its security interest in Financed
Vehicles. See "Risk Factors -- Risk of Superior
Interests in Receivables and Financed Vehicles"
and "Certain Legal Aspects of the
Receivables -- Security Interests in Vehicles."
Federal and state consumer protection laws impose
requirements upon creditors in connection with
extensions of credit and collections of retail
installment loans, and certain of these laws make
an assignee of such a loan liable to the obligor
thereon for any violation by the lender.
In each Transfer and Servicing Agreement, each
Seller will make certain representations and
warranties with respect to such Seller's rights
in and to the related Financed Vehicles and the
Trust's rights in and to the Receivables conveyed
by such Seller as well as to the compliance of
such Receivables with federal and state consumer
laws. The breach of such representations and
warranties with respect to a Receivable by a
Seller may result in such Seller being obligated
to repurchase such Receivable.
TAX STATUS................. Unless the Prospectus Supplement specifies that the
related Trust will be treated as a grantor trust
or a "financial asset securitization investment
trust" ("FASIT"), upon the issuance of the
related series of Securities, Special Tax Counsel
to such Trust will deliver an opinion to the
effect that, for federal income tax purposes: (i)
any Notes of such series will be characterized as
debt and (ii) such Trust will not be
characterized as an association (or a publicly
traded partnership) taxable as a corporation. In
respect of any such series, each Noteholder, if
any, by the acceptance of a Note of such series,
will agree to treat such Note as indebtedness,
and each Certificateholder, by the acceptance of
a Certificate of such series, will agree to treat
such Trust as a partnership in which such
Certificateholder is a partner for federal income
tax purposes. Alternative characterizations of
such Trust and such Certificates are possible.
A Note may be treated as having been issued with
original issue discount, which may be included in
the holder's gross income. The sale of a Note by
the holder may result in a gain or a loss
depending on the difference between the net sale
proceeds and the Noteholder's adjusted tax basis
in the Note sold. Certificateholders will be
required to take into account separately such
holders' allocated share of income, losses,
gains, deductions and credits of the related
Trust. Under certain circumstances, a
Certificateholder's taxable income from the
related Trust could exceed the cash it is
entitled to receive from such Trust. The sale of
a Certificate by the holder may result in a gain
or a loss depending upon the difference between
the net sale proceeds and the Certificateholder's
adjusted tax basis in the Certificate sold.
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<PAGE> 17
If the Prospectus Supplement specifies that the
related Trust will be treated as a grantor trust,
upon the issuance of the related series of
Certificates, Special Tax Counsel to such Trust
will deliver an opinion to the effect that such
Trust will be treated as a grantor trust for
federal income tax purposes and not as an
association taxable as a corporation. With
certain exceptions, each Certificateholder of
such a Trust will be required to report on its
federal income tax return its pro rata share of
the entire income of the related Trust for the
period during which it owns a Certificate. The
sale of a Certificate by the holder may result in
a gain or a loss depending on the difference
between the amount realized on the sale and the
adjusted basis of the holder in the Receivables
and other assets held by the related Trust. Each
such opinion delivered by the Special Tax Counsel
referred to in this paragraph and the preceding
paragraph will be filed with the Commission
either as an exhibit to the Registration
Statement by a post-effective amendment to the
Registration Statement, or as an exhibit in a
Current Report filed on Form 8-K.
In the event that legislation is enacted providing
for a federal income tax election to be a FASIT,
a Trust may make such election and Securities may
be classified as "regular interests" in a FASIT.
Any Securities that represent "regular interests"
in a FASIT will be classified as indebtedness for
federal income tax purposes.
See "Federal Income Tax Consequences" herein and in
the related Prospectus Supplement for additional
information concerning the application of federal
tax laws.
ERISA CONSIDERATIONS....... A fiduciary of any employee benefit plan or other
retirement arrangement subject to the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA"), or Section 4975 of the
Internal Revenue Code of 1986, as amended (the
"Code"), should carefully review with its legal
advisors whether the purchase or holding of Notes
or Certificates of any series could give rise to
a transaction prohibited or not otherwise
permissible under ERISA or Section 4975 of the
Code. See "ERISA Considerations" herein and in
the related Prospectus Supplement.
MATERIAL RISKS............. There are material risks associated with an
investment in the Securities. Prospective
investors should consider the factors set forth
under "Risk Factors" on pages 14 to 21, and as
are provided in the related Prospectus
Supplement.
RATING OF THE SECURITIES... It is a condition to the issuance of the Securities
that the Notes be rated in one of the four
highest rating categories by at least two of the
nationally recognized statistical rating
organizations (the "Rating Agencies"), and to the
issuance of the Certificates that they be rated
at or above the rating specified in the
applicable Prospectus Supplement, which rating or
ratings will be among the four highest rating
categories of the applicable nationally
recognized Rating Agencies. Any such rating
assigned to the Securities will address the
likelihood of the timely payment of interest on
and the ultimate payment of principal of the
Securities pursuing to their terms. However, the
Rating Agencies do not evaluate, and any such
rating will not address, the likelihood that, in
the case of the Notes, the Note Prepayment
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<PAGE> 18
Premium will be paid, and in the case of the
Certificates, the Certificate Prepayment Premium
will be paid. In addition, there can be no
assurance that a rating will not be lowered or
withdrawn by a Rating Agency if circumstances so
warrant.
LISTING.................... Except to the extent described in the applicable
Prospectus Supplement, application will not be
made to list the Securities on a national
securities exchange or on the Luxembourg Stock
Exchange. Except to the extent described in the
applicable Prospectus Supplement, the Securities
will not be listed in an automated quotation
system of a registered securities association.
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RISK FACTORS
LIMITED LIQUIDITY
It is expected that upon the issuance of any Securities, there will be no
secondary market for such Securities, and there can be no assurance that any
such secondary market will develop. The lack of a secondary market for the
Securities may result in an investor being unable to liquidate its interest in
the Securities in a time period and manner satisfactory to the investor or at a
price comparable to that which would be available in a more liquid market.
RISK OF SUPERIOR INTERESTS IN RECEIVABLES AND FINANCED VEHICLES
Risk of Trust Not Having A First Priority Interest In The Receivables. The
Receivables and the Receivables Files (as defined below) will not be held by the
applicable Trustee, but rather will be held by the Servicer or its affiliate,
NationsBanc Services, Inc. ("NSI"), an indirect wholly-owned subsidiary of
NationsBank Corporation, as custodian for the applicable Trustee. Due to the
administrative burden and expense associated with the segregation or the marking
of individual receivables and receivables files, the Receivables and the
Receivables Files will not be segregated or marked or stamped to indicate that
the related Receivables have been sold and assigned to the applicable Trust. The
Sellers, however, will cause financing statements to be filed with the
appropriate governmental authorities to perfect the interest of each Trust as
against the Sellers in respect of such Trust's purchase of the Receivables in
accordance with the requirements of the Uniform Commercial Code in effect in the
states of North Carolina, Georgia and Texas. If, as a result of fraud or
negligence on the part of a Seller or the Servicer (and in violation of
covenants contained in the applicable Transfer and Servicing Agreement(s)), a
Receivable is sold (or a security interest therein is granted) by a Seller to a
purchaser (or a secured party) for new value in the ordinary course of business
of such purchaser (or secured party) and such purchaser (or secured party) takes
possession of such Receivable without actual knowledge of the applicable Trust's
interest, the purchaser (or secured party) will acquire an interest in such
Receivable superior to the interest of the Trust. Such an acquisition of a
superior interest in the Receivables would deprive Securityholders of the
benefits of the ownership of the Receivables. The Sellers believe that it is
customary for Receivables and Receivables Files to not be segregated or stamped
or otherwise marked in connection with asset securitizations of the type
contemplated hereby. The Sellers historically have not purchased pools of
automotive retail installment sales contracts similar to the Receivables;
however if any of the Sellers did so, the Sellers believe that if the transferor
of such installment sales contracts were to retain servicing rights with respect
to such installment sales contracts, the transferor would retain, and the
applicable Seller would not take possession of, the related receivables and
receivables files. In the event that a Seller were to purchase a pool of
automotive retail installment sales contracts similar to the Receivables and
were to also service such installment sales contracts, the Sellers believe that
the applicable Seller would take possession of the related receivables and
receivables files.
Risk That Trust's Interest in Motor Vehicles Is Not Enforceable. Although
the Sellers will assign their security interests in the Financed Vehicles to the
applicable Trustee, the certificates of title or ownership with respect to the
related Financed Vehicles will not be endorsed or otherwise amended to identify
the Trust as the new secured party. There exists a risk in not identifying the
Trust or Trustee as the new secured party on the certificate of title or
ownership that the first priority perfected security interest of the Trust or
Trustee may not be enforceable. In the event the Trust has failed to obtain or
maintain a first priority perfected security interest in a Financed Vehicle, its
security interest would be subordinate to, among others, a bankruptcy trustee of
the Obligor, a subsequent purchaser of the Financed Vehicle or a holder of a
first priority perfected security interest in the Financed Vehicle. As a result,
Securityholders might not be able to obtain the proceeds of the repossession and
sale of an affected Financed Vehicle. The Sellers believe that it is customary
for certificates of title or ownership to not be endorsed or amended in
connection with asset securitizations of the type contemplated hereby. The
Sellers historically have not purchased pools of automotive retail installment
sale contracts similar to the Receivables for their own account. In the event
that a Seller were to purchase such a pool of installment sales contracts, the
Sellers believe that, because of the associated administrative burden and
expense, the applicable Seller would not generally require that the certificates
of title or ownership
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<PAGE> 20
covering the related financed vehicles be endorsed or amended to reflect that
the security interests in the related financed vehicles have been assigned to
the applicable Seller.
Certain Original Loan Documents Not Retained; Risk of Prepayment. As part
of its normal operating procedures during the period from at least 1979 until
January 4, 1996, after receiving Motor Vehicle Loan documents from Dealers and
after reviewing those documents, NationsBank, N.A. microfilmed the manually
signed original Motor Vehicle Loan documents and then destroyed the manually
signed original documents; however, certificates of title were not destroyed as
part of these procedures. In the event of a bankruptcy of a Dealer, a creditor
of such Dealer or the bankruptcy trustee of such Dealer could assert that
NationsBank, N.A., to the extent NationsBank, N.A. was relying solely on
possession as a means of perfecting a first priority ownership interest in such
an affected Receivable, no longer had a perfected ownership interest in such
Receivable because it no longer had the manually signed original Receivable
documents as a result of its destruction of the manually signed original
Receivable documents. If successful, such assertion would render NationsBank,
N.A. an unsecured creditor of the Dealer in bankruptcy and as a result, the
transfer of Receivables by NationsBank, N.A. to a Trust would be effective only
to transfer such unsecured claim rather than a first priority perfected
ownership interest in such Receivables. NationsBank, N.A. has agreed that if,
after the bankruptcy of a Dealer, the bankruptcy trustee of the Dealer or any
other creditor of such Dealer asserts that NationsBank, N.A. did not have, or
that the Trust does not have, a first priority perfected ownership interest in
any such Receivable acquired by NationsBank, N.A. from such Dealer and such
assertion is related to NationsBank, N.A.'s prior practice of retaining original
Motor Vehicle Loan documents only in microfilm form, NationsBank, N.A. will
repurchase such Receivable from the Trust at the Purchase Amount. Such
repurchase obligation would be a general unsecured obligation of NationsBank,
N.A., and as a result, investors in the Securities will be solely dependent upon
NationsBank, N.A. to make any such payment and may be adversely affected by any
reduction in the creditworthiness of NationsBank, N.A. In connection with any
such repurchase by NationsBank, N.A., the Securities would be subject to
prepayment to the extent of the principal portion of any such payment made by
NationsBank, N.A. Investors will bear the reinvestment risk associated with any
such prepayment of the Securities and such a prepayment may result in a
reduction of the yield to maturity of any class of Securities to which such
prepayment is distributed.
POTENTIAL DELAYS OR REDUCTIONS IN PAYMENTS AS A RESULT OF THE INSOLVENCY OF A
SELLER
To the extent that (i) a Seller grants a security interest in the
Receivables to the applicable Trust, (ii) the interest is validly perfected
before such Seller's insolvency, (iii) the interest is not taken or granted in
contemplation of the Seller's insolvency or with the intent to hinder, delay or
defraud such Seller or its creditors, (iv) the applicable Transfer and Servicing
Agreement is continuously a record of such Seller, and (v) the applicable
Transfer and Servicing Agreement represents a bona fide and arm's length
transaction undertaken for adequate consideration in the ordinary course of
business and that the applicable Trustee is the secured party and is not an
insider or affiliate of such Seller, such security interest of the applicable
Trustee should be enforceable (to the extent of such Trust's "actual direct
compensatory damages") notwithstanding the insolvency of, or the appointment of
a receiver or conservator for, a Seller, and payments to such Trust with respect
to the Receivables sold and assigned by such Seller (up to the amount of such
damages) should not be subject to a stay of payment or to recovery by such a
conservator or receiver. If, however, the conservator or receiver were to assert
that the security interest was unperfected or unenforceable, or were to require
the applicable Trustee to establish its right to those payments by submitting to
and completing administrative claims procedure established under the United
States Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA"), or the conservator or receiver were to request a stay of proceedings
with respect to a Seller as provided under FIRREA, delays in payments on the
Securities and possible reductions in the amount of those payments could occur.
In addition, a conservator or receiver of a Seller has the power under FIRREA to
repudiate contracts of such Seller. To the extent a conservator or receiver of a
Seller exercised its right to repudiate the obligations of such Seller under the
applicable Transfer and Servicing Agreement, the security interest of the
applicable Trustee should nevertheless be enforceable (to the extent of such
Trust's "actual direct compensatory damages"). It is expected that in most cases
"actual direct compensatory damages" would include the outstanding principal on
the Securities issued by such Trust plus interest accrued thereon to the date of
payment. In the event of a repudiation of obligations,
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FIRREA provides that a claim for the repudiated obligation is limited to "actual
direct compensatory damages" determined as of the date of the appointment of the
conservator or receiver. The FDIC has not adopted a formal policy statement on
payment of principal and interest on collateralized borrowings of banks which
are repudiated. The Sellers believe that the general policy of the FDIC in such
circumstances is to permit the collateral to be applied to pay the principal
owed plus interest at the contract rate up to the date of payment, together with
the costs of liquidation of the collateral if provided for in the contract. In
one case involving the repudiation by the Resolution Trust Corporation of
certain secured zero-coupon bonds issued by a savings association, a United
States federal district court held that "actual direct compensatory damages" in
the case of a marketable security meant the value, rather than the principal
amount, of the repudiated bonds as of the date of repudiation. If such court's
view were applied to determine a Trust's "actual direct compensatory damages" in
the event a conservator or receiver of a Seller repudiated its obligations under
a Transfer and Servicing Agreement, the amount paid to Securityholders could,
depending upon circumstances existing on the date of the repudiation, be less
than the principal of the Securities and the interest accrued thereon to the
date of payment.
TRUST'S RELATIONSHIP TO THE SELLERS, NATIONSBANK CORPORATION AND THEIR
AFFILIATES
None of the Sellers, the Servicer, NSI, NAFC or NationsBank Corporation or
any of their affiliates is generally obligated to make any payments in respect
of any Notes, the Certificates or the Receivables of a given Trust.
However, in connection with the sale of Receivables by the Sellers to a
given Trust, the Sellers will make representations and warranties with respect
to the characteristics of such Receivables and, in certain circumstances, the
applicable Seller may be required to repurchase Receivables with respect to
which such representations and warranties have been breached. See "Description
of the Transfer and Servicing Agreements -- Sale and Assignment of Receivables."
In addition, under certain circumstances, the Servicer may be required to
purchase Receivables. See "Description of the Transfer and Servicing
Agreements -- Servicing Procedures." Moreover, if NationsBank, N.A. were to
cease acting as Servicer, delays in processing payments on the Receivables and
information in respect thereof could occur and result in delays in payments to
the Securityholders.
The related Prospectus Supplement may set forth certain additional
information regarding a Seller, the Servicer, NSI, NAFC and NationsBank
Corporation. In addition, NationsBank Corporation is subject to the information
requirements of the Exchange Act and in accordance therewith files reports and
other information with the Commission. For further information regarding
NationsBank Corporation reference is made to such reports and other information,
which are available as described under "Available Information."
RISK OF CREDIT LOSSES ON RECEIVABLES
Each Trust will not have, nor is it permitted or expected to have, any
significant assets or sources of funds other than the Receivables and, to the
extent provided in the related Prospectus Supplement, a Pre-Funding Account, a
Yield Supplement Account, a Reserve Account and any other credit or cash flow
enhancement. Consequently, holders of the Securities of any series must rely for
repayment upon payments on the related Receivables and, if and to the extent
available, amounts on deposit in the Pre-Funding Account (if any), the Yield
Supplement Account (if any), the Reserve Account (if any) and any other credit
or cash flow enhancement, all as specified in the related Prospectus Supplement.
Amounts to be deposited in any such Reserve Account with respect to any Trust
will be limited in amount, and the amount required to be on deposit in such
Reserve Account will be reduced as the Pool Balance is reduced. If such Reserve
Account, or, to the extent provided in an applicable Prospectus Supplement, any
other credit or cash flow enhancement is depleted, the related Trust will depend
solely on current payments on its Receivables to make payments on the related
Securities.
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RISK OF SALE OF RECEIVABLES UPON EVENT OF DEFAULT
Following an acceleration of the Notes upon an Event of Default the
applicable Indenture Trustee may sell the related Receivables in certain limited
circumstances as specified in the related Indenture. There is no assurance that
the market value of such Receivables will at any time be equal to or greater
than the aggregate principal amount of such outstanding Notes and the aggregate
principal amount of Certificates issued by the related Trust. As a result, upon
an Event of Default with respect to the Notes of any series, there can be no
assurance that sufficient funds will be available to repay the related
Noteholders or Certificateholders in full. In addition, the amount of principal
required to be paid to Noteholders of such series under the related Indenture
will generally be limited to amounts available to be deposited in the applicable
Note Payment Account. Therefore, unless otherwise specified in the related
Prospectus Supplement, the failure to pay principal on a class of Notes
generally will not result in the occurrence of an Event of Default until the
Final Scheduled Distribution Date for such class of Notes.
BALLOON RECEIVABLES; FINAL SCHEDULED PAYMENT RISK
The Balloon Receivables provide that the Obligors may satisfy the final
scheduled payment thereon by (1) paying the full amount on its due date; (2)
refinancing the amount of the final scheduled payment through a modification
agreement; or (3) transferring the Financed Vehicle to the lender in
satisfaction of the final scheduled payment and paying any applicable charges
for excess wear and tear and excess mileage and paying a disposition fee to the
Seller. The final scheduled payment on a Balloon Receivable is determined by the
applicable Seller at the time the related retail installment sales contract is
entered into based on the Seller's projection of the anticipated end of term
wholesale value of the vehicle that is being financed under such contract. With
respect to Balloon Receivables, if so provided in the related Prospectus
Supplement, only the principal and interest payments due prior to the final
scheduled payment and not the final scheduled payment will be included in such
Trust; the final scheduled payment will be retained by the applicable Seller.
However, in the case of a Trust that is not a grantor trust, the final scheduled
payments with respect to the related Balloon Receivables may be transferred to
such Trust. If final scheduled payments are transferred to a Trust, the Trust
will issue to the Sellers nontransferable certificates representing only the
interests in such final scheduled payments or indebtedness secured by such final
scheduled payments. In such event, the Sellers, as the holders of such
certificates, will bear all reinvestment risk associated with the receipt by the
Trust of any such final scheduled payments and will bear all risks associated
with any increase in the weighted average maturity of the pool of assets
represented by such certificates which may occur as a result of any
modifications to the related Balloon Receivables, discussed in the paragraph
immediately below, which allow the term of the related Balloon Receivable to be
extended. The final scheduled payments, whether or not transferred to a Trust
may, if so provided in the applicable Prospectus Supplement, provide credit
enhancement to the Securities issued by such Trust.
With respect to each Trust to which final scheduled payments have been
transferred, if, at the end of the applicable retail installment sales contract,
the Obligor on a Balloon Receivable elects to pay the final scheduled payment in
full in cash (which cash could be obtained from a loan to the Obligor from a
lender other than a Seller), the entire amount of such final scheduled payment
will be deposited as a collection on the Receivable. If the Obligor elects the
option to transfer the Financed Vehicle to the Seller thereof on behalf of the
Trust in satisfaction of the final scheduled payment and pay any applicable
charges for excess wear and tear and excess mileage, it must also pay a
disposition fee to the Servicer, which the Servicer will retain. The Servicer
will then sell the Financed Vehicle at wholesale, by either public or private
sale. Such sale proceeds plus amounts paid in respect of excess wear and tear
and excess mileage will be transferred to the applicable Trust. Under the
related retail installment sales contracts for such Balloon Receivables, such
sale proceeds and amounts are deemed to satisfy in full the Obligor's obligation
to make the final scheduled payment. Consequently, in the event that such
proceeds and amounts are less than the related final scheduled payments
transferred to the Trust, none of the Sellers, the Servicer, or the Trust will
have any recourse to the Obligor for any shortfall, nor will the Sellers or the
Servicer have any obligation to pay any such shortfall to the Trust.
The Servicer's continued operation of its existing business will affect the
Trust's ability to realize in cash the amount of any final scheduled payments
which have been transferred to the Trust. The Sellers are
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obligated, to the extent that each offers vehicle financing, to offer an option
to an Obligor to refinance the final scheduled payment on a Balloon Receivable
purchased by the Seller and transferred to the Trust. If so provided in the
applicable Prospectus Supplement, if an Obligor elects the refinancing option,
either the related Seller will deposit into the Collection Account of the Trust
an amount equal to the final scheduled payment for the Balloon Receivable at the
time of such refinancing or the related Balloon Receivable will be modified to
provide for the payment of the final scheduled payment over time. The Sellers,
as holders of the certificates representing the final scheduled payments, will
bear all reinvestment risk associated with the receipt by the Trust of any such
refinancing proceeds and will bear all risks, if any, associated with any
increase in the weighted average maturity of such certificates which may occur
as a result of any modifications to Balloon Receivables. To the extent that such
final scheduled payments provide credit enhancement to a Trust, the amount of
funds available to such Trust as credit enhancement will be affected by the
number of Balloon Receivables which are satisfied by the transfer of the related
Financed Vehicle or by the payment by the Obligor of cash (each resulting in a
collection on the Receivable and resulting in an increase in the funds available
as credit enhancement) as compared to the number of Balloon Receivables which
are modified (which will not result in a collection on the Receivable and will
not result in funds available for credit enhancement).
MATURITY AND PREPAYMENT CONSIDERATIONS
All the Receivables are prepayable at any time. (For this purpose the term
"prepayments" includes prepayments in full, partial prepayments (including those
related to rebates of extended warranty contract costs and insurance premiums)
and liquidations due to default, as well as receipts of proceeds from physical
damage, credit life and credit disability insurance policies and certain other
Receivables repurchased for administrative reasons.) The rate of prepayments on
the Receivables may be influenced by a variety of economic, social and other
factors, including the fact that an Obligor generally may not sell or transfer
the Financed Vehicle securing a Receivable without the consent of the applicable
Seller. The rate of prepayment on the Receivables may also be influenced by the
structure of the loan. In addition, under certain circumstances, the applicable
Seller will be obligated to repurchase Receivables pursuant to a Sale and
Servicing Agreement or Pooling and Servicing Agreement as a result of breaches
of representations and warranties and, under certain circumstances, the Servicer
will be obligated to purchase Receivables pursuant to such Sale and Servicing
Agreement or Pooling and Servicing Agreement as a result of breaches of certain
covenants. See "Description of the Transfer and Servicing Agreements -- Sale and
Assignment of Receivables." Consistent with its normal servicing practices and
procedures, the Servicer may, in its discretion and on a case-by-case basis,
arrange with Obligors to extend or modify the terms of the related Receivables.
Some of such arrangements (including any extension beyond the date set forth in
the related Prospectus Supplement) will cause the Servicer to be obligated to
repurchase such Receivables, as described above. Any reinvestment risks
resulting from a faster or slower incidence of prepayment of Receivables held by
a given Trust will be borne entirely by the Securityholders of the related
series of Securities. See also "Description of the Transfer and Servicing
Agreements -- Termination" regarding the Servicer's option to purchase the
Receivables of a given Receivables Pool and "-- Insolvency Event or Dissolution"
regarding the sale of the Receivables owned by a Trust that is not a grantor
trust if an Insolvency Event or a dissolution with respect to NAFC occurs.
RISK OF PREPAYMENT AND POSSIBLE ADVERSE EFFECT ON YIELD
The yield on the Strip Notes will be extremely sensitive to the rate and
timing of payments (including prepayments) on the Receivables. An investor
purchasing a Strip Note which receives interest distributions and no or nominal
principal distributions at a significant premium could, under certain prepayment
scenarios, fail to recoup its original investment. The yield to maturity on any
Strip Notes which receive principal distributions and no or nominal interest
distributions will be adversely affected by a lower than anticipated rate of
payment on the related Receivables Pool. The reinvestment risk of an investment
in any Strip Note will be borne solely by the investor.
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The weighted average life of any class of Notes described in the related
Prospectus Supplement as a companion class to either a specified planned
amortization class of Notes or targeted amortization class of Notes will be
extremely sensitive to decreases or increases in the rate of payment on the
Receivables. The weighted average life of such a class of Notes generally will
be shortened if the rate of payment on the related Receivables Pool increases
and such weighted average life will generally increase if the rate of payment on
the related Receivables Pool decreases. Any such change in the weighted average
life of such a class of Notes will effect the yield to maturity of an investor
in such Notes.
Any rating assigned to any class of Notes by a Rating Agency will
constitute only such Rating Agency's assessment of the likelihood of the timely
payment of interest on and the ultimate payment of principal of the Securities
pursuant to their terms. Such rating will not constitute an assessment of the
likelihood that principal prepayments on the Receivables will occur or of the
degree to which the rate of such prepayments might differ from that originally
anticipated. As a result, such rating will not address the possibility that
prepayment rates higher or lower than anticipated by an investor may cause such
investor to experience a lower than anticipated yield or that any investor in a
Strip Note which is entitled to receive interest distributions but no or nominal
principal distributions which Note was purchased at a significant premium might
fail to recoup its investment.
RISK OF SHORTFALLS AND PREPAYMENTS DUE TO DELINQUENCIES AND REPOSSESSIONS
Delinquencies on the Receivables will result in shortfalls in distributions
to Securityholders unless such shortfalls are covered by Advances (which will
not be made if the Servicer does not expect to recover the amount advanced),
withdrawals from a Reserve Account or from the Yield Supplement Account,
available cash flow from other nondelinquent Receivables, or any other credit or
yield enhancement. The delinquency experience of the Receivables may be affected
by general or regional economic conditions as well as by the underwriting and
servicing expertise of the Servicer. If a delinquency on a Receivable is not
remedied, the Servicer will generally cause the related Financed Vehicle to be
repossessed and resold. The proceeds of any such liquidation will be distributed
to the holders of the Securities in the manner described in the related
Prospectus Supplement and will generally have the effect of a principal
prepayment in respect of the liquidated Receivable. Investors will bear the
reinvestment risk associated with any such prepayment of the Securities, and
such a prepayment may result in a reduction of the yield to maturity of any
class of Securities to which such prepayment is distributed. There can be no
assurance that the future delinquency, repossession and loss experience of the
Receivables will be similar to any set forth in a related Prospectus Supplement
for such Securities.
GEOGRAPHIC CONCENTRATION
Economic conditions in states where Obligors reside may affect the
delinquency, loan loss and repossession experience of a Trust with respect to
the related Receivables. An applicable Prospectus Supplement will set forth
summary information derived from the Sellers' records indicating the relative
geographic concentration by principal balance of the Receivables in any state
where a significant proportion of the mailing addresses of the Obligors with
respect to the related Receivables are located. A disproportionate geographic
concentration could cause economic conditions in the such locations to have a
disproportionate impact on a Trust.
RISK OF COMMINGLING
With respect to each Trust, the Servicer will deposit all payments on the
related Receivables received from Obligors and all proceeds of the related
Receivables collected during each Collection Period into the related Collection
Account not later than the second business day after receipt. However, so long
as NationsBank, N.A. is the Servicer and provided that (i) there exists no Event
of Servicing Termination and (ii) each other condition to making monthly
deposits as may be required by the related Sale and Servicing Agreement or
Pooling and Servicing Agreement is satisfied, the Servicer may retain such
amounts until the applicable Distribution Date. The Servicer or the Sellers, as
the case may be, will remit the aggregate Purchase Amount of any Receivables to
be purchased from a Trust to the related Collection Account on the applicable
Distribution Date. Pending deposit into the Collection Account, collections may
be employed by
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the Servicer at its own risk and for its own benefit and will not be segregated
from its own funds. If the Servicer were unable to remit such funds, the
applicable Securityholders might incur a loss. To the extent set forth in the
related Prospectus Supplement, the Servicer may, in order to satisfy the
requirements described above, obtain a letter of credit or other security for
the benefit of the related Trust to secure timely remittances of collections on
the related Receivables and payment of the aggregate Purchase Amount with
respect to Receivables purchased by the Servicer.
RISKS ASSOCIATED WITH SUBSEQUENT RECEIVABLES AND THE PRE-FUNDING ACCOUNT
If so specified in the applicable Prospectus Supplement, the property of a
Trust may include monies on deposit in a Pre-Funding Account, which monies will
be used to purchase or otherwise acquire Subsequent Receivables from the Sellers
from time to time during the Funding Period specified in the related Prospectus
Supplement. If a Pre-Funding Account is included in the property of a Trust, the
ability of the Sellers to generate Subsequent Receivables to be conveyed to such
Trust will affect the amount on deposit in such account which is not applied to
the conveyance of Subsequent Receivables during the Funding Period. Such Funding
Period may be up to one year in length. At the end of the Funding Period, the
holders of Securities issued by such Trust may receive a prepayment of principal
in an amount equal to the amount remaining in the Pre-Funding Account. The
reinvestment risk associated with any such distribution of principal will be
borne by the holders of the Securities issued by such Trust. The amount that may
be initially deposited into a Pre-Funding Account may be up to 100% of the net
proceeds from the sale of the Securities issued by a Trust. There is no
limitation on the percentage of a Trust's property which may be represented by
amounts on deposit in a Pre-Funding Account and consequently, there is no
limitation on the percentage of a series or class of Securities which may be
represented by amounts on deposit in a Pre-Funding Account. Amounts on deposit
in any Pre-Funding Account may be invested only in Permitted Investments.
Subsequent Receivables may be originated by the Dealers at a later date using
credit criteria different from those which were applied to any Initial
Receivables and may be of a different credit quality and seasoning. In addition,
following the transfer of Subsequent Receivables to the applicable Trust, the
characteristics of the entire pool of Receivables included in such Trust may
vary significantly from those of the Initial Receivables transferred to such
Trust. As a result, it is possible that the credit quality of the Receivables in
a Trust, as a whole, may decline as a result of the inclusion of Subsequent
Receivables and may result in a higher rate of payment to the applicable
Securityholders as a result of an increased level of defaults on such
Receivables. Securityholders will bear all reinvestment risk associated with a
higher than expected rate of payment on the Securities. In addition, a higher
than expected rate of payment may result in a reduction in the yield to maturity
of any class of Securities to which such payments are distributed. To the extent
that amounts on deposit in the Pre-Funding Account have not been fully applied
to the conveyance of Subsequent Receivables to a Trust by the end of the Funding
Period and such amount exceeds the applicable amount described in the related
Prospectus Supplement, the holders of Securities issued by the related Trust
will receive, on the Distribution Date on or immediately following the last day
of the applicable Funding Period, a prepayment of principal in an amount equal
to the amount remaining in the Pre-Funding Account following the purchase of any
Subsequent Receivables on such Distribution Date. It is anticipated that the
principal balance of Subsequent Receivables sold to a Trust will not be exactly
equal to the amount on deposit in the Pre-Funding Account, and that therefore
there will be at least a nominal amount of principal prepaid to the holders of
the Securities issued by such Trust. Holders of Securities issued by a Trust the
property of which includes a Pre-Funding Account will bear the reinvestment risk
associated with any such distribution of amounts on deposit in the Pre-Funding
Account after the termination of the applicable Pre-Funding Period. Any such
distribution will have the effect of a prepayment on the related Receivables and
may result in a reduction in the yield to maturity of any class of Securities to
which such amounts are distributed.
EVENT OF SERVICING TERMINATION; RIGHTS OF NOTEHOLDERS
With respect to a series of Securities that includes Notes, in the event
that an Event of Servicing Termination occurs, the Indenture Trustee or the
Noteholders with respect to such series, as described under "Description of the
Transfer and Servicing Agreements -- Rights Upon Event of Servicing
Termination," may remove the Servicer without the consent of the Trustee or any
of the Certificateholders with respect to
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such series. The Trustee or the Certificateholders with respect to such series
will not have the ability to remove the Servicer if an Event of Servicing
Termination occurs and any Notes are outstanding. In addition, the Noteholders
of such series have the ability, with certain specified exceptions, to waive
defaults by the Servicer, including defaults that could materially adversely
affect the Certificateholders of such series. See "Description of the Transfer
and Servicing Agreements -- Waiver of Past Events of Servicing Termination." In
the event of an Event of Servicing Termination, if a conservator or receiver is
appointed for the Servicer, and no Event of Servicing Termination other than
such conservatorship or receivership or insolvency of the Servicer exists, the
conservator or receiver may have the power to prevent a transfer of servicing to
a successor Servicer. If no Event of Servicing Termination other than such
conservatorship or receivership or insolvency of the Servicer exists, the
Sellers expect that the ability of the conservator or receiver to prevent a
transfer of servicing would not have a material effect on Securityholders
because the Sellers believe that in a circumstance where the conservator or
receiver objected to the transfer of servicing to a successor Servicer, the
conservator or receiver would be required to perform under the applicable
Transfer and Servicing Agreement and, if it did not, an Event of Servicing
Termination, distinct from the Event of Servicing Termination related to the
conservatorship, receivership or insolvency of the Servicer, would likely
result. The Sellers believe the conservator or receiver would not have the power
to prevent a transfer of servicing to a successor Servicer occurring as a result
of the occurrence of such other Event of Servicing Termination.
BOOK-ENTRY REGISTRATION; OWNERS OF SECURITIES NOT RECOGNIZED AS
"SECURITYHOLDERS"
If so specified in the related Prospectus Supplement, each class of
Securities of a given series will be initially represented by one or more
certificates registered in the name of DTC's Nominee, and will not be registered
in the names of the holders of the Securities of such series or their nominees.
Because of this, unless and until Definitive Securities for such series are
issued, holders of such Securities will not be recognized by the Trustee or any
Indenture Trustee as "Certificateholders," "Noteholders" or "Securityholders,"
as the case may be (as such terms are used herein or in the related Pooling and
Servicing Agreement or the related Sale and Servicing Agreement, Indenture and
Trust Agreement, as applicable). Hence, until Definitive Securities are issued,
holders of such Securities will be able to exercise the rights of
Securityholders only indirectly through DTC and its participating organizations.
See "Book-Entry and Definitive Securities; Reports to
Securityholders -- Book-Entry Registration" and "-- Definitive Securities."
THE TRUSTS
With respect to each series of Securities, the Sellers will establish a
separate Trust pursuant to the respective Trust Agreement or Pooling and
Servicing Agreement, as applicable, for the transactions described herein and in
the related Prospectus Supplement. The property of each Trust will include a
pool (a "Receivables Pool") of retail motor vehicle installment sales contracts
purchased by the Sellers from Dealers and all payments received thereunder after
the applicable Cut-Off Date. The Receivables of each Receivables Pool were or
will be originated by the Dealers in accordance with the Sellers' requirements
and purchased by the Sellers pursuant to agreements with Dealers and any
assignments and other documents related thereto ("Dealer Agreements"). Pursuant
to the Dealer Agreements, the Dealers are obligated to repurchase from the
Sellers Receivables which do not meet certain representations made by the
Dealers. The Receivables of each Receivables Pool will continue to be serviced
by the Servicer and evidence indirect financing made available by the applicable
Seller to the obligors under the Receivables (the "Obligors").
On the applicable Closing Date, after the issuance of the Certificates and
any Notes of a given series, the Sellers will sell the Initial Receivables of
the applicable Receivables Pool to the Trust to the extent, if any, specified in
the related Prospectus Supplement. To the extent so provided in the related
Prospectus Supplement, Subsequent Receivables will be conveyed to the Trust as
frequently as daily during the Funding Period. Any Subsequent Receivables so
conveyed will also be assets of the applicable Trust, subject to the prior
rights of the related Trustee or, where applicable, the Indenture Trustee and
the Noteholders, if any, therein. The property of each Trust will also include
(i) such amounts as from time to time may be held in separate trust accounts
established and maintained pursuant to the related Sale and Servicing Agreement
or Pooling and Servicing Agreement and the proceeds of such accounts, as
described herein and in the related
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Prospectus Supplement; (ii) security interests in the Financed Vehicles and any
accessions thereto; (iii) the rights to proceeds from claims on certain physical
damage, credit life and credit disability insurance policies covering the
Financed Vehicles or the Obligors, as the case may be; (iv) certain rights of
the Trust to receive payments from the Reserve Account, if any, and pursuant to
any applicable Yield Supplement Agreement; (v) any property that shall have
secured a Receivable and that shall have been acquired by the applicable Trust;
(vi) certain of the rights of each of the Sellers relating to the repurchase of
Receivables under each Dealer Agreement and under the documents and instruments
contained in the Receivable Files; (vii) rebates of premiums and other amounts
relating to certain insurance policies and other items financed under the
Receivables, in each case to the extent applied to reduce the principal balance
of the related Receivable; (viii) the rights of the applicable Trust under the
Sale and Servicing Agreement or the Pooling and Servicing Agreement, as the case
may be; and (ix) any and all proceeds of the foregoing; provided that, with
respect to any series of Notes, the relevant rights and benefits with respect to
such property will be assigned by the Sellers and the applicable Trustee to the
entity acting as the Indenture Trustee for the benefit of the related
Noteholders. Any Yield Supplement Account will be maintained with the related
Indenture Trustee or applicable Trustee, as the case may be, for the benefit of
the related Securityholders. If so specified in the related Prospectus
Supplement, a Yield Supplement Account may not be part of the property of the
related Trust. To the extent specified in the related Prospectus Supplement, a
Pre-Funding Account, a Reserve Account or other form of credit enhancement may
be a part of the property of any given Trust or may be held by the entity acting
as the Trustee or the Indenture Trustee for the benefit of holders of the
related Securities. Additionally, pursuant to contracts between the Servicer and
the Dealers, the Dealers have an obligation after origination to repurchase
Receivables as to which Dealers have made certain misrepresentations.
The Servicer will continue to service the Receivables held by each Trust
and will receive fees for such services. See "Description of the Transfer and
Servicing Agreements -- Servicing Compensation and Expenses" herein and in the
related Prospectus Supplement. To facilitate servicing and to minimize
administrative burden and expense, the Servicer will retain physical possession
of the Receivables held by each Trust and documents relating thereto as
custodian for each such Trust. Due to the administrative burden and expense, the
certificates of title to the Financed Vehicles will not be amended to reflect
the assignment of the security interest in the Financed Vehicles to each Trust.
In the absence of such amendment, any Trust may not have a first priority
perfected security interest in the Financed Vehicles in all states. See "Certain
Legal Aspects of the Receivables -- Security Interests in Vehicles." Neither the
Trustee nor any Indenture Trustee will be responsible for the legality,
validity, or enforceability of any security interest in any Financed Vehicle.
See "Certain Legal Aspects of the Receivables" and "Description of the Transfer
and Servicing Agreements -- Sale and Assignment of Receivables."
If the protection provided to any Noteholders of a given series by the
subordination of the related Certificates and by the Reserve Account, if any, or
other credit enhancement for such series or the protection provided to
Certificateholders by any such Reserve Account or other credit enhancement is
insufficient, such Noteholders or Certificateholders, as the case may be, 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 and the proceeds from any recourse against Dealers with
respect to such Receivables. In such event, certain factors, such as the
applicable Trust's not having first priority perfected security interests in the
Financed Vehicles in all states, may affect the Servicer's 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 of such series. See
"Description of the Transfer and Servicing Agreements -- Distributions,"
"-- Credit and Cash Flow Enhancement" and "Certain Legal Aspects of the
Receivables."
The principal offices of each Trust and the related Trustee will be
specified in the applicable Prospectus Supplement.
THE TRUSTEE
The Trustee for each Trust will be specified in the related Prospectus
Supplement. The Trustee's liability in connection with the issuance and sale of
the related Securities is limited solely to the express obligations of such
Trustee set forth in the related Trust Agreement and the Sale and Servicing
Agreement or the related
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Pooling and Servicing Agreement, as applicable. A Trustee may resign at any
time, in which event the Servicer, or its successor, will be obligated to
appoint a successor trustee. The Administrator in respect of a Trust that is not
a grantor trust and the Servicer in respect of a Trust that is a grantor trust
may also remove the Trustee if the Trustee ceases to be eligible to continue as
Trustee under the related Trust Agreement or Pooling and Servicing Agreement, as
applicable, or if the Trustee becomes insolvent. In such circumstances, the
Administrator 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 until acceptance of the appointment by the successor trustee.
THE RECEIVABLES POOLS
GENERAL
The Sellers purchase fixed rate simple interest retail motor vehicle
installment sales contracts secured by new and used automobiles, vans and light
trucks ("Motor Vehicle Loans") from Dealers in at least 15 states and the
District of Columbia. These originations occur through Dealer Financial Services
Group ("DFSG"), a functional group that includes personnel employed by the
Sellers and other affiliates of NationsBank Corporation. All Motor Vehicle Loan
applications are reviewed for acceptance by DFSG in accordance with DFSG's
established underwriting policies, as described below, and are not purchased by
a Seller unless approved by DFSG.
DFSG establishes and maintains relationships with the Dealers. DFSG selects
each Dealer from whom the Sellers purchase motor vehicle loans based upon the
Dealer's commercial reputation, the prior experience of the Dealer or
predecessor organization and, if needed, a financial review of the Dealer.
Generally, Dealer portfolio performance is monitored monthly and, for the
largest Dealers, reviewed annually. All Dealers from whom any of the Sellers
purchase Motor Vehicle Loans must execute a Dealer Agreement with each such
Seller which sets out, among other things, the guidelines and procedures of the
purchasing process. Such agreements provide for the repurchase by the Dealer of
any Motor Vehicle Loan if any representations or warranties made by the Dealer
relating to the Motor Vehicle Loan are breached.
The Receivables to be held by each Trust will be selected from the Sellers'
portfolio for inclusion in a Receivables Pool by several criteria, including
that each Receivable (i) is secured by a new or used vehicle, (ii) was
originated in the United States, (iii) provides for level monthly payments
(except that, if so provided in the related Prospectus Supplement, the last
monthly payment may, in the case of Balloon Receivables, be a final scheduled
payment that is significantly different from the preceding level monthly
payments) that fully amortize the amount financed over its original term to
maturity, (iv) is a Simple Interest Receivable or a Balloon Receivable and (v)
satisfies the other criteria, if any, set forth in the related Prospectus
Supplement. No selection procedures believed by the Sellers to be adverse to the
Noteholders or the Certificateholders of any series were or will be used in
selecting the related Receivables. All terms of the retail motor vehicle
installment sales contracts constituting such Receivables which are material to
investors are described herein and in the related Prospectus Supplement.
"Simple Interest Receivables" are receivables that provide for the
amortization of the amount financed under the Receivable over a series of fixed
level monthly payments (except that the last such payment may be different).
Each monthly payment includes an installment of interest which is calculated on
the basis of the outstanding principal balance of the Receivable multiplied by
the stated Contract Rate and further multiplied by the period elapsed (as a
fraction of a calendar year) since the preceding payment of interest was made.
As payments are received under a Simple Interest Receivable, the amount received
is applied first to late fees and other fees and charges, if any, second to
interest accrued and unpaid to the date of payment and the balance is applied to
reduce the unpaid principal balance. Accordingly, if an Obligor pays a fixed
monthly installment before its scheduled due date, the portion of the payment
allocable to interest for the period since the preceding payment was made will
be less than it would have been had the payment been made as scheduled, and the
portion of the payment applied to reduce the unpaid principal balance will be
correspondingly greater, thereby having the effect of a prepayment. Conversely,
if an Obligor pays a fixed monthly installment after its
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scheduled due date, the portion of the payment allocable to interest for the
period since the preceding payment was made will be greater than it would have
been had the payment been made as scheduled, and the portion of the payment
applied to reduce the unpaid principal balance will be correspondingly less. In
either case, the Receivables provide for the Obligor to pay a fixed monthly
installment until the final scheduled payment date, at which time the amount of
the final installment is increased or decreased as necessary to repay the then
outstanding principal balance.
"Balloon Receivables" are monthly payment receivables secured by new or
used automobiles, vans or light trucks with a final scheduled payment which
differs significantly from the scheduled monthly payments. The final scheduled
payment on a Balloon Receivable is determined by the applicable Seller at the
time the related retail installment sales contract is entered into based on the
Seller's projection of the anticipated end of term wholesale value of the
vehicle that is being financed under such contract. Each Balloon Receivable
provides for amortization of the loan over a series of fixed level payment
monthly installments like a Simple Interest Receivable, but also requires a
final scheduled payment due after payment of such monthly installments which
differs significantly from the preceding fixed level monthly installments. In
addition, the Balloon Receivables provide that the Obligors may satisfy the
final scheduled payment by (1) paying the full amount on its due date; (2)
refinancing the amount of the final scheduled payment; or (3) transferring the
Financed Vehicle to the Seller on behalf of the Trust in satisfaction of the
final scheduled payment and paying a disposition fee to the Seller and any
applicable charges for excess wear and tear and excess mileage.
Information with respect to each Receivables Pool will be set forth in the
related Prospectus Supplement, including, to the extent appropriate, the
composition, the distribution by Contract Rate and by geographic distribution,
the portion of such Receivables Pool not consisting of Simple Interest
Receivables and the portion of such Receivables Pool secured by new vehicles and
by used vehicles.
SUBSEQUENT RECEIVABLES
Subsequent Receivables may be originated by the Dealers at a later date
using credit criteria different from those which were applied to any Initial
Receivables and may be of a different credit quality and seasoning. In addition,
following the transfer of Subsequent Receivables to the applicable Trust, the
characteristics of the entire pool of Receivables included in such Trust may
vary significantly from those of the Initial Receivables transferred to such
Trust. See "Risk Factors -- Risks Associated with Subsequent Receivables and the
Pre-Funding Account." Each Prospectus Supplement will describe the effects
including such Subsequent Receivables may have on the Receivables Pool included
in the Trust Property of each Trust issuing Securities. Regular periodic
information regarding the Subsequent Receivables will be included under Item 5
in each Current Report filed on Form 8-K with the Commission pursuant to the
Exchange Act and with respect to each Trust to which Subsequent Receivables have
been transferred.
UNDERWRITING
The underwriting policies utilized by DFSG take into account each
prospective obligor's historical credit performance, current ability to pay and
overall creditworthiness, as well as the asset value of the motor vehicle that
is to secure the Motor Vehicle Loan. Prior to each loan origination, DFSG
reviews the loan application transmitted to it from the Dealer. Each applicant
for a Motor Vehicle Loan must complete and sign a loan application, providing
the applicant's name, address, source and amount of monthly income, among other
information. For each loan application, DFSG's underwriting decision relies on
the results of an objective credit scoring system, underwriting guidelines with
established tolerances for advances, loan to value ratio, term and capacity to
repay and, typically, a credit analyst's judgement to assess an applicant's
ability to repay the loan. In addition, attention is paid to the current value
and expected depreciation of the related motor vehicle.
DFSG has established the general underwriting guidelines described below,
although such tolerances may be varied based on the credit quality of the
obligor. In general, DFSG limits the amount advanced on a specific loan to a
maximum of (i) 120% of manufacturer's invoice price, plus taxes, title and
license fees, for a new vehicle and (ii) 120% of the trade-in value (based on
the most recently published National Automobile
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Dealers Association Used Car Price Guide), plus taxes, title and license fees,
for used vehicles. DFSG's underwriting guidelines include separate tolerances
for warranty and insurance items, which generally limit advances to the greater
of (i) $1,500 or (ii) 10% of the total amount advanced excluding warranty and
insurance items with respect to the vehicle. Generally, the difference between
the sales price of the financed vehicle (plus taxes, title and license fees) and
the amount advanced (excluding warranty and insurance items) is the down payment
required from the obligor at the time the retail installment sales contract is
entered. DFSG's underwriting guidelines also generally limit the term of the
loan to a maximum of 72 months and require that the applicant's ratio of
aggregate debt service to gross monthly income not exceed 45%.
In evaluating an application, items such as the interest rate charged on
the loan, and the term of the loan, are structured by the credit analyst based
upon the perceived creditworthiness of the applicant and other underwriting
guidelines, including the customized credit grade (consisting of a credit score
based on a proprietary credit scorecard and a credit score obtained from a
credit bureau), the presence or absence of any derogatory credit events, and the
capacity of the obligor to repay (evaluating the amount of the proposed loan
measured against income, overall indebtedness and monthly cash flow). DFSG
communicates the decision to approve or decline a loan to the Dealer. Motor
Vehicle Loans funded by the Dealers based on a Seller's purchase commitment are
typically purchased by the applicable Seller within two business days of such
funding.
There is no required relationship between the outstanding principal balance
of any Receivable included in a Trust and the value of the Financed Vehicle
securing such Receivable.
SERVICING AND COLLECTIONS
DFSG services all of the Motor Vehicle Loans. The servicing functions
include customer service, document file keeping, Motor Vehicle Loan record
keeping, vehicle title processing and collections. DFSG's servicing policies and
practices may change from time to time in accordance with the Sellers' and
DFSG's business judgment.
Servicing of Motor Vehicle Loans, including payment processing, collateral
monitoring, and maintenance of computer systems is conducted by DFSG on a
regional basis from Dallas, Texas and Greensboro, North Carolina. Collections
are handled centrally from DFSG's headquarters in Greensboro, North Carolina.
All obligors on Motor Vehicle Loans are given coupon books to remit with their
scheduled payments. The use of coupon books aids in the efficient and timely
processing of payments through DFSG's operations and systems. Payments on the
Motor Vehicle Loans are generally received by DFSG through lock box accounts,
designated post office boxes, direct debit to bank accounts, and customer
service centers.
If a Motor Vehicle Loan becomes delinquent, it is interfaced from the
consumer loan system to the collection system, each operated by DFSG. The
collection system utilizes behavioral scoring methodology to assess the risk of
loss and to establish a collection strategy. The strategy addresses the optimal
timing and method for written and verbal communications with the delinquent
obligor. Delinquent accounts may receive an initial contact as early as four
days or as late as 21 days following delinquency. The lower risk collection
strategies use autodialers to contact the delinquent obligor; higher risk
collection strategies use direct telephone contact and/or direct mail
correspondence.
Generally, accounts that remain delinquent for 45 to 60 days, or are
otherwise recognized by DFSG's collections personnel as having an otherwise
serious delinquency problem, are considered for liquidation. To minimize losses
on liquidation, DFSG has a dedicated unit established to manage the liquidation
of collateral effectively. This group principally contracts with outside
agencies to acquire the collateral and transport it to a selected wholesale
auction. DFSG controls the auction selection process through evaluations that
include size, location and recent wholesale activity. Vendor service is
monitored closely on an individual motor vehicle unit basis to ensure that an
overall goal of averaging 90% of a standardized wholesale market value is
attained and that motor vehicles remain in inventory on average less than 45
days. These guidelines are strictly monitored by the DFSG group with vendors not
meeting the guidelines being removed.
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Deficiencies remaining after liquidation may be pursued by DFSG on behalf
of the applicable Seller in various ways, including settlement and payment
arrangements, litigation, post-judgment initiatives and collection agency
referrals. Generally, if a motor vehicle has been repossessed, the Motor Vehicle
Loan is charged off 90 days after repossession or when repossession proceeds
have been received, whichever is earlier. If a motor vehicle has not been
repossessed, the Motor Vehicle Loan is generally charged off when the loan is
120 days delinquent.
PHYSICAL DAMAGE INSURANCE
The Sellers and DFSG discontinued placing physical damage insurance on
uninsured accounts effective April 8, 1994. Although DFSG continues to confirm
insurance on the motor vehicle at the inception of each Motor Vehicle Loan, it
no longer tracks the maintenance of insurance after that date.
DELINQUENCIES, REPOSSESSIONS AND NET LOSSES
Certain information concerning the Sellers' experience with respect to
their portfolio of Motor Vehicle Loans (including previously sold contracts
which a Seller continues to service, but not including retail motor vehicle
installment sales contracts purchased by any of the Sellers under certain
special financing programs) will be set forth in each Prospectus Supplement.
There can be no assurance that the delinquency, repossession and net loss
experience on any Receivables Pool will be comparable to prior experience or to
such information.
MATURITY AND PREPAYMENT CONSIDERATIONS
The weighted average life of the Notes, if any, and the Certificates of any
series will generally be influenced by the rate at which the principal balances
of the related Receivables are paid, which payment may be in the form of
scheduled amortization or prepayments. (For this purpose, the term "prepayments"
includes prepayments in full, partial prepayments, liquidations due to default,
the receipt of monthly installments earlier than the scheduled due dates for
such installments, the receipt of proceeds from credit life, credit disability,
theft or physical damage insurance, repurchases by the Sellers as a result of
certain uncured breaches of the warranties made by them in the Transfer and
Servicing Agreement with respect to the Receivables, purchases by the Servicer
as a result of certain uncured breaches of the covenants made by it in the
Agreement with respect to the Receivables, or the Servicer exercising its option
to purchase all of the remaining Receivables.) All of the Receivables are
prepayable at any time without penalty to the Obligor. The rate of prepayment of
the Receivables is influenced by a variety of economic, social and other
factors, including the fact that an Obligor generally may not sell or transfer
the Financed Vehicle securing a Receivable without the consent of the applicable
Seller. The rate of prepayment on the Receivables may also be influenced by the
structure of the loan. In addition, under certain circumstances, the applicable
Seller will be obligated to repurchase Receivables from a given Trust pursuant
to the related Sale and Servicing Agreement or Pooling and Servicing Agreement
as a result of breaches of representations and warranties and the Servicer will
be obligated to purchase Receivables from such Trust pursuant to such Sale and
Servicing Agreement or Pooling and Servicing Agreement as a result of breaches
of certain representations and warranties. Consistent with its normal servicing
practices and procedures and, to the extent permitted in the related Sale and
Servicing Agreement or Pooling and Servicing Agreement, the Servicer may, in its
discretion and on a case-by-case basis, arrange with Obligors to extend or
modify the terms of the related Receivables. Some of such arrangements
(including any extension beyond the date set forth in the related Prospectus
Supplement) will cause the Servicer to be obligated to repurchase such
Receivables, as described above. See "Description of the Transfer and Servicing
Agreements -- Sale and Assignment of Receivables" and "-- Servicing Procedures."
See also "Description of the Transfer and Servicing Agreements -- Termination"
regarding the Servicer's option to purchase the Receivables from a given Trust
and "-- Insolvency Event or Dissolution" regarding the sale of the Receivables
owned by a Trust that is not a grantor trust if an Insolvency Event or a
dissolution with respect to NAFC occurs.
In addition, if a Pre-Funding Account is included in the property of a
Trust, the ability of the Sellers to generate Subsequent Receivables to be
conveyed to such Trust will affect the amount on deposit in such account which
is not applied to the conveyance of Subsequent Receivables. At the end of the
Funding Period,
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the holders of Securities issued by such Trust may receive a prepayment of
principal in an amount equal to the amount remaining in the Pre-Funding Account.
It is anticipated that there will be at least a nominal amount of principal
prepaid to the holders of the Securities issued by such Trust. Holders of
Securities issued by a Trust the property of which includes a Pre-Funding
Account will bear the reinvestment risk associated with any such distribution of
amounts on deposit in the Pre-Funding Account after the termination of the
applicable Pre-Funding Period.
In light of the above considerations, there can be no assurance as to the
amount of principal payments to be made on the Notes, if any, or the
Certificates of a given series on each Distribution Date, as applicable, since
such amount will depend, in part, on the amount of principal collected on the
related Receivables Pool during the applicable Collection Period. Any
reinvestment risks resulting from a faster or slower incidence of prepayment of
Receivables will be borne entirely by the Noteholders, if any, and the
Certificateholders of a given series. The related Prospectus Supplement may set
forth certain additional information with respect to the maturity and prepayment
considerations applicable to the particular Receivables Pool and the related
series of Securities.
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 class of Notes indicating the remaining outstanding principal balance of
such class of Notes, as of the applicable Distribution Date (after giving effect
to payments to be made on such Distribution Date), as a fraction of the initial
outstanding principal balance of such class of Notes. The "Certificate Pool
Factor" for each class of Certificates will be a seven-digit decimal which the
Servicer will compute prior to each distribution with respect to such class of
Certificates indicating the remaining Certificate Balance of such class of
Certificates, as of the applicable Distribution Date (after giving effect to
distributions to be made on such Distribution Date), as a fraction of the
initial Certificate Balance of such class of Certificates. Each Note Pool Factor
and each Certificate Pool Factor will initially be 1.0000000 and thereafter will
decline to reflect reductions in the outstanding principal balance of the
applicable class of Notes, or the reduction of the Certificate Balance of the
applicable class of Certificates, as the case may be, as a result of scheduled
payments, prepayments and liquidations of the Receivables (and also as a result
of a prepayment arising from the application of the Pre-Funding Account, if
any). The Note Pool Factor and the Certificate Pool Factor will not change as a
result of the addition of Subsequent Receivables. 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
applicable Note Pool Factor. A Certificateholder's portion of the aggregate
outstanding Certificate Balance for the related class of Certificates is the
product of (i) the original denomination of such Certificateholder's Certificate
and (ii) the applicable Certificate Pool Factor.
With respect to each Trust, the Noteholders, if any, and the
Certificateholders will receive reports on or about each Distribution Date
concerning payments received on the Receivables during the Collection Period
immediately preceding such Distribution Date, the Pool Balance (as such term is
defined in the related Prospectus Supplement, the "Pool Balance"), each
Certificate Pool Factor or Note Pool Factor, as applicable, and various other
items of information. In addition, 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 "Book-Entry and Definitive Securities; Reports
to Securityholders -- Reports to Securityholders."
USE OF PROCEEDS
The net proceeds from the sale of the Securities of a given series will be
applied by the applicable Trust (i) to the purchase of the Receivables from the
Sellers, (ii) to the deposit of the Pre-Funded Amount into the Pre-Funding
Account, if any, and (iii) to make the initial deposit into the Reserve Account,
if any. The net proceeds to be received by the Sellers from any such Trust will
be added to their general corporate funds and will be used for general corporate
purposes.
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THE BANKS, NATIONSBANK CORPORATION AND NAFC
GENERAL
The Banks are subsidiaries of NationsBank Corporation. NationsBank
Corporation is a bank holding company established as a North Carolina
corporation in 1968 and is registered under the Bank Holding Company Act of
1956, as amended (the "BHCA"), with its principal assets being the stock of its
subsidiaries. Through its banking subsidiaries and its various non-banking
subsidiaries, NationsBank Corporation provides banking and banking related
services primarily throughout the Southeast and Mid-Atlantic states and Texas.
The principal executive offices of NationsBank Corporation are located at
NationsBank Corporate Center, 100 North Tryon Street, Charlotte, North Carolina
28255. Its telephone number is (704) 386-5000. See "Risk Factors -- Trust's
Relationship to the Sellers, NationsBank Corporation and their Affiliates" and
"Available Information."
OPERATIONS
NationsBank Corporation provides a diversified range of banking and certain
non-banking financial services and products through its various subsidiaries.
NationsBank Corporation manages its business activities through three major
internal management groups or business units: the General Bank, the Global
Finance Unit and the Financial Services Unit.
NationsBank, N.A. is a national banking association headquartered in
Charlotte, North Carolina. As of June 30, 1996, it had assets of $73.6 billion
and shareholder's equity of $5.3 billion. The principal executive offices of
NationsBank, N.A. are located at NationsBank Corporate Center, 100 North Tryon
Street, Charlotte, North Carolina 28255. Its telephone number is (704) 386-5000.
NationsBank, N.A. is also the Servicer. See "The Servicer" and "The Receivables
Pools -- General" and "-- Servicing and Collections."
NationsBank Texas is a national banking association headquartered in
Dallas, Texas. As of June 30, 1996, it had assets of $44.0 billion and
shareholder's equity of $2.9 billion The principal executive offices of
NationsBank Texas are located at 901 Main Street, Dallas, Texas 75202. Its
telephone number is (214) 508-6262.
NationsBank South is a national banking association headquartered in
Atlanta, Georgia. As of June 30, 1996, it had assets of $47.9 billion and
shareholders' equity of $4.3 billion. The principal executive offices of
NationsBank South are located at 600 Peachtree Street, N.E., Atlanta, Georgia
30308. Its telephone number is (404) 581-2121.
Prior to issuing for the first time a series of Securities that includes
Notes, NationsBank, N.A. will form a wholly-owned limited purpose subsidiary
NationsBanc Auto Funding Corporation, a Delaware corporation ("NAFC") for the
limited purpose of purchasing a portion of the Certificates issued by each Trust
that issues Notes, acting as the general partner of each such Trust for federal
income tax purposes and engaging in incidental activities. NationsBank
Corporation will take certain steps to minimize the likelihood that an
Insolvency Event occurs with respect to NAFC. These steps include the creation
of NAFC as a separate, limited purpose corporation pursuant to a certificate of
incorporation containing limitations (including restrictions on the nature of
NAFC's business and a restriction on NAFC's ability to commence a voluntary case
or proceeding under any insolvency or bankruptcy law without the prior unanimous
vote of its directors). However, there can be no assurance that an Insolvency
Event will not occur with respect to NAFC.
THE SERVICER
NationsBank, N.A., through DFSG and units in predecessor banks of
NationsBank, N.A., has been servicing indirect motor vehicle loan portfolios
since 1970. The indirect motor vehicle loan portfolio serviced either directly
by NationsBank, N.A. or through its affiliates was approximately $6.1 billion as
of June 30, 1996. DFSG also services other indirect and direct consumer loan
portfolios totalling over $27.4 billion (including the indirect motor vehicle
loan portfolio) as of June 30, 1996. Current information regarding the indirect
motor vehicle loan portfolios and the direct consumer loan portfolios serviced
by NationsBank, N.A. and DFSG will be included in each applicable Prospectus
Supplement.
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DESCRIPTION OF THE NOTES
GENERAL
With respect to each Trust that issues Notes, one or more classes of Notes
of the related series will be issued pursuant to the terms of an Indenture which
is incorporated by reference in its entirety in each applicable Prospectus
Supplement. A form of the Indenture has been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part. The following
summary does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Notes and the Indenture.
Each class of Notes will initially be represented by one or more Notes, in
each case registered in the name of the nominee of DTC (together with any
successor depository selected by the Trust, the "Depository") except as set
forth below. The Notes will be available for purchase in the denominations
specified in the related Prospectus Supplement and in book-entry form only. The
Sellers have been informed by DTC that DTC's nominee will be Cede, unless
another nominee is specified in the related Prospectus Supplement. Accordingly,
such nominee is expected to be the holder of record of the Notes of each class.
Unless and until Definitive Notes are issued under the limited circumstances
described herein or in the related Prospectus Supplement, no Noteholder will be
entitled to receive a physical certificate representing a Note. All references
herein and in the related Prospectus Supplement to actions by Noteholders refer
to actions taken by DTC upon instructions from its participating organizations
(the "Participants") and all references herein and in the related Prospectus
Supplement to distributions, notices, reports and statements to Noteholders
refer to distributions, notices, reports and statements to DTC or its nominee,
as the registered holder of the Notes, for distribution to Noteholders in
accordance with DTC's procedures with respect thereto. See "Book-Entry and
Definitive Securities; Reports to Securityholders -- Book-Entry Registration"
and "-- Definitive Securities."
PRINCIPAL AND INTEREST ON THE NOTES
The timing and priority of payment, allocation of losses, Note Interest
Rate and amount of or method of determining payments of principal and interest
on each class of Notes of a given series will be described in the related
Prospectus Supplement. The rights of holders of any class of Notes to receive
payments of principal and interest may be senior or subordinate to the rights of
holders of any other class or classes of Notes of such series, as described in
the related Prospectus Supplement. Payments of interest on the Notes of such
series may be made prior to payments of principal thereon. The dates for
payments of interest and principal on the Notes of such series may be different
from the Distribution Dates for the Certificates of such series. To the extent
provided in the related Prospectus Supplement, a series may include one or more
classes of Notes designated as planned amortization classes, targeted
amortization classes or companion classes, or as a class of short term notes,
each as described in the related Prospectus Supplement. To the extent provided
in the related Prospectus Supplement, 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 Note Interest
Rate, which may be a fixed, variable or adjustable Note 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 Note Interest Rate
for each class of Notes of a given series or the method for determining such
Note Interest Rate. See also "Description of Fixed and Floating Rate
Options -- Fixed Rate Securities" and "-- Floating Rate Securities." One or more
classes of Notes of a series may be redeemable in whole or in part under the
circumstances specified in the related Prospectus Supplement, including at the
end of the Funding Period (if any) or as a result of the Servicer exercising its
option to purchase the related Receivables Pool. See "Description of the
Transfer and Servicing Agreements -- Termination."
If so 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, in
which case each class of Noteholders will receive its pro rata share (based upon
the aggregate amount of interest due to such class of Noteholders) of the
aggregate
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amount available to be distributed in respect of interest on the Notes of such
series. See "Description of the Transfer and Servicing
Agreements -- Distributions" and "-- Credit and Cash Flow 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. Payments in respect of principal and interest of any
class of Notes will be made on a pro rata basis among all the Noteholders of
such class.
FIXED PAYMENT NOTES
To the extent specified in any Prospectus Supplement, one or more classes
of Notes of a given series may have fixed principal payment schedules.
Noteholders of such Notes would be entitled to receive as payments of principal
on any given Distribution Date the applicable amounts set forth on such schedule
with respect to such Notes, in the manner and to the extent set forth in the
related Prospectus Supplement.
SHORT TERM ASSET BACKED NOTES
To the extent specified in any Prospectus Supplement, one or more classes
of Notes of a given series may be entitled to receive principal payments prior
to the receipt of principal payments by other classes of Securities issued by
the applicable Trust. If so provided in the related Prospectus Supplement, such
class or classes of Notes will have a final scheduled distribution date of less
than 397 days from the initial trade date related thereto and such class or
classes will have received a short-term rating by a Rating Agency that is in one
of the two highest short-term rating categories. The failure to pay such a class
of Notes on or prior to the related final scheduled distribution date would
constitute an event of default under the related Indenture. In general, such
class or classes of Notes will otherwise be similar to Notes which are described
in this Prospectus.
PLANNED AMORTIZATION CLASS
To the extent specified in any Prospectus Supplement, one or more classes
of Notes of a given series may be designed to receive principal payments using a
predetermined principal balance schedule (a "planned balance") derived by
assuming two constant prepayment rates for the related Receivables Pool. The
applicable Prospectus Supplement will set forth a schedule of the planned
balance of such a class of Notes for each applicable Distribution Date.
Noteholders of such a class of Notes would be entitled to receive principal
payments in respect of a Distribution Date only to the extent necessary to
reduce the principal balance of such Notes to the amount set forth as the
planned balance for such Distribution Date.
TARGETED AMORTIZATION CLASS
To the extent specified in any Prospectus Supplement, one or more classes
of Notes of a given series may be designed to receive principal payments using a
predetermined principal balance schedule (a "targeted balance") derived by
assuming one constant prepayment rate for the related Receivables Pool. The
applicable Prospectus Supplement will set forth a schedule of the planned
balance of such a class of Notes for each applicable Distribution Date.
Noteholders of such a class of Notes would be entitled to receive principal
payments in respect of a Distribution Date only to the extent necessary to
reduce the principal balance of such Notes to the amount set forth as the
targeted balance for such Distribution Date.
COMPANION CLASS
To the extent specified in any Prospectus Supplement, one or more classes
of Notes of a given series may be designed to receive principal payments on a
Distribution Date only if principal payments have been made on a specified
planned amortization class of Notes or targeted amortization class of Notes, and
to receive any excess payments over the amount required to reduce the principal
amount of the planned amortization class or targeted amortization class to the
planned or targeted balance for such Distribution Date.
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THE INDENTURE
Modification of Indenture. With respect to each Trust that has issued
Notes pursuant to an Indenture, the Trust and the Indenture Trustee may, with
the consent of the holders of a majority of the outstanding Notes of the related
series, execute a supplemental indenture to add provisions to, change in any
manner or eliminate any provisions of, the related Indenture, or modify (except
as provided below) in any manner the rights of the related Noteholders. Any such
modification may be treated as an exchange by Noteholders for new Notes, which
exchange could be a taxable event.
With respect to a series of Notes, without the consent of the holder of
each such outstanding Note affected thereby, however, no supplemental indenture
will: (i) change the due date of any installment of principal of or interest on
any such 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 such Note or any
interest thereon is payable; (ii) impair the right to institute suit for the
enforcement of certain provisions of the related Indenture regarding payment;
(iii) reduce the percentage of the aggregate amount of the outstanding Notes of
such series, the consent of the holders of which is required for any such
supplemental indenture or the consent of the holders of which is required for
any waiver of compliance with certain provisions of the related Indenture or of
certain defaults thereunder and their consequences as provided for in such
Indenture; (iv) modify or alter the provisions of the related Indenture
regarding the voting of Notes held by the applicable Trust, any other obligor on
such Notes, the Sellers or an affiliate of any of them; (v) reduce the
percentage of the aggregate outstanding principal amount of such Notes, the
consent of the holders of which is required to direct the related Indenture
Trustee to sell or liquidate the Receivables if the proceeds of such sale would
be insufficient to pay the principal amount and accrued but unpaid interest on
the outstanding Notes of such series; (vi) decrease the percentage of the
aggregate principal amount of such Notes required to amend the sections of the
related Indenture which specify the applicable percentage of aggregate principal
amount of the Notes of such series necessary to amend such Indenture or certain
other related agreements; or (vii) permit the creation of any lien ranking prior
to or on a parity with the lien of the related Indenture with respect to any of
the collateral for such Notes or, except as otherwise permitted or contemplated
in such Indenture, terminate the lien of such Indenture on any such collateral
or deprive the holder of any such Note of the security afforded by the lien of
such Indenture.
The Trust and the applicable Indenture Trustee may also enter into
supplemental indentures, without obtaining the consent of the Noteholders of the
related series, for the purpose of, among other things, adding any provisions to
or changing in any manner or eliminating any of the provisions of the related
Indenture or of modifying in any manner the rights of such Noteholders; provided
that such action will not materially and adversely affect the interest of any
such Noteholder.
Events of Default; Rights upon Event of Default. With respect to the Notes
of a given series, "Events of Default" under the related Indenture will consist
of: (i) a default for five days or more in the payment of any interest on any
such Note; (ii) a default in the payment of the principal of or any installment
of the principal of any such Note when the same becomes due and payable; (iii) a
default in the observance or performance of any material covenant or agreement
of the applicable Trust made in the related Indenture and the continuation of
any such default for a period of 30 days after notice thereof is given to such
Trust by the applicable Indenture Trustee or to such Trust and such Indenture
Trustee by the holders of at least 25% in principal amount of such Notes then
outstanding; (iv) any representation or warranty made by such Trust in the
related Indenture or in any certificate delivered pursuant thereto or in
connection therewith having been incorrect in a material respect as of the time
made, and such breach not having been cured within 60 days after notice thereof
is given to such Trust by the applicable Indenture Trustee or to such Trust and
such Indenture Trustee by the holders of at least 25% in principal amount of
such Notes then outstanding; (v) certain events of bankruptcy, insolvency,
receivership or liquidation of the applicable Trust; or (vi) such other events,
if any, set forth in the related Prospectus Supplement. However, the amount of
principal required to be paid to Noteholders of such series on any Distribution
Date under the related Indenture will generally be limited to amounts available
to be deposited in the applicable Note Payment Account. Therefore, the failure
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<PAGE> 37
to pay principal on a class of Notes generally will not result in the occurrence
of an Event of Default until the final scheduled distribution 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
such 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 such Notes then outstanding. Any such rescission could be treated, for
federal income tax purposes, as a constructive exchange of such Notes by the
related Noteholders for deemed new Notes upon which gain or loss would be
recognized.
If the Notes of any series have been declared due and payable following an
Event of Default with respect thereto, the related Indenture Trustee may
institute proceedings to collect amounts due or foreclose on Trust property,
exercise remedies as a secured party, sell the related Receivables or elect to
have the applicable Trust maintain possession of such Receivables and continue
to apply collections on such Receivables as if there had been no declaration of
acceleration. However, such Indenture Trustee is prohibited from selling the
related Receivables following an Event of Default, other than a default in the
payment of any principal of or a default for five days or more in the payment of
any interest on any Note of such series, unless (i) the holders of all
outstanding Notes of such series consent to such sale, (ii) the proceeds of such
sale are sufficient to pay in full the principal of and the accrued interest on
the outstanding Notes of such series at the date of such sale or (iii) such
Indenture Trustee determines that the proceeds of Receivables would not be
sufficient on an ongoing basis to make all payments on the Notes of such series
as such payments would have become due if such obligations had not been declared
due and payable, and such Indenture Trustee obtains the consent of the holders
of 66 2/3% of the aggregate outstanding principal amount of the Notes of such
series.
Subject to the provisions of the applicable Indenture relating to the
duties of the related Indenture Trustee, if an Event of Default occurs and is
continuing with respect to a series of Notes, such Indenture Trustee will be
under no obligation to exercise any of the rights or powers under such Indenture
at the request or direction of any of the holders of such Notes, if such
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 related Indenture, the holders of a
majority in principal amount of the outstanding Notes of a given series will
have the right to direct the time, method and place of conducting any proceeding
or any remedy available to the applicable Indenture Trustee, and the holders of
a majority 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
such Indenture that cannot be modified without the waiver or consent of all the
holders of such outstanding Notes. Any such waiver could be treated, for federal
income tax purposes, as a constructive exchange of such Notes by the related
Noteholders for deemed new Notes upon which gain or loss would be recognized.
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 applicable 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 to such
Indenture Trustee to institute such proceeding in its own name as Indenture
Trustee, (iii) such holder or holders have offered such Indenture Trustee
reasonable indemnity, (iv) such Indenture Trustee has for 60 days failed to
institute such proceeding and (v) no direction inconsistent with such written
request has been given to such Indenture Trustee during such 60-day period by
the holders of a majority in principal amount of such outstanding Notes.
In addition, each Indenture Trustee and the related Noteholders, by
accepting the related Notes, will covenant that they will not at any time
institute against the applicable Trust any bankruptcy, reorganization or other
proceeding under any federal or state bankruptcy or similar law.
With respect to any Trust, neither the related Indenture Trustee nor the
related Trustee in its individual capacity, nor any holder of a Certificate
representing an ownership interest in such Trust nor any of their respective
owners, beneficiaries, agents, officers, directors, employees, affiliates,
successors or assigns will, in
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<PAGE> 38
the absence of an express agreement to the contrary, be personally liable for
the payment of the principal of or interest on the related Notes or for the
agreements of such Trust contained in the applicable Indenture.
Certain Covenants. Each Indenture will provide that the related Trust may
not consolidate with or merge into any other entity, unless (i) the entity
formed by or surviving such consolidation or merger is organized under the laws
of the United States, any state or the District of Columbia, (ii) such entity
expressly assumes such Trust's obligation to make due and punctual payments upon
the Notes of the related series and the performance or observance of every
agreement and covenant of such Trust under the Indenture, (iii) no Event of
Default shall have occurred and be continuing immediately after such merger or
consolidation, (iv) such Trust has been advised that the rating of the Notes or
the Certificates of such series then in effect would not be reduced or withdrawn
by the Rating Agencies (as such term is defined in the related Prospectus
Supplement, the "Rating Agencies") as a result of such merger or consolidation,
(v) such Trust has received an opinion of counsel to the effect that such
consolidation or merger would have no material adverse tax consequence to the
Trust or to any related Noteholder or Certificateholder, (vi) any action as is
necessary to maintain the lien and security interest created by the related
Indenture shall have been taken and (vii) such Trust has received an opinion of
counsel and officer's certificate each stating that such consolidation or merger
satisfies all requirements under the related Indenture.
Each Trust will not, among other things, (i) except as expressly permitted
by the applicable Indenture, the applicable Transfer and Servicing Agreements or
certain related documents with respect to such Trust (collectively, the "Basic
Documents"), sell, transfer, exchange or otherwise dispose of any of the assets
of such Trust, (ii) claim any credit on or make any deduction from the principal
and interest payable in respect of the Notes of the related series (other than
amounts withheld under the Code or applicable state law) or assert any claim
against any present or former holder of such Notes because of the payment of
taxes levied or assessed upon such Trust, (iii) dissolve or liquidate in whole
or in part, (iv) permit the validity or effectiveness of the related Indenture
to be impaired or permit any person to be released from any covenants or
obligations with respect to such Notes under such Indenture except as may be
expressly permitted thereby or (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 such Trust or any part thereof,
or any interest therein or the proceeds thereof, except as may be created by the
terms of the related Indenture.
No Trust may engage in any activity other than as specified under the
section of the related Prospectus Supplement entitled "The Trust." No Trust will
incur, assume or guarantee any indebtedness other than indebtedness incurred
pursuant to the related Notes and the related Indenture, pursuant to any
Advances made to it by the Servicer or otherwise in accordance with the Basic
Documents.
List of Noteholders. With respect to the Notes of any series, three or
more holders of the Notes of such series or one or more holders of such Notes
evidencing not less than 25% of the aggregate outstanding principal balance of
such Notes may, by written request to the related Indenture Trustee, obtain
access to the list of all Noteholders maintained by such Indenture Trustee for
the purpose of communicating with other Noteholders with respect to their rights
under the related Indenture or under such Notes. Unless and until Definitive
Securities are issued in fully registered, certificated form, references to the
"holders of Notes" and to the "Noteholders" shall refer to DTC and its nominee.
See "Book-Entry and Definitive Securities; Reports to
Securityholders -- Definitive Securities." Such Indenture Trustee may elect not
to afford the requesting Noteholders access to the list of Noteholders if it
agrees to mail the desired communication or proxy, on behalf of and at the
expense of the requesting Noteholders, to all Noteholders of such series.
Annual Compliance Statement. Each Trust will be required to file annually
with the related Indenture Trustee a written statement as to the fulfillment of
its obligations under the Indenture.
Indenture Trustee's Annual Report. The Indenture Trustee for each Trust
will be required to mail each year to all related Noteholders a brief report
relating to its eligibility and qualification to continue as Indenture Trustee
under the related Indenture, any amounts advanced by it under the Indenture, the
amount, interest rate and maturity date of certain indebtedness owing by such
Trust to the applicable Indenture Trustee in its individual capacity, the
property and funds physically held by such Indenture Trustee as such and any
action taken by it that materially affects the related Notes and that has not
been previously reported.
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Satisfaction and Discharge of Indenture. An Indenture will be discharged
with respect to the collateral securing the related Notes upon the delivery to
the related Indenture Trustee for cancellation of all such Notes or, with
certain limitations, upon deposit with such Indenture Trustee of funds
sufficient for the payment in full of all such Notes.
THE INDENTURE TRUSTEE
The Indenture Trustee for a series of Notes will be specified in the
related Prospectus Supplement. The Indenture Trustee for any series may resign
at any time, in which event the Issuer will be obligated to appoint a successor
trustee for such series. The Issuer may also remove any such Indenture Trustee
if such Indenture Trustee ceases to be eligible to continue as such under the
related Indenture or if such Indenture Trustee becomes insolvent. In such
circumstances, the Issuer will be obligated to appoint a successor trustee for
the applicable series of Notes. Any resignation or removal of the Indenture
Trustee and appointment of a successor trustee for any series of Notes does not
become effective until acceptance of the appointment by the successor trustee
for such series.
DESCRIPTION OF THE CERTIFICATES
GENERAL
With respect to each Trust, one or more classes of Certificates of the
related series will be issued pursuant to the terms of a Trust Agreement or a
Pooling and Servicing Agreement, a form of each of which has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part. The
following summary does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the
Certificates and the Trust Agreement or Pooling and Servicing Agreement, as
applicable.
Except for the Certificates, if any, of a given series retained by the
Seller, each class of Certificates may initially be represented by one or more
Certificates registered in the name of the Depository, except as set forth
below. Except for the Certificates, if any, of a given series retained by the
Seller, the Certificates will be available for purchase in the denominations
specified in the related Prospectus Supplement and may be available in
book-entry form only. The Sellers have been informed by DTC that DTC's nominee
will be Cede, unless another nominee is specified in the related Prospectus
Supplement. Accordingly, such nominee is expected to be the holder of record of
the Certificates of any series issued in book-entry form that are not retained
by the Sellers. If the Certificates of a series are issued in book-entry form,
unless and until Definitive Certificates are issued under the limited
circumstances described herein or in the related Prospectus Supplement, no
Certificateholder (other than the Seller) will be entitled to receive a physical
certificate representing a Certificate. If the Certificates of a series are
issued in book-entry form, all references herein and in the related Prospectus
Supplement to actions by Certificateholders refer to actions taken by DTC upon
instructions from the Participants and all references herein and in the related
Prospectus Supplement to distributions, notices, reports and statements to
Certificateholders refer to distributions, notices, reports and statements to
DTC or its nominee, as the case may be, as the registered holder of the
Certificates, for distribution to Certificateholders in accordance with DTC's
procedures with respect thereto. See "Book-Entry and Definitive Securities;
Reports to Securityholders -- Book-Entry Registration" and "-- Definitive
Securities." Any Certificates of a given series owned by any of the Sellers or
their affiliates will be entitled to equal and proportionate benefits under the
applicable Trust Agreement, except that such Certificates will be deemed not to
be outstanding for the purpose of determining whether the requisite percentage
of Certificateholders have given any request, demand, authorization, direction,
notice, consent or other action under the Basic Documents (other than the
commencement by the related Trust of a voluntary proceeding in bankruptcy as
described under "Description of the Transfer and Servicing
Agreements -- Insolvency Event or Dissolution").
DISTRIBUTIONS OF PRINCIPAL AND INTEREST
The timing and priority of distributions, allocation of losses, Certificate
Rate and amount of or method of determining distributions with respect to
principal and interest of each class of Certificates will be described in
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<PAGE> 40
the related Prospectus Supplement. Distributions of interest on such
Certificates will be made on the dates specified in the related Prospectus
Supplement (each, a "Distribution Date") and will be made prior to distributions
with respect to principal of such Certificates. To the extent provided in the
related Prospectus Supplement, a series may include one or more classes of Strip
Certificates entitled to (i) distributions in respect of principal with
disproportionate, nominal or no interest distributions or (ii) interest
distributions with disproportionate, nominal or no distributions in respect of
principal. Each class of Certificates may have a different Certificate Rate,
which may be a fixed, variable or adjustable Certificate 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 Certificate Rate
for each class of Certificates of a given series or the method for determining
such Certificate Rate. See also "Description of Fixed and Floating Rate
Options -- Fixed Rate Securities" and "-- Floating Rate Securities."
Distributions in respect of the Certificates of a given series that includes
Notes may be subordinate to payments in respect of the Notes of such series as
more fully described in the related Prospectus Supplement. Distributions in
respect of interest on and principal of any class of Certificates will be made
on a pro rata basis among all the Certificateholders of such class.
In the case of a series of Certificates which includes two or more classes
of Certificates, the timing, sequential order, priority of payment or amount of
distributions in respect of interest and 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.
LIST OF CERTIFICATEHOLDERS
With respect to the Certificates of any series, three or more holders of
the Certificates of such series or one or more holders of such Certificates
evidencing not less than 25% of the Certificate Balance of such Certificates
may, by written request to the related Trustee, obtain access to the list of all
Certificateholders maintained by such Trustee for the purpose of communicating
with other Certificateholders with respect to their rights under the related
Trust Agreement or Pooling and Servicing Agreement or under such Certificates.
Unless and until Definitive Securities are issued in fully registered,
certificated form, references to the "holders of Certificates" and the
"Certificateholders" shall refer to DTC and its nominee. See "Book-Entry and
Definitive Securities; Reports to Securityholders -- Definitive Securities."
DESCRIPTION OF FIXED AND FLOATING RATE OPTIONS
FIXED RATE SECURITIES
Each class of Securities (other than certain classes of Strip Notes or
Strip Certificates) may bear interest at a fixed rate per annum ("Fixed Rate
Securities") or at a variable or adjustable rate per annum ("Floating Rate
Securities"), as more fully described below and in the applicable Prospectus
Supplement. Each class of Fixed Rate Securities will bear interest at the
applicable per annum Note Interest Rate or Certificate Rate, as the case may be,
specified in the applicable Prospectus Supplement. Interest on each class of
Fixed Rate Securities will be computed on the basis of a 360-day year consisting
of twelve 30-day months or on such other day and month count basis as is
specified in the applicable Prospectus Supplement. See "Description of the
Notes -- Principal and Interest on the Notes" and "Description of the
Certificates -- Distributions of Principal and Interest."
FLOATING RATE SECURITIES
Each class of Floating Rate Securities will bear interest for each
applicable Interest Reset Period (as such term is defined in the related
Prospectus Supplement with respect to a class of Floating Rate Securities, the
"Interest Reset Period") at a rate per annum determined by reference to an
interest rate basis (the "Base Rate"), plus or minus the Spread, if any, or
multiplied by the Spread Multiplier, if any, in each case as specified in the
related Prospectus Supplement. The "Spread" is the number of basis points (one
basis point equals one one-hundredth of a percentage point) that may be
specified in the applicable Prospectus
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Supplement as being applicable to such class, and the "Spread Multiplier" is the
percentage that may be specified in the applicable Prospectus Supplement as
being applicable to such class.
The applicable Prospectus Supplement will designate one of the following
Base Rates as applicable to a given Floating Rate Security: (i) the CD Rate (a
"CD Rate Security"), (ii) the Commercial Paper Rate (a "Commercial Paper Rate
Security"), (iii) the Federal Funds Rate (a "Federal Funds Rate Security"), (iv)
LIBOR (a "LIBOR Security"), (v) the Treasury Rate (a "Treasury Rate Security")
or (vi) such other Base Rate as is set forth in such Prospectus Supplement. The
"Index Maturity" for any class of Floating Rate Securities is the period of
maturity of the instrument or obligation from which the Base Rate is calculated.
"H.15(519)" means the publication entitled "Statistical Release H.15(519),
Selected Interest Rates," or any successor publication, published by the Board
of Governors of the Federal Reserve System. "Composite Quotations" means the
daily statistical release entitled "Composite 3:30 p.m. Quotations for U.S.
Government Securities" published by the Federal Reserve Bank of New York.
"Interest Reset Date" will be the first day of the applicable Interest Reset
Period, or such other day as may be specified in the related Prospectus
Supplement with respect to a class of Floating Rate Securities.
As specified in the applicable Prospectus Supplement, Floating Rate
Securities of a given class may also have either or both of the following (in
each case expressed as a rate per annum): (i) a maximum limitation, or ceiling,
on the rate at which interest may accrue during any interest period and (ii) a
minimum limitation, or floor, on the rate at which interest may accrue during
any interest period. In addition to any maximum interest rate that may be
applicable to any class of Floating Rate Securities, the interest rate
applicable to any class of Floating Rate Securities will in no event be higher
than the maximum rate permitted by applicable law, as the same may be modified
by United States law of general application.
Each Trust with respect to which a class of Floating Rate Securities will
be issued will appoint, and enter into agreements with, a calculation agent
(each, a "Calculation Agent") to calculate interest rates on each such class of
Floating Rate Securities issued with respect thereto. The applicable Prospectus
Supplement will set forth the identity of the Calculation Agent for each such
class of Floating Rate Securities of a given series, which may be either the
related Trustee or Indenture Trustee with respect to such series. All
determinations of interest by the Calculation Agent shall, in the absence of
manifest error, be conclusive for all purposes and binding on the holders of
Floating Rate Securities of a given class. All percentages resulting from any
calculation of the rate of interest on a Floating Rate Security will be rounded,
if necessary, to the nearest 1/100,000 of 1% (.0000001), with five
one-millionths of a percentage point rounded upward.
CD Rate Securities. Each CD Rate Security will bear interest for each
Interest Reset Period at the interest rate calculated with reference to the CD
Rate and the Spread or Spread Multiplier, if any, specified in such Security and
in the applicable Prospectus Supplement.
The "CD Rate" for each Interest Reset Period shall be the rate as of the
second business day prior to the Interest Reset Date for such Interest Reset
Period (a "CD Rate Determination Date") for negotiable certificates of deposit
having the Index Maturity designated in the applicable Prospectus Supplement as
subsequently published in H.15(519) under the heading "CDs (Secondary Market)."
In the event that such rate is not published prior to 3:00 p.m., New York City
time, on the Calculation Date (as defined below) pertaining to such CD Rate
Determination Date, then the "CD Rate" for such Interest Reset Period will be
the rate on such CD Rate Determination Date for negotiable certificates of
deposit of the Index Maturity designated in the applicable Prospectus Supplement
as published in Composite Quotations under the heading "Certificates of
Deposit." If by 3:00 p.m., New York City time, on such Calculation Date such
rate is not yet published in either H.15(519) or Composite Quotations, then the
"CD Rate" for such Interest Reset Period will be calculated by the Calculation
Agent for such CD Rate Security and will be the arithmetic mean of the secondary
market offered rates as of 10:00 a.m., New York City time, on such CD Rate
Determination Date, of three leading nonbank dealers in negotiable U.S. dollar
certificates of deposit in The City of New York selected by the Calculation
Agent for such CD Rate Security for negotiable certificates of deposit of major
United States money center banks of the highest credit standing (in the market
for negotiable certificates of deposit) with a remaining maturity closest to the
Index Maturity designated in the related Prospectus Supplement in a denomination
of $5,000,000; provided, however, that if the dealers selected as aforesaid by
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such Calculation Agent are not quoting offered rates as mentioned in this
sentence, the "CD Rate" for such Interest Reset Period will be the same as the
CD Rate for the immediately preceding Interest Reset Period.
The "Calculation Date" pertaining to any CD Rate Determination Date shall
be the first to occur of (a) the tenth calendar day after such CD Rate
Determination Date or, if such day is not a business day, the next succeeding
business day or (b) the second business day preceding the date any payment is
required to be made for any period following the applicable Interest Reset Date.
Commercial Paper Rate Securities. Each Commercial Paper Rate Security will
bear interest for each Interest Reset Period at the interest rate calculated
with reference to the Commercial Paper Rate and the Spread or Spread Multiplier,
if any, specified in such security and in the applicable Prospectus Supplement.
The "Commercial Paper Rate" for each Interest Reset Period will be
determined by the Calculation Agent for such Commercial Paper Rate Security as
of the second business day prior to the Interest Reset Date for such Interest
Reset Period (a "Commercial Paper Rate Determination Date") and shall be the
Money Market Yield (as defined below) on such Commercial Paper Rate
Determination Date of the rate for commercial paper having the Index Maturity
specified in the applicable Prospectus Supplement, as such rate shall be
published in H.15(519) under the heading "Commercial Paper." In the event that
such rate is not published prior to 3:00 p.m., New York City time, on the
Calculation Date (as defined below) pertaining to such Commercial Paper Rate
Determination Date, then the "Commercial Paper Rate" for such Interest Reset
Period shall be the Money Market Yield on such Commercial Paper Rate
Determination Date of the rate for commercial paper of the specified Index
Maturity as published in Composite Quotations under the heading "Commercial
Paper." If by 3:00 p.m., New York City time, on such Calculation Date such rate
is not yet published in either H.15(519) or Composite Quotations, then the
"Commercial Paper Rate" for such Interest Reset Period shall be the Money Market
Yield of the arithmetic mean of the offered rates, as of 11:00 a.m., New York
City time, on such Commercial Paper Rate Determination date of three leading
dealers of commercial paper in The City of New York selected by the Calculation
Agent for such Commercial Paper Rate Security for commercial paper of the
specified Index Maturity placed for an industrial issuer whose bonds are rated
"AA" or the equivalent by a nationally recognized rating agency; provided,
however, that if the dealers selected as aforesaid by such Calculation Agent are
not quoting offered rates as mentioned in this sentence, the "Commercial Paper
Rate" for such Interest Reset Period will be the same as the Commercial Paper
Rate for the immediately preceding Interest Reset Period.
"Money Market Yield" shall be a yield calculated in accordance with the
following formula:
<TABLE>
<S> <C> <C> <C> <C>
Money Market Yield = D x 360 x 100
360 - (D x M)
</TABLE>
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days in the specified Index Maturity.
The "Calculation Date" pertaining to any Commercial Paper Rate
Determination Date shall be the first to occur of (a) the tenth calendar day
after such Commercial Paper Rate Determination Date or, if such day is not a
business day, the next succeeding business day or (b) the second business day
preceding the date any payment is required to be made for any period following
the applicable Interest Reset Date.
Federal Funds Rate Securities. Each Federal Funds Rate Security will bear
interest for each Interest Reset Period at the interest rate calculated with
reference to the Federal Funds Rate and the Spread or Spread Multiplier, if any,
specified in such Security and in the applicable Prospectus Supplement.
The "Federal Funds Rate" for each Interest Reset Period shall be the
effective rate on the Interest Reset Date for such Interest Reset Period (a
"Federal Funds Rate Determination Date") for Federal Funds as published in
H.15(519) under the heading "Federal Funds (Effective)." In the event that such
rate is not published prior to 3:00 p.m., New York City time, on the Calculation
Date (as defined below) pertaining to such Federal Funds Rate Determination
Date, the "Federal Funds Rate" for such Interest Reset Period shall be the rate
on such Federal Funds Rate Determination Date as published in Composite
Quotations under the heading "Federal Funds/Effective Rate." If by 3:00 p.m.,
New York City time, on such Calculation Date
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such rate is not yet published in either H.15(519) or Composite Quotations, then
the "Federal Funds Rate" for such Interest Reset Period shall be the rate on
such Federal Funds Rate Determination Date made publicly available by the
Federal Reserve Bank of New York which is equivalent to the rate which appears
in H.15(519) under the heading "Federal Funds (Effective)"; provided, however,
that if such rate is not made publicly available by the Federal Reserve Bank of
New York by 3:00 p.m., New York City time, on such Calculation Date, the
"Federal Funds Rate" for such Interest Reset Period will be the same as the
Federal Funds Rate in effect for the immediately preceding Interest Reset
Period. In the case of a Federal Funds Rate Security that resets daily, the
interest rate on such Security for the period from and including a Monday to but
excluding the succeeding Monday will be reset by the Calculation Agent for such
Federal Funds Rate Security on such second Monday (or, if not a business day, on
the next succeeding business day) to a rate equal to the average of the Federal
Funds Rates in effect with respect to each such day in such week.
The "Calculation Date" pertaining to any Federal Funds Rate Determination
Date shall be the next succeeding business day.
LIBOR Securities. Each LIBOR Security will bear interest for each Interest
Reset Period at the interest rate calculated with reference to LIBOR and the
Spread or Spread Multiplier, if any, specified in such Security and in the
applicable Prospectus Supplement.
With respect to LIBOR indexed to the offered rates for U.S. dollar
deposits, "LIBOR" for each Interest Reset Period will be determined by the
Calculation Agent for any LIBOR Security as follows:
(i) On the second London Banking Day prior to the Interest Reset Date
for such Interest Reset Period (a "LIBOR Determination Date"), the
Calculation Agent for such LIBOR Security will determine the arithmetic
mean of the offered rates for deposits in U.S. dollars for the period of
the Index Maturity specified in the applicable Prospectus Supplement,
commencing on such Interest Reset Date, which appear on the Reuters Screen
LIBO Page at approximately 11:00 a.m., London time, on such LIBOR
Determination Date. For purposes of calculating LIBOR, "London Banking Day"
means any business day on which dealings in deposits in United States
dollars are transacted in the London interbank market and "Reuters Screen
LIBO Page" means the display designated as page "LIBO" on the Reuters
Monitor Money Rates Service (or such other page as may replace the LIBO
page on that service for the purpose of displaying London interbank offered
rates of major banks). If at least two such offered rates appear on the
Reuters Screen LIBO Page, "LIBOR" for such Interest Reset Period will be
the arithmetic mean of such offered rates as determined by the Calculation
Agent for such LIBOR Security.
(ii) If fewer than two offered rates appear on the Reuters Screen LIBO
Page on such LIBOR Determination Date, the Calculation Agent for such LIBOR
Security will request the principal London offices of each of four major
banks in the London interbank market selected by such Calculation Agent to
provide such Calculation Agent with its offered quotations for deposits in
U.S. dollars for the period of the specified Index Maturity, commencing on
such Interest Reset Date, to prime banks in the London interbank market at
approximately 11:00 a.m., London time, on such LIBOR Determination Date and
in a principal amount equal to an amount of not less than $1,000,000 that
is representative of a single transaction in such market at such time. If
at least two such quotations are provided, "LIBOR" for such Interest Reset
Period will be the arithmetic mean of such quotations. If fewer than two
such quotations are provided, "LIBOR" for such Interest Reset Period will
be the arithmetic mean of rates quoted by three major banks in The City of
New York selected by the Calculation Agent for such LIBOR Security at
approximately 11:00 a.m., New York City time, on such LIBOR Determination
Date for loans in U.S. dollars to leading European banks, for the period of
the specified Index Maturity, commencing on such Interest Reset Date, and
in a principal amount equal to an amount of not less than $1,000,000 that
is representative of a single transaction in such market at such time;
provided, however, that if the banks selected as aforesaid by such
Calculation Agent are not quoting rates as mentioned in this sentence,
"LIBOR" for such Interest Reset Period will be the same as LIBOR for the
immediately preceding Interest Reset Period.
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Treasury Rate Securities. Each Treasury Rate Security will bear interest
for each Interest Reset Period at the interest rate calculated with reference to
the Treasury Rate and the Spread or Spread Multiplier, if any, specified in such
Security and in the applicable Prospectus Supplement.
The "Treasury Rate" for each Interest Reset Period will be the rate for the
auction held on the Treasury Rate Determination Date (as defined below) for such
Interest Reset Period of direct obligations of the United States ("Treasury
bills") having the Index Maturity specified in the applicable Prospectus
Supplement, as such rate shall be published in H.15(519) under the heading "U.S.
Government Securities -- Treasury bills -- auction average (investment)" or, in
the event that such rate is not published prior to 3:00 p.m., New York City
time, on the Calculation Date (as defined below) pertaining to such Treasury
Rate Determination Date, the auction average rate (expressed as a bond
equivalent on the basis of a year of 365 or 366 days, as applicable, and applied
on a daily basis) on such Treasury Rate Determination Date as otherwise
announced by the United States Department of the Treasury. In the event that the
results of the auction of Treasury bills having the specified Index Maturity are
not published or reported as provided above by 3:00 p.m., New York City time, on
such Calculation Date, or if no such auction is held on such Treasury Rate
Determination Date, then the "Treasury Rate" for such Interest Reset Period
shall be calculated by the Calculation Agent for such Treasury Rate Security and
shall be the yield to maturity (expressed as a bond equivalent on the basis of a
year of 365 or 366 days, as applicable, and applied on a daily basis) of the
arithmetic mean of the secondary market bid rates, as of approximately 3:30
p.m., New York City time, on such Treasury Rate Determination Date, of three
leading primary United States government securities dealers selected by such
Calculation Agent for the issue of Treasury bills with a remaining maturity
closest to the specified Index Maturity; provided, however, that if the dealers
selected as aforesaid by such Calculation Agent are not quoting bid rates as
mentioned in this sentence, then the "Treasury Rate" for such Interest Reset
Period will be the same as the Treasury Rate for the immediately preceding
Interest Reset Period.
The "Treasury Rate Determination Date" for each Interest Reset Period will
be the day of the week in which the Interest Reset Date for such Interest Reset
Period falls on which Treasury bills would normally be auctioned. Treasury bills
are normally sold at auction on Monday of each week, unless that day is a legal
holiday, in which case the auction is normally held on the following Tuesday,
except that such auction may be held on the preceding Friday. If, as the result
of a legal holiday, an auction is so held on the preceding Friday, such Friday
will be the Treasury Rate Determination Date pertaining to the Interest Reset
Period commencing in the next succeeding week. If an auction date shall fall on
any day that would otherwise be an Interest Reset Date for a Treasury Rate
Security, then such Interest Reset Date shall instead be the business day
immediately following such auction date.
The "Calculation Date" pertaining to any Treasury Rate Determination Date
shall be the first to occur of (a) the tenth calendar day after such Treasury
Rate Determination Date or, if such a day is not a business day, the next
succeeding business day or (b) the second business day preceding the date any
payment is required to be made for any period following the applicable Interest
Reset Date.
BOOK-ENTRY AND DEFINITIVE SECURITIES; REPORTS TO SECURITYHOLDERS
BOOK-ENTRY REGISTRATION
The Prospectus Supplement related to a given series will specify whether
the holders of the Notes or Certificates of such series may hold their
respective Securities through DTC (in the United States) or Cedel Bank, societe
anonyme ("Cedel") or Euroclear (as defined below) (in Europe) if they are
participants of such systems, or indirectly through organizations that are
participants in such systems ("Book-Entry Notes" or "Book-Entry Certificates,"
respectively, and collectively referred to herein as "Book-Entry Securities").
The Sellers have been informed by DTC that DTC's nominee will be Cede,
unless another nominee is specified in the related Prospectus Supplement.
Accordingly, such nominee (i.e., DTC's Nominee) is expected to be the holder of
record of the Securities of any series held through DTC. DTC's Nominee will hold
the global Securities. Cedel and Euroclear will hold omnibus positions on behalf
of the Cedel Participants and the Euroclear Participants, respectively, through
customers' securities accounts in Cedel's and Euroclear's
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names on the books of their respective depositaries (collectively, the
"Depositaries") which in turn will hold such positions in customers' securities
accounts in the Depositaries' names on the books of DTC.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC was created to hold securities for its Participants and
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 (who may include any of the underwriters of a series of Securities),
banks, trust companies and clearing corporations and may include certain other
organizations. 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 (the "Indirect Participants").
Transfers between DTC Participants will occur in accordance with DTC rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
the ordinary way in accordance with their applicable rules and operating
procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by its Depositary; however, such cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depositary to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. Cedel Participants and Euroclear
Participants may not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities in Cedel or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant Cedel
Participant or Euroclear Participant on such business day. Cash received by
Cedel or Euroclear as a result of sales of securities by or through a Cedel
Participant or a Euroclear Participant to a DTC Participant will be received
with value on the DTC settlement date but will be available in the relevant
Cedel or Euroclear cash account only as of the business day following settlement
in DTC.
The Securityholders who are not Participants or Indirect Participants but
who desire to purchase, sell or otherwise transfer ownership of, or other
interest in, Securities may do so only through Participants and Indirect
Participants. In addition, Securityholders will receive all distributions of
principal and interest from the Indenture Trustee or the applicable Trustee, as
the case may be (the "Applicable Trustee"), through the Participants who in turn
will receive them from DTC. Under a book-entry format, Securityholders may
experience some delay in their receipt of payments, since such payments will be
forwarded by the Applicable Trustee to DTC's Nominee. DTC will forward such
payments to its Participants which thereafter will forward them to Indirect
Participants or Securityholders. To the extent the related Prospectus Supplement
provides that Book-Entry Securities will be issued, the only "Noteholder" or
"Certificateholder," as applicable, will be DTC's Nominee. Securityholders will
not be recognized by the Applicable Trustee as "Noteholders" or
"Certificateholders," as such terms are used in the Indenture or Trust
Agreement, as applicable, and Securityholders will be permitted to exercise the
rights of Securityholders only indirectly through DTC and its Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Securities among Participants on whose behalf it acts with respect to the
Securities and is required to receive and transmit distributions of principal
and interest on the Securities. Participants and Indirect Participants with
which Securityholders have accounts with respect to
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their respective Securities similarly are required to make book-entry transfers
and receive and transmit such payments on behalf of their respective
Securityholders. Accordingly, although Securityholders will not possess their
respective Securities, the Rules provide a mechanism by which Participants will
receive payments and will be able to transfer their 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
Securityholder to pledge Securities to persons or entities that do not
participate in the DTC system, or otherwise take actions with respect to such
Securities, may be limited due to the lack of a physical certificate for such
Securities.
DTC will advise the Administrator in respect of each Trust that it will
take any action permitted to be taken by a Securityholder under the related
Indenture or Trust Agreement, as applicable, only at the direction of one or
more Participants to whose accounts with DTC such Securities 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.
Cedel is incorporated under the laws of Luxembourg as a professional
depository. Cedel holds securities for its participating organizations ("Cedel
Participants") and facilitates the clearance and settlement of securities
transactions between Cedel Participants through electronic book-entry changes in
accounts of Cedel Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled by Cedel in any of 28
currencies, including United States dollars. Cedel provides to its Cedel
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Cedel interfaces with domestic markets in several
countries. As a professional depository, Cedel is subject to regulations by the
Luxembourg Monetary Institute. Cedel Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations and may include any of the underwriters of any series of
Securities. Indirect access to Cedel is also available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Cedel Participant, either directly or indirectly.
The Euroclear System ("Euroclear" or the "Euroclear System") was created in
1968 to hold securities for its participants ("Euroclear Participants") and to
clear and settle transactions between Euroclear Participants through
simultaneous electronic book-entry delivery against payment, thereby eliminating
the need for physical movement of certificates and the risk from transfers of
securities and cash that are not simultaneous.
The Euroclear System has subsequently been extended to clear and settle
transactions between Euroclear Participants and counterparties both in Cedel and
in many domestic securities markets. Transactions may now be settled in any of
32 currencies. In addition to safekeeping (custody) and securities clearance and
settlement, the Euroclear System includes securities lending and borrowing and
money transfer services. The Euroclear System is operated by the Brussels,
Belgium office of Morgan Guaranty Trust Company of New York (the "Euroclear
Operator"), under contract with Euroclear Clearance System, S.C., a Belgian
cooperative corporation that establishes policy on behalf of Euroclear
Participants. The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
All operations are conducted by the Euroclear Operator and all Euroclear
securities clearance accounts and cash accounts are accounts with the Euroclear
Operator. They are governed by the Terms and Conditions Governing Use of
Euroclear and the related Operating Procedures of the Euroclear System and
applicable Belgian law (collectively, the "Terms and Conditions"). The Terms and
Conditions govern all transfers of securities and cash, both within the
Euroclear System, and receipts and withdrawals of securities and cash. All
securities in the Euroclear System are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
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Euroclear Participants include banks (including central banks), securities
brokers and dealers and other professional financial intermediaries and may
include any of the underwriters of any series of Securities. Indirect access to
the Euroclear System is also available to other firms that clear through or
maintain a custodial relationship with a Euroclear Participant, either directly
or indirectly. The Euroclear Operator acts under the Terms and Conditions only
on behalf of Euroclear Participants and has no record of or relationship with
persons holding through Euroclear Participants.
Unless and until Definitive Securities are issued under the limited
circumstances described herein or in the related Prospectus Supplement, no
Securityholder will be entitled to receive a physical certificate representing a
Book-Entry Security. All references herein and in the related Prospectus
Supplement to actions by Securityholders shall refer to actions taken by DTC
upon instructions from its Participants, and all references herein and in the
related Prospectus Supplement to distributions, notices, reports and statements
to Securityholders shall refer to distributions, notices, reports and statements
to DTC or its nominee as the registered holder of the Book-Entry Securities, as
the case may be, for distribution to Book-Entry Securityholders in accordance
with DTC's procedures with respect thereto.
In the event that any of DTC, Cedel or Euroclear should discontinue its
services, the Administrator would seek an alternative depository (if available)
or cause the issuance of Definitive Securities to Securityholders or their
nominees in the manner described under "-- Definitive Securities."
Except as required by law, none of the Administrator, if any, the
applicable Trustee or the applicable Indenture Trustee, if any, 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 DTC's
Nominee, or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
DEFINITIVE SECURITIES
With respect to any series of Notes and any series of Certificates issued
in book-entry form, such Notes or Certificates will be issued in fully
registered, certificated form ("Definitive Notes" and "Definitive Certificates,"
respectively, and collectively referred to herein as "Definitive Securities") to
Noteholders or Certificateholders or their respective nominees, rather than to
DTC or its nominee, only if (i) the related Administrator or Trustee, as
applicable, determines that DTC is no longer willing or able to discharge
properly its responsibilities as depository with respect to such Securities and
such Administrator or Trustee is unable to locate a qualified successor (and if
it is an Administrator that has made such determination, such Administrator so
notifies the Applicable Trustee in writing), (ii) the Administrator or Trustee,
as applicable, at its option, elects to terminate the book-entry system through
DTC or (iii) after the occurrence of an Event of Default or an Event of
Servicing Termination with respect to such Securities, holders representing at
least a majority of the outstanding principal amount of the Notes or the
Certificates, as the case may be, of such series advise the Applicable Trustee
through DTC in writing that the continuation of a book-entry system through DTC
(or a successor thereto) with respect to such Notes or Certificates is no longer
in the best interest of the holders of such Securities.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Applicable Trustee will be required to notify all applicable
Securityholders of a given series through Participants of the availability of
Definitive Securities. Upon surrender by DTC of the definitive certificates
representing the corresponding Securities and receipt of instructions for
re-registration, the Applicable Trustee will reissue such Securities as
Definitive Securities to such Securityholders.
Distributions of principal of, and interest on, such Definitive Securities
will thereafter be made by the Applicable Trustee in accordance with the
procedures set forth in the related Indenture or the related Trust Agreement or
Pooling and Servicing Agreement, as applicable, directly to holders of
Definitive Securities in whose names the Definitive Securities were registered
at the close of business on the applicable Record Date specified for such
Securities in the related Prospectus Supplement. Such distributions will be made
by check mailed to the address of such holder as it appears on the register
maintained by the Applicable Trustee. The final payment on any such Definitive
Security, however, will be made only upon presentation and surrender of
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such Definitive Security at the office or agency specified in the notice of
final distribution to the applicable Securityholders.
Definitive Securities will be transferable and exchangeable at the offices
of the Applicable Trustee or of a registrar named in a notice delivered to
holders of Definitive Securities. No service charge will be imposed for any
registration of transfer or exchange, but the Applicable Trustee may require
payment of a sum sufficient to cover any tax or other governmental charge
imposed in connection therewith.
REPORTS TO SECURITYHOLDERS
With respect to each series of Securities that includes Notes, on or prior
to each Distribution Date, the Servicer will prepare and provide to the related
Indenture Trustee a statement to be delivered to the related Noteholders on such
Distribution Date. With respect to each series of Securities, on or prior to
each Distribution Date, the Servicer will prepare and provide to the related
Trustee a statement to be delivered to the related Certificateholders on such
Distribution Date. With respect to each series of Securities, each such
statement to be delivered to Noteholders will include (to the extent applicable)
the following information (and any other information so specified in the related
Prospectus Supplement) as to the Notes of such series with respect to such
Distribution Date or the period since the previous Distribution Date, as
applicable, and each such statement to be delivered to Certificateholders will
include (to the extent applicable) the following information (and any other
information so specified in the related Prospectus Supplement) as to the
Certificates of such series with respect to such Distribution Date or the period
since the previous Distribution Date, as applicable:
(i) the amount of the distribution allocable to principal of each
class of such Notes and to the Certificate Balance of each class of such
Certificates;
(ii) the amount of the distribution allocable to interest on or with
respect to each class of Securities of such series;
(iii) the amount of the distribution allocable to draws from the
Reserve Account (if any), the Yield Supplement Account (if any) or payments
in respect of any other credit or cash flow enhancement arrangement;
(iv) the Pool Balance as of the close of business on the last day of
the preceding Collection Period;
(v) the aggregate outstanding principal balance and the Note Pool
Factor for each class of such Notes, and the Certificate Balance and the
Certificate Pool Factor for each class of such Certificates, each after
giving effect to all payments reported under clause (i) above on such date;
(vi) the amount of the Servicing Fee paid to the Servicer with respect
to the related Collection Period or Collection Periods, as the case may be;
(vii) the amount of the aggregate Realized Losses (as defined in the
related Prospectus Supplement), if any, for such Collection Period;
(viii) 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, in each case as
applicable to each class of Securities, and the change in such amounts from
the preceding statement;
(ix) the aggregate Purchase Amounts for Receivables, if any, that were
repurchased in such Collection Period;
(x) the balance of the Reserve Account (if any) on such date, after
giving effect to changes therein on such date;
(xi) the balance of the Yield Supplement Account (if any) on such
date, after giving effect to changes therein on such date;
(xii) the amount of Advances or Advance Reserve Withdrawals on such
date;
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(xiii) for each such date during the Funding Period (if any), the
remaining Pre-Funded Amount;
(xiv) 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 of such series; and
(xv) the Note Interest Rate and/or Certificate Rate for the next
period for any class of Notes or Certificates of such series with variable
or adjustable rates.
Each amount set forth pursuant to subclauses (i), (ii), (iii), (vi) and
(viii) with respect to the Notes or the Certificates of any series will be
expressed as a dollar amount per $1,000 of the initial principal balance of such
Notes or the initial Certificate Balance of such Certificates, as applicable.
Within the prescribed period of time for federal income tax reporting
purposes after the end of each calendar year during the term of each Trust, the
Applicable Trustee will mail to each person who at any time during such calendar
year has been a Securityholder with respect to such Trust and received any
payment thereon a statement containing certain information for the purposes of
such Securityholder's preparation of federal income tax returns. See "Federal
Income Tax Consequences" herein and in the related Prospectus Supplement.
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes certain terms of each Sale and Servicing
Agreement or Pooling and Servicing Agreement pursuant to which a Trust will
purchase Receivables from the Sellers and the Servicer will agree to service
such Receivables, each Trust Agreement (in the case of a grantor trust, the
Pooling and Servicing Agreement) pursuant to which a Trust will be created and
Certificates will be issued and each Administration Agreement pursuant to which
NationsBank, N.A. will undertake certain administrative duties with respect to a
Trust that issues Notes (collectively, the "Transfer and Servicing Agreements").
Forms of the Transfer and Servicing Agreements have been filed as exhibits to
the Registration Statement of which this Prospectus forms a part. This summary
does not purport to be complete and is subject to, and qualified in its entirety
by reference to, all the provisions of the Transfer and Servicing Agreements.
SALE AND ASSIGNMENT OF RECEIVABLES
Prior to the time of issuance of the Securities of a given Trust, pursuant
to a related Sale and Servicing Agreement or Pooling and Servicing Agreement,
the Sellers will sell and assign to the Trustee, without recourse, their entire
interest in the Initial Receivables, if any, of the related Receivables Pool,
including their security interests in the related Financed Vehicles. Each such
Receivable will be identified in a schedule to the related Sale and Servicing
Agreement or Pooling and Servicing Agreement. The applicable Trustee will not
independently verify the existence and qualification of any Receivables. The
Trustee will, concurrently with such sale and assignment, execute, authenticate,
and deliver the related Notes and/or Certificates to the Sellers in exchange for
the Receivables. If so provided in the related Prospectus Supplement, the net
proceeds received by the Sellers from the sale of the Certificates and the Notes
of a given series will be applied to the deposit of the Pre-Funded Amount into
the Pre-Funding Account, if any, and to make the initial deposit into the
Reserve Account, if any. The related Prospectus Supplement for a given Trust
will specify whether, and the terms, conditions and manner under which,
Subsequent Receivables will be sold by the Sellers to the applicable Trust from
time to time during any Funding Period on each date specified as a transfer date
in the related Prospectus Supplement (each, a "Subsequent Transfer Date").
If so specified in the related Prospectus Supplement, all or a portion of
the Receivables may be purchased by the Trust from the Sellers for a purchase
price which is less than the aggregate principal balance thereof. If any
Receivables are purchased for a purchase price less than their respective
principal balances, a portion of the collections or proceeds in respect of
principal from such Receivables may be deemed collections or proceeds in respect
of interest on such Receivables for the purposes of allocating distributions on
the Securities.
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In each Sale and Servicing Agreement or Pooling and Servicing Agreement the
Sellers will represent and warrant to the applicable Trust, among other things,
as of the applicable Closing Date (or the applicable Subsequent Transfer Date)
(unless otherwise indicated): (i) the Receivable has been fully and properly
executed by the parties thereto and (a) has been originated or purchased by such
Seller in the ordinary course of its business and in accordance with such
Seller's underwriting standards to finance the retail sale by a Dealer of the
Financed Vehicle, (b) is secured by a valid, subsisting, and enforceable
security interest in favor of such Seller in the Financed Vehicle (subject to
administrative delays and clerical errors on the part of the applicable
government agency and to any statutory or other lien arising by operation of law
after the Closing Date which is prior to such security interest) prior in right
to the security interest of any other creditor, which security interest is
assignable together with such Receivable, and has been so assigned, by such
Seller to the Trustee, (c) contains customary and enforceable provisions such
that the rights and remedies of the holder thereof are adequate for realization
against the collateral of the benefits of the security, (d) provided, at
origination, for level monthly payments (although the amount of the last payment
may be different), which fully amortize the initial principal balance of the
Receivable over the original term and (e) provides for interest at the related
contractual interest rate ("Contract Rate"); (ii) the information set forth in
the Schedule of Receivables was true and correct as of the close of business on
the applicable Cut-Off Date (or the applicable Subsequent Transfer Date); (iii)
to the knowledge of such Seller, the Receivable complied at the time it was
originated or made, and will comply as of the Closing Date (or the applicable
Subsequent Transfer Date), in all material respects with all requirements of
applicable federal, state and local laws, and regulations thereunder; provided,
however that if notwithstanding the knowledge of the Seller, the representation
set forth in this clause is untrue, the Seller shall repurchase such Receivable
in accordance with the terms of the applicable Transfer and Servicing Agreement;
(iv) the Receivable constitutes the genuine, legal, valid and binding payment
obligation in writing of the Obligor, enforceable in all material respects by
the holder thereof in accordance with its terms, and except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, conservatorship, receivership, liquidation and other
similar laws affecting creditors' rights in general, the Receivable is not
subject to any right of rescission, setoff, counterclaim or defense, including
the defense of usury, and the operation of any of the terms of the Receivable,
or the exercise of any right thereunder, will not render the Receivable
unenforceable in whole or in part or subject to any right of rescission, setoff,
counterclaim or defense, including the defense of usury, and such Seller has not
received written notice that any right of rescission, setoff, counterclaim or
defense has been asserted with respect thereto; (v) such Seller has taken no
action which would have the effect of releasing the related Financed Vehicle
from the lien granted by the Receivable in whole or in part; (vi) no material
provision of the Receivable has been amended, waived, altered or modified in any
respect, except such waivers as would be permitted under the applicable Transfer
and Servicing Agreement, and no amendment, waiver, alteration or modification
causes such Receivable not to conform to the other representations or warranties
contained in this paragraph; (vii) such Seller has not received notice of any
liens or claims, including liens for work, labor, materials or unpaid state or
Federal taxes relating to the Financed Vehicle securing the Receivable, that are
or may be prior to or equal to or coordinate with the lien granted by the
Receivable; (viii) except for payment delinquencies continuing for a period of
not more than 30 days as of the Cut-Off Date (or the applicable Subsequent
Transfer Date), to the knowledge of such Seller, (a) no default, breach,
violation or event permitting acceleration under the terms of any Receivable
exists and (b) no continuing condition that with notice or lapse of time, or
both, would constitute a default, breach, violation or event permitting
acceleration under the terms of the Receivable has arisen; provided, however,
that if notwithstanding the knowledge of the Seller, any of the events specified
in (a) or (b) of this clause exists or has arisen with respect to a Receivable,
the Seller shall repurchase such Receivable in accordance with the terms of the
applicable Transfer and Servicing Agreement; (ix) immediately prior to the
transfer and assignment therein contemplated, the Receivable has not been sold,
assigned, pledged or otherwise conveyed by such Seller to any person other than
the Trust, and such Seller had good and marketable title to the Receivable free
and clear of any encumbrance, equity, lien, pledge, charge, claim, security
interest or other right or interest of any other person and had full right and
power to transfer and assign the Receivable to the Trust and immediately upon
the transfer and assignment of the Receivable to the Trust, the Trust will have
good and marketable title to the Receivable, free and clear of any encumbrance,
equity, lien, pledge, charge, claim, security interest or other right or
interest of any other person and, if such transfer to the Trust is deemed to be
a transfer for security,
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the Trust's interest in the Receivable resulting from the transfer has been
perfected under the UCC; (x) such Seller has duly fulfilled all obligations on
its part to be fulfilled under the Receivable; and (xi) only one original of
each Receivable was executed and, immediately prior to the Closing Date, the
Servicer or NSI will have possession of the Receivable File.
In the event of a breach or failure to be true of any representation or
warranty by a Seller with respect to the Receivables described above, which
breach or failure materially and adversely affects the interests of the related
Trust in a Receivable (it being understood that any such breach or failure with
respect to certain representations and warranties which does not affect the
ability of the Trust to receive and retain payment in full on the Receivable
will not be deemed to have such a material and adverse effect), such Seller,
unless such breach or failure has been cured by the last day of the Collection
Period which includes the 60th day after the date on which such Seller becomes
aware of, or receives written notice from the Trustee or the Servicer of, such
breach or failure, will be required to repurchase the Receivable from the
Trustee for the Purchase Amount; provided, however, that if such breach or
failure occurs solely as a result of NationsBank, N.A.'s practice of retaining
original Motor Vehicle Loan documents only in microfilm form, NationsBank, N.A.
will not be required to repurchase the affected Receivable unless the related
Dealer enters into bankruptcy, and the bankruptcy trustee or a creditor of such
Dealer asserts that NationsBank, N.A. did not have, or the Trust does not have,
a first priority perfected ownership interest in such Receivable as a result of
such practice. The Purchase Amount is payable on the next Deposit Date. The
repurchase obligation will constitute the sole remedy available to the
Certificateholders, the Noteholders, the Indenture Trustee or the Trust against
such Seller for any such uncured breach or failure.
The "Purchase Amount" of any Receivable means, with respect to any Deposit
Date, an amount equal to the sum of (i) the outstanding principal balance of
such Receivable as of the last day of the preceding Collection Period and (ii)
the amount of accrued and unpaid interest on such principal balance at the
related Contract Rate from the date a payment was last made by or on behalf of
the Obligor through and including the last day of such preceding Collection
Period, in each case after giving effect to the receipt of monies collected on
such Receivable in such preceding Collection Period.
Pursuant to each Sale and Servicing Agreement or Pooling and Servicing
Agreement, and in order to assure uniform quality in servicing the Receivables
and to reduce administrative costs, the Trustee will appoint NSI as initial
custodian of the Receivables. NSI, as custodian with respect to a particular
Seller's Receivables, will hold such Receivables and physical registration or
evidence of registration as is customary for each state, including any motor
vehicle certificates of title or ownership relating thereto (each, a "Receivable
File"), on behalf of the applicable Trustee. The Receivables will not be stamped
or otherwise marked to reflect the sale and assignment of the Receivables to the
applicable Trust and will not be segregated from other receivables held by NSI.
The Sellers', the Servicer's and their respective affiliates' accounting records
and computer systems will reflect the sale and assignment of the Receivables to
the applicable Trust, and UCC financing statements with respect to such sale and
assignment will be filed. See "The Trusts" and "The Receivables
Pools -- General" and "Certain Legal Aspects of the Receivables -- Security
Interests in Vehicles."
ACCOUNTS
With respect to each Trust that issues Notes, the Servicer will establish
and maintain with the related Indenture Trustee one or more accounts, in the
name of the Indenture Trustee on behalf of the related Noteholders and
Certificateholders, into which all payments made on or with respect to the
related Receivables will be deposited (the "Collection Account"). The Servicer
will establish and maintain with such Indenture Trustee an account, in the name
of such Indenture Trustee on behalf of such Noteholders, into which amounts
released from the Collection Account and any Pre-Funding Account, 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 Payment Account"). The Servicer will establish and maintain with the
related Trustee an account, in the name of such Trustee on behalf of such
Certificateholders, into which amounts released from the Collection Account and
any Pre-Funding Account, Yield Supplement Account, Reserve Account or other
credit or cash flow enhancement for distribution to such Certificateholders will
be deposited and from which all distributions to such Certificateholders will be
made (the "Certificate
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Distribution Account"). With respect to each Trust that does not issue Notes,
the Servicer will also establish and maintain the Collection Account and any
other Trust Account in the name of the related Trustee on behalf of the related
Certificateholders.
Any other accounts to be established with respect to a Trust, including any
Pre-Funding Account, Yield Supplement Account or Reserve Account, will be
described in the related Prospectus Supplement.
For any series of Securities, funds in the Collection Account, the Note
Payment Account and any Pre-Funding Account, Yield Supplement Account, Reserve
Account and other accounts identified as such in the related Prospectus
Supplement (collectively, the "Trust Accounts") will be invested as provided in
the related Sale and Servicing Agreement or Pooling and Servicing Agreement in
Permitted Investments. "Permitted Investments" means (i) direct obligations of,
and obligations fully guaranteed as to timely payment by, the United States of
America or its agencies; (ii) demand deposits, time deposits, certificates of
deposit or bankers' acceptances of certain depository institutions or trust
companies having the highest rating from the applicable Rating Agency; (iii)
commercial paper having, at the time of the Trust's investment, a rating in the
highest rating category from the applicable Rating Agency; and (iv) investments
in money market funds having the highest rating from the applicable Rating
Agency; provided, that no such Permitted Investment shall be of a type such that
the investment therein by the applicable Trust would result in such Trust being
required to register as an investment company under the Investment Company Act
of 1940, as amended. Permitted Investments are generally limited to obligations
or securities that mature on or before the date of the next distribution for
such series. However, to the extent permitted by the Rating Agencies, funds in
any Reserve Account may be invested in securities that will not mature prior to
the date of the next distribution with respect to such Certificates or Notes and
will not be sold to meet any shortfalls. Thus, the amount of cash in any Reserve
Account at any time may be less than the balance of the Reserve Account. If the
amount required to be withdrawn from any Reserve Account to cover shortfalls in
collections on the related Receivables (as provided in the related Prospectus
Supplement) exceeds the amount of cash in the Reserve Account, a temporary
shortfall in the amounts distributed to the related Noteholders or
Certificateholders could result, which could, in turn, increase the average life
of the Notes or the Certificates of such series. Investment earnings on funds
deposited in the Trust Accounts, net of losses and investment expenses
(collectively, "Investment Earnings"), shall be deposited in the applicable
Collection Account or distributed as provided in the related Prospectus
Supplement.
The Trust Accounts will be maintained as Eligible Deposit Accounts.
"Eligible Deposit Account" means either (a) a segregated account with an
Eligible Institution or (b) a segregated trust account with the corporate trust
department of a depository institution organized under the laws of the United
States of America or any one of the states thereof or the District of Columbia
(or any domestic branch of a foreign bank), having corporate trust powers and
acting as trustee for funds deposited in such account, so long as any of the
securities of such depository institution have a credit rating from each Rating
Agency in one of its generic rating categories which signifies investment grade.
"Eligible Institution" means, with respect to a Trust, (a) the corporate trust
department of the related Indenture Trustee or the related 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 Federal Deposit
Insurance Corporation.
COLLECTIONS
With respect to each Trust, the Servicer will deposit all payments on the
related Receivables received from Obligors and all proceeds of the related
Receivables collected during each collection period specified in the related
Prospectus Supplement (each, a "Collection Period") into the related Collection
Account not later than two business days after receipt. However, so long as
NationsBank, N.A. is the Servicer and provided that (i) there exists no Event of
Servicing Termination and (ii) each other condition to making monthly deposits
as may be required by the related Sale and Servicing Agreement or Pooling and
Servicing Agreement is satisfied, the Servicer may retain such amounts until the
business day prior to the applicable Distribution Date
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(the "Deposit Date"). The Servicer or the Sellers, as the case may be, will
remit the aggregate Purchase Amount of any Receivables to be purchased from a
Trust to the related Collection Account on the applicable Deposit Date. 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. To the extent set forth in the related Prospectus Supplement, the
Servicer may, in order to satisfy the requirements described above, obtain a
letter of credit or other security for the benefit of the related Trust to
secure timely remittances of collections on the related Receivables and payment
of the aggregate Purchase Amount with respect to Receivables purchased by the
Servicer.
The Sellers and the Servicer will also deposit into the Collection Account
on or before each Deposit Date the Purchase Amount of each Receivable to be
repurchased or purchased by them pursuant to an obligation that arose during the
preceding Collection Period. The Servicer will be entitled to retain, or to be
reimbursed from, amounts otherwise payable into, or on deposit in, the
Collection Account but later determined to have resulted from mistaken deposits
or postings or checks returned for insufficient funds.
ADVANCES AND ADVANCE RESERVE WITHDRAWALS
Servicer Advances. If so provided in the related Prospectus Supplement, as
of the last day of each Collection Period, the Servicer will, subject to the
limitations described in the following sentence, make a payment (an "Advance")
with respect to each Receivable (other than a Receivable which the Servicer, on
behalf of the applicable Trust, has determined to chargeoff during such
Collection Period, in accordance with its customary servicing practices (a
"Defaulted Receivable")) equal to the excess, if any, of (x) the amount of
interest due on such Receivable at its applicable Contract Rate, over (y) the
interest actually received by the Servicer with respect to such Receivable
(whether from the Obligor, the Yield Supplement Agreement (if applicable) or
payments of the Purchase Amount) during or with respect to such Collection
Period. The Servicer may elect not to make an Advance of due and unpaid interest
with respect to a Receivable to the extent that the Servicer, in its sole
discretion, determines that such Advance is not recoverable from subsequent
payments on such Receivable or from funds in the Reserve Account. Advances by
the Servicer will not be required to be made pursuant to any Sale and Servicing
Agreement, except to the extent specified in the related Prospectus Supplement.
To the extent that the amount set forth in clause (y) above with respect to
a Receivable is greater than the amount set forth in clause (x) above with
respect thereto, such amount shall be distributed to the Servicer on the related
Distribution Date. Any such payment will only be from accrued interest due from
the Obligor under such Receivable.
The Servicer will deposit Advances, if any, into the Collection Account on
the applicable Deposit Date.
Advance Reserve Withdrawals. To the extent provided in the related
Prospectus Supplement, and only to the extent that such Prospectus Supplement
does not provide for Advances to be made by the Servicer, the Servicer may, as
of the last day of the Collection Period, withdraw from the Reserve Account
funds in an amount with respect to each Receivable (other than a Defaulted
Receivable) equal to the excess, if any, of (x) the amount of interest due on
such Receivable at its applicable Contract Rate, over (y) the interest actually
received by the Servicer with respect to such Receivable (whether from the
Obligor, the Yield Supplement Agreement (if applicable) or payments of the
Purchase Amount) during or with respect to such Collection Period (an "Advance
Reserve Withdrawal"). The Servicer will deposit Advance Reserve Withdrawals, if
any, into the Collection Account on the applicable Deposit Date. Advance Reserve
Withdrawals will not be required to be made pursuant to any Sale and Servicing
Agreement, except to the extent specified in the related Prospectus Supplement.
SERVICING PROCEDURES
With respect to a Trust, the Servicer will make reasonable efforts to
collect all payments due with respect to the Receivables in a manner consistent
with the terms described in the Sale and Servicing Agreement or the Pooling and
Servicing Agreement and will exercise the degree of skill and care that the
Servicer exercises with respect to similar motor vehicle installment sales
contracts serviced by the Servicer for itself or others and
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that are consistent with prudent industry standards. Consistent with its normal
procedures, the Servicer may, in its discretion, arrange with the Obligor on a
Receivable to defer or modify the payment schedule. Some of such arrangements
may cause the Servicer to purchase the Receivable while others may result in
Advance Reserve Withdrawals or the Servicer making Advances with respect to the
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 holding of any other action permitted by applicable law.
The Servicer shall be permitted to delegate (i) any and all of its servicing
duties to any of its affiliates (including the Sellers) or (ii) specific duties
to subcontractors who are in the business of performing such duties; provided,
however, the Servicer will remain obligated and liable to the Trustee and the
Securityholders for servicing and administering the Receivables in accordance
with the Sales and Servicing Agreement or the Pooling and Servicing Agreement as
if the Servicer alone were servicing the Receivables.
With respect to any Trust, the Servicer will covenant in the Sale and
Servicing Agreement and in the Pooling and Servicing Agreement that: (i) the
Servicer will not release the Financed Vehicle from the security interest
granted by the related Receivable in whole or in part, except upon payment in
full of the Receivable or as otherwise contemplated by the Sale and Servicing
Agreement and in the Pooling and Servicing Agreement; (ii) the Servicer will not
impair in any material respect the rights of the Securityholders in the
Receivables, the Dealer Agreements or the physical damage insurance policies;
and (iii) the Servicer will not (a) extend a Receivable beyond the date
specified in the applicable Prospectus Supplement, (b) amend or modify the
principal balance or Contract Rate of any Receivable, or (c) amend, waive or
otherwise modify any material term of a Receivable, except in the case of
certain extensions explicitly permitted by the Sale and Servicing Agreement and
in the Pooling and Servicing Agreement.
MANDATORY REPURCHASE OF RECEIVABLES
In the event of a breach by the Servicer of any covenant described above
that materially and adversely affects the interests of the Trust and the
Securityholders in a Receivable, the Servicer, unless such breach has been cured
by the last day of the Collection Period which includes the 60th day following
the date on which the Servicer becomes aware of, or receives written notice of
such breach, or earlier in certain circumstances, will be required to purchase
the Receivable from the Trustee on the Deposit Date immediately following such
Collection Period or earlier under certain circumstances. The purchase price
will be the Purchase Amount as of the last day of the Collection Period
preceding the date of such purchase. The purchase obligation will constitute the
sole remedy available to the Noteholders, the Certificateholders, the Trust or
the Trustee against the Servicer for any such uncured breach, except with
respect to certain indemnities of the Servicer under the Agreement related
thereto. See "-- Event of Servicing Termination" below.
The Sale and Servicing Agreement and the Pooling and Servicing Agreement
will also generally require the Servicer to charge off a Receivable as a
Defaulted Receivable in accordance with its customary standards and to follow
such of its normal collection practices and procedures as it deems necessary or
advisable, and that are consistent with the standard of care required by the
Agreement, to realize upon any Receivable. The Servicer may sell the Financed
Vehicle securing such Receivable at judicial sale or take any other action
permitted by applicable law. See "Certain Legal Aspects of the Receivables."
The Sale and Servicing Agreement and the Pooling and Servicing Agreement
will provide that the Servicer will defend and indemnify the Trust and the
Certificateholders against any and all costs, expenses, losses, damages, claims
and liabilities, including reasonable fees and expenses of counsel and expenses
of litigation, arising out of or resulting from (i) the use, ownership or
operation by the Servicer or any affiliate thereof of any Financed Vehicle
occurring in connection with any repossession of a Financed Vehicle or (ii) the
willful misfeasance, negligence or bad faith of the Servicer in the performance
of its duties under the Agreement. The Servicer's obligations to indemnify the
Trust and the Certificateholders for the Servicer's actions or omissions will
survive the removal of the Servicer, but will not apply to any action or
omission of a successor Servicer.
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SERVICING COMPENSATION AND EXPENSES
The Servicer will be entitled to receive a servicing fee (the "Servicing
Fee") for each Collection Period equal to a specified percentage (the "Servicing
Fee Rate") of the Pool Balance as of the first day of such Collection Period.
The Servicer also will be entitled to receive a supplemental servicing fee (the
"Supplemental Servicing Fee") for each Collection Period equal to any late,
prepayment, and other administrative fees and expenses collected during such
Collection Period. To the extent specified in the related Prospectus Supplement,
the Supplemental Servicing Fee will include Investment Earnings on funds
deposited in the Trust Accounts and other accounts with respect to a Trust. The
Servicer will be paid the Servicing Fee and the Supplemental Servicing Fee for
each Collection Period on the applicable Distribution Date.
The Servicing Fee and the Supplemental Servicing Fee (collectively, the
"Servicer Fee") are intended to compensate the Servicer for performing the
functions of a third party servicer of the 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 federal income tax information to
Obligors, paying costs of collections, and policing the collateral. The Servicer
Fee will also compensate the Servicer for administering the particular
Receivables Pool, including making Advances, accounting for collections,
furnishing monthly and annual statements to the related Trustee and Indenture
Trustee with respect to distributions, and generating federal income tax
information for the Trust. The Servicer Fee also will reimburse the Servicer for
certain taxes, the fees of the related Trustee and Indenture Trustee, accounting
fees, outside auditor fees, data processing costs, and other costs incurred in
connection with administering the applicable Receivables.
DISTRIBUTIONS
With respect to each series of Securities, beginning on the Distribution
Date specified in the related Prospectus Supplement, distributions of principal
and interest (or, where applicable, of principal or interest only) on each class
of such Securities entitled thereto will be made by the Applicable Trustee to
the Noteholders and the Certificateholders of such series. The timing,
calculation, allocation, order, source, priorities of and requirements for all
payments to each class of Noteholders and all distributions to each class of
Certificateholders of such series will be set forth in the related Prospectus
Supplement.
With respect to each Trust, on each Distribution Date, collections on the
related Receivables will be transferred from the Collection Account to the Note
Payment Account, if any, and the Certificate Distribution Account for
distribution to Noteholders, if any, and Certificateholders to the extent
provided in the related 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. As more fully described in the related Prospectus
Supplement, distributions in respect of principal of a class of Securities of a
given series may be subordinate to distributions in respect of interest on such
class, and distributions in respect of one or more classes of Certificates of
such series may be subordinate to payments in respect of Notes, if any, of such
series or other classes of Certificates of such series.
Allocation of Collections on Receivables. Distributions of principal on
the Securities of a series may be based on the amount of principal collected or
due, or the amount of Realized Losses incurred, in a Collection Period. On or
before the fifth business day preceding each Distribution Date (a "Determination
Date"), the Servicer shall determine the amount in the Collection Account
available for distribution on the related Distribution Date. Such amount shall
be allocated to interest and to principal if and as described in the applicable
Prospectus Supplement.
CREDIT AND CASH FLOW ENHANCEMENT
The amounts and types of credit and cash flow enhancement arrangements and
the provider thereof, if applicable, with respect to each class of Securities of
a given series, if any, will be set forth in the related Prospectus Supplement.
If and to the extent provided in the related Prospectus Supplement, credit and
cash flow enhancement may be in the form of subordination of one or more classes
of Securities, Reserve Accounts, over-collateralization, letters of credit,
credit or liquidity facilities, surety bonds, guaranteed investment
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contracts, swaps or other interest rate protection agreements, repurchase
obligations, yield supplement agreements, other agreements with respect to third
party payments or other support, cash deposits or 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 or cash flow enhancement for a class of Securities may cover one or more
other classes of Securities of the same series, and credit or cash flow
enhancement for a series of Securities may cover one or more other series of
Securities.
The presence of a Reserve Account and other forms of credit enhancement for
the benefit of any class or series of Securities is intended to enhance the
likelihood of receipt by the Securityholders of such class or series of the full
amount of principal and interest due thereon and to decrease the likelihood that
such Securityholders will experience losses. The credit enhancement for a class
or series of Securities may not provide protection against all risks of loss and
may not guarantee repayment of the entire principal balance 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
of any class or series will bear their allocable share of deficiencies, as
described in the related Prospectus Supplement. In addition, if a form of credit
enhancement covers more than one series of Securities, Securityholders of any
such series will be subject to the risk that such credit enhancement will be
exhausted by the claims of Securityholders of other series.
The Sellers may replace the credit enhancement for any class of Securities
with another form of credit enhancement without the consent of Securityholders,
provided the applicable Rating Agencies confirm in writing that substitution
will not result in the reduction or withdrawal of the rating of such class of
Securities or any other class of Securities of the related series.
Reserve Account. If so provided in the related Prospectus Supplement,
pursuant to the related Sale and Servicing Agreement or Pooling and Servicing
Agreement, the Sellers or NAFC will establish for a series or class of
Securities an account, as specified in the related Prospectus Supplement (the
"Reserve Account"), which will be maintained with the related Trustee or
Indenture Trustee, as applicable. If so provided in the related Prospectus
Supplement, the Reserve Account will be funded by an initial deposit by the
Sellers on the Closing Date in the amount set forth in the related Prospectus
Supplement and, if the related series has a Funding Period, will also be funded
on each Subsequent Transfer Date to the extent described 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 all other required payments and
distributions on such date. The related Prospectus Supplement will describe the
circumstances and manner under which distributions may be made out of the
Reserve Account, and to whom such amounts will be distributed.
The Sellers or NAFC, as the case may be, may at any time, without consent
of the Securityholders, sell, transfer, convey or assign in any manner its
rights to and interests in distributions from the Reserve Account provided that
(i) the Rating Agencies confirm in writing that such action will not result in a
reduction or withdrawal of the rating of any class of Securities, (ii) the
Sellers provide to the applicable Trustee and any Indenture Trustee an opinion
of independent counsel that such action will not cause the related Trust to be
classified as an association (or publicly traded partnership) taxable as a
corporation for federal income tax purposes and (iii) such transferee or
assignee agrees in writing to take positions for federal income tax purposes
consistent with the federal income tax positions agreed to be taken by the
Sellers and NAFC.
Yield Supplement Account; Yield Supplement Agreement. If so provided in
the related Prospectus Supplement, pursuant to the related Sale and Servicing
Agreement or Pooling and Servicing Agreement, the Sellers, NAFC or another
person will enter into a Yield Supplement Agreement pursuant to which the
Sellers or NAFC or another person will establish for a series an account, as
specified in the related Prospectus Supplement (the "Yield Supplement Account"),
which will be maintained with the same entity at which the related Collection
Account is maintained and, if so specified in the related Prospectus Supplement,
will be created with an initial deposit by the Sellers of the Yield Supplement
Initial Deposit. Each Yield Supplement Account will be designed solely to hold
funds to be applied by the Indenture Trustee or applicable Trustee to
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provide payments to Securityholders in respect of Receivables the Contract Rate
of which is less than the Required Rate.
On each Distribution Date, the obligor under the Yield Supplement Agreement
will pay to the Trust an amount equal to the Yield Supplement Amount (as such
term is defined in the related Prospectus Supplement, the "Yield Supplement
Amount") in respect of the Receivables for such Distribution Date. If so
specified in the Prospectus Supplement, in the event that such obligor defaults
on its obligation to make payments under the Yield Supplement Agreement, the
related Prospectus Supplement will describe the manner and circumstances in
which amounts on deposit on any Distribution Date in the Yield Supplement
Account in excess of the Required Yield Supplement Amount will be released, and
to whom such amounts will be distributed. Monies on deposit in the Yield
Supplement Account may be invested in Permitted Investments under the
circumstances and in the manner described in the related Sale and Servicing
Agreement or Pooling and Servicing Agreement, as applicable. If so specified in
the related Prospectus Supplement, Investment Earnings on investment of funds in
a Yield Supplement Account will be deposited into such Yield Supplement Account.
The related Prospectus Supplement, will describe the manner in which any monies
remaining on deposit in a Yield Supplement Account upon the termination of the
related Trust pursuant to its terms will be released and to whom such amounts
will be distributed.
If a Yield Supplement Account is established with respect to any Trust as
to which a Pre-Funding Account has been established, the Sellers and the related
Indenture Trustee or applicable Trustee, will enter into a Yield Supplement
Agreement pursuant to which, on each Subsequent Transfer Date, the Sellers will
deposit into the Yield Supplement Account the Additional Yield Supplement Amount
in respect of the related Subsequent Receivables. Each Yield Supplement
Agreement will affect only Receivables having Contract Rates less than the
related Required Rate.
NET DEPOSITS
As an administrative convenience and for so long as certain conditions are
satisfied (see "-- Collections" above), the Servicer will be permitted to make
the deposit of collections, aggregate Advances, if any, and Purchase Amounts for
any Trust for or with respect to the related Collection Period, net of
distributions to the Servicer as reimbursement of Advances or payment of the
Servicer Fee with respect to such Collection Period. The Servicer, however, will
account to the Trustee, any Indenture Trust, the Noteholders, if any, and the
Certificateholders with respect to each Trust as if all deposits, distributions,
and transfers were made individually.
STATEMENTS TO TRUSTEES AND TRUST
Prior to each Distribution Date with respect to each series of Securities,
the Servicer will provide to the applicable Indenture Trustee, if any, and the
applicable Trustee as of the close of business on the last day of the preceding
Collection Period a statement setting forth substantially the same information
as is required to be provided in the periodic reports provided to
Securityholders of such series described under "Book-Entry and Definitive
Securities; Reports to Securityholders -- Reports to Securityholders."
EVIDENCE AS TO COMPLIANCE
Each Sale and Servicing Agreement and Pooling and Servicing Agreement will
provide that a firm of independent certified public accountants will furnish to
the related Trust and Indenture Trustee or Trustee, as applicable, annually a
statement as to compliance in all material respects by the Servicer during the
preceding twelve months (or, in the case of the first such certificate, from the
applicable Closing Date) with certain standards relating to the servicing of the
applicable Receivables, the Servicer's accounting records and computer files
with respect thereto and certain other matters.
Each Sale and Servicing Agreement and Pooling and Servicing Agreement will
also provide for delivery to the related Trust and Indenture Trustee or Trustee,
as applicable, substantially simultaneously with the delivery of such
accountants' statement referred to above, of a certificate signed by an officer
of the Servicer stating that the Servicer has fulfilled its obligations under
the Sale and Servicing Agreement or Pooling and
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Servicing Agreement, as applicable, throughout the preceding twelve months (or,
in the case of the first such certificate, from the Closing Date) or, if there
has been a default in the fulfillment of any such obligation, describing each
such default. The Servicer has agreed to give each Indenture Trustee and each
Trustee notice of certain Events of Servicing Termination under the related Sale
and Servicing Agreement or Pooling and Servicing Agreement, as applicable.
Copies of such statements and certificates may be obtained by
Securityholders by a request in writing addressed to the Applicable Trustee.
CERTAIN MATTERS REGARDING THE SERVICER
Each Sale and Servicing Agreement and Pooling and Servicing Agreement will
provide that NationsBank, N.A. may not resign from its obligations and duties as
Servicer thereunder, except upon determination that NationsBank, N.A.'s
performance of such duties is no longer permissible under applicable law. No
such resignation will become effective until the related Indenture Trustee or
Trustee, as applicable, or a successor servicer has assumed NationsBank, N.A.'s
servicing obligations and duties under such Sale and Servicing Agreement or
Pooling and Servicing Agreement.
Each Sale and Servicing Agreement and Pooling and Servicing Agreement will
further provide that neither the Servicer nor any of its directors, officers,
employees and agents will be under any liability to the related Trust or the
related Noteholders or Certificateholders for taking any action or for
refraining from taking any action pursuant to such Sale and Servicing Agreement
or Pooling and Servicing Agreement 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 willful misfeasance, bad faith or
negligence in the performance of the Servicer's duties thereunder or by reason
of reckless disregard of its obligations and duties thereunder. In addition,
each Sale and Servicing Agreement and 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 such Sale and Servicing Agreement or Pooling and
Servicing Agreement and that, in its opinion, may cause it to incur any expense
or liability. Each of the Sale and Servicing Agreement and the Pooling and
Servicing Agreement will provide that the Servicer will be liable only to the
extent of the obligations specifically undertaken by it under each such
agreement and will have no other obligations or liabilities thereunder. The
Servicer may, however, undertake any reasonable action that it may deem
necessary or desirable in respect of a particular Sale and Servicing Agreement
or Pooling and Servicing Agreement, the rights and duties of the parties
thereto, and the interests of the related 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 Servicer, and the
Servicer will not be entitled to be reimbursed therefor.
Under the circumstances specified in each Sale and Servicing Agreement and
Pooling and Servicing Agreement, any entity into which the Servicer may be
merged or consolidated, or any entity resulting from any merger or consolidation
to which the Servicer is a party, or any entity succeeding to the business of
the Servicer (where the Servicer is not the surviving entity and where such
entity assumes all obligations of the Servicer), will be the successor of the
Servicer under such Sale and Servicing Agreement or Pooling and Servicing
Agreement.
EVENT OF SERVICING TERMINATION
"Events of Servicing Termination" under each Sale and Servicing Agreement
and Pooling and Servicing Agreement will consist of (i) any failure by the
Servicer or the applicable Seller, as the case may be, to deliver to the
Applicable Trustee for distribution to the Securityholders of the related series
or for deposit in any of the Trust Accounts or the Certificate Distribution
Account any required payment, which failure continues unremedied for five
business days after written notice from the Applicable Trustee is received by
the Servicer or the applicable Seller, as the case may be, or after discovery by
an officer of the Servicer or the applicable Seller, as the case may be; (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 Sale
and Servicing Agreement or
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Pooling and Servicing Agreement, which failure materially and adversely affects
the rights of the Noteholders or the Certificateholders of the related series
and which continues unremedied for 90 days after the giving of written notice of
such failure (A) to the Servicer or the Seller, as the case may be, by the
Applicable Trustee or (B) to the Servicer or the Seller, as the case may be, and
to the Applicable Trustee by holders of Notes or Certificates of such series, as
applicable, evidencing not less than a majority in principal amount of such
outstanding Notes or of such Certificate Balance; (iii) certain events of
bankruptcy, receivership, insolvency or similar proceedings and certain actions
of the Servicer indicating its insolvency pursuant to bankruptcy, readjustment,
receivership, conservatorship, insolvency, marshalling of assets and liabilities
or similar proceedings or its inability to pay its obligations as they become
due (any such event with respect to any Person, an "Insolvency Event"); and (iv)
such other events, if any, set forth in the related Prospectus Supplement.
RIGHTS UPON EVENT OF SERVICING TERMINATION
In the case of any Trust that has issued Notes, as long as an Event of
Servicing Termination under a Sale and Servicing Agreement remains unremedied,
the related Indenture Trustee or holders of Notes of the related series
evidencing not less than a majority of principal amount of such Notes then
outstanding (or if no Notes are outstanding, the Trustee or holders of
Certificates of the related Series evidencing not less than a majority of
principal amount of such Certificates then outstanding) may terminate all the
rights and obligations of the Servicer under such Sale and Servicing Agreement,
whereupon such Indenture Trustee or a successor servicer appointed by such
Indenture Trustee will succeed to all the responsibilities, duties and
liabilities of the Servicer under such Sale and Servicing Agreement and will be
entitled to similar compensation arrangements. In the case of any Trust that has
not issued Notes, as long as an Event of Servicing Termination under the related
Sale and Servicing Agreement or Pooling and Servicing Agreement remains
unremedied, the related Trustee or holders of Certificates of the related series
evidencing not less than a majority of the principal amount of such Certificates
then outstanding may terminate all the rights and obligations of the Servicer
under such Sale and Servicing Agreement or Pooling and Servicing Agreement,
whereupon such Trustee or a successor servicer appointed by such Trustee will
succeed to all the responsibilities, duties and liabilities of the Servicer
under such Sale and Servicing Agreement or Pooling and Servicing Agreement and
will be entitled to similar compensation arrangements. If, however, a receiver
or similar official has been appointed for the Servicer, and no Event of
Servicing Termination other than such appointment has occurred, such trustee or
official may have the power to prevent such Indenture Trustee, such Noteholders,
such Trustee or such Certificateholders from effecting a transfer of servicing.
In the event that such Indenture Trustee or Trustee is unwilling or unable to so
act, it may appoint, or petition a court of competent jurisdiction for the
appointment of, a successor with a net worth of at least $50,000,000 and whose
regular business includes the servicing of motor vehicle receivables. Such
Indenture Trustee or Trustee 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 Sale and Servicing Agreement or Pooling and Servicing
Agreement.
WAIVER OF PAST EVENTS OF SERVICING TERMINATION
With respect to each Trust that has issued Notes, the holders of Notes
evidencing at least a majority in principal amount of the then outstanding Notes
of the related series (or the holders of the Certificates of such series
evidencing not less than a majority of the outstanding Certificate Balance, in
the case of any Event of Servicing Termination which does not adversely affect
the related Indenture Trustee or such Noteholders) may, on behalf of all such
Noteholders and Certificateholders, waive any Event of Servicing Termination
under the related Sale and Servicing Agreement and its consequences, except an
Event of Servicing Termination consisting of a failure to make any required
deposits to or payments from any of the Trust Accounts or to the Certificate
Distribution Account in accordance with such Sale and Servicing Agreement. With
respect to each Trust that has not issued Notes, holders of Certificates of such
series evidencing not less than a majority of the principal amount of such
Certificates then outstanding may, on behalf of all such Certificateholders,
waive any Event of Servicing Termination under the related Sale and Servicing
Agreement or Pooling and Servicing Agreement, except an Event of Servicing
Termination consisting of a failure to make any required deposits to or payments
from the Certificate Distribution Account or the related Trust Accounts
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in accordance with such Sale and Servicing Agreement or Pooling and Servicing
Agreement. No such waiver will impair such Noteholders' or Certificateholders'
rights with respect to subsequent defaults.
AMENDMENT
Each of the Transfer and Servicing Agreements may be amended by the parties
thereto, without the consent of the related Noteholders or Certificateholders,
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of such Transfer and Servicing Agreements or
of modifying in any manner the rights of such Noteholders or Certificateholders;
provided that such action will not, in the opinion of counsel (which may be an
employee of a Seller, the Servicer or any of their affiliates) satisfactory to
the related Trustee or Indenture Trustee, as applicable, materially and
adversely affect the interest of any such Noteholder or Certificateholder, and
provided that an opinion of counsel as to certain tax matters is delivered, if
required. The Transfer and Servicing Agreements may also be amended by the
Sellers, the Servicer, the related Trustee and any related Indenture Trustee
with the consent of the holders of Notes evidencing at least a majority in
principal amount of then outstanding Notes, if any, of the related series and
the holders of the Certificates of such series evidencing at least a majority of
the principal amount of such Certificates then outstanding, for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of such Transfer and Servicing Agreements or of modifying in any
manner the rights of such Noteholders or Certificateholders; provided, however,
that no such amendment may (i) increase or reduce in any manner the amount of,
or accelerate or delay the timing of, collections of payments on the related
Receivables or distributions that are required to be made for the benefit of
such Noteholders or Certificateholders or (ii) reduce the aforesaid percentage
of the Notes or Certificates of such series which are required to consent to any
such amendment, without the consent of the holders of all the outstanding Notes
or Certificates, as the case may be, of such series, and provided that an
opinion of counsel as to certain tax matters is delivered, if required.
INSOLVENCY EVENT OR DISSOLUTION
With respect to a Trust that is not a grantor trust, if so specified in a
Prospectus Supplement, if an Insolvency Event or a dissolution occurs with
respect to NAFC, the related Receivables of such Trust will be liquidated and
the Trust will be terminated 90 days after the date of such Insolvency Event or
dissolution, unless, before the end of such 90-day period, the related Trustee
shall have received written instructions from (i) the Noteholders (other than
NAFC) of Notes of such series representing a majority of the aggregate unpaid
principal amount of each class of all such Notes and the right to receive
interest thereon, (ii) the Certificateholders (other than NAFC) of Certificates
of such series representing not less than a majority of the aggregate
Certificate Balance of each class of Certificates, and the right to receive
interest, and (iii) not less than a majority of the holders (other than NAFC) of
certain interests, if any, in the Reserve Account, the Servicer, any other
holder of a right to receive distributions from the Trust (other than NAFC and
other than the fees paid to the Trust and the Servicer), and any other person
specified in a Prospectus Supplement with respect to such Trust, to the effect
that each such party disapproves of the liquidation of such Receivables and
termination of such Trust and in connection therewith, the related Trustee (x)
appoints an entity acceptable to NationsBank Corporation to acquire an interest
in such Trust and to act as a substitute "general partner" for federal income
tax purposes and (y) obtains an opinion of counsel that such Trust will
thereafter not be classified as an association taxable as a corporation for
federal income tax and applicable state tax purposes. Promptly after the
occurrence of an Insolvency Event or a dissolution with respect to NAFC, notice
thereof is required to be given to such Noteholders, Certificateholders and
holders of interests in the Reserve Account; provided that any failure to give
such required notice will not prevent or delay termination of such Trust. Upon
termination of any Trust, the related Trustee shall, or shall direct the related
Indenture Trustee to, promptly sell the assets of such Trust (other than the
Trust Accounts and the Certificate Distribution Account) in a commercially
reasonable manner and on commercially reasonable terms. The proceeds from any
such sale, disposition or liquidation of the Receivables of such Trust will be
treated as collections on such Receivables and deposited in the related
Collection Account. With respect to any Trust, if the proceeds from the
liquidation of the related Receivables and any amounts on deposit in the Reserve
Account (if any), the Note Payment Account (if any) and the Certificate
Distribution Account are not sufficient to pay the Notes, if any,
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and the Certificates of the related series in full, the amount of principal
returned to Noteholders and Certificateholders thereof will be reduced and some
or all of such Noteholders and Certificateholders will incur a loss.
Each Trust Agreement will provide that the applicable Trustee does not have
the power to commence a voluntary proceeding in bankruptcy with respect to the
related Trust without the unanimous prior approval of all Certificateholders
(including the Sellers) of such Trust and the delivery to such Trustee by each
such Certificateholder (including the Sellers) of a certificate certifying that
such Certificateholder reasonably believes that such Trust is insolvent.
PAYMENT OF NOTES
Upon the payment in full of all outstanding Notes of a given series and the
satisfaction and discharge of the related Indenture, the related Trustee will
succeed to all the rights of the Indenture Trustee, and the Certificateholders
of such series will succeed to all the rights of the Noteholders of such series,
under the related Sale and Servicing Agreement, except as otherwise provided
therein.
NAFC LIABILITY
Under each Trust Agreement, NAFC will agree to be liable directly to an
injured party for the entire amount of any losses, claims, damages or
liabilities (other than those incurred by a Noteholder or a Certificateholder in
the capacity of an investor with respect to such Trust) arising out of or based
on the arrangement created by such Trust Agreement as though such arrangement
created a partnership under the Delaware Revised Uniform Limited Partnership Act
in which NAFC acted as general partner.
TERMINATION
With respect to each Trust, the obligations of the Servicer, the Sellers,
the related Trustee and the related Indenture Trustee, if any, pursuant to the
Transfer and Servicing Agreements will terminate 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, (ii)
the payment to Noteholders, if any, and Certificateholders of the related series
of all amounts required to be paid to them pursuant to the Transfer and
Servicing Agreements and (iii) the occurrence of either event described below.
In order to avoid excessive administrative expense, the Servicer will be
permitted at its option to purchase from each Trust, as of the end of any
applicable Collection Period, if the then outstanding Pool Balance with respect
to the Receivables held by such Trust is 5% or less of the initial Pool Balance
(as defined in the related Prospectus Supplement), all remaining related
Receivables at a price equal to the aggregate of the Purchase Amounts thereof as
of the end of such Collection Period.
As more fully described in the related Prospectus Supplement, any
outstanding Notes of the related series will be redeemed concurrently with the
event specified above and the subsequent distribution to the related
Certificateholders of all amounts required to be distributed to them pursuant to
the applicable Trust Agreement or Pooling and Servicing Agreement will effect
early retirement of the Certificates of such series.
ADMINISTRATION AGREEMENT
The entity acting as Servicer, in its capacity as administrator (the
"Administrator"), will enter into an agreement (as amended and supplemented from
time to time, an "Administration Agreement") with each Trust that issues Notes
and the related Indenture Trustee pursuant to which the Administrator will
agree, to the extent provided in such Administration Agreement, to provide the
notices and to perform other administrative obligations required by the related
Indenture. With respect to any such Trust, the Servicing Fee will provide
compensation for the performance of the Administrator's obligations under the
applicable Administration Agreement and as reimbursement for its expenses
related thereto.
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CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
RIGHTS IN THE RECEIVABLES
The Receivables are "chattel paper" as defined in the UCC. Pursuant to the
UCC, for most purposes, a sale of chattel paper is treated in a manner similar
to a transaction creating a security interest in chattel paper. The Sellers will
cause appropriate financing statements to be filed with the appropriate
governmental authorities in the states of North Carolina, Texas and Georgia to
perfect the interest of the Trust in its purchase of the Receivables from the
Sellers.
Pursuant to the Transfer and Servicing Agreements, NSI will hold the
Receivables and the Receivable Files as custodian for the Trustee following the
sale and assignment of the Receivables to the Trust. The Sellers will take such
action as is required to perfect the rights of the Trustee in the Receivables
(subject to the following two paragraphs). The Receivables will not be stamped,
or otherwise marked, to indicate that they have been sold to the Trust; however,
the Servicer, the Sellers and their respective affiliates will indicate in their
computer records that the Receivables have been sold to the Trust. If, through
inadvertence or otherwise, another party purchases (or takes a security interest
in) the Receivables for new value in the ordinary course of business and takes
possession of the Receivables without actual knowledge of the Trust's interest,
the purchaser (or secured party) will acquire an interest in the Receivables
superior to the interest of the Trust.
As part of its normal operating procedures and with respect to Motor
Vehicle Loans originated by Dealers located in North Carolina and South Carolina
since at least 1979 until January 4, 1996, after receiving Motor Vehicle Loan
documents from Dealers and after reviewing those documents, NationsBank, N.A.
has microfilmed the manually signed original Motor Vehicle Loan documents and
then destroyed the manually signed original documents; however, certificates of
title were not destroyed as part of these procedures. The applicable Prospectus
Supplement will identify the percentage of Receivables, by principal balance as
of the applicable Cut-Off Date, contributed by NationsBank, N.A. and originated
prior to January 4, 1996 and either (i) originated by Dealers in North Carolina
or South Carolina or (ii) having an Obligor with a billing address as of such
Cut-Off Date in North Carolina or South Carolina (NationsBank, N.A. believes
that the percentage derived from the second method described would not
materially differ from the percentage obtained from the first method described;
the second method may be utilized in any applicable Prospectus Supplement
because of data tracking limitations). The lack of manually signed original
documents has not materially impaired NationsBank, N.A.'s enforcement of its
rights under the Motor Vehicle Loans.
It is possible however, that, in the event of a bankruptcy of a Dealer, a
creditor of such Dealer or the bankruptcy trustee of such Dealer could assert
that NationsBank, N.A., to the extent NationsBank, N.A. was relying solely on
possession as a means of perfecting a first priority perfected ownership
interest in the affected Receivable, no longer had a first priority perfected
ownership interest in such Receivable because it no longer had the manually
signed original Receivable documents as a result of its destruction of the
manually signed original Receivable documents. If successful, such assertion
would render NationsBank, N.A. an unsecured creditor of the Dealer in bankruptcy
and as a result, the transfer by NationsBank, N.A. to the Trust would be
effective only to transfer such unsecured claim rather than a first priority
perfected ownership interest in such Receivable. Historically, NationsBank, N.A.
has perfected its interest in approximately 50% (by original principal balance)
of its Motor Vehicle Loans by filing financing statements with respect to such
Motor Vehicle Loans naming certain Dealers as debtors, although it has not been
determined whether any such filings resulted in a first priority perfected
ownership interest or a junior interest in any affected Receivable, and there
can be no assurance that continuation statements with respect to such filings
will be filed in the future. NationsBank, N.A. has agreed that if, after the
bankruptcy of a Dealer, the bankruptcy trustee of such Dealer or a creditor of
such dealer asserts that NationsBank, N.A. did not have, or the Trust does not
have, a first priority perfected ownership interest in any Receivable acquired
by NationsBank, N.A. from such Dealer and such assertion is related to
NationsBank, N.A.'s practice of retaining original Motor Vehicle Loan documents
only in microfilm form, NationsBank, N.A. will repurchase such Receivable from
the Trust at the Purchase Amount. To NationsBank, N.A.'s knowledge, its interest
in a Motor Vehicle Loan has never been
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challenged in a Dealer bankruptcy based on the lack of manually signed original
Motor Vehicle Loan documents.
Under the Agreement, the Servicer will be obligated from time to time to
take such actions as are necessary to protect and perfect the Trust's interest
in the Receivables and their proceeds.
SECURITY INTERESTS IN VEHICLES
In all states in which the Receivables have been originated, retail motor
vehicle installment sales contracts such as the Receivables evidence the credit
sale of automobiles and light trucks by dealers to obligors; the contracts also
constitute personal property security agreements and include grants of security
interests in the vehicles under the Uniform Commercial Code (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 notation of the secured party's lien on the
vehicle's certificate of title. Each Receivable prohibits the sale or transfer
of the Financed Vehicle without the applicable Seller's and the Servicer's
consent.
With respect to each Trust, pursuant to the related Dealer Agreement, the
Dealer will assign its security interests in the Financed Vehicles securing the
related Receivables to a Seller and, pursuant to the related Sale and Servicing
Agreement or Pooling and Servicing Agreement, the Sellers will assign their
security interests in the Financed Vehicles securing such Receivables to the
Trust. However, because of the administrative burden and expense, the Servicer,
the Sellers and the Trust will not amend any certificate of title to identify
the Trust as the new secured party on the certificates of title relating to the
Financed Vehicles. Also, NSI will hold any certificates of title relating to the
Financed Vehicles in its possession as custodian for the Trust pursuant to the
related Sale and Servicing Agreement or Pooling and Servicing Agreement. See
"Description of the Transfer and Servicing Agreements -- Sale and Assignment of
Receivables."
In most states, assignments such as those under the Sale and Servicing
Agreement or Pooling and Servicing Agreement, as applicable, relating to each
Trust, together with a perfected security interest in the chattel paper are an
effective conveyance of a security interest in the vehicles subject to the
chattel paper 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 Seller's
lien on the certificates of title will be sufficient to protect such Trust
against the rights of subsequent purchasers of a Financed Vehicle or subsequent
lenders who take a security interest in a Financed Vehicle. If there are any
Financed Vehicles as to which a Seller 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 would constitute a breach of the Sellers' warranties
under the related Sale and Servicing Agreement or Pooling and Servicing
Agreement, as applicable, and would create an obligation of the Sellers under
such Sale and Servicing Agreement or Pooling and Servicing Agreement to
repurchase the related Receivable unless the breach is cured. See "Description
of the Transfer and Servicing Agreements -- Sale and Assignment of Receivables."
By not identifying the Trust as the secured party on the certificate of title,
the Trust's interest in the chattel paper may not have the benefit of the
security interest in the Financed Vehicle in all states or such security
interest could be defeated through fraud or negligence. The Sellers will assign
their rights under each Dealer Agreement to the related Trust.
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 vehicle in the state of relocation. In states that do not require a
certificate of title for registration of a motor vehicle, re-registration could
defeat perfection. In the
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ordinary course of servicing receivables, the Servicer takes steps to effect
re-perfection upon receipt of notice of re-registration or information from the
obligor as to relocation. Similarly, when an obligor sells a motor 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 Receivable before release of
the lien. Under each Sale and Servicing Agreement or Pooling and Servicing
Agreement, the Servicer will be obligated to take appropriate steps, at the
Servicer's expense, to maintain perfection of security interests in the Financed
Vehicles.
Under the laws of most states, liens for repairs performed on a motor
vehicle and liens for certain unpaid taxes take priority over even a perfected
security interest in a Financed Vehicle. The Internal Revenue Code of 1986, as
amended, also grants priority to certain federal tax liens over the lien of a
secured party. Federal law and the laws of certain states permit the
confiscation of motor vehicles 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. With respect to each Trust, the
Sellers will represent to the Trust that each security interest in a Financed
Vehicle is or will be prior to all other present liens (other than tax liens and
liens that arise by operation of law) upon and security interests in such
Financed Vehicle. However, liens for repairs or taxes, or the confiscation of a
Financed Vehicle, could arise or occur at any time during the term of a
Receivable. No notice will be given to the applicable Trustee or
Certificateholders and any Indenture Trustee or Noteholders, if any, in the
event such a lien arises or confiscation occurs.
REPOSSESSION
In the event of default by vehicle purchasers, the holder of a Receivable
has all the remedies of a secured party under the UCC, except where specifically
limited by other state laws or by contract. The UCC remedies for a secured party
include the right to repossession by self-help means, unless such means would
constitute a breach of the peace. Unless a vehicle is voluntarily surrendered,
self-help repossession is the method employed by the Servicer in the majority of
instances in which a default occurs and is accomplished simply by retaking
possession of the Financed Vehicle. 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.
NOTICE OF SALE; REDEMPTION RIGHTS
In the event of default by an obligor, some jurisdictions require that such
obligor be notified of the default and be given a time period within which the
obligor may cure the default prior to repossession. Generally, this cure right
may be exercised on a limited number of occasions in any one-year period.
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 this sale, plus, in some jurisdictions, reasonable attorneys'
fees, or, in some states, a right to reinstatement by payment of delinquent
installments or the unpaid balance. Repossessed vehicles are generally resold by
the Servicer through automobile auctions which are attended principally by
dealers.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of resale of the repossessed vehicles generally will be
applied to the expenses of resale and repossession and then to the satisfaction
of the indebtedness of the Obligor on the Receivable. While some states impose
prohibitions or limitations on the pursuit of deficiencies and deficiency
judgments if the unpaid balance does not exceed a specified 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
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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
indebtedness, there is a surplus of funds. In that case, the UCC requires the
lender to remit the surplus to any holder of any lien with respect to the
vehicle or if no such lienholder exists or there are remaining funds, the UCC
requires the lender to remit the surplus to the former obligor.
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws and related regulations
impose substantial requirements upon lenders and servicers involved in consumer
finance. These laws include the Truth in Lending Act, the Equal Credit
Opportunity Act, the Federal Trade Commission Act, the Fair Credit Reporting
Act, the Fair Debt Collection Practices Act, the Magnuson-Moss Warranty Act, the
Federal Reserve Board's Regulations B and Z, state adaptations of the National
Consumer Act and of the Uniform Consumer Credit Code, the Soldiers and Sailors
Civil Relief Act of 1940, and state motor vehicle retail installment sales acts,
retail installment sales acts, state lemon laws and other similar laws. Also,
state laws impose finance charge ceilings and other restrictions on consumer
transactions and require contract disclosures in addition to those required
under federal law. The requirements impose specific statutory liabilities upon
creditors who fail to comply with their provisions. In some cases, this
liability could affect an assignee's ability to enforce consumer finance
contracts such as the Receivables.
The so-called "Holder-in-Due-Course" Rule of the Federal Trade Commission
(the "FTC Rule"), the provisions of which are generally duplicated by the
Uniform Consumer Credit Code, other state statutes, or the common law in certain
states, has the effect of subjecting a seller (and certain related lenders and
their assignees) in a consumer credit transaction and any assignee of the seller
to all claims and defenses which the obligor in the transaction could assert
against the seller of the goods. Liability under the FTC Rule is limited to the
amounts paid by the obligor under the contract, and the holder of the contract
may also be unable to collect any balance remaining due thereunder from the
obligor.
Most of the Receivables will be subject to the requirements of the FTC
Rule. Accordingly, each Trust, as holder of the related Receivables, will be
subject to any claims or defenses that the purchaser of the Financed Vehicle may
assert against the seller of the Financed Vehicle. Such claims are limited to a
maximum liability equal to the amounts paid by the Obligor on the Receivable.
Under most state motor vehicle dealer licensing laws, sellers of motor vehicles
are required to be licensed to sell motor vehicles at retail sale. Furthermore,
Federal Odometer Regulations promulgated under the Motor Vehicle Information and
Cost Savings Act require that all sellers of new and used vehicles furnish a
written statement signed by the seller certifying the accuracy of the odometer
reading. If a seller is not properly licensed or if an Odometer Disclosure
Statement was not provided to the purchaser of the related Financed Vehicle, the
Obligor may be able to assert a defense against the seller of the vehicle. If an
Obligor were successful in asserting any such claim or defense, such claim or
defense would constitute a breach of the Sellers' representations and warranties
under the related Sale and Servicing Agreement or Pooling and Servicing
Agreement and would create an obligation of the related Seller to repurchase the
Receivable unless the breach is cured. See "Description of the Transfer and
Servicing Agreements -- Sale and Assignment of the Receivables."
Courts have imposed general equitable principles on secured parties
pursuing repossession of collateral or litigation involving deficiency balances.
These equitable principles may have the effect of relieving an obligor from some
or all of the legal consequences of a default.
In several cases, obligors 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.
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The Sellers will warrant under the applicable Sale and Servicing Agreement
or Pooling and Servicing Agreement that each Receivable complies with all
requirements of law in all material respects. Accordingly, if an Obligor has a
claim against a Trust for violation of any law and such claim materially and
adversely affects such Trust's interest in a Receivable, such violation would
constitute a breach of warranty under the related Sale and Servicing Agreement
or Pooling and Servicing Agreement and would create an obligation of the
applicable Seller to repurchase the Receivable unless the breach is cured. See
"Description of the Transfer and Servicing Agreements -- Sale and Assignment of
the Receivables."
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a lender to
realize upon collateral or enforce a deficiency judgment. For example, in a
Chapter 13 proceeding under the federal bankruptcy law, a court may prevent a
lender from repossessing a motor vehicle, and, as part of the rehabilitation
plan, reduce the amount of the secured indebtedness to the market value of the
motor vehicle at the time of bankruptcy (as determined by the court), leaving
the party providing financing as a general unsecured creditor for the remainder
of the indebtedness. A bankruptcy court may also reduce the monthly payments due
under a contract or change the rate of interest and time of repayment of the
indebtedness.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of material anticipated federal income
tax consequences of the purchase, ownership and disposition of the Notes and the
Certificates of a series. The summary does not purport to deal with federal
income tax consequences applicable to all categories of holders, some of which
may be subject to special rules. For example, it does not discuss the tax
treatment of Noteholders or Certificateholders that are insurance companies,
regulated investment companies or dealers in securities. Moreover, there are no
cases or Internal Revenue Service ("IRS") rulings on similar transactions
involving both debt instruments and equity interests issued by a trust with
terms similar to those of the Notes and the Certificates. As a result, the IRS
may disagree with all or a part of the discussion below. Prospective investors
are urged to consult their own tax advisors in determining the federal, state,
local, foreign and any other tax consequences to them of the purchase, ownership
and disposition of the Notes and the Certificates of any series.
The following summary is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated thereunder and judicial or ruling authority, all of which are
subject to change, which change may be retroactive. Each Trust will be provided
with an opinion of Skadden, Arps, Slate, Meagher & Flom, special federal tax
counsel to such Trust, or such other counsel to the applicable Trust specified
in the related Prospectus Supplement ("Special Tax Counsel"), regarding certain
federal income tax matters discussed below. An opinion of Special Tax Counsel,
however, is not binding on the IRS or the courts. No ruling on any of the issues
discussed below will be sought from the IRS. For purposes of the following
summary, references to the Trust, the Notes, the Certificates and related terms,
parties and documents shall be deemed to refer, unless otherwise specified
herein, to each Trust and the Notes, Certificates and related terms, parties and
documents applicable to such Trust.
The federal income tax consequences to Certificateholders will vary
depending on whether the Trust is intended to be treated as a partnership under
the Code, whether the Trust will be treated as a grantor trust, or whether the
Trust will be treated as a FASIT. The Prospectus Supplement for each series of
Certificates will specify whether the Trust is intended to be treated as a
partnership, as a grantor trust, or as a FASIT.
SCOPE OF THE TAX OPINIONS
Unless a Trust is intended to qualify as a FASIT (if legislation creating
FASITs is enacted). Special Tax Counsel will, upon issuance of a series of Notes
and/or Certificates, deliver its opinion that the applicable Trust will not be
classified as an association (or publicly traded partnership) taxable as a
corporation for federal income tax purposes. Further, with respect to each
series of Notes, Special Tax Counsel will opine that
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the Notes will be classified as debt for federal income tax purposes. In the
event that a Trust is intended to qualify as a FASIT, Special Tax Counsel will
render an opinion that the Trust will so qualify. Any such opinion will be filed
either as an exhibit to the Registration Statement of which this Prospectus
forms a part or will be filed as an exhibit to a Form 8-K filed in connection
with the establishment of the related Trust and issuance of Securities.
In addition, Special Tax Counsel will render its opinion that it has
prepared or reviewed the statements herein and in the related Prospectus
Supplement under the heading "Summary -- Tax Status" relating to federal income
tax matters and under the heading "Federal Income Tax Consequences," and is of
the opinion that such statements are correct in all material respects. Such
statements are intended as an explanatory discussion of the possible effects of
the classification of the Trust as a partnership or a grantor trust, as the case
may be, for federal income tax purposes on investors generally and of related
tax matters affecting investors generally, but do not purport to furnish
information in the level of detail or with the attention to the investor's
specific tax circumstances that would be provided by an investor's own tax
adviser. Accordingly, each investor is advised to consult its own tax advisers
with regard to the tax consequences to it of investing in the Certificates.
ERISA CONSIDERATIONS
ERISA and Section 4975 of the Code impose certain restrictions on (a)
employee benefit plans (as defined in Section 3(3) of ERISA), (b) plans
described in section 4975(e)(1) of the Code, including individual retirement
accounts or Keogh plans, (c) any entities whose underlying assets include plan
assets by reason of a plan's investment in such entities (each of (a), (b) and
(c), a "Plan") and (d) persons who have certain specified relationships to such
Plans ("Parties in Interest" under ERISA and "Disqualified Persons" under the
Code). Moreover, based on the reasoning of the United States Supreme Court in
John Hancock Life Ins. Co. v. Harris Trust and Sav. Bank, 114 S. Ct. 517 (1993),
an insurance company's general account may be deemed to include assets of the
Plans investing in the general account (e.g., through the purchase of an annuity
contract), and the insurance company might be treated as a Party in Interest
with respect to a Plan by virtue of such investment. ERISA also imposes certain
duties on persons who are fiduciaries of Plans subject to ERISA and prohibits
certain transactions between a Plan and Parties in Interest or Disqualified
Persons with respect to such Plans. Violation of these rules may result in the
imposition of an excise tax or penalty.
A fiduciary of any Plan should carefully review with its legal and other
advisors whether the purchase or holding of any Securities of a series could
give rise to a transaction prohibited or otherwise impermissible under ERISA or
the Code, and should refer to "ERISA Considerations" in the related Prospectus
Supplement regarding any restrictions on the purchase and/or holding of the
Securities offered thereby.
Certain employee benefit plans, such as governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to the prohibited transaction provisions of ERISA and
Section 4975 of the Code. Accordingly, assets of such plans may, subject to the
provisions of any other applicable federal and state law, be invested in
Securities of any series without regard to the factors described herein and
under "ERISA Considerations" in the related Prospectus Supplement. It should be
noted, however, that any such plan that is qualified and exempt from taxation
under Sections 401(a) and 501(a) of the Code is subject to the prohibited
transaction rules set forth in Section 503 of the Code.
Certain transactions involving a Trust might be deemed to constitute
prohibited transactions under ERISA and the Code if assets of the Trust were
deemed to be assets of a Plan investing in Securities issued by the Trust. Under
a regulation (the "Plan Assets Regulation") issued by the United States
Department of Labor ("DOL"), 29 C.F.R. sec. 2510.3-101, the assets of the Trust
would be treated as plan assets of a Plan for purposes of ERISA and the Code
only if the Plan acquires an "Equity Interest" in the Trust and none of the
exceptions contained in the Plan Assets Regulation is applicable. An Equity
Interest is defined under the Plan Assets Regulation as an interest other than
an instrument which is treated as indebtedness under applicable local law and
which has no substantial equity features. The Certificates will most likely be
deemed Equity
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Interests for purposes of ERISA. It should be noted, however, as discussed
below, that the purchase of Notes by a Plan may also give rise to potential
prohibited transactions, and all prospective investors should review the
discussion herein with their legal advisors.
CERTIFICATES ISSUED BY TRUSTS THAT ISSUE ONLY CERTIFICATES
The ERISA considerations that apply with respect to Securities issued by a
Trust differ depending on whether the Trust issuing the Securities (i) issues
both Notes and Certificates or (ii) issues only Certificates. The discussion in
this section "-- Certificates Issued by Trusts That Issue Only Certificates"
applies only with respect to Certificates issued by a Trust that issues only
Certificates.
Senior Certificates. The following discussion applies only to
nonsubordinated Certificates (referred to herein as "Senior Certificates")
issued by a Trust that does not issue Notes.
The DOL has issued an individual exemption, Prohibited Transaction
Exemption 93-31, to NationsBank Corporation and its affiliates as one or more of
the underwriters of the Senior Certificates (the "Underwriters' Exemption"). The
Underwriters' Exemption generally exempts from the application of the prohibited
transaction provisions of Section 406 of ERISA and the excise taxes imposed on
such prohibited transactions pursuant to Sections 4975(a) and (b) of the Code
and Section 502(i) of ERISA certain transactions relating to the initial
purchase, holding and subsequent resale by Plans of certificates in pass-through
trusts that consist of certain receivables, loans and other obligations that
meet the conditions and requirements set forth in the Underwriters' Exemption.
The receivables covered by the Underwriters' Exemption include motor vehicle
installment sales contracts such as the Receivables. The Underwriters' Exemption
will apply to the acquisition, holding and resale of the Senior Certificates by
a Plan from the applicable underwriters, provided that specified conditions
(certain of which are described below) are met. The Sellers believe that the
Underwriters' Exemption will apply to the acquisition and holding of the Senior
Certificates by a Plan and that all conditions of the Underwriters' Exemption
other than those within the control of the investors have been or will be met.
The Underwriters' Exemption sets forth six general conditions that must be
satisfied for a transaction involving the acquisition of the Senior Certificates
by a Plan to be eligible for the exemptive relief thereunder:
(1) the acquisition of the Senior Certificates by a Plan is on terms
(including the price for the Senior Certificates) that are at least as
favorable to the Plan as they would be in an arm's-length transaction with
an unrelated party;
(2) the rights and interests evidenced by the Senior Certificates
acquired by a Plan are not subordinated to the rights and interests
evidenced by other certificates of the Trust;
(3) the Senior Certificates acquired by the Plan have received a
rating at the time of such acquisition that is in one of the three highest
generic rating categories from any one of four Rating Agencies;
(4) the Trustee is not an affiliate of any other member of the
"Restricted Group," which consists of the applicable underwriters, the
Sellers, the Servicer, the Trustee and any Obligor with respect to the
Receivables included in the Trust constituting more than 5% of the
aggregate unamortized principal
balance of the assets of the Trust as of the date of initial issuance of
the Senior Certificates, and any affiliate of such parties;
(5) the sum of all payments made to and retained by the applicable
underwriters in connection with the distribution or placement of the Senior
Certificates represents not more than reasonable compensation for
underwriting or placing the Senior Certificates. The sum of all payments
made to and retained by the Sellers pursuant to the sale of the Receivables
to the 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 under the Agreement and reimbursement of the Servicer's reasonable
expenses in connection therewith; and
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(6) the Plan investing in the Senior Certificates must be an
"accredited investor" as defined in Rule 501(a)(1) of Regulation D of the
Commission under the Securities Act.
Because the rights and interests evidenced by the Senior Certificates
acquired by a Plan are not subordinated to the rights and interests evidenced by
other Certificates of the Trust, the second general condition set forth above is
satisfied. It is a condition of the issuance of the Senior Certificates that
they be rated in the highest rating category by a Rating Agency. A fiduciary of
a Plan contemplating purchasing a Senior Certificate (other than pursuant to the
original issuance of the Senior Certificates) must make its own determination
that at the time of such acquisition, the Senior Certificates continue to
satisfy the third general condition set forth above. The Sellers and the
Servicer expect that the fourth general condition set forth above will be
satisfied with respect to the Senior Certificates. A fiduciary of a Plan
contemplating purchasing a Senior Certificate must make its own determination
that the first, fifth and sixth general conditions set forth above will be
satisfied with respect to the Senior Certificates.
In addition, the Trust must satisfy the following requirements:
(a) the corpus of the Trust must consist solely of assets of the type
which have been included in other investment pools,
(b) certificates evidencing interests in such other investment pools
must have been rated in one of the three highest generic rating categories
of one of the Rating Agencies for at least one year prior to the Plan's
acquisition of Senior Certificates, and
(c) certificates evidencing interests in such other investments pools
must have been purchased by investors other than Plans for at least one
year prior to any Plan's acquisition of Senior Certificates.
If the general conditions of the Underwriters' Exemption are satisfied, the
Underwriters' Exemption may provide relief from the restrictions imposed by
Sections 406(a) and 407(a) of ERISA as well as the excise taxes imposed by
Sections 4975(a) and (b) of the Code by reason of Sections 4975(c)(1)(A) through
(D) of the Code, in connection with the direct or indirect purchase, exchange,
transfer or holding of the Senior Certificates by a Plan. However, no exemption
is provided from the restrictions of Sections 406(a)(1)(E), 406(a)(2) and 407 of
ERISA for the acquisition or holding of a Senior Certificate on behalf of an
"Excluded Plan" by any person who has discretionary authority or renders
investment advice with respect to the assets of such Excluded Plan. For purposes
of the Senior Certificates, an Excluded Plan is a Plan sponsored by any member
of the Restricted Group.
If certain other specific conditions of the Underwriters' Exemption are
also satisfied, the Underwriters' Exemption should provide relief from the
restrictions imposed by Sections 406(b)(1) and (b)(2) of ERISA and the taxes
imposed by Sections 4975(a) and (b) of the Code by reason of Section
4975(c)(1)(E) of the Code in connection with the direct or indirect sale,
exchange, transfer or holding of Senior Certificates in the initial issuance of
Senior Certificates between the Sellers or Underwriters and a Plan other than an
Excluded Plan when the person who has discretionary authority or renders
investment advice with respect to the investment of Plan assets in the Senior
Certificates is (a) an Obligor with respect to 5% or less of the fair market
value of the Receivables or (b) an affiliate of such person. The Sellers expect
such specific conditions to be satisfied with respect to the issuance of Senior
Certificates.
The Underwriters' Exemption also applies to transactions in connection with
the servicing, management and operation of the 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 provided to, investing Plans before their
purchase of Senior Certificates issued by the Trust. The Pooling and Servicing
Agreement is a pooling and servicing agreement as defined in the Underwriters'
Exemption. All transactions relating to the servicing, management and operations
of the Trust will be carried out in accordance with the Pooling and Servicing
Agreement. See "Description of the Transfer and Servicing Agreements" herein and
in the related Prospectus Supplement.
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Any Plan fiduciary considering whether to purchase a Senior Certificate on
behalf of a Plan should consult with its counsel regarding the applicability of
the Underwriters' Exemption and other relevant issues.
Pre-Funding Accounts. The Underwriters' Exemption in its current form does
not apply with respect to Pre-Funding Accounts. However, the DOL has under
consideration a proposal to amend the Underwriters' Exemption to extend its
application to Pre-Funding Accounts. If the Underwriters' Exemption does not
apply to Pre-Funding Accounts, assets held in any Pre-Funding Account maintained
in connection with a Trust that issues only Certificates could be deemed to be
Plan assets, which could give rise to prohibited transaction liability.
Investors considering the purchase of Senior Certificates issued by a Trust that
maintains a Pre-Funding Account should consult with their legal advisors
concerning this issue.
Subordinated Certificates. The following discussion applies only to
subordinated Certificates (referred to herein as "Subordinated Certificates")
issued by a Trust that does not issue Notes.
Because the Subordinated Certificates are subordinated to the Senior
Certificates in certain respects, the Underwriters' Exemption will not apply to
the purchase of the Subordinated Certificates by or on behalf of a Plan.
However, other exemptions may be applicable, such as Prohibited Transaction
Class Exemption ("PTCE") 90-1, which exempts certain transactions involving
insurance company pooled separate accounts; PTCE 95-60, which exempts certain
transactions involving insurance company general accounts; PTCE 91-38, which
exempts certain transactions involving bank collective investment funds; PTCE
96-23, which exempts certain transactions effected on behalf of a Plan by an "in
house" asset manager, or PTCE 84-14, which exempts certain transactions effected
on behalf of a Plan by a "qualified professional asset manager." It should be
noted, however, that even if the conditions specified in one or more of these
exemptions are met, the scope of relief provided by these exemptions may not
necessarily cover all acts that might be construed as prohibited transactions.
Any Plan fiduciary considering whether to purchase a Subordinated
Certificate on behalf of a Plan should consult with its counsel regarding the
applicability of one or more of such exemptions to such purchase. Prior to
making an investment in the Subordinated Certificates, a Plan investor must
determine whether, and each fiduciary causing the Subordinated Certificates to
be purchased by, on behalf of or using the assets of a Plan shall be deemed to
have represented that either (i) no part of the funds to be used to purchase the
Subordinated Certificates constitutes assets allocable to any trust that
contains the assets of any Plan or (ii) such purchase is covered by one or more
of the exemptions described above.
SECURITIES ISSUED BY TRUSTS THAT ISSUE BOTH NOTES AND CERTIFICATES
The discussion in this section "-- Securities Issued by Trusts That Issue
Both Notes and Certificates" applies only to Securities issued by a Trust that
issues both Notes and Certificates.
The Notes. The Sellers believe that the Notes of any series should be
treated as indebtedness without substantial equity features for purposes of the
Plan Assets Regulation. However, without regard to whether the Notes of a series
are treated as an Equity Interest for such purposes, the acquisition or holding
of such Notes by or on behalf of a Plan could be considered to give rise to a
prohibited transaction if the applicable Trust, Trustee, Indenture Trustee, any
holder of the Certificates of such series or any of their respective affiliates,
is or becomes a Party in Interest or a Disqualified Person with respect to such
Plan. In such case, certain exemptions from the prohibited transaction rules
could be applicable depending on the type and circumstances of the Plan
fiduciary making the decision to acquire a Note. Included among these exemptions
are PTCE 90-1, which exempts certain transactions involving insurance company
pooled separate accounts; PTCE 95-60, which exempts certain transactions
involving insurance company general accounts; PTCE 91-38, which exempts certain
transactions involving bank collective investment funds; PTCE 96-23, which
exempts certain transactions effected on behalf of a Plan by an "in house" asset
manager, and PTCE 84-14, which exempts certain transactions effected on behalf
of a Plan by a "qualified professional asset manager." It should be noted,
however, that even if the conditions specified in one or more of these
exemptions are met, the scope of relief provided by these exemptions may not
necessarily cover all acts that might be construed as prohibited transactions.
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The Certificates. Because the Certificates issued by a Trust that also
issues Notes will most likely be treated as Equity Interests under the Plan
Assets Regulation, such Certificates may not be acquired by (i) an employee
benefit plan (as defined in Section 3(3) of ERISA) that is subject to Title I of
ERISA, (ii) a plan described in Section 4975(e)(1) of the Code, (iii) a
governmental plan, as defined in Section 3(32) of ERISA, subject to any Federal,
state or local law which is, to a material extent, similar to the provisions of
Section 406 of ERISA or Section 4975 of the Code, (iv) an entity whose
underlying assets include plan assets by reason of a plan's investment in the
entity (within the meaning of the Plan Assets Regulation), or (v) a person
investing "plan assets" of any such plan (including without limitation, for
purposes of this clause (v), any insurance company general account, but
excluding any entity registered under the Investment Company Act of 1940, as
amended) (each, a "Plan Investor").
In addition, investors other than Plan Investors should be aware that a
prohibited transaction could be deemed to occur if any holder of the
Certificates or any of their respective affiliates, is or becomes a Party in
Interest or a Disqualified Person with respect to any Plan that purchases and
holds the related Notes without being covered by one or more of the exemptions
described above in "The Notes."
GENERAL INVESTMENT CONSIDERATIONS
Prospective investors who are Plan Investors should consult with their
legal advisors concerning the impact of ERISA and the Code and the potential
consequences of making an investment in any Securities of a series with respect
to such investors' specific circumstances. Moreover, each Plan fiduciary should
take into account, among other considerations, whether the fiduciary has the
authority to make the investment; the composition of the Plan's portfolio with
respect to diversification by type of asset; the Plan's funding objectives; the
tax effects of the investment; and whether under the general fiduciary standards
of investment procedure and diversification an investment in any Securities of a
series is appropriate for the Plan, taking into account the overall investment
policy of the Plan and the composition of the Plan's investment portfolio.
PLAN OF DISTRIBUTION
On the terms and conditions set forth in an underwriting agreement with
respect to the Notes, if any, of a given series and an underwriting agreement
with respect to the Certificates of such series (collectively, the "Underwriting
Agreements"), the Sellers will agree to cause the related Trust to sell to the
underwriters named therein and in the related Prospectus Supplement, and each of
such underwriters will severally agree to purchase, the principal amount of each
class of Notes and Certificates, as the case may be, of the related series set
forth therein and in the related Prospectus Supplement.
In each Underwriting Agreement with respect to any given series of
Securities, the several underwriters will agree, subject to the terms and
conditions set forth therein, to purchase all the Notes and Certificates, as the
case may be, described therein which are offered hereby and by the related
Prospectus Supplement if any of such Notes and Certificates, as the case may be,
are purchased.
Each Prospectus Supplement will either (i) set forth the price at which
each class of Notes and Certificates, as the case may be, 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 Notes and Certificates or (ii)
specify that the related Notes and Certificates, as the case may be, are to be
resold by the underwriters in negotiated transactions at varying prices to be
determined at the time of such sale. After the initial public offering of any
such Notes and Certificates, such public offering prices and such concessions
may be changed.
The Sellers and the Servicer will indemnify the underwriters against
certain civil liabilities, including liabilities under the Securities Act, or
contribute to payments the several underwriters may be required to make in
respect thereof.
Each Trust may, from time to time, invest the funds in its Trust Accounts
in Permitted Investments acquired from such underwriters or from one or more of
the Sellers.
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Pursuant to each Underwriting Agreement with respect to a given series of
Securities, the closing of the sale of any class of Securities subject to such
Underwriting Agreement will be conditioned on the closing of the sale of all
other such classes of Securities of that series.
The place and time of delivery for the Securities in respect of which this
Prospectus is delivered will be set forth in the related Prospectus Supplement.
LEGAL OPINIONS
Certain legal matters relating to the Securities of any series will be
passed upon for the related Trust, the Sellers and the Servicer by Robert W.
Long, Jr., Esq., Assistant General Counsel of NationsBank Corporation. Certain
legal matters relating to the Securities will be passed upon for the
underwriters by Skadden, Arps, Slate, Meagher & Flom (or such other counsel
specified in the related Prospectus Supplement). Certain federal income tax
matters and other matters will be passed upon for the Sellers by Skadden, Arps,
Slate, Meagher & Flom (or such other counsel specified in the Prospectus
Supplement). Skadden, Arps, Slate, Meagher & Flom has represented and may in the
future represent one or more of the Sellers.
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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>
Additional Yield Supplement Amount................................................ 9
Administration Agreement.......................................................... 57
Administrator..................................................................... 57
Advance........................................................................... 10, 48
Advance Reserve Withdrawal........................................................ 10, 48
Applicable Trustee................................................................ 40
Balloon Receivables............................................................... 24
Bank.............................................................................. 3
Banks............................................................................. 3
Base Rate......................................................................... 35
Basic Documents................................................................... 33
BHCA.............................................................................. 28
Book-Entry Certificates........................................................... 39
Book-Entry Notes.................................................................. 39
Book-Entry Securities............................................................. 39
Calculation Agent................................................................. 36
Calculation Date.................................................................. 37
CD Rate........................................................................... 36
CD Rate Determination Date........................................................ 36
CD Rate Security.................................................................. 36
Cede.............................................................................. 7
Cedel............................................................................. 39
Cedel Participants................................................................ 41
Certificate Balance............................................................... 6
Certificate Distribution Account.................................................. 47
Certificate Owners................................................................ 1
Certificate Pool Factor........................................................... 27
Certificate Rate.................................................................. 6
Certificateholders................................................................ 1, 7
Certificates.......................................................................Front Cover
Closing Date...................................................................... 3
Code.............................................................................. 12, 61
Collection Account................................................................ 46
Collection Period................................................................. 47
Commercial Paper Rate............................................................. 37
Commercial Paper Rate Determination Date.......................................... 37
Commercial Paper Rate Security.................................................... 36
Commission........................................................................ 1
Composite Quotations.............................................................. 36
Contract Rate..................................................................... 45
Dealer Agreements................................................................. 21
Dealers........................................................................... 3
Defaulted Receivable.............................................................. 48
Definitive Certificates........................................................... 42
Definitive Notes.................................................................. 42
Definitive Securities............................................................. 42
Deposit Date...................................................................... 48
</TABLE>
68
<PAGE> 74
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Depositaries...................................................................... 40
Depository........................................................................ 29
Determination Date................................................................ 50
DFSG.............................................................................. 23
Disqualified Persons.............................................................. 62
Distribution Date................................................................. 35
DOL............................................................................... 63
DTC............................................................................... 1
DTC's Nominee..................................................................... 7
Eligible Deposit Account.......................................................... 47
Eligible Institution.............................................................. 47
Equity Interest................................................................... 63
ERISA............................................................................. 12
Euroclear......................................................................... 41
Euroclear Operator................................................................ 41
Euroclear Participants............................................................ 41
Euroclear System.................................................................. 41
Events of Default................................................................. 31
Events of Servicing Termination................................................... 54
Exchange Act...................................................................... 1
Excluded Plan..................................................................... 64
Exemption......................................................................... 63
FASIT............................................................................. 11
Federal Funds Rate................................................................ 37
Federal Funds Rate Determination Date............................................. 37
Federal Funds Rate Security....................................................... 36
Final Scheduled Maturity Date..................................................... 10
Financed Vehicles................................................................. 3
FIRREA............................................................................ 15
Fixed Rate Securities............................................................. 35
Floating Rate Securities.......................................................... 35
FTC Rule.......................................................................... 60
Funding Period.................................................................... 6
H.15(519)......................................................................... 36
Indenture......................................................................... 5
Indenture Trustee..................................................................Front Cover
Index Maturity.................................................................... 36
Indirect Participants............................................................. 40
Initial Cut-Off Date.............................................................. 3
Initial Receivables............................................................... 3
Insolvency Event.................................................................. 54
Interest Reset Date............................................................... 36
Interest Reset Period............................................................. 35
Investment Earnings............................................................... 47
IRS............................................................................... 61
Issuer............................................................................ 3
LIBOR............................................................................. 38
LIBOR Determination Date.......................................................... 38
LIBOR Security.................................................................... 36
London Banking Day................................................................ 38
Money Market Yield................................................................ 37
</TABLE>
69
<PAGE> 75
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Motor Vehicle Loans............................................................... 23
NAFC.............................................................................. 4, 28
NationsBank South................................................................. 3
NationsBank Texas................................................................. 3
Note Interest Rate................................................................ 5
Note Owners....................................................................... 1
Note Payment Account.............................................................. 46
Note Pool Factor.................................................................. 27
Noteholders....................................................................... 1, 7
Notes..............................................................................Front Cover
NSI............................................................................... 14
Obligors.......................................................................... 21
Participants...................................................................... 29, 40
Parties in Interest............................................................... 62
Permitted Investments............................................................. 47
Plan.............................................................................. 62
Plan Assets Regulation............................................................ 63
Plan Investor..................................................................... 66
planned balance................................................................... 30
Pool Balance...................................................................... 27
Pooling and Servicing Agreement................................................... 3
Pre-Funded Amount................................................................. 4
Pre-Funding Account.............................................................Front Cover, 6
prepayments....................................................................... 26
Prospectus Supplement..............................................................Front Cover
Purchase Amount................................................................... 46
Rating Agencies................................................................... 33
Receivable File................................................................... 46
Receivables.....................................................................Front Cover, 3
Receivables Pool.................................................................. 21
Registration Statement............................................................ 1
Required Initial Yield Supplement Amount.......................................... 9
Required Subsequent Yield Supplement Amount....................................... 9
Required Rate..................................................................... 8
Required Yield Supplement Amount.................................................. 9
Reserve Account................................................................... 51
Restricted Group.................................................................. 63
Reuters Screen LIBO Page.......................................................... 38
Rules............................................................................. 40
Sale and Servicing Agreement...................................................... 3
Securities.........................................................................Front Cover
Securities Act.................................................................... 1
Securityholders................................................................... 7
Seller..........................................................................Front Cover, 3
Sellers.........................................................................Front Cover, 3
Senior Certificates............................................................... 63
Servicer........................................................................Front Cover, 3
Servicer Fee...................................................................... 50
Servicing Fee..................................................................... 50
Servicing Fee Rate................................................................ 50
Simple Interest Receivables....................................................... 23
</TABLE>
70
<PAGE> 76
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Special Tax Counsel............................................................... 61
Spread............................................................................ 35
Spread Multiplier................................................................. 36
Strip Certificates................................................................ 6
Strip Notes....................................................................... 5
Subordinated Certificates......................................................... 65
Subsequent Receivables..........................................................Front Cover, 4
Subsequent Transfer Date.......................................................... 44
Supplemental Servicing Fee........................................................ 50
targeted balance.................................................................. 30
Terms and Conditions.............................................................. 41
Transfer and Servicing Agreements................................................. 44
Treasury bills.................................................................... 39
Treasury Rate..................................................................... 39
Treasury Rate Determination Date.................................................. 39
Treasury Rate Security............................................................ 36
Trust...........................................................................Front Cover, 3
Trust Accounts.................................................................... 47
Trust Agreement.................................................................Front Cover, 3
Trustee............................................................................Front Cover
UCC............................................................................... 14, 58
Underwriting Agreements........................................................... 66
Yield Supplement Account.......................................................... 8, 52
Yield Supplement Agreement........................................................ 8
Yield Supplement Amount........................................................... 9, 52
Yield Supplement Initial Deposit.................................................. 9
</TABLE>
71
<PAGE> 77
THE INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE
IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED , 199
-
OWNER TRUST PROSPECTUS SUPPLEMENT
(To Prospectus dated , 1996)
$
NATIONSBANK AUTO OWNER TRUST 199
$ % [CLASS A-1] ASSET BACKED NOTES
[$ FLOATING RATE CLASS A-2 ASSET BACKED NOTES]
[$ % CLASS A-3 ASSET BACKED NOTES]
[$ % [CLASS-C] ASSET BACKED CERTIFICATES]
[$ % [CLASS-C] ASSET BACKED CERTIFICATES]
NATIONSBANK, N.A.
NATIONSBANK, N.A. (SOUTH)
NATIONSBANK OF TEXAS, N.A.
SELLERS
---------------------
NATIONSBANK, N.A.
SERVICER
---------------------
The NationsBank Auto Owner Trust 199 (the "Trust") will be governed by a
Trust Agreement, to be dated as of , 199 , among
NationsBank, N.A., NationsBank, N.A. (South), NationsBank of Texas, N.A. (each,
a "Seller" and a "Bank" and collectively, the "Sellers" and the "Banks") and
, as Owner Trustee. The Trust will issue $
aggregate initial principal amount of [Class A-1] % Asset Backed Notes (the
"[Class A-1] Notes")[, $ aggregate initial principal amount of Class
A-2 Floating Rate Asset Backed Notes (the "Class A-2 Notes") and $
aggregate initial principal amount of Class A-3 % Asset Backed Notes (the
"Class A-3 Notes" and, together with the Class A-1 Notes and the Class A-2
Notes, the "Notes")] pursuant to an Indenture to be dated as of ,
199 , between the Trust and , as Indenture Trustee. The
Trust will also issue $ aggregate initial principal balance of %
[Class C- Asset Backed Certificates (the "Class C- Certificates") and
$ aggregate principal balance of % Class C- ] Asset Backed
Certificates ([collectively,] the "Certificates" and together with the Notes,
the "Securities"). The assets of the Trust will include a pool of retail motor
vehicle installment sales
(continued on following page)
PROSPECTIVE INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION SET
FORTH IN
"RISK FACTORS" BEGINNING ON PAGE S- HEREIN AND ON PAGE 14 OF THE ACCOMPANYING
PROSPECTUS.
---------------------
THE NOTES REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES REPRESENT BENEFICIAL
INTERESTS IN, THE TRUST ONLY AND DO NOT REPRESENT OBLIGATIONS OF OR
INTERESTS IN, AND ARE NOT GUARANTEED OR INSURED BY, THE FEDERAL
DEPOSIT INSURANCE CORPORATION, ANY GOVERNMENTAL AGENCY, ANY
OF THE SELLERS, THE SERVICER OR NATIONSBANK CORPORATION OR
ANY OF THEIR RESPECTIVE AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
---------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT THE SELLER(1)(2)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per [Class A-1] Note............................ % % %
- ---------------------------------------------------------------------------------------------------------------------
[Per Class A-2 Note............................. % % %]
- ---------------------------------------------------------------------------------------------------------------------
[Per Class A-3 Note............................. % % %]
- ---------------------------------------------------------------------------------------------------------------------
[Per Certificate................................ % % %]
- ---------------------------------------------------------------------------------------------------------------------
Total........................................... $ $ $
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from , 199 .
(2) Before deducting expenses, estimated to be $ .
The Notes and the Certificates are offered by the Underwriters when, as and
if issued and accepted by the Underwriters and subject to their right to reject
orders in whole or in part. It is expected that delivery of the Notes [and the
Certificates] will be made in book-entry form only through the Same Day Funds
Settlement System of The Depository Trust Company, or through Cedel Bank,
societe anonyme or the Euroclear System, on or about the Closing Date [and that
delivery of the Certificates will be made available in full registered,
certificated form in New York, New York, in each case] on or about the Closing
Date.
The date of this Prospectus Supplement is , 199 .
<PAGE> 78
(continued from previous page)
contracts (the "Receivables") secured-by security interest in the motor vehicles
financed thereby, including certain monies received thereunder after the related
Cut-Off Date (as defined herein), which will be purchased by the Trust from the
Seller on or prior to the Closing Date, [monies on deposit in a trust account
(the "Pre-Funding Account") to be established with the Indenture Trustee] and
certain other property, as more fully described herein. See "Summary -- The
Trust Property" herein. [Additional retail motor vehicle installment sales
contracts (the "Subsequent Receivables") will be purchased by the Trust from the
Seller from time to time on or before , 199 , from funds on deposit
in the Pre-Funding Account.] The Notes will be secured by the assets of the
Trust pursuant to the Indenture. (Certain capitalized terms used in this
Prospectus Supplement are defined elsewhere in this Prospectus Supplement on the
pages indicated in the "Index of Terms" beginning on page .)
Interest on [the] [all classes of] Notes [other than the Class A-2 Notes]
will accrue at the fixed per annum interest rates specified above. [The Class
A-2 Notes will accrue interest at a rate of % per annum for the period from
the Closing Date through 199 . Thereafter, the Class A-2 Notes will accrue
interest at a per annum rate equal to [LIBOR] plus %.] Interest on the
Notes will generally be payable [quarterly] on the day of each [month] [ ,
, and ] (each, a "[Distribution] [Payment] Date"), commencing
, 199 . Interest will accrue from and including the Closing Date (in
the case of the first [Distribution] [Payment] Date), or from the most recent
[Distribution] [Payment] Date on which interest has been paid to but excluding
the following [Distribution] [Payment] Date (each an "Interest Period"). [With
respect to the Class A-2 Rate, the "Index Maturity" for [LIBOR] will be [one
month, in the case of monthly Payment Dates] [three months (in the case of
quarterly Payment Dates)] and] the "Interest Reset Period" for such calculation
will be the Interest Period. See "Description of Fixed and Floating Rate
Options -- Floating Rate Securities" in the Prospectus.] Principal on the Notes
will be payable on each [Distribution] [Payment] Date to the extent described
herein[; however, no principal will be paid on the Class A-2 Notes until the
Class A-1 Notes have been paid in full and no principal will be paid on the
Class A-3 Notes until the Class A-2 Notes have been paid in full].
The Certificates will represent [fractional undivided] interests in the
Trust. Interest, to the extent of the Certificate Rate specified above, will be
distributed to the Certificateholders on [each Distribution Date] [the day of
each month (each, a "Distribution Date"), commencing , 199 ].
Principal, to the extent described herein, will be distributed to the
Certificateholders on each Distribution Date commencing with the later of (i)
the Distribution Date next succeeding the Distribution Date on which the [Class
A-1] Notes are paid in full and (ii) the , 199 Distribution Date. Distributions
of principal and interest on the Certificates will be subordinated in priority
to payments due on the Notes [to the extent] [as] described herein. In addition,
upon the occurrence and during the continuation of an Event of Default which has
resulted in an acceleration of the Notes or following an Insolvency Event or a
dissolution with respect to NationsBank Auto Funding Corporation ("NAFC"),
distributions of any amounts on the Certificates will be subordinated in
priority of payment to payment in full of principal of the Notes. [Moreover,
upon any downgrading or withdrawal by any Rating Agency of its rating of any
class of Notes, no distributions of principal on the Certificates will be made
until all the Notes have been paid in full, unless such rating has been
restored.]
[The] [Class A-1] Notes will be payable in full on the [Payment]
[Distribution] Date[, the Class A-2 Notes will be payable in full on the
[Payment] [Distribution] Date and the Class A-3 Notes will be payable in full on
the [Payment] [Distribution] Date. The final scheduled Distribution Date
with respect to the Certificates will be the Distribution Date (the "Final
Scheduled Distribution Date"). However, payment in full of [the] [a class of]
Notes or of the Certificates could occur earlier or later than such dates as
described herein. In addition, the [Class A-3] Notes will be subject to
redemption in whole, but not in part, and the Certificates will be subject to
prepayment in whole, but not in part, on any Distribution Date on which the
Servicer exercises its option to purchase the Receivables. The Servicer may
purchase the Receivables when the aggregate principal balance of the Receivables
shall have declined to 5% or less of the initial aggregate principal balance of
the Receivables purchased by the Trust. [One or more classes of the Notes will
be subject to partial mandatory redemption and the Certificates may be subject
to partial mandatory
S-2
<PAGE> 79
prepayment, at a premium described herein, in the event that funds remain in the
Pre-Funding Account at the end of the Funding Period (as defined herein).]
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE NOTES AND THE CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED
IN THE PROSPECTUS AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE NOTES OR THE
CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE NOTES AND THE
CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
REPORTS TO SECURITYHOLDERS
Unless and until Definitive Notes or Definitive Certificates are issued,
monthly and annual unaudited reports containing information concerning the
Receivables will be prepared by the Servicer and sent on behalf of the Trust
only to Cede & Co. ("Cede"), as nominee of The Depository Trust Company ("DTC")
and registered holder of the Notes and the Certificates. See "Book-Entry and
Definitive Securities; Reports to Securityholders -- Book-Entry Registration"
and "-- Reports to Securityholders" in the accompanying Prospectus (the
"Prospectus"). Such reports will not constitute financial statements prepared in
accordance with generally accepted accounting principles. The Servicer, on
behalf of the Trust, will file with the Securities and Exchange Commission (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. The Servicer intends to continue to
file with respect to the Trust such periodic reports pursuant to the
requirements of the Exchange Act for the period after such filings could be
discontinued in reliance on Section 15(d) thereof until the Notes and the
Certificates issued by the Trust are no longer outstanding.
The Sellers have filed with the Commission, on behalf of the Trust, a
Registration Statement under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Certificates offered pursuant to this
Prospectus. For further information, reference is made to such Registration
Statement, and the exhibits thereto, which are available for inspection without
charge at the public reference facilities of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, as well as the Midwest Regional Offices of the
Commission at the Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511, and at the Northeast Regional Office of the Commission at 7
World Trade Center, Suite 1300, New York, New York 10048. Copies of such
information can be obtained from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In
addition, the Commission maintains a public access site on the Internet through
the World Wide Web at which site reports, information statements and other
information, including all electronic filings, regarding the Sellers and
NationsBank Corporation, the parent corporation of each of the Sellers, may be
viewed. The Internet address of such World Wide Web site is http://www.sec.gov.
See "Available Information" in the Prospectus. See "Available Information" in
the Prospectus.
S-3
<PAGE> 80
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus. Certain
capitalized terms used herein are defined elsewhere in this Prospectus
Supplement on the pages indicated in the "Index of Terms" or, to the extent not
defined herein, have the meanings assigned to such terms in the Prospectus.
ISSUER..................... NationsBank Auto Owner Trust 199 (the "Trust"
or the "Issuer"), a Delaware business trust to be
formed by the Sellers and the Trustee pursuant to
a trust agreement, (as amended, and supplemented
from time to time, the "Trust Agreement") dated
as of , 199 , among the Sellers and
the Owner Trustee.
SELLER..................... NationsBank, N.A., NationsBank, N.A. (South)
("NationsBank South") and NationsBank of Texas,
N.A. ("NationsBank Texas") (each a "Seller" and a
"Bank" and, collectively, the "Sellers" and the
"Banks").
SERVICER................... NationsBank, N.A., in its capacity as servicer (the
"Servicer").
INDENTURE TRUSTEE.......... , a , as trustee under the Indenture (the
"Indenture Trustee").
OWNER TRUSTEE.............. , a , as trustee under the Trust
Agreement (the "Owner Trustee").
THE NOTES.................. The Trust will issue [ %] Asset Backed Notes
(the "Notes") pursuant to an Indenture to be
dated as of , 199 (as
amended, modified and supplemented from time to
time, the "Indenture"), between the Issuer and
the Indenture Trustee[, as follows: (1) Class A-1
% Asset-Backed Notes (the "Class A-1 Notes")
in the aggregate initial principal amount of
$ ; (2) Class A-2 [Floating Rate] Asset
Backed Notes (the "Class A-2 Notes") in the
aggregate initial principal amount of $ ; and
(3) Class A-3 % Asset Backed Notes (the
"Class A-3 Notes") in the aggregate initial
principal amount of $ ].
The Notes will be secured by the assets of the
Trust pursuant to the Indenture.
The Notes will be available for purchase in book
entry form only in minimum denominations of
$1,000 and integral multiples thereof. The
Noteholders will not be entitled to receive
Definitive Notes except in the limited
circumstances described herein. See "Book-Entry
and Definitive Securities; Reports to
Securityholders -- Definitive Securities" in the
Prospectus.
THE CERTIFICATES........... The Trust will issue % [Class C-Asset-Backed
Certificates and % Class C-] Asset Backed
Certificates [(collectively,] the "Certificates"
and, together with the Notes, the "Securities")
with an aggregate initial Certificate Balance of
$ . The Certificates will represent
[fractional undivided] interests in the Trust and
will be issued pursuant to the Trust Agreement.
$ aggregate principal amount of
Certificates will initially be held by
NationsBanc Auto Funding Corporation, a Delaware
corporation ("NAFC"), a limited purpose wholly
owned subsidiary of NationsBank, N.A. and are not
offered hereby.
S-4
<PAGE> 81
The Certificates will be available for purchase in
[book entry] fully registered definitive] form
only in minimum denominations of $1,000 and
integral multiples thereof. The
Certificateholders will not be entitled to
receive Definitive Certificates except in the
limited circumstances described herein. See
"Book-Entry and Definitive Securities; Reports to
Securityholders -- Definitive Securities" in the
Prospectus. The rights of the Certificateholders
to receive distributions with respect to the
Certificates will be subordinated to the rights
of the Noteholders to receive principal and
interest on the Notes [to the extent] [as]
described herein.
NATIONSBANC AUTO FUNDING
CORPORATION.............. NAFC has been formed for the limited purpose of
purchasing a portion of the Certificates issued
by the Trust, acting as the general partner of
the Trust for federal income tax purposes and
engaging in incidental activities, NAFC will
purchase [ %] which amount shall be at least 1%
of the Certificates issued by the Trust. Any
Certificates purchased by NAFC have not been, and
will not be, registered with the Commission and
may not be offered pursuant to the Registration
Statement.
THE TRUST PROPERTY......... The property of the Trust (the "Trust Property")
includes a pool of fixed rate simple interest
retail motor vehicle installment sales contracts
purchased by the Sellers from motor vehicle
dealers (the "Dealers") that provide for the
allocation of payments between principal and
interest according to the simple interest method
(collectively, the "Receivables"), all monies
received under the [Initial] Receivables after
the close of business of the Servicer on
, 1996 (the "[Initial] Cut-Off Date")
[and all monies received under the Subsequent
Receivables after the close of business of the
Servicer on each applicable Subsequent Transfer
Date] and will also include: (i) such amounts as
from time to time are on deposit in one or more
accounts maintained pursuant to the Sale and
Servicing Agreement to be dated as of
, 199 (as amended and supplemented from time
to time, the "Sale and Servicing Agreement"),
among the Trust, the Sellers and the Servicer
[and the Collateral Agent], as described herein,
including the Reserve Account[, the Yield
Supplement Account][and the Pre-Funding Account];
(ii) security interests in the new and used
automobiles, vans and light-duty trucks financed
thereby (collectively, the "Financed Vehicles")
and any accessions thereto; (iii) the Sellers'
rights (if any) to receive proceeds from claims
under certain insurance policies covering the
Financed Vehicles or the obligors under the
Receivables (each, an "Obligor"), as the case may
be; (iv) [certain rights of the Trust to receive
payments pursuant to the Yield Supplement
Agreement as described below;] (v) any property
that shall have secured a Receivable and shall
have been acquired by the Trust; (vi) each
Seller's rights relating to the repurchase of
Receivables under agreements between each Seller
and the Dealers that sold the Financed Vehicles
to the Obligors and any assignments and other
documents related thereto (collectively, the
"Dealer Agreements") and under the documents and
instruments contained in the Receivable Files;
(vii) certain rebates of premiums and other
amounts relating to certain insurance policies
and other items financed under the Receivables;
(viii) the rights of the Trust
S-5
<PAGE> 82
under the Sale and Servicing Agreement; and (ix)
any and all proceeds of the foregoing.
THE RECEIVABLES............ On , 199 (the "Closing Date"), the
Trust will purchase Receivables (the "[Initial]
Receivables") having an aggregate principal
balance (the "[Initial] Pool Balance") of
approximately $ as of ,
199 (the "[Initial] Cut-Off Date") from the
Sellers pursuant to a Sale and Servicing
Agreement. As of the [Initial] Cut-Off Date, the
weighted average annual percentage rate of the
[Initial] Receivables was approximately %,
the weighted average remaining maturity of the
[Initial] Receivables was approximately
months and the weighted average original maturity
of the [Initial] Receivables was approximately
months.
[On and following the Closing Date, pursuant to the
Sale and Servicing Agreement, the Sellers will be
obligated, subject only to the availability
thereof, to sell, and the Trust will be obligated
to purchase, subject to the satisfaction of
certain conditions set forth therein, additional
Receivables (the "Subsequent Receivables") from
time to time during the Funding Period having an
aggregate principal balance equal to
approximately $ (such amount being equal
to an amount on deposit in the Pre-Funding
Account (the "Pre-Funded Amount") on the Closing
Date). The Sellers will designate as a cut-off
date (each a "Subsequent Cut-Off Date") each date
as of which payments in respect of particular
Subsequent Receivables are conveyed to the Trust.
It is expected that certain of the Subsequent
Receivables arising between the Initial Cut-Off
Date and the Closing Date will be conveyed to the
Trust on the Closing Date and that other
Subsequent Receivables will be conveyed to the
Trust as frequently as daily thereafter on dates
specified by the Sellers (each date on which
Subsequent Receivables are conveyed to the Trust
being referred to as a "Subsequent Transfer
Date") occurring during the Funding Period. See
"Description of the Transfer and Servicing
Agreements -- Sale and Assignment of Receivables;
Subsequent Receivables" herein.] [Coincident with
each such transfer of Subsequent Receivables, the
Yield Supplement Agreement will require the
Sellers to deposit into the Yield Supplement
Account an amount equal to the Additional Yield
Supplement Amount, if any, in respect of such
Subsequent Receivables. See "Description of the
Transfer and Servicing Agreements -- Yield
Supplement Account; Yield Supplement Agreement"
herein.]
The [Initial] Receivables [and the Subsequent
Receivables] arise or will arise from loans
originated by Dealers and purchased by the
Sellers pursuant to Dealer Agreements. The
[Initial] Receivables have been selected[, and
the Subsequent Receivables will be selected,]
from the contracts owned by Sellers based on the
criteria specified in the Sale and Servicing
Agreement and described herein and in the
Prospectus. No [Initial] Receivable has[, and no
Subsequent Receivable will have,] a scheduled
maturity later than
(the "Final Scheduled Maturity Date")
[Subsequent Receivables may be originated by the
Dealers at a later date using credit criteria
different from those which were applied to the
Initial Receivables and may be of a different
credit quality and
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seasoning. In addition, following the transfer of
Subsequent Receivables to the Trust, the
characteristics of the entire pool of Receivables
included in the Trust may vary significantly from
those of the Initial Receivables. See "Risk
Factors -- The Subsequent Receivables and the
Pre-Funding Account" and "The Receivables Pool"
herein.]
The Receivable Pool may contain both Simple
Interest Receivables and Balloon Receivables. See
"The Receivables Pools," "Risk Factors --
General," "-- Subsequent Receivables" and
"-- Balloon Receivables; Final Scheduled Payment
Risk" in the Prospectus.
The "Pool[/Pre-Funding] Balance" at any time [will
represent] [is the sum of (i)] the aggregate
principal balance of the Receivables at the end
of the preceding Collection Period, after giving
effect to all payments received from Obligors,
Liquidation Proceeds, and Purchase Amounts to be
remitted by the Servicer or the Seller, as the
case may be, all for such Collection Period and
all [Realized Losses] during such Collection
Period [(such amount, the "Pool Balance") and
(ii) the amount on deposit in the Pre-Funding
Account (excluding any Investment Earnings)].
TERMS OF THE NOTES......... The principal terms of the Notes will be as
described below:
A. [Distribution] [Payment]
Dates.................... Payments of interest and principal on the Notes
will be made [quarterly] on the day of each
[month] [ , , and ] or, if any
such day is not a Business Day, on the next
succeeding Business Day (each, a "[Distribution]
[Payment] Date"), commencing , 199 .
[Under certain limited circumstances, such
payments will be made monthly rather than
quarterly.] Payments will be made to holders of
record of the Notes (the "Noteholders") as of the
day immediately preceding such [Distribution]
[Payment] Date or, if Definitive Notes are
issued, as of the day of the preceding month [(a
"Record Date")]. A "Business Day" is a day other
than a Saturday, a Sunday or a day on which
banking institutions or trust companies in The
City of New York are authorized by law,
regulation or executive order to be closed.
B. Note Interest Rates..... The [Class A-1] Notes will bear interest at the
rate of % per annum (the ["Note Interest
Rate"] ["Class A-1 Rate"]) [and the Class A-3
Notes will bear interest at the rate of %
per annum (the "Class A-3 Rate"). The rate of
interest with respect to the Class A-2 Notes (the
"Class A-2 Rate" and, together with the Class A-1
Rate and the Class A-3 Rate, the "Note Interest
Rates") will be % per annum for the period
from the Closing Date to but excluding the first
[Distribution] [Payment] Date, and will be equal
to [LIBOR] for the applicable Interest Reset
Period plus % for each [Distribution]
[Payment] Date thereafter[; provided that the
Class A-2 Rate shall not exceed % per
annum]].
C. Interest................ On each [Distribution] [Payment] Date, the
Indenture Trustee will distribute pro rata to
Noteholders [of each class of Notes] accrued
interest at the [applicable] Note Interest Rate
generally to the extent of funds available
following payment of the Servicing Fee from the
Available Funds and the Reserve Account. Interest
on the outstanding principal amount of the Notes
[of each class] will accrue at the
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[applicable] Note Interest Rate from and
including the Closing Date (in the case of the
first [Distribution] [Payment] Date) or from and
including the most recent [Distribution]
[Payment] Date on which interest has been paid to
but excluding the following [Distribution]
[Payment] Date (each an "Interest Period").
[Interest on the Class A-1 Notes will be
calculated on the basis of actual days elapsed
and a 365- or 366-day year, as applicable.]
Interest on the [[Class A-1 Notes and] Class A-3]
Notes will be calculated on the basis of a
360-day year of twelve 30-day months. [Interest
on the Class A-2 Notes will be calculated on the
basis of actual days elapsed and a 360-day year.]
See "Description of the Notes -- Payments of
Interest" herein.
D. Principal............... Principal of the Notes will be payable [quarterly]
on each [Distribution] [Payment] Date in an
amount equal to [the sum of] the Noteholders'
Principal Payment Amount for [each of] the
[three] calendar month[s] ([the] [each, a]
"Collection Period") preceding such
[Distribution] [Payment] Date (in the case of the
first [Distribution] [Payment] Date, including
the period from , 199 to and
including , 199 ) to the extent of funds
available therefor. The "Noteholders' Principal
Payment Amount" [with respect to a Collection
Period] will generally be the sum of (i) the
[Noteholders' Percentage of the] Regular
Principal (such "Regular Principal" being the sum
of (a) the principal portion of all payments
collected, and (b) the principal balance of each
Receivable purchased by the Servicer, repurchased
by the Sellers or liquidated by the Servicer,
each with respect to [the preceding] [such]
Collection Period), [plus (ii) % of the portion,
if any, of the Available Funds for such
Collection Period that remains after payment of
(a) the Servicing Fee, (b) the interest [due]
[accrued] on the Notes, (c) the portion of the
Regular Principal allocated to the Noteholders
pursuant to clause (i), (d) the interest due on
the Certificates, (e) the portion of the Regular
Principal distributed to the Certificateholders
as described below under "Description of the
Certificates -- Distributions of Principal
Payments" herein, and (f) the amount, if any,
required to be deposited in the Reserve Account
on [such] [the related] Distribution Date [plus
the excess of the amount on deposit in the
Reserve Account on such Distribution Date (after
giving effect to all deposits or withdrawals
therefrom on such Distribution Date) over the
Specified Reserve Account Balance)] (such
percentage of the remaining portion of Available
Funds [plus such excess], the "Noteholders'
Accelerated Principal").] [Or, state other method
for determining the amount of principal to be
paid on the Notes.]
On the Business Day immediately preceding each
Distribution Date (a "Determination Date") the
Indenture Trustee will determine the amount in
the Collection Account allocable to interest and
the amount allocable to principal on the basis
described under "Description of the Transfer and
Servicing
Agreements -- Distributions -- Allocation of
Collections on Receivables" in the Prospectus,
and payments to Securityholders on the following
Distribution Date will be based on such
allocation.
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Payments of principal on the Notes will be made on
each [Distribution] [Payment] Date in the amounts
and subject to the priorities described in
"Description of the Notes -- Payments of
Principal" herein.
The outstanding principal amount of the [Class A-1]
Notes, to the extent not previously paid, will be
payable on (the "[Class A-1] Final Scheduled
[Distribution] [Payment] Date")[, the outstanding
principal amount of the Class A-2 Notes, to the
extent not previously paid, will be payable on
(the "Class A-2 Final Scheduled [Distribution]
[Payment] Date") and the outstanding principal
amount of the Class A-3 Notes, to the extent not
previously paid, will be payable on
(the "Class A-3 Final Scheduled [Distribution]
[Payment] Date")].
E. Significant
Characteristics of Class
Notes.................... [Interest will accrue on the Class Notes from
[the Closing Date] but no interest will be
payable on the Class Notes until [[the
Distribution] [Payment] Date]] [the
[Distribution] [Payment] Date on or after which
the Class Notes have been paid in full]. [The
Class Notes [do not bear interest] [bear
interest at a nominal rate] and principal thereon
is due and payable on [and after] [the
[Distribution] [Payment] Date following the
[Distribution] [Payment] Date on or after which
the Class Notes have been paid in full] [each
[Distribution] [Payment] Date to the extent that
principal available to be paid on the Class
Notes exceeds the amount necessary to reduce the
outstanding principal balance of the Class
Notes to the [planned balance] for such
[Distribution] [Payment] Date. [No principal is
payable with respect to the Class Notes. The
Class Notes are entitled only to interest on
the [nominal] [notional] amount thereof, as
described above under "Principal."] As a result
the yield to maturity on the Class Notes will
be particularly sensitive to the rate and timing
of repayment, repurchase and defaults on the
Receivables.] [See "Risk Factors" and "The
Receivables Pool -- Weighted Average Life of the
Securities."]
F. Optional Redemption..... The [Class A-3] Notes will be redeemed in whole,
but not in part, on any Distribution Date [after
all the other classes of Notes have been paid in
full] on which the Servicer exercises its option
to purchase the Receivables, which can occur
after the Pool Balance declines to 5% or less of
the Initial Pool Balance, at a redemption price
at least equal to the unpaid principal amount of
the [Class A-3] Notes plus accrued and unpaid
interest thereon. See "Description of the
Notes -- Optional Redemption" herein. The
"Initial Pool Balance" will equal [the sum of
(i)] the aggregate principal balance of the
[Initial] Receivables as of the [Initial] Cut-Off
Date [plus (ii) the aggregate principal balances
of all Subsequent Receivables added to the Trust
on or prior to such date as of their respective
Subsequent Cut-Off Dates].
[G. Mandatory Redemption
from Pre-Funding Account... [The] [A class or classes of] Notes then
outstanding will be redeemed in part on the
Distribution Date on or immediately following the
last day of the Funding Period in the event that
amounts remain on deposit in the Pre-Funding
Account after giving effect to the purchase of
all Receivables, including any such purchase on
such date (a "Mandatory Redemption"). If the
amount on deposit in the Pre-Funding Account
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<PAGE> 86
on such date is equal to $ or less, then
such amount will be used to redeem the [Class
A-1] Notes [up to an amount not to exceed their
outstanding balance, with any remaining amount
used to redeem the Class A-2 Notes]. Otherwise
the amount on deposit in the Pre-Funding Account
on such date will be used to redeem [each class
of] the Notes and the Certificates. The aggregate
principal amount of [each class of] the Notes to
be redeemed will be an amount equal to [the
Notes'] [such class'] Pre-Funded Percentage of
the amount then on deposit in the Pre-Funding
Account. The "Pre-Funded Percentage" with respect
to [the] [a class of] Notes or the Certificates
is the percentage derived from the fraction, the
numerator of which is the initial principal
amount of [the] [such class of] Notes or the
initial Certificate Balance, as the case may be,
and the denominator of which is the sum of the
initial principal amount of the Notes and the
initial Certificate Balance.]
[A limited recourse mandatory prepayment premium
(the "Note Prepayment Premium") will be payable
by the Trust to the Noteholders pursuant to a
Mandatory Redemption if the amount on deposit in
the Pre-Funding Account exceeds $ . The
Note Prepayment Premium [for each class of Notes]
will equal the excess, if any, discounted as
described below, of (i) the amount of interest
that would accrue on [the Notes'] [such class']
portion of any remaining Pre-Funded Amount (the
"Note Prepayment Amount") at the Note Interest
Rate borne by [the] [such class of] Notes during
the period commencing on and including the
Distribution Date on which such Note prepayment
amount is required to be distributed to
Noteholders [of such class] to but excluding
[, in the case of the Class A-1 Notes,
, in the case of the Class A-2 Notes
and , in the case of the Class A-3
Notes], over (ii) the amount of interest that
would have accrued on such Note Prepayment Amount
over the same period at a per annum rate of
interest equal to the bond equivalent yield to
maturity on the Determination Date preceding such
Distribution Date on the [, in the case
of the Class A-1 Notes, the , in the
case of the Class A-2 Notes, and the ,
in the case of the Class A-3 Notes]. Such excess
shall be discounted to present value to such
Distribution Date at the applicable yield
described in clause (ii) above. Pursuant to the
Sale and Servicing Agreement, the Sellers will be
obligated to pay the sum of the Note Prepayment
Premium [for each class of Notes] and the
Certificate Prepayment Premium to the Trust as
liquidated damages for the failure to deliver
Subsequent Receivables having an aggregate
principal balance equal to the Pre-Funded Amount.
The Trust's obligation to pay the Note Prepayment
Premium [for each class of Notes] and the
Certificate Prepayment Premium will be limited to
funds received from the Sellers pursuant to the
preceding sentence. In the event that such funds
are insufficient to pay the Note Prepayment
Premium [for each class of Notes] and the
Certificate Prepayment Premium in full,
Noteholders [of each class of Notes] will receive
their ratable share (based upon the aggregate
Note Prepayment Premium [for such class]) of the
aggregate amount available to be distributed in
respect of the Note Prepayment Premium and the
Certificate Prepayment Premium. No other assets
of the Trust will be available for the
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<PAGE> 87
purpose of making such payment.]][Or, state other
method for determining the amount of principal to
be paid on the Notes.]
TERMS OF THE
CERTIFICATES............... The principal terms of the Certificates will be as
described below:
A. Distribution Dates...... Distributions with respect to the Certificates will
be made on [each Distribution Date] [the day of
each month or, if any such day is not a Business
Day, on the next succeeding Business Day (each, a
"Distribution Date")], commencing ,
199 . Distributions will be made to holders of
record of the Certificates (the
"Certificateholders," and, together with the
Noteholders, the "Securityholders") as of the
[related Record Date (which will be the day of
the month if Definitive Certificates are issued)]
[as of the day immediately preceding such
Distribution Date or, if Definitive Certificates
are issued, as of the day of the preceding
month].
B. Certificate Rate........ % per annum (the "Certificate Rate"). [If more
than one class of Certificates, describe
applicable rate for each such Class.]
C. Interest................ On each Distribution Date, the Owner Trustee will
distribute pro rata to Certificateholders accrued
interest at the Certificate Rate on the
outstanding Certificate Balance generally to the
extent of funds available following payment of
the Servicing Fee and payments in respect of the
Notes from the Available Funds and the Reserve
Account; provided, however, that upon the
occurrence and during the continuation of an
Event of Default which has resulted in an
acceleration of the Notes or following an
Insolvency Event or a dissolution with respect to
NAFC, distributions of any amounts on the
Certificates will be subordinated in priority of
payment to payment in full of principal of the
Notes. Interest in respect of a Distribution Date
will accrue from and including the Closing Date
(in the case of the first Distribution Date) or
from and including the most recent Distribution
Date on which interest has been paid to but
excluding the following Distribution Date.
Interest will be calculated on the basis of a
360-day year consisting of twelve 30-day months.
D. Principal............... On each Distribution Date commencing on the
Distribution Date next succeeding the
Distribution Date on which the Notes are paid in
full, principal of the Certificates will be
payable in an amount generally equal to the
Certificateholders' Principal Distribution Amount
for the Collection Period preceding such
Distribution Date, to the extent of funds
available therefor following payment of the
Servicing Fee and payments of interest and
principal in respect of the Notes and the
distribution of interest in respect of the
Certificates[; provided, however, that upon the
occurrence and during the continuation of an
Event of Default which has resulted in an
acceleration of the Notes or following an
Insolvency Event or a dissolution with respect to
NAFC, distributions of any amounts on the
Certificates will be subordinated in priority of
payment to payment in full of principal of the
Notes[; and provided further that upon any
reduction or withdrawal by any Rating Agency of
its rating of [the] [any class of] Notes, no
distributions of principal on the Certificates
will be made until all the Notes have been paid
in full or until such rating has been restored].
The Certificateholders' Principal Distribution
Amount will be based on the Certificateholders'
Percentage of the Regular Principal, and will be
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<PAGE> 88
calculated by the Servicer in the manner
described under "Description of the Transfer and
Servicing Agreements -- Distributions" herein.
The outstanding principal balance, if any, of the
Certificates will be payable in full on
, 199 (the "Final Scheduled
Distribution Date").] [Or, state other method for
determining the amount of principal to be paid on
the Certificates.]
E. Optional Prepayment..... If the Servicer exercises its option to purchase
the Receivables, which can occur after the Pool
Balance declines to 5% or less of the Initial
Pool Balance, the Certificateholders will receive
an amount in respect of the Certificates equal to
the Certificate Balance together with accrued
interest at the Certificate Rate, and the
Certificates will be retired. See "Description of
the Certificates -- Optional Prepayment" herein.
[F. LIMITATIONS ON
HOLDERS.................... The Certificates may not be held by non-U.S.
Persons.]
[G. Mandatory Repurchase
from Pre-Funding Account... The Certificates will be prepaid, in part, pro rata
on the basis of their initial principal amounts,
on the Distribution Date on or immediately
following the last day of the Funding Period in
the event that the amount on deposit in the
Pre-Funding Account after giving effect to the
purchase of all Receivables, including any such
purchase on such date exceeds $ (a
"Mandatory Repurchase"). The aggregate principal
amount of Certificates to be prepaid will be an
amount equal to the Certificates' Pre-Funded
Percentage of the amount then on deposit in the
Pre-Funding Account.
[A limited recourse mandatory prepayment premium
(the "Certificate Prepayment Premium") will be
payable by the Trust to the Certificateholders at
the time of any prepayment of the Certificates
pursuant to a Mandatory Repurchase. The
Certificate Prepayment Premium will equal the
excess, if any, discounted as described below, of
(i) the amount of interest that would accrue on
the Certificates' portion of any remaining
Pre-Funded Amount (the "Certificate Prepayment
Amount") at the Certificate Rate during the
period commencing on and including the
Distribution Date on which such Certificate
Prepayment Amount is required to be distributed
to Certificateholders to but excluding
, over (ii) the amount of interest that
would have accrued on such Certificate Prepayment
Amount over the same period at a per annum rate
of interest equal to the bond equivalent yield to
maturity on the Determination Date preceding such
Distribution Date on the . Such excess
will be discounted to present value to such
Distribution Date at the yield described in
clause (ii) above. Pursuant to the Sale and
Servicing Agreement, the Sellers will be
obligated to pay the sum of the Note Prepayment
Premium [for each class of Notes] and the
Certificate Prepayment Premium to the Trust as
liquidated damages for the failure to deliver
Subsequent Receivables having an aggregate
principal balance equal to the Pre-Funded Amount.
The Trust's obligation to pay the Note Prepayment
Premium [for each class of Notes] and the
Certificate Prepayment Premium will be limited to
funds received from the Sellers pursuant to the
preceding sentence. In the event that such funds
are insufficient to pay the Note Prepayment
Premium [for each class of Notes] and the
Certificate Prepayment Premium in full,
Certificateholders will re-
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<PAGE> 89
ceive their ratable share (based upon the
aggregate Certificate Prepayment Premium) of the
aggregate amount available to be distributed in
respect of the Note Prepayment Premium and the
Certificate Prepayment Premium. No other assets
of the Trust will be available for the purpose of
making such payment.]
[INTEREST RATE CAP......... On the Closing Date, the Sellers will enter into an
Interest Rate Cap in respect of the Class A-2
Notes with (the "Interest Rate Cap
Provider"). Pursuant to the Interest Rate Cap,
the Interest Rate Cap Provider will make a
payment to the Trust on each [Distribution]
[Payment] Date on which [the Class A-2 Rate]
[LIBOR] for the preceding [Distribution]
[Payment] Date exceeds the Cap Rate in an amount
equal to the product of (i) the difference
between [such Class A-2 Rate] [LIBOR] and the Cap
Rate, (ii) the Cap Notional Amount and (iii) the
actual number of days from and including the
preceding [Distribution] [Payment] Date to but
excluding such [Distribution] [Payment] Date
divided by 360. The Cap Notional Amount on any
[Distribution] [Payment] Date will equal at least
the principal amount of the Class A-2 Notes as of
the close of the preceding [Distribution]
[Payment] Date. See "Description of the Transfer
and Servicing Agreements -- Interest Rate Cap"
herein. Payments received by the Indenture
Trustee pursuant to the Interest Rate Cap will be
deposited in the Collection Account for the
benefit of all Securityholders.]
[INTEREST RATE SWAP........ On the Closing Date, the Indenture Trustee, on
behalf of the Trust, will enter into one or more
Interest Rate Swap Agreements (collectively, the
"Interest Rate Swap") with (the "Swap
Counterparty"). Pursuant to the Interest Rate
Swap, the Swap Counterparty will pay to the
Trust, on each [Distribution] [Payment] Date,
interest at a per annum rate equal to [the Class
A-2 Rate] [LIBOR] on the Swap Notional Amount.
The Swap Notional Amount on any [Distribution]
[Payment] Date will equal the principal amount of
the Class A-2 Notes as of the close of the
preceding [Distribution] [Payment] Date. In
exchange for such payments, the Trust will pay to
the Swap Counterparty, on each [Distribution]
[Payment] Date, interest at a per annum rate
equal to [the lesser of] [ %] [and] [the
Prime Rate less %], on the outstanding
principal amount of the Notes as of the close of
the preceding [Distribution] [Payment] Date [,
which rate will be reset [on various dates in]
each [month] [Interest Period]]. With respect to
each [Distribution] [Payment] Date, any
difference between the [monthly] [quarterly]
payment by the Swap Counterparty to the Trust and
the [monthly] [quarterly] payment by the Trust to
the Swap Counterparty will be referred to herein
as the "Net Trust Swap Receipt," if such
difference is a positive number, and the "Net
Trust Swap Payment," if such difference is a
negative number. Net Trust Swap Receipts, if any,
will be deposited in the Collection Account for
the benefit of all Securityholders and Net Trust
Swap Payments, if any, will be paid from the
Collection Account in the same manner and
priority as accrued and unpaid interest on the
Notes on each [Distribution] [Payment] Date. See
"Description of the Transfer and Servicing
Agreements -- Interest Rate Swap."]
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<PAGE> 90
[PRE-FUNDING ACCOUNT....... During the period (the "Funding Period") from and
including the Closing Date until the earliest of
(a) the Determination Date on which the amount on
deposit in the Pre-Funding Account is equal to
$ or less, (b) the occurrence of an
Event of Default under the Indenture or an Event
of Servicing Termination under the Sale and
Servicing Agreement, (c) the occurrence of
certain events of insolvency or dissolution with
respect to NAFC and (d) the Determination Date
with respect to the , 199
Distribution Date, the Pre-Funded Amount will be
maintained as an account in the name of the
Indenture Trustee (the "Pre-Funding Account").
The Pre-Funded Amount will initially equal
approximately $ , and, during the
Funding Period, will be reduced by the amount
thereof used to purchase Subsequent Receivables
in accordance with the Sale and Servicing
Agreement and the amount thereof deposited in the
Reserve Account in connection with the purchase
of such Subsequent Receivables. The Sellers
expect that the Pre-Funded Amount will be reduced
to $ or less by the Distribution Date.
Any Pre-Funded Amount remaining at the end of the
Funding Period will be payable to the Noteholders
and Certificateholders as described above.]
RESERVE ACCOUNT............ An account (the "Reserve Account") will be created
with an initial deposit by the Sellers on the
Closing Date of cash or Permitted Investments
having a value at least equal to % of the
[Initial Pool Balance] [Pool Balance as of the
Initial Cut-Off Date] [plus an amount
attributable to the difference between the
anticipated investment earnings on the Pre-Funded
Amount and the weighted average interest expense
on the portion of the Notes and Certificates
represented by the Pre-Funded Amount]. [On each
Subsequent Transfer Date, cash or Permitted
Investments having a value approximately equal to
% of the aggregate principal balance of the
Subsequent Receivables conveyed to the Trust on
such Subsequent Transfer Date will be withdrawn
from the Pre-Funding Account from amounts
otherwise distributable to the Sellers in
connection with the sale of Subsequent
Receivables and shall be deposited in the Reserve
Account.] The amount initially deposited in the
Reserve Account by the Sellers [and the aggregate
amount transferred from the Pre-Funding Account
to the Reserve Account on each Subsequent
Transfer Date] is referred to as the "Reserve
Account Initial Deposit" [and the "Additional
Reserve Account Deposit," respectively.] The
Reserve Account will be maintained as an account
in the name of the Indenture Trustee for the
benefit of Securityholders.
Funds will be withdrawn from the Reserve Account up
to the Available Reserve Amount to the extent
that the Available Funds with respect to any
Collection Period remaining after the Servicing
Fee is paid is less than the Noteholders' Payment
Amount and will be deposited in the Note Payment
Account for distribution to the Noteholders on
the related [Distribution] [Payment] Date. In
addition, funds will be withdrawn from the
Reserve Account up to the Available Reserve
Amount (as reduced by any withdrawal pursuant to
the preceding sentence) to the extent that the
Available Funds remaining after payment of the
Servicing Fee and the deposit of the Noteholders'
Payment Amount in the Note Payment Account is
less than the
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<PAGE> 91
Certificateholders' Distribution Amount and will
be deposited in the Certificate Distribution
Account for distribution to the
Certificateholders.
On each Distribution Date, the Reserve Account will
be reinstated up to the Specified Reserve Account
Balance to the extent, if any, of the Available
Funds remaining after payment of the Servicing
Fee, the deposit of the Noteholders' Payment
Amount into the Note Payment Account and the
deposit of the Certificateholders' Distribution
Amount into the Certificate Distribution Account.
Certain amounts in the Reserve Account on any
Distribution Date (after giving effect to all
distributions to be made on such Distribution
Date) in excess of the Specified Reserve Account
Balance for such Distribution Date will be
released to [the Sellers] NAFC (except to the
extent described under "Description of the
Transfer and Servicing Agreements -- Reserve
Account" herein). Subject to reduction as
described below, the "Specified Reserve Account
Balance" with respect to any Distribution Date
generally will be equal to the sum of (i) %
of the [Initial Pool Balance] [Pool Balance as of
the Initial Cut-Off Date] [, plus an amount
related to the difference between anticipated
investment earnings on the remaining Pre-Funded
Amount and the weighted average interest expense
on the portion of the Notes and Certificates
represented by the remaining Pre-Funded Amount]
and (ii) % of the Pool Balance on the first
day of the related Collection Period. [However,
so long as on any Distribution Date (except the
first Distribution Date) the outstanding
principal amount of the Securities (after giving
effect to distributions made on the prior
Distribution Date) is less than or equal to
% of [the sum of] [(a)] the Pool Balance on
the first day of the related Collection Period
[and (b) the Pre-Funded Amount on such date],)
then the portion of the Specified Reserve Account
Balance set forth in clause (i) above will be
reduced to % of the [Initial Pool Balance]
[Pool Balance as of the Initial Cut-Off Date].]
[In addition, so long as on any Distribution Date
(except the first Distribution Date) the
outstanding principal amount of the Securities
(after giving effect to distributions made on the
prior Distribution Date) is less than or equal to
% of [the sum of] [(a)] the Pool Balance on
the first day of the related Collection Period
[and (b) the Pre-Funded Amount on such day], then
such portion of the Specified Reserve Account
Balance set forth in clause (i) above will be
reduced to % of the [Initial Pool Balance]
[Pool Balance as of the Initial Cut-Off Date].]
[With respect to the portion of the Specified
Reserve Account Balance set forth in clause (ii)
above, so long as on any Distribution Date
(except the first Distribution Date) the
outstanding principal amount of the Securities
(after giving effect to distributions made on the
prior Distribution Date) is less than or equal to
% of [the sum of] [(a)] the Pool Balance on
the first day of the related Collection Period
[and (b) the Pre-Funded Amount on such day], then
such portion will be reduced to an amount equal
to the product of (I) the Pool Balance on the
first day of the related Collection Period and
(II) the percentage (which shall not be greater
than % or less than zero) equal to (X) the
percentage derived from the fraction, the
numerator of which is the outstanding principal
amount of the Securi-
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<PAGE> 92
ties (after giving effect to distributions made
on the prior Distribution Date) and the
denominator of which is such Pool Balance less
(Y) %.] [The Specified Reserve Account
Balance is further subject to adjustment in
certain circumstances described herein.]
[YIELD SUPPLEMENT ACCOUNT;
YIELD SUPPLEMENT
AGREEMENT................ If any Receivable has, as of the Cutoff Date, a
Contract Rate below the sum of (i) the weighted
average of the Note Interest Rates and
Certificate Rate and (ii) the Servicing Fee Rate
(the "Required Rate"), one or more of the
Sellers, the Servicer or NAFC and the Trust will
enter into a yield supplement agreement (the
"Yield Supplement Agreement"). The Yield
Supplement Agreement will, with respect to each
Receivable subject thereto, provide for payment
by the applicable Seller, on the each Deposit
Date, of an amount calculated by the Servicer to
be equal to one-twelfth of the excess, if any, of
(i) interest on such Receivable's principal
balance as of the first day of the preceding
Collection Period at a rate equal to the Required
Rate over (ii) interest at the Contract Rate on
such Receivable's principal balance as of the
first day of the related Collection Period (in
the aggregate for all Receivables with respect to
any Deposit Date, the "Yield Supplement Amount").
[The Sellers or NAFC will establish a yield
supplement account with the Indenture Trustee for
the benefit of the Securityholders (the "Yield
Supplement Account"). The Yield Supplement
Account is designed solely to hold funds to
provide security for the payment by the Sellers
of the Yield Supplement Amount on any Deposit
Date. The Yield Supplement Account will be
created with a deposit by [the Sellers] NAFC [a
third party] in an amount equal to the Required
[Initial] Yield Supplement Amount.]
[Pursuant to the Yield Supplement Agreement, on
each Subsequent Transfer Date, [the Sellers] NAFC
[a third party] will deposit an amount into the
Yield Supplement Account (the "Additional Yield
Supplement Amount") equal to the aggregate Yield
Supplement Amounts in respect of the such
Subsequent Receivable for the period commencing
with the related Subsequent Cut-Off Date and
ending with the scheduled maturity of each such
Subsequent Receivable, assuming that payments on
such Receivables are made as scheduled and no
prepayments are made. See "Description of the
Transfer and Servicing Agreements -- Yield
Supplement Account; Yield Supplement Agreement"
herein.]]
COLLECTION ACCOUNT......... Except under certain conditions described herein,
the Servicer will be required to remit
collections received with respect to the
Receivables not later than the [ ] Business
Day after receipt to one or more accounts in the
name of the Indenture Trustee (the "Collection
Account"). Pursuant to the Sale and Servicing
Agreement, the Servicer will have the power,
revocable at the discretion of the Indenture
Trustee or at the discretion of the Owner Trustee
with the consent of the Indenture Trustee, to
instruct the Indenture Trustee to withdraw funds
on deposit in the Collection Account and to apply
such funds on each Distribution Date to the
following (in the priority indicated): (i) the
Servicing Fee for the prior Collection Period and
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<PAGE> 93
any overdue Servicing Fees to the Servicer, (ii)
the Accrued Note Interest and the Noteholders'
Principal Payment Amount into the Note Payment
Account, (iii) the Accrued Certificate Interest
and, commencing on the later of (a) the
199 Distribution Date and (b) the
Distribution Date next succeeding the
Distribution Date on which the [Class A-1] Notes
are paid in full, the Certificateholders'
Principal Distribution Amount into the
Certificate Distribution Account and (iv) the
remaining balance, if any, to the Reserve
Account; provided, however, that on each
Distribution Date following the occurrence of an
Event of Default which has resulted in
acceleration of the Notes or following an
Insolvency Event or a dissolution with respect to
NAFC, the principal of the Notes must be paid in
full prior to the distribution of any amounts on
the Certificates.
[GUARANTEED RATE
AGREEMENT.................. Amounts on deposit in the [Collection] [Note
Payment] Account will be invested from the date
of deposit to the related [Distribution]
[Payment] Date by the Indenture Trustee at the
direction of (the "Investment Provider") in
certain eligible investments pursuant to a
Guaranteed Rate Agreement, which provides that
the Investment Provider will guarantee a rate of
return on such amounts equal to the weighted
average of the Note Interest Rates [and the
Certificate Rate] and will be entitled to receive
any Investment Earnings in excess of such
guaranteed return. See "Description of the
Transfer and Servicing Agreements -- Guaranteed
Rate Agreement."]
SERVICER FEE............... The Servicer will receive each month a fee for
servicing the Receivables equal to (a) the
product of one-twelfth of [1.00]% (the "Servicing
Fee Rate") and the Pool Balance outstanding at
the beginning of the previous month, plus (b) any
late, prepayment, and other administrative fees
and expenses collected during such month [plus
(c) reinvestment proceeds on any payments
received in respect of the Receivables].
MATURITY AND PREPAYMENT
CONSIDERATIONS........... The [Class A-2 Notes, the Class A-3 Notes and the]
Certificates will not receive any principal
payments until the [Class A-1] Notes have been
paid in full[, and the Class A-3 Notes will not
receive any principal payments until the Class
A-2 Notes have been paid in full]. In addition,
no principal payments on the Certificates will be
made until the later of [(i) the 199 Distribution
Date and (ii)] the Distribution Date next
succeeding the Distribution Date on which the
[Class A-1] Notes are paid in full. As the rate
of payment of principal of [the] [each class of]
Notes and the Certificates depends on the rate of
payment (including prepayments) of the principal
balance of the Receivables, final payment of
[the] [any class of] Notes and the final
distribution in respect of the Certificates could
occur significantly earlier than the respective
[Final Scheduled Distribution Dates] [final
scheduled Payment Dates or Distribution Date]. In
addition, the rate of payment of principal of
[the] [each Class of] Notes and the Certificates
will be affected by the application of the
Noteholders' Accelerated Principal to pay the
principal of the Notes. Reinvestment risk
associated with early payment of the Notes and
the Certificates will be borne exclusively by the
Noteholders and the Certificateholders,
respectively.
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<PAGE> 94
It is expected that the final payment of [the]
[each class of] Notes and the final distribution
in respect of the Certificates will occur on or
prior to the respective [Final Scheduled
Distribution Dates] [final scheduled Payment
Dates or Distribution Date]. However, if
sufficient funds are not available to pay [the]
[any class of] Notes or the Certificates in full
on or prior to the respective [Final Scheduled
Distribution Dates] [final scheduled Payment
Dates or Distribution Date], final payment of
[the] [such class of] Notes and the final
distribution in respect of the Certificates could
occur later than such dates.
All of the Receivables are prepayable at any time.
Prepayments will shorten the weighted average
remaining term of the Receivables and the
weighted average life of the Securities. Such
prepayments, to the extent allocable to
principal, will be included in the Noteholders'
Principal Payment Amount or the
Certificateholders' Principal Distribution Amount
and will be payable to the Securityholders as set
forth in the priority of distributions herein.
See "Description of the Transfer and Servicing
Agreements -- Distributions" herein.
CLEARANCE AND SETTLEMENT... Securityholders may elect to hold their Notes or
Certificates through any of DTC (in the United
States) or Cedel or Euroclear (in Europe).
Transfers within DTC, Cedel or Euroclear, as the
case may be, will be in accordance with the usual
rules and operation procedures of the relevant
system. Cross-market transfers between persons
holding directly or indirectly through DTC, on
the one hand, and counterparties holding directly
or indirectly through Cedel or Euroclear, on the
other, will be effected in DTC through the
relevant Depositaries of Cedel or Euroclear. See
"Book-Entry and Definitive Securities; Reports to
Securityholders -- Book-Entry Registration" in
the Prospectus [and Annex 1 to this Prospectus
Supplement, "Global Clearance, Settlement and Tax
Documentation Procedures."].
TAX STATUS................. In the opinion of ("Special Tax Counsel"), for
federal income tax purposes, the Notes will be
characterized as debt, and the Trust will not be
characterized as an association (or publicly
traded partnership) taxable as a corporation.
Each Noteholder, by the acceptance of a Note,
will agree to treat the Notes as indebtedness,
and each Certificateholder, by the acceptance of
a Certificate, will agree to treat the Trust as a
partnership in which the Certificateholders are
partners for federal income tax purposes.
Alternative characterizations of the Trust and
the Certificates are possible, but would not
result in materially adverse tax consequences to
Certificateholders. Certificateholders may be
allocated income equal to the amount of interest
accruing on the Certificates at the Certificate
Rate even though the Trust may not have
sufficient cash to make current cash
distributions of such amount. See "Federal Income
Tax Consequences" herein and in the Prospectus
for additional information concerning the
application of federal income tax laws to the
Trust and the Securities.
ERISA CONSIDERATIONS....... Subject to the considerations discussed under
"ERISA Considerations" herein and in the
Prospectus, the Notes may, in general, be
purchased by or on behalf of employee benefit
plans subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). Any
employee benefit plan fiduciary considering a
purchase of Notes
S-18
<PAGE> 95
should, among other things, consult with legal
counsel regarding the availability of a statutory
or administrative exemption from the prohibited
transaction rules of ERISA and the Internal
Revenue Code of 1986, as amended (the "Code").
The Certificates may not be acquired by an employee
benefit plan subject to ERISA or Section 4975 of
the Code, or by an individual retirement account.
Any investor considering the purchase of
Certificates should be aware that such purchase
and subsequent holding could, under certain
circumstances, be deemed to involve an indirect
prohibited transaction if a plan with respect to
which the investor is a "party in interest" or
"disqualified person" purchases the Certificates
without the benefit of an exemption from the
prohibited transaction rules. See "ERISA
Considerations" herein and in the Prospectus.
[LEGAL INVESTMENT.......... The [Class A-1] Notes will be eligible securities
for purchase by money market funds under
paragraph (a)(9) of Rule 2a-7 under the
Investment Company Act of 1940, as amended.]
RATING[S] OF THE NOTES..... It is a condition to the issuance of the [Class
A-1,] [Class A-2] [and Class A-3] Notes that they
be rated in [one of the [four] [the] highest
investment rating [category][categories] by at
least two of the nationally recognized
statistical rating organizations (the "Rating
Agencies"). Any such rating assigned to the Notes
will address the likelihood of the timely payment
of interest on and the ultimate payment of
principal of the Notes pursuant to the Sale and
Servicing Agreement and the Indenture. [However,
the rating agencies do not evaluate, and the
rating does not address, the likelihood that the
Note Prepayment Premium will be paid.] There can
be no assurance that a rating will not be lowered
or withdrawn by a rating agency if circumstances
so warrant.
RATING[S] OF THE
CERTIFICATES............... It is condition of the issuance of the Certificates
that they be rated [at least] " " or its
equivalent by at least two nationally recognized
statistical rating organizations, which rating or
ratings are among the four highest investment
rating categories of the applicable nationally
recognized statistical rating organization(s).
Any such rating assigned to the Certificates will
address the likelihood of the timely payment of
interest and the ultimate payment of principal of
the Certificates pursuant to the Sale and
Servicing agreement. [However, the rating
agencies do not evaluate, and the rating does not
address, the likelihood that the Certificate
Prepayment Premium will be paid.] There can be no
assurance that a rating will not be lowered or
withdrawn by a rating agency if circumstances so
warrant.
RISK FACTORS............... Prospective investors should consider the factors
set forth under "Risk Factors" on pages S-
through S- .
S-19
<PAGE> 96
RISK FACTORS
LIMITED LIQUIDITY
There is currently no secondary market for the Securities. Each Underwriter
currently intends to make a market in the Securities for which it is an
Underwriter, but it is under no obligation to do so. There can be no assurance
that a secondary market will develop. The lack of a secondary market for the
Securities may result in an investor being unable to liquidate its interest in
the Securities in a time period and manner satisfactory to the investor or at a
price comparable to that which would be available in a more liquid market.
[THE SUBSEQUENT RECEIVABLES AND THE PRE-FUNDING ACCOUNT
On the Closing Date, the Sellers will transfer to the Trust the
approximately $ of Initial Receivables and the approximately
$ Pre-Funded Amount on deposit in the Pre-Funding Account. If the
principal amount of eligible Receivables originated by the Sellers during the
Funding Period is less than the Pre-Funded Amount, the Sellers will have
insufficient Receivables to sell to the Trust on the Subsequent Transfer Dates,
thereby resulting in a prepayment of principal to the Noteholders and the
Certificateholders as described in the following paragraph. See "Risk
Factors -- Trust's Relationship to Sellers, NationsBank Corporation and their
Affiliates" in the Prospectus. In addition, any conveyance of Subsequent
Receivables is subject to the satisfaction, on or before the related Subsequent
Transfer Date, of the following conditions precedent, among others: (i) each
such Subsequent Receivable must satisfy the eligibility criteria specified in
the Sale and Servicing Agreement; (ii) the Sellers will not select such
Subsequent Receivables in a manner that it believes is adverse to the interests
of the Noteholders or the Certificateholders; (iii) as of the related Subsequent
Cut-Off Date, the Receivables in the Trust at that time, including the
Subsequent Receivables to be conveyed by the Sellers as of such Subsequent
Cut-Off Date, will satisfy the parameters described under "The Receivables Pool"
herein and under "The Receivables Pools" in the Prospectus; (iv) the applicable
Additional Reserve Account Deposit [and the applicable Additional Yield
Supplement Amount, if any] for such Subsequent Transfer Date shall have been
made; and (v) the Sellers shall have executed and delivered to the Trust (with a
copy to the Indenture Trustee) a written assignment conveying such Subsequent
Receivables to the Trust (including a schedule identifying such Subsequent
Receivables). Moreover, any such conveyance of Subsequent Receivables made
during any given Collection Period will also be subject to the satisfaction, on
or about the fifteenth day of the month following such Collection Period, of the
following conditions subsequent, among others: (a) the Sellers will deliver
certain opinions of counsel to the Owner Trustee, Indenture Trustee and the
Rating Agencies with respect to the validity of the conveyance of all such
Subsequent Receivables conveyed during such Collection Period; (b) the Trust and
the Indenture Trustee shall have received written confirmation from a firm of
independent certified public accountants that, as of the end of the preceding
Collection Period, the Receivables in the Trust at that time, including the
Subsequent Receivables conveyed by the Sellers during such Collection Period,
satisfied the parameters described under "The Receivables Pool" herein and under
"The Receivables Pools" in the Prospectus; and (c) the Rating Agencies shall
have each notified the Sellers in writing that, following the addition of all
such Subsequent Receivables, [each class of] the Notes and the Certificates will
be rated in the same rating category as they were rated by the Rating Agencies
on the Closing Date. The Sellers will immediately repurchase any Subsequent
Receivable, at a price equal to the Purchase Amount thereof, upon the failure of
the Sellers to satisfy any of the foregoing conditions subsequent with respect
thereto. Such confirmation of the ratings of the Notes and the Certificates may
depend on factors other than the characteristics of the Subsequent Receivables,
including the delinquency, repossession and net loss experience on the
automobile, van and light truck receivables in the portfolio serviced by the
Servicer.
To the extent that amounts on deposit in the Pre-Funding Account have not
been fully applied to the conveyance of Subsequent Receivables to the Trust by
the end of the Funding Period and such amount exceeds $ , the
Noteholders and the Certificateholders will receive, on the Distribution Date on
or immediately following the last day of the Funding Period, a prepayment of
principal in an amount equal to the applicable Pre-Funded Percentage, in respect
of [a class of] the Notes or the Certificates, of the Pre-Funded Amount
remaining in the Pre-Funding Account following the purchase of any Subsequent
Receivables on such Distribution Date. Otherwise such remaining Pre-Funded
Amount will be paid as principal of the
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<PAGE> 97
[Class A-1] Notes [up to an amount not to exceed their outstanding principal
amount, with any remaining amount used to redeem the Class A-2 Notes]. It is
anticipated that the principal balance of Subsequent Receivables sold to the
Trust will not be exactly equal to the amount on deposit in the Pre-Funding
Account and that therefore there will be at least a nominal amount of principal
prepaid to the [Class A-1] Noteholders.
Each Subsequent Receivable must satisfy the eligibility criteria specified
in the Sale and Servicing Agreement and any additional criteria specified by the
Rating Agencies at the time of its addition. However, Subsequent Receivables may
have been originated by the Sellers at a later date using credit criteria
different from those which were applied to the Initial Receivables and may be of
a different credit quality and seasoning. [In addition, an increasing percentage
of the Subsequent Receivables may be Balloon Receivables.] Therefore, following
the transfer of Subsequent Receivables to the Trust, the characteristics of the
entire Receivables Pool included in the Trust may vary significantly from those
of the Initial Receivables. See "The Receivables Pool" herein and "The
Receivables Pools" in the Prospectus.
None of the Sellers is generally obligated to make any payments in respect
of the Notes, the Certificates or the Receivables. [However, the ability of the
Sellers to convey Subsequent Receivables on Subsequent Transfer Dates is
completely dependent upon the generation of additional receivables by the
Sellers. The ability of the Sellers to generate Subsequent Receivables is
largely dependent upon the Sellers' ability to offer competitive rates of
interest on motor vehicle installment sales contracts to be acquired by the
Sellers. In addition, the number of Dealers from which the Sellers' acquire
retail motor vehicle installment sales contracts may effect the Sellers' ability
to generate Subsequent Receivables. The level of retail sales of automobiles,
vans and light trucks may change as a result of a variety of social and economic
factors. Economic factors include interest rates, unemployment levels, the rate
of inflation and consumer perceptions of economic conditions generally. Social
factors influencing the level of retail motor vehicle sales include an
increasing awareness of environmental consequences derived from regional and
national dependence on private motor vehicles for transportation and the local
and regional political commitment to develop and encourage reliance on mass
transit and alternative transportation projects, such as light rail, high
occupancy vehicle highways and, in certain communities, an expanding network of
bicycle lanes. There can be no assurance, therefore, that the Sellers will
continue to generate receivables at the same rate as in prior years. The Sellers
are unable to determine and have no basis to predict to what extent these
factors will affect the Sellers' ability to generate Subsequent Receivables.] In
addition, if NationsBank, N.A. were to cease acting as Servicer, delays in
processing payments on the Receivables and information in respect thereof could
occur and result in delays in payments to the Noteholders and
Certificateholders.
NationsBank Corporation and the Trust are subject to the informational
requirements of the Exchange Act and in accordance therewith file, and will
cause to be filed, reports and other information with the Commission. For
further information regarding NationsBank Corporation and the Trust, reference
is made to such reports and other information which are available as described
under "Available Information" in the Prospectus.]
LIMITED ASSETS
The Trust will not have, nor is it permitted or expected to have, any
significant assets or sources of funds other than the Receivables[, the
Pre-Funding Account] [, the Yield Supplement Account] and the Reserve Account
[and the payments, if any, received pursuant to the [Interest Rate Cap,] [the
Interest Rate Swap] [and the] [Guaranteed Rate Agreement]]. Holders of the Notes
and the Certificates must rely for repayment upon payments on the Receivables
and, if and to the extent available, amounts on deposit in the [Pre-Funding
Account][, the Yield Supplement Account] [and the] Reserve Account [and the
payments, if any, received pursuant to the [Interest Rate Cap,] [the Interest
Rate Swap] [and the] [Guaranteed Rate Agreement]]. [The Pre-Funding Account will
be available only during the Funding Period and is designed solely to cover
obligations of the Trust relating to a portion of its funds not invested in
Receivables and is not designed to cover losses on the Receivables.] [The Yield
Supplement Account is designed solely to hold funds to be applied to provide
payments to the Securityholders in respect of Receivables the Contract Rate of
which is less than the Required Rate.] Funds in the Reserve Account will be
available on each Distribution Date to cover shortfalls in distributions of
interest and principal on the Notes and the Certificates. However, amounts to be
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<PAGE> 98
deposited in the [Pre-Funding Account[, the Yield Supplement Account] and the]
Reserve Account are limited in amount. If the [Pre-Funding Account[, the Yield
Supplement Account] and the] Reserve Account is [are] exhausted, the Trust will
depend solely on current distributions on the Receivables [and the payments, if
any, received pursuant to the [Interest Rate Cap,] [the Interest Rate Swap] [and
the] [Guaranteed Rate Agreement]] to make payments on the Notes and the
Certificates. [Payments under [the Interest Rate Cap,] [the Interest Rate Swap]
[and the Guaranteed Rate Agreement] will be received only under certain
circumstances. See "Description of the Transfer and Servicing
Agreements[ -- Interest Rate Cap,"] ["-- Interest Rate Swap"] [and
"-- Guaranteed Rate Agreement."]]
SUBORDINATION
Distributions of interest and principal on the Certificates will be
subordinated in priority of payment to interest and principal due on the Notes,
[and distributions of interest on the [Class Notes] are subordinated in priority
of payment to interest [and principal] due on the [Class Notes] [and the Class
Notes]. Consequently, the Certificateholders will not receive any distributions
on a Distribution Date until the full amount of interest on and principal of the
Notes on such Distribution Date has been deposited in the Note Payment Account.
The Certificateholders will not receive any distributions of principal until
after the later to occur of (i) the Distribution Date next succeeding the
Distribution Date on which the [Class A-1] Notes were paid in full and (ii) the
Distribution Date. However, upon the occurrence and during the continuation
of an Event of Default which has resulted in an acceleration of the Notes or
following an Insolvency Event or a dissolution with respect to NAFC,
distributions of any amounts on the Certificates will be subordinated in
priority of payment to payment in full of principal of the Notes. [In addition,
upon any reduction or withdrawal by any Rating Agency of its rating of [the]
[any class of] Notes (see "-- Ratings of the Securities" below), the
Certificateholders will not receive any distributions of principal until after
all the Notes have been paid in full or until such rating has been restored].
[The [Class ] Noteholders will not receive any distributions of interest on a
[Distribution] [Payment] Date unless the full amount of interest on the [Class
Notes] [and the Class Notes] due on such [Distribution] [Payment] Date has been
or will be paid on such [Distribution] [Payment] Date.]
If an Event of Default occurs, the Indenture Trustee or the holders of a
majority of the aggregate principal amount of all the Notes may declare the
principal of the Notes to be immediately due and payable, and the Indenture
Trustee may institute or be required to institute proceedings to collect amounts
due or exercise its remedies as a secured party (including foreclosure or sale
of the Receivables). In the event of a sale of Receivables by the Indenture
Trustee following an Event of Default or following an Insolvency Event or a
dissolution with respect to NAFC, there is no assurance that the proceeds of
such sale will be equal to or greater than the aggregate outstanding principal
amount of the Notes and the Certificates plus accrued interest. Because neither
interest nor principal is distributed to Certificateholders upon sale of the
Receivables following an Event of Default and acceleration of the Notes under
the Indenture or following an Insolvency Event or a dissolution with respect to
NAFC until all the Notes have been paid in full, the interests of Noteholders
and the Certificateholders may conflict, and the exercise by the Indenture
Trustee of its right to sell the Receivables or exercise other remedies under
the Indenture and applicable law may cause the Certificateholders to suffer a
loss of all or part of their investment. See "Description of the Notes -- The
Indenture -- Events of Default; Rights upon Event of Default" and "Description
of the Transfer and Servicing Agreements -- Insolvency Event or Dissolution" in
the Prospectus.
In general, the Sellers may, and in certain circumstances the
Certificateholders may, direct the Owner Trustee in the administration of the
Trust. However, because the Trust has pledged the Trust Property to the
Indenture Trustee to secure the payment of the Notes, including in such pledge
certain rights of the Trust under the Sale and Servicing Agreement, the
Indenture Trustee and not the Sellers or the Certificateholders has the power to
direct the Trust to take certain actions in connection with the administration
of the Trust Property until the Notes have been paid in full and the lien of the
Indenture has been released. In addition, the Sellers and Certificateholders are
not allowed to direct the Owner Trustee to take any action which conflicts with
the provisions of any of the Basic Documents. The Indenture specifically
prohibits the Owner Trustee from taking any action which would impair the
Indenture Trustee's security interest in the Trust and requires
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<PAGE> 99
the Owner Trustee to obtain the consent of the Indenture Trustee or the holders
of a majority of the aggregate principal amount of the Notes before modifying,
amending, supplementing, waiving or terminating any Basic Document or any
provision of any Basic Document. Therefore, until the Notes have been paid in
full, the ability to direct the Trust with respect to certain actions permitted
to be taken by it under the Basic Documents rests with the Indenture Trustee and
the Noteholders instead of the Sellers or the Certificateholders.
If an Event of Servicing Termination were to occur, the holders of a
majority of the outstanding principal amount of the Notes, or the Indenture
Trustee acting on behalf of the Noteholders, and not the Sellers or the
Certificateholders, would have the right to terminate the Servicer as the
servicer of the Receivables without consideration of the effect such termination
would have on Certificateholders. In addition, the holders of not less than a
majority of the outstanding principal amount of the Notes would have the right
to waive certain Events of Servicing Termination, without consideration of the
effect such waiver would have on Certificateholders. After all the Notes have
been paid in full and the lien of the Indenture has been released, upon the
occurrence of an Event of Servicing Termination, the holders of a majority of
the outstanding Certificate Balance, or the Owner Trustee acting on behalf of
the Certificateholders, may terminate the Servicer. See "Description of the
Transfer and Servicing Agreements -- Waiver of Past Events of Servicing
Termination" and "-- Rights Upon Event of Servicing Termination" in the
Prospectus.
MATURITY AND PREPAYMENT CONSIDERATIONS
The [Class A-2 Notes, the Class A-3 Notes and the] Certificates will not
receive any principal payments until the [Class A-1] Notes have been paid in
full[, and the Class A-3 Notes will not receive any principal payments until the
Class A-2 Notes have been paid in full]. In addition, no principal payments on
the Certificates will be made until the later of [(i) the 199
Distribution Date and (ii)] the Distribution Date next succeeding the
Distribution Date on which the [Class A-1] Notes are paid in full. As the rate
of payment of principal of [the] [each class of] Notes and the Certificates
depends on the rate of payment (including prepayments) of the principal balance
of the Receivables, final payment of [the] [any class of] Notes and the final
distribution in respect of the Certificates could occur significantly earlier
than the respective [Final Scheduled Distribution Dates] [final scheduled
Payment Dates or Distribution Date]. In addition, the rate of payment of
principal of [the] [each Class of] Notes and the Certificates will be affected
by the application of the Noteholders' Accelerated Principal to pay the
principal of the Notes. It is expected that final payment of [the] [each class
of] Notes and the final distribution in respect of the Certificates will occur
on or prior to the respective [Final Scheduled Distribution Dates] [final
scheduled Payment Dates or Distribution Date]. However, if sufficient funds are
not available to pay [the] [any class of] Notes or the Certificates in full on
or prior to the respective [Final Scheduled Distribution Dates] [final scheduled
Payment Dates or Distribution Date], final payment of [the] [such class of]
Notes and the final distribution in respect of the Certificates could occur
later than such dates. See "Maturity and Prepayment Considerations" herein and
in the Prospectus.
[THE YIELD ON THE CLASS NOTES WILL BE EXTREMELY SENSITIVE TO THE RATE
AND TIMING OF PAYMENTS (INCLUDING PREPAYMENTS) ON THE RECEIVABLES. [AN INVESTOR
PURCHASING A CLASS NOTE AT A SIGNIFICANT PREMIUM COULD, UNDER CERTAIN
PREPAYMENT SCENARIOS, FAIL TO RECOUP ITS ORIGINAL INVESTMENT.] [THE YIELD TO
MATURITY ON THE CLASS NOTES WILL BE ADVERSELY AFFECTED BY A LOWER THAN
ANTICIPATED RATE OF PAYMENT ON THE RECEIVABLES.] [The reinvestment risk to an
investor in the Class Notes may be exacerbated in the event of [an increase
in the rate of payment on the Receivables in a decreasing interest rate
environment] [a decrease in the rate of payment on the Receivables in an
increasing rate environment]. Any ratings assigned to the Class Notes by a
Rating Agency will reflect only such Rating Agency's assessment of the
likelihood that timely distributions will be made with respect to the Class
Notes in accordance with the Sale and Servicing Agreement and the
Indenture. Such rating will not constitute an assessment of the likelihood that
principal prepayments on the Receivables will occur or of the degree to which
the rate of such prepayments might differ from that originally anticipated. As a
result, such rating will not address the possibility that prepayment rates
higher or lower than anticipated by an investor may cause [such investor to
experience a
S-23
<PAGE> 100
lower than anticipated yield] [an investor purchasing a Class Note at a
significant premium might fail to recoup its investment]. See "The Receivable
Pool -- Sensitivity of the Class Notes to Prepayments."]
GEOGRAPHIC CONCENTRATION
Economic conditions in states where Obligors reside may affect the
delinquency, loan loss and repossession experience of the Trust with respect to
the Receivables. As of the Cut-Off Date, the Sellers' records indicate that the
mailing addresses of Obligors with respect to approximately %, %,
%, % and % by principal balance of the Receivables were in
[Texas, North Carolina, Florida, Georgia and South Carolina], respectively. As a
result, economic conditions in such states may have a disproportionate impact on
the Trust. In particular, an economic downturn in one or more of such states
could adversely affect the performance of the Trust (even if national economic
conditions remain unchanged or improve) as Obligors in such state or states
experience the effects of such a downturn and face greater difficulty in making
payments on their Financed Vehicles. See "The Receivables Pool."
RATINGS OF THE SECURITIES
It is a condition to the issuance of [each class of] the Notes and of the
Certificates that [each class of] the Notes be rated in [one of the [four]]
[the] highest rating [category][categories], and the Certificates be rated [at
least] " " or its equivalent, by at least two nationally recognized
rating agencies (the "Rating Agencies"). A rating is not a recommendation to
purchase, hold or sell Securities, inasmuch as such rating does not comment as
to market price or suitability for a particular investor. The ratings of the
Securities address the likelihood of the payment of principal and interest on
the Securities pursuant to their terms. [However, the Rating Agencies do not
evaluate, and the ratings of the Securities do not address, the likelihood that
the Note Prepayment Premium or the Certificate Prepayment Premium will be paid.]
There can be no assurance that a rating will remain for any given period of time
or that a rating will not be lowered or withdrawn entirely by a Rating Agency if
in its judgment circumstances in the future so warrant.
THE TRUST
GENERAL
The Issuer, NationsBank Auto Trust 199 , is a business trust formed under
the laws of the State of Delaware pursuant to the Trust Agreement for the
transactions described in this Prospectus Supplement. After its formation, the
Trust will not engage in any activity other than (i) acquiring, holding and
managing the Receivables and the other assets of the Trust and proceeds
therefrom, (ii) issuing the Notes and the Certificates, (iii) making payments on
the Notes and the Certificates and (iv) engaging in other activities that are
necessary, suitable or convenient to accomplish the foregoing or are incidental
thereto or connected therewith.
The Trust will initially be capitalized with the Notes and the
Certificates. Certificates with an original principal balance of $ will
be issued to NAFC and the remaining Certificates will be sold to third party
investors that are expected to be unaffiliated with the Sellers, the Servicer or
their affiliates or the Trust. The proceeds from the issuance of the Notes and
the Certificates will be used by the Trust to purchase the [Initial] Receivables
from the Sellers pursuant to the Sale and Servicing Agreement [and to fund the
deposit of the Pre-Funded Amount] and to fund the initial deposit of the Reserve
Account.
If the protection provided to the investment of the Noteholders and
Certificateholders by the [Yield Supplement Account and the] Reserve Account is
insufficient, the Trust would have to look principally to the Obligors on the
Receivables and the proceeds from the repossession and sale of Financed Vehicles
which secure defaulted Receivables [and from the Pre-Funding Account]. In such
event, certain factors, such as the Trust's not having perfected security
interests in the Financed Vehicles in all states, may affect the Servicer's
ability to repossess and sell the collateral securing the Receivables, and thus
may reduce the proceeds to be distributed to the Noteholders and
Certificateholders. See "Description of the Transfer and Servicing
S-24
<PAGE> 101
Agreements -- Distributions" [, "-- Yield Supplement Account; Yield Supplement
Agreement"] and "-- Reserve Account" herein and "Certain Legal Aspects of the
Receivables" in the Prospectus.
CAPITALIZATION OF THE TRUST
The following table illustrates the capitalization of the Trust as of the
Closing Date, as if the issuance and sale of the Notes and the Certificates had
taken place on such date:
<TABLE>
<S> <C>
[Class A-1] Notes......................................................... $
[Class A-2 Notes]......................................................... [ ]
[Class A-3 Notes]......................................................... [ ]
Certificates..............................................................
--------
Total........................................................... $
========
</TABLE>
THE OWNER TRUSTEE
is the Owner Trustee under the Trust
Agreement. is a Delaware
and its principal offices are located at
, Delaware. Each of the Sellers and their affiliates may maintain
normal commercial banking relations with the Owner Trustee and its affiliates.
THE RECEIVABLES POOL
The pool of Receivables (the "Receivables Pool") will include the [Initial]
Receivables purchased as of the [Initial] Cut-Off Date [and will include any
Subsequent Receivables purchased as of any Subsequent Cut-Off Date (the Initial
Cut-Off Date or any Subsequent Cut-Off Date being individually referred to
herein as a "Cut-Off Date")]. The [Initial] Receivables were purchased[, and the
Subsequent Receivables were or will be purchased,] by the Sellers from Dealers
in the ordinary course of business. The Receivables were randomly selected from
among the Motor Vehicle Loans owned by the Sellers. The Sellers will warrant in
the Sale and Servicing Agreement that all the Receivables have the following
individual characteristics, among others: (i) the obligation of the related
Obligor under each Receivable is secured by a security interest in either a new
or used automobile, van or light-duty truck; (ii) each Receivable has a
contractual interest rate ("Contract Rate") of at least % and no more than
%]; (iii) each Receivable has a remaining maturity, as of the Cut-Off Date,
of not less than months and not more than months; (iv) no
Receivable was more than days past due as of the Cut-Off Date; (v) each
Receivable is a Simple Interest Receivable (as defined below) that [(except for
those Receivables which are Balloon Receivables)], at origination, provides for
level monthly payments that fully amortize the amount financed over the original
term; (vi) as of the Cut-Off Date, each Receivable has a remaining principal
balance of no less than $ and no more than $ ; (vii) each
Receivable is not a Defaulted Receivable; and (viii) each Receivable is not
related to a motor vehicle that is the subject of forced-placed insurance.
"Forced-placed insurance" is insurance placed on a motor vehicle by the
lienholder to protect the motor vehicle as collateral for a loan when there is
evidence that the borrower has neglected to do so as required by the applicable
loan agreement. See " -- Certain Characteristics of the [Initial] Receivables"
below. No selection procedures believed by the Sellers to be adverse to the
Noteholders or Certificateholders were [or will be] used in selecting the
Receivables. [As of the [Initial] Cut-Off Date, % at the [Initial
Receivables, by principal balance, were Balloon Receivables.]
[The obligation of the Trust to purchase the Subsequent Receivables on a
Subsequent Transfer Date will be subject to the Receivables in the Trust,
including the Subsequent Receivables to be conveyed to the Trust on such
Subsequent Transfer Date, meeting the following criteria: (i) not more than
% of the principal balance of the Receivables in the Trust will represent
vehicles financed at [less than] [more than %]; [and] (ii) the weighted
average Contract Rate of the Receivables in the Trust will not be less than
% [and (iii) not more that % at the principal balance of the
Receivables in the Trust will be Balloon Receivables], unless the Sellers
increase the Reserve Account Initial Deposit by the amounts, if any, specified
S-25
<PAGE> 102
by the Rating Agencies to maintain the ratings of the Certificates. In addition,
such obligation will be subject to the Receivables, including the Subsequent
Receivables to be transferred to the Trust on such Subsequent Transfer Date,
having a weighted average remaining term not greater than months. Such
criteria will be based on the characteristics of the Initial Receivables on the
Initial Cut-Off Date and any Subsequent Receivables on the related Subsequent
Cut-Off Dates.]
[The Initial Receivables will represent approximately % of the
aggregate initial principal balance of the Notes and the Certificates. However,
except for the criteria described in the preceding paragraphs and the criteria,
if any, specified by the Rating Agencies to maintain the ratings of the
Certificates, there will be no required characteristics of the Subsequent
Receivables. Therefore, following the transfer of Subsequent Receivables to the
Trust, the aggregate characteristics of the entire Receivables Pool, including
the composition of the Receivables, the distribution by Contract Rate and the
geographic distribution described in the following tables, may vary
significantly from those of the Initial Receivables.]
NationsBank, N.A., through DFSG and units in predecessor banks of
NationsBank, N.A., has been servicing indirect motor vehicle loan portfolios
since 1970. The indirect motor vehicle loan portfolio serviced either directly
by NationsBank, N.A. or through its affiliates was approximately $5.5 billion as
of March 31, 1996. DFSG also services other indirect and direct consumer loan
portfolios totalling over $25.3 billion (including the indirect motor vehicle
loan portfolio) as of March 31, 1996.
CERTAIN CHARACTERISTICS OF THE [INITIAL] RECEIVABLES
As of the Cut-Off Date, the [Initial] Receivables had, in the aggregate,
the following characteristics: (i) approximately [ ]% of the [Initial]
Receivables] was attributable to loans for purchases of new Financed Vehicles
and approximately [ ]% of the [Initial] Pool Balance was attributable to
loans for purchases of used Financed Vehicles; (ii) the weighted average
Contract Rate of the [Initial] Receivables was [ ]%; (iii) there were
[ ] [Initial] Receivables being conveyed by the Sellers to the Trust; (iv)
the average principal balance of the [Initial] Receivables, as of the Cut-Off
Date, was $[ ]; and (v) the weighted average original term and weighted
average remaining term of the [Initial] Receivables were [ ] months and
[ ] months, respectively. Approximately % of the [Initial] Receivables
by principal balance as of the [Initial] Cut-Off Date were contributed to the
Trust by NationsBank, N.A.
The Composition of the [Initial] Receivables, Distribution of the [Initial]
Receivables by New/Used Motor Vehicles, Distribution of the Receivables by
Contract Rate, Distribution of the [Initial] Receivables by Remaining Term,
Distribution of the [Initial] Receivables by Principal Balance and Geographic
Distribution of the [Initial] Receivables, each as of the [Initial] Cut-Off
Date, are set forth in the following tables.
COMPOSITION OF THE [INITIAL] RECEIVABLES
<TABLE>
<S> <C>
Weighted Average Contract Rate........................................
Range of Contract Rates...............................................
Aggregate Principal Balance...........................................
Number of Receivables.................................................
Weighted Average Remaining Term.......................................
Range of Remaining Terms..............................................
Weighted Average Original Term........................................
Range of Original Terms...............................................
Average Principal Balance.............................................
Average Original Amount Financed......................................
Range of Original Amounts Financed....................................
</TABLE>
S-26
<PAGE> 103
DISTRIBUTION OF THE [INITIAL] RECEIVABLES BY NEW/USED MOTOR VEHICLES
<TABLE>
<CAPTION>
WEIGHTED
AGGREGATE ORIGINAL AVERAGE
NUMBER OF PRINCIPAL PRINCIPAL CONTRACT
RECEIVABLES BALANCE BALANCE RATE(%)
----------- ----------------- ----------------- --------
<S> <C> <C> <C> <C>
New Autos, Vans and Light-Duty
Trucks...............................
Used Autos, Vans and Light-Duty
Trucks...............................
All Receivables........................
</TABLE>
DISTRIBUTION OF THE [INITIAL] RECEIVABLES BY CONTRACT RATE
<TABLE>
<CAPTION>
% OF
AGGREGATE AGGREGATE
NUMBER OF % OF TOTAL PRINCIPAL PRINCIPAL
RECEIVABLES RECEIVABLES BALANCE BALANCE
----------- ----------- ----------------- ---------
<S> <C> <C> <C> <C>
7.00 to 7.99%................................
8.00 to 8.99%................................
9.00 to 9.99%................................
10.00 to 10.99%...............................
11.00 to 11.99%...............................
12.00 to 12.99%...............................
13.00 to 13.99%...............................
14.00 to 14.99%...............................
15.00 to 15.99%...............................
16.00 to 16.99%...............................
17.00 to 17.99%...............................
18.00 to 18.99%...............................
19.00 to 19.99%...............................
20.00 to 20.99%...............................
21.00 to 21.99%...............................
Total...............................
</TABLE>
DISTRIBUTION OF THE [INITIAL] RECEIVABLES BY REMAINING TERM
<TABLE>
<CAPTION>
% OF
AGGREGATE AGGREGATE
NUMBER OF % OF PRINCIPAL PRINCIPAL
RECEIVABLES RECEIVABLES BALANCE BALANCE
----------- ----------- ----------------- ---------
<S> <C> <C> <C> <C>
7 to 12 months...............................
13 to 18 months...............................
19 to 24 months...............................
25 to 30 months...............................
31 to 36 months...............................
37 to 42 months...............................
43 to 48 months...............................
49 to 54 months...............................
55 to 60 months...............................
61 to 66 months...............................
67 to 72 months...............................
Total...............................
</TABLE>
S-27
<PAGE> 104
DISTRIBUTION OF THE [INITIAL] RECEIVABLES BY PRINCIPAL BALANCE
<TABLE>
<CAPTION>
% OF
AGGREGATE AGGREGATE
NUMBER OF % OF PRINCIPAL PRINCIPAL
RECEIVABLES RECEIVABLES BALANCE BALANCE
----------- ---------- ----------------- ---------
<S> <C> <C> <C> <C>
$ 0 to $9,999..............................
$10,000 to $19,999.............................
$20,000 to $29,999.............................
$30,000 to $39,999.............................
$40,000 to $49,999.............................
Total................................
</TABLE>
GEOGRAPHIC DISTRIBUTION OF THE [INITIAL] RECEIVABLES
<TABLE>
<CAPTION>
% OF
AGGREGATE AGGREGATE
NUMBER OF % OF PRINCIPAL PRINCIPAL
STATE(1) RECEIVABLES RECEIVABLES BALANCE BALANCE
- ---------------------------------------------- ----------- ----------- ----------------- ---------
<S> <C> <C> <C> <C>
Florida.......................................
Georgia.......................................
North Carolina................................
South Carolina................................
Texas.........................................
Other(2)......................................
Total...............................
</TABLE>
- ---------------
(1) Receivables are categorized by the Sellers' records of the mailing addresses
of the Obligors as of the [Initial] Cut-Off Date.
(2) Each other state represents less than [5]% of the total number of
Receivables.
DELINQUENCY AND LOSS EXPERIENCE
The tables set forth below indicate the delinquency and credit
loss/repossession experience for each of the last three calendar years and for
the three month periods ending [March 31], 1996 and 1995 of the Banks' portfolio
of Motor Vehicle Loans from which the Receivables have been selected [(which
portfolio excludes certain Motor Vehicle Loans acquired by the Banks in
acquisitions)]. No assurance can be made, however, that the delinquency and loss
experience for the Motor Vehicle Loans or the Receivables in the future will be
similar to the historical experience set forth in the following tables.
DELINQUENCY EXPERIENCE (DOLLARS IN THOUSANDS)(1)
<TABLE>
<CAPTION>
AS OF MAY 31, AS OF DECEMBER 31,
---------------------------------------- ----------------------------------------------------------------------------------
1996 1995 1995 1994 1993 1992
------------------- ------------------- ------------------- ------------------- ------------------- -------------------
NUMBER NUMBER NUMBER NUMBER NUMBER NUMBER
OF OF OF OF OF OF
LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT
------- ---------- ------- ---------- ------- ---------- ------- ---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total
Serviced
Portfolio
at
the
Period
End...
Delinquency(2)
30-59
Days...
60-89
Days...
90
Days
or
More...
Total
Delinquencies...
Total
Delinquencies
as a
Percentage
of the
Total
Serviced
Portfolio...
</TABLE>
- ---------------
(1) Delinquencies shown in dollars include principal amounts only.
(2) The period of delinquencies is based on the number of days payments are
contractually past due until the applicable Motor Vehicle Loan is charged
off.
S-28
<PAGE> 105
CREDIT LOSS/REPOSSESSION EXPERIENCE (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
[6] MONTHS ENDED YEAR ENDED
[MAY 31,] DECEMBER 31,
----------------------- -------------------------------------------------
1996 1995 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Period End
Outstandings(1).........
Average Amount Outstanding
During the Period(2)....
Average Number of Loans
Outstanding During the
Period(3)...............
Gross Charge-offs(4)......
Recoveries on Losses(5)...
Net Charge-offs...........
Net Charge-offs as a
Percentage of the Period
End Outstandings(6).....
Net Charge-offs as a
Percentage of the
Average Amount
Outstanding(6)..........
</TABLE>
- ---------------
(1) Amount represents principal amounts only.
(2) Amount represents principal amounts only and reflects a daily weighted
average of such amounts during the periods shown.
(3) Amount based on the average outstanding for the period divided by the
average loan amount. the average loan amount was derived from the month end
outstanding balances divided by month end number of loans.
(4) Amount of charge-off is the remaining principal balance less the net
proceeds from sale of loan collateral.
(5) Recoveries include post-disposition monies and are net of any related
expenses.
(6) Figures for the [three] months ended [March 31], 1996 and [March 31], 1995
are annualized.
[PAYMENTS ON THE RECEIVABLES
The entire Initial Pool Balance is attributable to Receivables that provide
for the allocation of payments according to the "Simple Interest" method (each a
"Simple Interest Receivable"). See "The Receivables Pools -- General" in the
Prospectus for a description of the application of payments received on Simple
Interest Receivables.
The Receivables are prepayable at any time. Prepayments may also result
from liquidations due to default, the receipt of monthly installments earlier
than the scheduled due dates for such installments, the receipt of proceeds from
credit life, disability, theft or physical damage insurance, repurchases by the
Sellers as a result of certain uncured breaches of the warranties made by them
in the Sale and Servicing Agreement with respect to the Receivables, purchases
by the Servicer as a result of certain uncured breaches of the covenants made by
it in the Sale and Servicing Agreement with respect to the Receivables, or the
Servicer exercising its option to purchase all of the remaining Receivables. The
rate of prepayments on the Receivables may be influenced by a variety of
economic, social and other factors, including Obligor refinancings resulting
from decreases in interest rates and the fact that the Obligor is generally not
permitted to sell or transfer the Financed Vehicle securing a Receivable without
the consent of the relevant Seller.]
[Neither DFSG, the Servicer, the Sellers nor any of their affiliates
maintains records adequate to provide quantitative data regarding prepayment
experience on the Sellers' portfolio of Motor Vehicle Loans. However, the
Sellers (i) believe that the actual rate of prepayments will result in a
substantially shorter weighted average life than the scheduled weighted average
life and (ii) estimate that the actual weighted average life of its portfolio of
Motor Vehicle Loans ranges between [60% and 70%] of their scheduled weighted
average life. See "Maturity and Prepayment Considerations" herein and in the
Prospectus.]
S-29
<PAGE> 106
[WEIGHTED AVERAGE LIFE OF THE SECURITIES
Prepayments on automotive receivables can be measured relative to a
prepayment standard or model. The model used in this Prospectus, the Absolute
Prepayment Model ("ABS"), represents an assumed rate of prepayment each month
relative to the original number of receivables in a pool of receivables. ABS
further assumes that all the receivables are the same size and amortize at the
same rate and that each receivable in each month of its life will either be paid
as scheduled or be prepaid in full. For example, in a pool of receivables
originally containing 10,000 receivables, a 1% ABS rate means that 100
receivables prepay each month. ABS does not purport to be an historical
description of prepayment experience or a prediction of the anticipated rate of
prepayment of any pool of receivables, including the Receivables.
As the rate of payment of principal of each class of Notes and the
Certificates will depend on the rate of payment (including prepayments) of the
principal balance of the Receivables, final payment of any class of Notes and
the final distribution in respect of the Certificates could occur significantly
earlier than the respective [Final Scheduled Distribution Dates] [final
scheduled Payment Dates or Distribution Date]. Reinvestment risk associated with
early payment of the Notes and the Certificates will be borne exclusively by the
Noteholders and the Certificateholders, respectively.
The table captioned "Percent of Initial Note Principal Amount or Initial
Certificate Balance at Various ABS Percentages" (the "ABS Table") has been
prepared on the basis of the characteristics of the [Initial] Receivables [and
certain assumed characteristics with respect to the Subsequent Receivables]. The
ABS Table assumes that (i) the Receivables prepay in full at the specified
constant percentage of ABS monthly, with no defaults, losses or repurchases,
(ii) each scheduled monthly payment on the Receivables is made on the last day
of each month and each month has 30 days, (iii) payments on the Notes [are made
on each Payment Date] and distributions on the Certificates are made on each
Distribution Date (and each such date is assumed to be the day of [the
month in which such Payment Date or Distribution Date occurs] [each applicable
month]), (iv) the balance in the Reserve Account on each [Payment Date and]
Distribution Date is equal to the Specified Reserve Account Balance, and (v) the
Sellers exercise their option to purchase the Receivables on the first
Distribution Date on which it is permitted to do so, as described herein. [State
assumed characteristics with respect to the Subsequent Receivables.][And/or,
state other assumptions on which the ABS Table is based.] The pools have an
assumed cut-off date of , 199 . The ABS Table indicates the
projected weighted average life of each class of Notes and the Certificates and
sets forth the percent of the initial principal amount of each class of Notes
and the percent of the initial Certificate Balance that is projected to be
outstanding after each of the [Payment Dates or] Distribution Dates shown at
various constant ABS percentages. [State assumed characteristics with
respect to the hypothetical pools of Subsequent Receivables.]
The ABS Table also assumes that the [Initial] Receivables have been
aggregated into hypothetical pools with all of the [Initial] Receivables within
each such pool having the following characteristics and that the level scheduled
monthly payment for each of the pools (which is based on its aggregate principal
balance, Contract Rate, original term to maturity and remaining term to maturity
as of the [Initial] Cut-Off Date) will be such that each pool will be fully
amortized by the end of its remaining term to maturity.
<TABLE>
<CAPTION>
ORIGINAL TERM REMAINING TERM
AGGREGATE CONTRACT TO MATURITY TO MATURITY
POOL PRINCIPAL BALANCE RATE (IN MONTHS) (IN MONTHS)
- -------------------------------------------- ----------------- -------- ------------- --------------
<S> <C> <C> <C> <C>
1........................................... $ %
2...........................................
3...........................................
4...........................................
-----------------
============
</TABLE>
The actual characteristics and performance of the Receivables will differ
from the assumptions used in constructing the ABS Table. The assumptions used
are hypothetical and have been provided only to give a general sense of how the
principal cash flows might behave under varying prepayment scenarios. For
example, it is very unlikely that the Receivables will prepay at a constant
level of ABS until maturity or that all of the
S-30
<PAGE> 107
Receivables will prepay at the same level of ABS. Moreover, the diverse terms of
Receivables within each of the hypothetical pools could produce slower or faster
principal distributions than indicated in the ABS Table at the various constant
percentages of ABS specified, even if the original and remaining terms to
maturity of the Receivables are as assumed. Any difference between such
assumptions and the actual characteristics and performance of the Receivables,
or actual prepayment experience, will affect the percentages of initial balances
outstanding over time and the weighted average lives of each class of Notes and
the Certificates.
PERCENT OF INITIAL NOTE PRINCIPAL AMOUNT OR
INITIAL CERTIFICATE BALANCE AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
CLASS A-1 NOTES CLASS A-2 NOTES CLASS A-3 NOTES
[PAYMENT] ----------------------------------- ----------------------------------- -----------------------------------
[DISTRIBUTION] DATE 0.5% 1.0% 1.5% 1.8% 0.5% 1.0% 1.5% 1.8% 0.5% 1.0% 1.5% 1.8%
- ---------------------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
06/15/96.............. 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000
07/15/96..............
08/15/96..............
09/15/96..............
10/15/96..............
11/15/96..............
12/15/96..............
01/15/97..............
02/15/97..............
03/15/97..............
04/15/97..............
05/15/97..............
06/15/97..............
07/15/97..............
08/15/97..............
09/15/97..............
10/15/97..............
11/15/97..............
12/15/97..............
01/15/98..............
02/15/98..............
03/15/98..............
04/15/98..............
05/15/98..............
06/15/98..............
07/15/98..............
08/15/98..............
09/15/98..............
10/15/98..............
11/15/98..............
12/15/98..............
01/15/99..............
02/15/99..............
03/15/99..............
04/15/99..............
05/15/99..............
06/15/99..............
07/15/99..............
Weighted Average Life
(years)(1)..........
</TABLE>
- ---------------
(1) The weighted average life of a Class A-1 Note, Class A-2 Note, or Class A-3
Note is determined by (i) multiplying the amount of each principal payment
on a Note by the number of years from the date of the issuance of the Note
to the related [Payment] [Distribution] Date, (ii) adding the results and
(iii) dividing the sum by the related initial principal amount of the Note.
THE ABS TABLE HAS BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED ABOVE
(INCLUDING THE ASSUMPTIONS REGARDING THE CHARACTERISTICS AND PERFORMANCE OF THE
[INITIAL] RECEIVABLES WHICH WILL DIFFER FROM THE ACTUAL CHARACTERISTICS AND
PERFORMANCE THEREOF) AND SHOULD BE READ IN CONJUNCTION THEREWITH.
S-31
<PAGE> 108
PERCENT OF INITIAL NOTE PRINCIPAL BALANCE OR
INITIAL CERTIFICATE BALANCE AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
CERTIFICATES
-----------------------------------
DISTRIBUTION DATE 0.5% 1.0% 1.5% 1.8%
- -------------------------------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
06/15/96...................................................... 100,000 100,000 100,000 100,000
07/15/96......................................................
08/15/96......................................................
09/15/96......................................................
10/15/96......................................................
11/15/96......................................................
12/15/96......................................................
01/15/97......................................................
02/15/97......................................................
03/15/97......................................................
04/15/97......................................................
05/15/97......................................................
06/15/97......................................................
07/15/97......................................................
08/15/97......................................................
09/15/97......................................................
10/15/97......................................................
11/15/97......................................................
12/15/97......................................................
01/15/98......................................................
02/15/98......................................................
03/15/98......................................................
04/15/98......................................................
05/15/98......................................................
06/15/98......................................................
07/15/98......................................................
08/15/98......................................................
09/15/98......................................................
10/15/98......................................................
11/15/98......................................................
12/15/98......................................................
01/15/99......................................................
02/15/99......................................................
03/15/99......................................................
04/15/99......................................................
05/15/99......................................................
06/15/99......................................................
07/15/99......................................................
Weighted Average Life (years)(1)(2)...........................
</TABLE>
- ---------------
(1) The weighted average life of a Certificate is determined by (i) multiplying
the amount of each distribution in respect of the Certificate Balance of a
Certificate by the number of years from the date of the issuance of the
Certificate to the related Distribution Date, (ii) adding the results and
(iii) dividing the sum by the original Certificate Balance of the
Certificate.
THE ABS TABLE HAS BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED ABOVE
(INCLUDING THE ASSUMPTIONS REGARDING THE CHARACTERISTICS AND PERFORMANCE OF THE
[INITIAL] RECEIVABLES WHICH WILL DIFFER FROM THE ACTUAL CHARACTERISTICS AND
PERFORMANCE THEREOF) AND SHOULD BE READ IN CONJUNCTION THEREWITH.]
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[SENSITIVITY OF THE CLASS NOTES TO PREPAYMENTS
[Describe method of calculating principal and interest payable on the Class
Notes, including setting forth notional balance for each [Distribution]
[Payment] Date, if applicable. Set forth in tabular form relationship between
yield to maturity of the Class Notes and assumed prepayment speeds. State
assumptions, including as to purchase price of the Class Notes, if applicable,
used in calculating the data set forth in the table.]
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<PAGE> 110
POOL FACTORS
The "Note Pool Factor" for [the] [each class of] Notes will be a
seven-digit decimal which the Servicer will compute prior to each distribution
with respect to such [class of] Notes indicating the remaining outstanding
principal amount of such [class of] Notes, as of the applicable [Distribution]
[Payment] Date (after giving effect to payments to be made on such
[Distribution] [Payment] Date), as a fraction of the initial outstanding
principal amount of such [class of] Notes. The "Certificate Pool Factor" for the
Certificates will be a seven-digit decimal which the Servicer will compute prior
to each distribution with respect to the Certificates indicating the remaining
Certificate Balance, as of the applicable Distribution Date (after giving effect
to distributions to be made on such Distribution Date), as a fraction of the
initial Certificate Balance. [The] [Each] Note Pool Factor and the Certificate
Pool Factor will initially be 1.0000000 and thereafter will decline to reflect
reductions in the outstanding principal amount of the [applicable class of]
Notes, or the reduction of the Certificate Balance, as the case may be, as a
result of scheduled payments, prepayments and liquidations of the Receivables
[(and also as a result of a prepayment arising from application of the
Pre-Funding Account)]. [The] [Each] Note Pool Factor and the Certificate Pool
Factor will not change as a result of the addition of Subsequent Receivables. A
Noteholder's portion of the aggregate outstanding principal amount of the
[related class of] Notes is the product of (i) the original denomination of such
Noteholder's Note and (ii) the [applicable] Note Pool Factor. A
Certificateholder's portion of the aggregate outstanding Certificate Balance for
the Certificates is the product of (a) the original denomination of such
Certificateholder's Certificate and (b) the Certificate Pool Factor.
MATURITY AND PREPAYMENT CONSIDERATIONS
Information regarding certain maturity and prepayment considerations with
respect to the Securities is set forth under "Maturity and Prepayment
Considerations" in the Prospectus. In addition, the [Class A-2 Notes, the Class
A-3 Notes and the] Certificates will not receive any principal payments until
the [Class A-1] Notes have been paid in full[, and the Class A-3 Notes will not
receive any principal payments until the Class A-2 Notes have been paid in
full]. In addition, no principal payments on the Certificates will be made until
the later of (i) the 199 Distribution Date and (ii) the
Distribution Date next succeeding the Distribution Date on which the [Class A-1]
Notes are paid in full. See "Description of the Notes -- Payments of Principal"
and "Description of the Certificates -- Distributions of Principal Payments"
herein. As the rate of payment of principal of [the] [each class of] Notes and
the Certificates depends on the rate of payment (including prepayments) of the
principal balance of the Receivables, final payment of [the] [any class of]
Notes and the final distribution in respect of the Certificates could occur
significantly earlier than the respective [Final Scheduled Distribution Dates]
[final scheduled Payment Dates or Distribution Date]. In addition, the rate of
payment of principal of [the] [each Class of] Notes and the Certificates will be
affected by the application of the Noteholders' Accelerated Principal to pay
principal of the Notes.
It is expected that final payment of [the] [each class of] Notes and the
final distribution in respect of the Certificates will occur on or prior to the
respective [Final Scheduled Distribution Dates] [final scheduled Payment Dates
or Distribution Date]. Failure to make final payment of [the] [any class of]
Notes on or prior to the respective Final Scheduled [Payment] [Distribution]
Dates would constitute an Event of Default under the Indenture. See "Description
of the Notes -- The Indenture -- Events of Default; Rights upon Event of
Default". In addition, the Sale and Servicing Agreement requires that any
remaining Certificate Balance be paid in full on the Final Scheduled
Distribution Date. However, no assurance can be given that sufficient funds will
be available to pay [the] [each class of] Notes and the Certificates in full on
or prior to the respective [Final Scheduled Distribution Dates] [final scheduled
Payment Dates or Distribution Date]. If sufficient funds are not available,
final payment of [the] [any class of] Notes and the final distribution in
respect of the Certificates could occur later than such dates.
The rate of prepayments of the Receivables may be influenced by a variety
of economic, social and other factors, and under certain circumstances relating
to breaches of representations, warranties or covenants, the Sellers and/or the
Servicer will be obligated to repurchase Receivables from the Trust. See
"Maturity and
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<PAGE> 111
Prepayment Considerations" in the Prospectus. A higher than anticipated rate of
prepayments will reduce the aggregate principal balance of the Receivables more
quickly than expected and thereby reduce anticipated aggregate interest payments
on the Securities. Any reinvestment risks resulting from a faster or slower
incidence of prepayment of Receivables will be borne entirely by the Noteholders
and the Certificateholders as set forth in the priority of distributions herein.
Such reinvestment risks include the risk that interest rates may be lower at the
time such holders received payments from the Trust than interest rates would
otherwise have been had such prepayments not been made or had such prepayments
been made at a different time.
Holders of Securities should consider, in the case of Securities purchased
at a discount, the risk that a slower than anticipated rate of principal
payments on the Receivables could result in an actual yield that is less than
the anticipated yield and, in the case of Securities purchased at a premium, the
risk that a faster than anticipated rate of principal payments on the
Receivables could result in an actual yield that is less than the anticipated
yield.
DESCRIPTION OF THE NOTES
GENERAL
The Notes will be issued pursuant to the terms of the Indenture, a form of
which has been filed as an exhibit to the Registration Statement. A copy of the
Indenture will be filed with the Commission following the issuance of the
Securities. The following summary describes certain terms of the Notes and the
Indenture. The summary does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the Notes and
the Indenture, which are hereby incorporated by reference. The following summary
supplements the description of the general terms and provisions of the Notes of
any given series and the related Indenture set forth under the headings
"Description of the Notes" and "Description of Fixed and Floating Rate Options"
in the Prospectus, to which description reference is hereby made.
PAYMENTS OF INTEREST
[The] [Each class of] Notes [other than the Class A-2 Notes] will
constitute Fixed Rate Securities, as such term is defined under "Description of
Fixed and Floating Rate Options -- Fixed Rate Securities" in the Prospectus.
[The Class A-2 Notes will constitute Floating Rate Securities which are [LIBOR]
Securities, as such terms are defined under "Description of Fixed and Floating
Rate Options -- Floating Rate Securities" in the Prospectus.] Interest on the
principal amount[s] of the [classes of the] Notes will accrue at the
[respective] per annum Note Interest Rate[s] and will be payable to the
Noteholders [monthly] [quarterly] on each [Distribution] [Payment] Date
commencing , 199 . [However, if on any two consecutive Distribution
Dates any amount is withdrawn from the Reserve Account to cover shortfalls on
the Notes or the Certificates, then each following Distribution Date will
constitute a Payment Date, until the quarterly Payment Date following the first
Distribution Date on which (i) no amount is withdrawn from the Reserve Account
to cover shortfalls and (ii) the amount on deposit in the Reserve Account is
equal to the Specified Reserve Account Balance.] [However, if the commercial
paper rating or certificate of deposit rating of the Investment Provider is at
any time reduced below A-1 + or P1 by the applicable Rating Agency and the
Servicer is unable to obtain a Replacement Guaranteed Rate Agreement or a pledge
of securities or otherwise satisfy the applicable Rating Agency within 60 days
of receiving notice of such decline, then each following Distribution Date will
constitute a Payment Date. See "Description of the Transfer and Servicing
Agreements -- Guaranteed Rate Agreement" herein.] Interest will accrue from and
including the Closing Date (in the case of the first [Distribution] [Payment]
Date), or from the most recent [Distribution] [Payment] Date on which interest
has been paid to but excluding the following [Distribution] [Payment] Date (each
an "Interest Period"). [Interest on the Class A-1 Notes will be calculated on
the basis of actual days elapsed and a 365- or 366-day year, as applicable.]
Interest on the [Class A-1 Notes and] Class A-3] Notes will be calculated on the
basis of a 360-day year of twelve 30-day months. [Interest on the Class A-2
Notes will be calculated on the basis of actual days elapsed and a 360-day
year.] Interest accrued as of any [Distribution] [Payment] Date but not paid on
such [Distribution] [Payment] Date will be due on the next [Distribution]
[Payment] Date, together with interest on such amount at the [applicable] Note
Interest Rate [plus 2.00%]
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<PAGE> 112
(to the extent lawful). [With respect to the Class A-2 Rate, the "Index
Maturity" for [LIBOR] will be [one] [three] month[s] [(in the case of quarterly
Payment Dates) and one month (in the case of monthly Payment Dates)] and the
"Interest Reset Period" for such calculation will be the Interest Period. See
"Description of Fixed and Floating Rate Options -- Floating Rate Securities" in
the Prospectus.] Interest payments on the Notes will generally be derived from
the Available Funds remaining after the payment of the Servicing Fee and from
the Reserve Account. See "Description of the Transfer and Servicing
Agreements -- Distributions" and "-- Reserve Account" herein. [Interest payments
to all classes of Noteholders will have the same priority. Under certain
circumstances, the amount available for interest payments could be less than the
amount of interest payable on the Notes on any [Distribution] [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.] [The [Class ] Noteholders will not receive any distributions of
interest on a [Distribution] [Payment] Date unless the full amount of interest
on the [Class Notes] [and the Class Notes] due on such [Distribution]
[Payment] Date has been or will be paid on such [Distribution] [Payment] Date.]
PAYMENTS OF PRINCIPAL
Principal payments will be made [quarterly] to the Noteholders on each
[Distribution] [Payment] Date in an amount generally equal to the sum [, for
each of the three Collection Periods preceding such Payment Date,] of (i) the
Noteholders' Percentage of the amount (such amount, the "Regular Principal")
equal to the sum of (a) the principal portion of all payments collected, and (b)
the principal balance of each Receivable purchased by the Servicer, repurchased
by the Sellers or liquidated by the Servicer, each with respect to the preceding
Collection Period, plus (ii) % of the portion, if any, of the Available
Funds for such Collection Period that remains after payment of (a) the Servicing
Fee, (b) the Accrued Note Interest, (c) the portion of the Regular Principal
allocated to the Noteholders pursuant to clause (i), (d) the Accrued Certificate
Interest, (e) the portion of the Regular Principal distributed to
Certificateholders as described under "Description of the
Certificates -- Distributions of Principal Payments" herein, and (f) the amount,
if any, required to be deposited in the Reserve Account on [such] [the related]
Distribution Date [plus the excess of the amount on deposit in the Reserve
Account on such Distribution Date (after giving effect to all deposits or
withdrawals therefrom on such Distribution Date) over the Specified Reserve
Account Balance)] (such percentage of the remaining portion of Available Funds
[plus such excess], the "Noteholders' Accelerated Principal"). [Principal]
[Amounts deposited in the Note Payment Account on each Distribution Date in
respect of principal] payments on the Notes generally will be derived from the
Available Funds and the amount, if any, in the Reserve Account up to the
Available Reserve Amount remaining after the payment of the Servicing Fee and
the Accrued Note Interest and, in the case of the Noteholders' Accelerated
Principal, the Certificateholders' Distribution Amount and the amount, if any,
required to be deposited into the Reserve Account. See "Description of the
Transfer and Servicing Agreements -- Distributions" and "-- Reserve Account"
herein.
On the fifth Business Day preceding each Distribution Date (a
"Determination Date") the Indenture Trustee will determine the amount in the
Collection Account allocable to interest and the amount allocable to principal
on the basis described under "Description of the Transfer and Servicing
Agreements -- Distributions" in the Prospectus, and payments to Securityholders
on the following Distribution Date will be based on such allocation.
[On each Distribution Date, the Indenture Trustee will deposit into the
Note Payment Account amounts set aside for the payment of principal and interest
on the Notes on the related Payment Date, as described under "Description of the
Transfer and Servicing Agreements -- Distributions" herein. Such amounts will be
invested from the date of deposit to the related Payment Date by the Indenture
Trustee in [Permitted Investments] [certain eligible investments pursuant to the
Guaranteed Rate Agreement]. [See "Description of the Transfer and Servicing
Agreements -- Guaranteed Rate Agreement" herein.]]
Principal payments on the Notes will be applied on each [Distribution]
[Payment] Date [, first,] to the principal amount of the [Class A-1] Notes until
such principal amount is reduced to zero[, then second, to the principal amount
of the Class A-2 Notes until such principal amount is reduced to zero and then
third, to
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<PAGE> 113
the principal amount of the Class A-3 Notes until such principal amount is
reduced to zero]. The principal amount of the [Class A-1] Notes, to the extent
not previously paid, will be due on the [Class A-1] Final Scheduled
[Distribution] [Payment] Date[, the principal amount of the Class A-2 Notes, to
the extent not previously paid, will be due on the Class A-2 Final Scheduled
[Distribution] [Payment] Date, and the principal amount of the Class A-3 Notes,
to the extent not previously paid, will be due on the Class A-3 Final Scheduled
[Distribution] [Payment] Date]. The actual date on which the aggregate
outstanding principal amount of [the] [any class of] Notes is paid may be
earlier or later than the [respective] Final Scheduled [Distribution] [Payment]
Date[s] set forth above based on a variety of factors, including those described
under "Maturity and Prepayment Considerations" herein and in the Prospectus.
[MANDATORY REDEMPTION
[The] [A class or classes of] Notes will be redeemed in part on the
Distribution Date on or immediately following the last day of the Funding Period
in the event that amounts remain on deposit in the Pre-Funding Account after
giving effect to the purchase of all Subsequent Receivables, including any such
purchase on such date (a "Mandatory Redemption"). If the amount on deposit in
the Pre-Funding Account is less than or equal to $ , then such amount
will be used to redeem the [Class A-1] Notes [up to an amount not to exceed
their outstanding principal amount and then to redeem the Class A-2 Notes].
Otherwise the amount on deposit in the Pre-Funding Account on such date will be
used to redeem [each class of] the Notes and the Certificates, and the aggregate
principal amount of [each class of] the Notes to be redeemed will be an amount
equal to [the Notes'] [such class'] Pre-Funded Percentage of the amount then on
deposit in the Pre-Funding Account.
[The Note Prepayment Premium will be payable by the Trust to the
Noteholders pursuant to a Mandatory Redemption if the amount on deposit in the
Pre-Funding Account exceeds $ . The Note Prepayment Premium [for each
class of Notes] will equal the excess, if any, discounted as described below, of
(i) the amount of interest that would accrue on [the Notes'] [such class']
Pre-Funded Percentage of any remaining Pre-Funded Amount (the "Note Prepayment
Amount") at the Note Interest Rate borne by [the] [such class of] Notes during
the period commencing on and including the Distribution Date on which such Note
Prepayment Amount is required to be distributed to the Noteholders [of such
Class] to but excluding [, in the case of the Class A-1 Notes,
, in the case of the Class A-2 Notes and , in the case of
the Class A-3 Notes], over (ii) the amount of interest that would have accrued
on such Note Prepayment Amount over the same period at a per annum rate of
interest equal to the bond equivalent yield to maturity on the Determination
Date preceding such Distribution Date on the [, in the case of the
Class A-1 Notes, the , in the case of the Class A-2 Notes and the
, in the case of the Class A-3 Notes]. Such excess shall be discounted
to present value to such Distribution Date at the applicable yield described in
clause (ii) above. Pursuant to the Sale and Servicing Agreement, the Sellers
will be obligated to pay the sum of the Note Prepayment Premium [for each class
of Notes] and the Certificate Prepayment Premium to the Trust as liquidated
damages for the failure to deliver Subsequent Receivables having an aggregate
principal balance equal to the Pre-Funded Amount. The Trust's obligation to pay
the Note Prepayment Premium [for each class of Notes] and the Certificate
Prepayment Premium will be limited to funds received from the Sellers pursuant
to the preceding sentence. In the event that such funds are insufficient to pay
the Note Prepayment Premium [for each class of Notes] and the Certificate
Prepayment Premium in full, Noteholders [of each class of Notes] will receive
their ratable share (based upon the aggregate Note Prepayment Premium [for such
class]) of the aggregate amount available to be distributed in respect of the
Note Prepayment Premium and the Certificate Prepayment Premium. No other assets
of the Sellers or the Trust will be available for the purpose of making such
payment.]]
OPTIONAL REDEMPTION
The [Class A-3] Notes will be redeemed in whole, but not in part, on any
Distribution Date [after all the other classes of Notes have been paid in full]
on which the Servicer exercises its option to purchase the Receivables. The
Servicer may purchase the Receivables when the Pool Balance shall have declined
to 5% or less of the Initial Pool Balance, as described in the Prospectus under
"Description of the Transfer and
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<PAGE> 114
Servicing Agreements -- Termination." The redemption price will be equal to the
unpaid principal amount of the [Class A-3] Notes plus accrued and unpaid
interest thereon (the "Redemption Price"). No prepayment premium will be payable
to Noteholders in connection with any such optional redemption.
STATEMENTS TO NOTEHOLDERS AND NOTE OWNERS
[Unless and until Definitive Notes are issued], unaudited monthly and
annual reports concerning the Receivables and each Trust, prepared by the
Servicer and delivered by the Indenture Trustee, on behalf of the Trust, will be
sent to each Noteholder pursuant to the Indenture. Such reports will not contain
audited financial statements with respect to the Trust. Note Owners may obtain
the monthly statements and annual tax statement and tax information provided to
the Noteholders and the Indenture Trustee by the Servicer free of charge (except
for copying and postage costs) by request in writing to the Indenture Trustee at
[ , Attention: .] See "Book-Entry and
Definitive Securities; Reports to Securityholders -- Reports to Securityholders"
in the Prospectus for a description of such statements.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the terms of the Trust
Agreement, a form of which has been filed as an exhibit to the Registration
Statement. A copy of the Trust Agreement will be filed with the Commission
following the issuance of the Securities. The following summary describes
certain terms of the Certificates and the Trust Agreement. The summary does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, all the provisions of the Certificates and the Trust Agreement.
The following summary supplements the description of the general terms and
provisions of the Certificates of any given series and the related Trust
Agreement set forth under the headings "Description of the Certificates,"
"Description of Fixed and Floating Rate Options," "Book-Entry and Definitive
Securities; Reports to Securityholders" and "Description of the Transfer and
Servicing Agreements" in the Prospectus, to which description reference is
hereby made.
DISTRIBUTIONS OF INTEREST INCOME
On each Distribution Date, commencing , 199 , the
Certificateholders will be entitled to distributions in an amount equal to the
amount of interest that would accrue on the Certificate Balance at the
Certificate Rate. The Certificates will constitute Fixed Rate Securities, as
such term is defined under "Description of Fixed and Floating Rate
Options -- Fixed Rate Securities" in the Prospectus. Interest in respect of a
Distribution Date will accrue from and including the Closing Date (in the case
of the first Distribution Date) or from and including the most recent
Distribution Date on which interest has been paid to but excluding the following
Distribution Date, and will be calculated on the basis of a 360-day year of
twelve 30-day months. Interest distributions due for any Distribution Date but
not distributed on such Distribution Date will be due on the next Distribution
Date increased by an amount equal to interest on such amount at the Certificate
Rate (to the extent lawful). Interest distributions with respect to the
Certificates will generally be funded from the portion of the Available Funds
and the funds in the Reserve Account remaining after the distribution of the
Servicing Fee and the Noteholders' Payment Amount. Following the occurrence of
an Event of Default resulting in an acceleration of the Notes or following an
Insolvency Event or a dissolution with respect to NAFC, the Noteholders will be
entitled to be paid in full before any distributions may be made on the
Certificates. See "Description of the Transfer and Servicing
Agreements -- Distributions" and "-- Reserve Account" herein.
DISTRIBUTIONS OF PRINCIPAL PAYMENTS
Certificateholders will be entitled to distributions on each Distribution
Date, commencing [with the later of (i) the Distribution Date and
(ii)] the Distribution Date next succeeding the Distribution Date on
which the [Class A-1] Notes are paid in full, in an amount generally equal to
the
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<PAGE> 115
Certificateholders' Percentage of the Regular Principal. Distributions with
respect to principal payments will generally be funded from the portion of the
Available Funds and funds in the Reserve Account remaining after the
distribution of the Servicing Fee, the Noteholders' Payment Amount and the
Accrued Certificate Interest. See "Description of the Transfer and Servicing
Agreements -- Distributions" and "-- Reserve Account" herein. However, following
the occurrence of an Event of Default resulting in an acceleration of the Notes
or following an Insolvency Event or a dissolution with respect to NAFC, the
Noteholders will be entitled to be paid in full before any distributions may be
made on the Certificates. [In addition, upon any reduction or withdrawal by any
Rating Agency of its rating of [any class of] the Notes, then, with respect to
each Distribution Date thereafter, the Certificateholders will not receive any
distributions of principal until all the Notes have been paid in full or such
rating has been restored. There can be no assurance that a rating will remain
for a given period of time or that a rating will not be lowered or withdrawn
entirely by a Rating Agency if in its judgment circumstances in the future so
warrant.]
[MANDATORY REPURCHASE OF CERTIFICATES
Cash distributions to Certificateholders will be made, on a pro rata basis,
on the Distribution Date on or immediately following the last day of the Funding
Period in the event that the amount on deposit in the Pre-Funding Account after
giving effect to the purchase of all Subsequent Receivables, including any such
purchase on such date, exceeds $ (a "Mandatory Repurchase"). The
aggregate principal balance of the Certificates to be repurchased will be an
amount equal to the Certificates' Pre-Funded Percentage of the amount then on
deposit in the Pre-Funding Account.
[The Certificate Prepayment Premium will be payable by the Trust to the
Certificateholders at the time of any prepayment of the Certificates pursuant to
a Mandatory Repurchase. The Certificate Prepayment Premium for the Certificates
will equal the excess, if any, discounted as described below, of (i) the amount
of interest that would accrue on the Certificates' share of any remaining
Pre-Funded Amount (the "Certificate Prepayment Amount") at the Certificate Rate
during the period commencing on and including the Distribution Date on which
such Certificate Prepayment Amount is required to be distributed to
Certificateholders to but excluding , over (ii) the amount of interest
that would have accrued on such Certificate Prepayment Amount over the same
period at a per annum rate of interest equal to the bond equivalent yield to
maturity on the Determination Date preceding such Distribution Date on the
. Such excess shall be discounted to present value to such
Distribution Date at the yield described in clause (ii) above. Pursuant to the
Sale and Servicing Agreement, the Sellers will be obligated to pay the sum of
the Note Prepayment Premium [for each class of Notes] and the Certificate
Prepayment Premium to the Trust as liquidated damages for the failure to deliver
Subsequent Receivables having an aggregate principal balance equal to the
Pre-Funded Amount. The Trust's obligation to pay the Note Prepayment Premium
[for each class of Notes] and the Certificate Prepayment Premium will be limited
to funds received from the Sellers pursuant to the preceding sentence. In the
event that such funds are insufficient to pay the Note Prepayment Premium [for
each class of Notes] and the Certificate Prepayment Premium in full,
Certificateholders will receive their ratable share (based upon the aggregate
Certificate Prepayment Premium) of the aggregate amount available to be
distributed in respect of the Note Prepayment Premium and the Certificate
Prepayment Premium. No other assets of the Trust will be available for the
purpose of making such payment.]]
OPTIONAL PREPAYMENT
If the Servicer exercises its option to purchase the Receivables when the
Pool Balance declines to 5% or less of the Initial Pool Balance,
Certificateholders will receive an amount in respect of the Certificates equal
to the outstanding Certificate Balance together with accrued interest at the
Certificate Rate, which distribution shall effect the early retirement of the
Certificates. See "Description of the Transfer and Servicing
Agreements -- Termination" in the Prospectus. No prepayment premium will be
payable to Certificateholders in connection with any such prepayment.
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<PAGE> 116
STATEMENTS TO CERTIFICATEHOLDERS AND CERTIFICATE OWNERS
Unless and until Definitive Certificates are issued, unaudited monthly and
annual reports concerning the Receivables and each Trust, prepared by the
Servicer and delivered by the Indenture Trustee, on behalf of the Trust, will be
sent to each Certificateholder pursuant to the Trust Agreement. Such reports
will not contain audited financial statements with respect to the Trust.
Certificate Owners may obtain the monthly statements and annual tax statement
and tax information provided to the Certificateholders by the Servicer free of
charge (except for copying and postage costs) by request in writing to the
Indenture Trustee at [ , Attention:
.] See "Book-Entry and Definitive Securities;
Reports to Securityholders -- Reports to Securityholders" in the Prospectus for
a description of such statements.
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes certain terms of the Sale and Servicing
Agreement, the Administration Agreement and the Trust Agreement (collectively,
the "Transfer and Servicing Agreements"). Forms of the Transfer and Servicing
Agreements have been filed as exhibits to the Registration Statement. A copy of
the Transfer and Servicing Agreements will be filed with the Commission
following the issuance of the Securities. The summary does not purport to be
complete and is subject to, and qualified in its entirety by reference to, all
the provisions of the Transfer and Servicing Agreements. The following summary
supplements the description of the general terms and provisions of the Transfer
and Servicing Agreements set forth under the headings "Description of the
Transfer and Servicing Agreements" in the Prospectus, to which description
reference is hereby made.
[SALE AND ASSIGNMENT OF RECEIVABLES; SUBSEQUENT RECEIVABLES
Certain information with respect to the conveyance of the Initial
Receivables from the Sellers to the Trust on the Closing Date pursuant to the
Sale and Servicing Agreement is set forth under "Description of the Transfer and
Servicing Agreements -- Sale and Assignment of Receivables" in the Prospectus.
In addition, during the Funding Period, pursuant to the Sale and Servicing
Agreement, the Sellers will be obligated to sell to the Trust Subsequent
Receivables having an aggregate principal balance equal to approximately
$ (such amount being equal to the initial Pre-Funded Amount) to the
extent that such Subsequent Receivables are available.
During the Funding Period on each Subsequent Transfer Date, subject to the
conditions described below, the Sellers will sell and assign to the Trust,
without recourse, the Sellers' entire interest in the Subsequent Receivables
designated by the Sellers as of the related Subsequent Cut-Off Date and
identified in a schedule attached to a subsequent transfer assignment relating
to such Subsequent Receivables executed on such date by the Seller. It is
expected that on the Closing Date, subject to the conditions described below,
certain of the Subsequent Receivables designated by the Sellers and arising
between the Initial Cut-Off Dates and the Closing Date will be conveyed to the
Trust. Upon the conveyance of Subsequent Receivables to the Trust on a
Subsequent Transfer Date, (i) the Pool Balance will increase in an amount equal
to the aggregate principal balances of the Subsequent Receivables, (ii) an
amount equal to % of the aggregate principal balance of such Subsequent
Receivables will be withdrawn from the Pre-Funding Account and will be deposited
in the Reserve Account and (iii) an amount equal to the excess of the aggregate
principal balances of such Subsequent Receivables over the amount described in
clause (ii) will be withdrawn from the Pre-Funding Account and paid to the
Sellers.] [Coincident with each such transfer of Subsequent Receivables, the
Yield Supplement Agreement will require the Sellers to deposit into the Yield
Supplement Account an amount equal to the Additional Yield Supplement Amount, if
any, in respect of such Subsequent Receivables. See "-- Yield Supplement
Account; Yield Supplement Agreement" herein.]
[Any conveyance of Subsequent Receivables is subject to the satisfaction,
on or before the related Subsequent Transfer Date, of the following conditions
precedent, among others: (i) each such Subsequent Receivable must satisfy the
eligibility criteria specified in the Sale and Servicing Agreement; (ii) the
Sellers will not have selected such Subsequent Receivables in a manner that they
believe is adverse to the interests of
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the Noteholders or the Certificateholders; (iii) as of the related Subsequent
Cut-Off Date, the Receivables, including any Subsequent Receivables conveyed by
the Sellers as of such Subsequent Cut-Off Date, satisfy the criteria described
under "The Receivables Pool" herein and "The Receivables Pools" in the
Prospectus; (iv) the applicable Additional Reserve Account Deposit [and the
applicable Additional Yield Supplement Amount, if any] for such Subsequent
Transfer Date shall have been made; and (v) the Sellers shall have executed and
delivered to the Trust (with a copy to the Indenture Trustee) a written
assignment conveying such Subsequent Receivables to the Trust (including a
schedule identifying such Subsequent Receivables). Moreover, any such conveyance
of Subsequent Receivables made during any given Collection Period will also be
subject to the satisfaction, on or before the fifteenth day of the month
following the end of such Collection Period, of the following conditions
subsequent, among others: (i) the Sellers will have delivered certain opinions
of counsel to the Owner Trustee, the Indenture Trustee and the Rating Agencies
with respect to the validity of the conveyance of all such Subsequent
Receivables conveyed during such Collection Period; (ii) the Trust and the
Indenture Trustee shall have received written confirmation from a firm of
independent certified public accountants that, as of the end of the preceding
Collection Period, the Receivables in the Trust at that time, including the
Subsequent Receivables conveyed by the Sellers during each Collection Period,
satisfied the parameters described under "The Receivables Pool" herein and under
"The Receivables Pools" in the Prospectus; and (iii) each of the Rating Agencies
shall have notified the Sellers in writing that, following the addition of all
such Subsequent Receivables, each class of the Notes and the Certificates will
be rated by the Rating Agencies in the same rating category as they were rated
by the Rating Agencies on the Closing Date. The Sellers will immediately
repurchase any Subsequent Receivable, at a price equal to the Purchase Amount
thereof, upon the failure of the Sellers to satisfy any of the foregoing
conditions subsequent with respect thereto.]
[Subsequent Receivables may have been originated by the Sellers at a later
date using credit criteria different from those which were applied to the
Initial Receivables. See "Risk Factors -- The Subsequent Receivables and the
Pre-Funding Account" and "The Receivables Pool" herein.]]
ACCOUNTS
In addition to the Accounts referred to under "Description of the Transfer
and Servicing Agreements -- Accounts" in the Prospectus, the Servicer will also
establish and will maintain with the Indenture Trustee [the Pre-Funding Account]
[the Yield Supplement Account] [and] the Reserve Account, in the name of the
Indenture Trustee on behalf of the Noteholders and the Certificateholders.
SERVICING COMPENSATION AND EXPENSES
The Servicing Fee Rate with respect to the Servicing Fee for the Servicer
will be [1.00]% per annum of the Pool Balance as of the first day of the related
Collection Period. The Servicing Fee (together with any portion of the Servicing
Fee that remains unpaid from prior Distribution Dates) will be paid on each
Distribution Date solely to the extent of the Available Interest. The Servicer
is also entitled to receive a supplemental servicing fee (the "Supplemental
Servicing Fee") for each Collection Period equal to any late, prepayment, and
other administrative fees and expenses collected during the Collection Period[,
plus any interest earned during the Collection Period on deposits made with
respect to the Receivables]. See "Description of the Transfer and Servicing
Agreements -- Servicing Compensation and Expenses" in the Prospectus.
[The Servicer will not extend the term of any Receivable beyond the
day of the Collection Period.] See "Description of the
Transfer and Servicing Agreements -- Servicing Procedures" in the Prospectus.
[ADVANCES] [ADVANCE RESERVE WITHDRAWALS]
[Servicer Advances. As of the last day of each Collection Period, the
Servicer will, subject to the limitations described in the following sentence,
make a payment (an "Advance") with respect to each Receivable (other than a
Defaulted Receivable) in an amount equal to the excess, if any, of (x) the
amount of
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interest due on such Receivable at its applicable Contract Rate, over (y) the
interest actually received by the Servicer with respect to such Receivable
(whether from the Obligor, [the Yield Supplement Agreement] or payments of the
Purchase Amount) during or with respect to such Collection Period. The Servicer
may elect not to make an Advance of due and unpaid interest with respect to a
Receivable to the extent that the Servicer, in its sole discretion, determines
that such Advance is not recoverable from subsequent payments on such Receivable
or from funds in the Reserve Account.
To the extent that the amount set forth in clause (y) above with respect to
a Receivable is greater than the amount set forth in clause (x) above with
respect thereto, such amount shall be distributed to the Servicer on the related
Distribution Date. Any such payment will only be from accrued interest due from
the Obligor under such Receivable.
The Servicer will deposit Advances, if any, into the Collection Account on
the applicable Deposit Date.]
[Advance Reserve Withdrawals. The Servicer shall, as of the last day of
the Collection Period, withdraw from the Reserve Account funds in an amount with
respect to each Receivable (other than a Defaulted Receivable) equal to the
excess, if any, of (x) the amount of interest due on such Receivable at its
applicable Contract Rate, over (y) the interest actually received by the
Servicer with respect to such Receivable (whether from the Obligor, [the Yield
Supplement Agreement] or payments of the Purchase Amount) during or with respect
to such Collection Period (the "Advance Reserve Withdrawal"). The Servicer will
deposit Advance Reserve Withdrawals, if any, into the Collection Account on the
applicable Deposit Date.]
DISTRIBUTIONS
Deposits to Collection Account. On or before each Determination Date, the
Servicer will provide the Trustee with a certificate (the "Servicer's
Certificate") containing certain information with respect to the preceding
Collection Period, including the amount of aggregate collections on the
Receivables during such Collection Period, the aggregate amount of Receivables
which became Defaulted Receivables during such Collection Period, [the Yield
Supplement Amount,] the aggregate Purchase Amounts of Receivables to be
repurchased by the Sellers or to be purchased by the Servicer on the related
Deposit Date [and the aggregate amount to be withdrawn from the Reserve
Account].
On or before each Deposit Date (a) the Servicer will cause all Collections
and Liquidation Proceeds and Recoveries to be deposited into the Collection
Account and will deposit into the Collection Account all Purchase Amounts of
Receivables to be purchased by the Servicer on such Deposit Date, (b) the
Sellers will deposit into the Collection Account all Purchase Amounts of
Receivables to be repurchased by the Sellers on such Deposit Date, (c) the
Servicer will deposit [all Advances for the related Distribution Date into the
Collection Account] [the amount of the Advance Reserve Withdrawal with respect
to the related Distribution Date] [and (d) the Sellers, NAFC or a third party
(or, in certain circumstances, the Indenture Trustee) will deposit the Yield
Supplement Amount for the related Distribution Date into the Collection
Account].
"Available Funds" means, with respect to a Distribution Date, the sum of
the Available Interest and the Available Principal.
"Available Interest" means, with respect to any Distribution Date, [the
excess of (a)] the sum of (i) Interest Collections for such Distribution Date,
[(ii) the Yield Supplement Amount for such Distribution Date], [(iii) [all
Advances][the proceeds of any Advance Reserve Withdrawal] made by the Servicer
with respect to such Distribution Date], [(iv) Investment Earnings for such
Distribution Date,] [(v) the payments, if any, received under the Interest Rate
Cap for such Distribution Date,] [and (vi) the Net Trust Swap Receipt, if any,
for such Distribution Date], [over (b) the amount of certain Advances previously
made but not reimbursed (each, an "Outstanding Advance") to be reimbursed on or
with respect to such Distribution Date].
"Available Principal" means, with respect to any Distribution Date, the sum
of the following amounts with respect to the preceding Collection Period: (i)
that portion of all Collections on the Receivables allocable to principal in
accordance with the terms of the Receivables and the Servicer's customary
servicing
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procedures; (ii) to the extent attributable to principal, the Purchase Amount
received with respect to each Receivable repurchased by the Sellers or purchased
by the Servicer under an obligation which arose during the related Collection
Period; and (iii) all Liquidation Proceeds, to the extent allocable to
principal, received during such Collection Period. "Available Principal" on any
Distribution Date shall exclude all payments and proceeds of any Receivables the
Purchase Amount of which has been distributed on a prior Distribution Date.
"Collections" mean, with respect to any Distribution Date, all collections
on the Receivables.
"Defaulted Receivable" means, with respect to any Collection Period, a
Receivable (other than a Purchased Receivable) which the Servicer, on behalf of
the Trust, has determined to charge off during such Collection Period in
accordance with its customary servicing practices.
"Interest Collections" mean, with respect to any Distribution Date, the sum
of the following amounts with respect to the preceding Collection Period: (i)
that portion of all Collections on the Receivables allocable to interest in
accordance with the terms of the Receivables and the Servicer's customary
servicing procedures; (ii) all Liquidation Proceeds, to the extent allocable to
interest, received during such Collection Period; (iii) all Recoveries on
Receivables which became Defaulted Receivables received during any Collection
Period following the Collection Period in which such Receivable became a
Defaulted Receivable; and (iv) to the extent attributable to accrued interest,
the Purchase Amount with respect to each Receivable repurchased by the Sellers
or purchased by the Servicer under an obligation which arose during such
Collection Period. "Interest Collections" for any Distribution Date shall
exclude all payments and proceeds of any Receivables the Purchase Amount of
which has been distributed on a prior Distribution Date.
"Liquidation Proceeds" mean, with respect to any Distribution Date and a
Receivable that has become a Defaulted Receivable during a related Collection
Period, (i) insurance proceeds received during such Collection Period by the
Servicer, with respect to insurance policies relating to the Financed Vehicle or
the Obligor, (ii) amounts received by the Servicer during such Collection Period
from a Dealer in connection with such Defaulted Receivable pursuant to the
exercise of rights under a Dealer Agreement, and (iii) the monies collected by
the Servicer (from whatever source, including, but not limited to proceeds of a
sale of a Financed Vehicle or deficiency balance recovered after the charge off
of the related Receivable) during such Collection Period on such Defaulted
Receivable net of any fees, costs and expenses incurred by the Servicer in
connection therewith and any payments required by law to be remitted to the
Obligor. Liquidation Proceeds shall be applied first to accrued and unpaid
interest on the Receivable and then to the principal balance thereof.
"Purchased Receivable" means, at any time, a Receivable as to which payment
of the Purchase Amount has previously been made by the Sellers or the Servicer
pursuant to the Sale and Servicing Agreement.
"Rating Agency Condition" shall mean, with respect to any action, that each
Rating Agency shall have been given prior notice thereof and that each of the
Rating Agencies shall have notified the Sellers, the Servicer, the Owner Trustee
and the Indenture Trustee in writing that such action will not result in a
reduction or withdrawal of the then current rating of the Notes or the
Certificates.
"Realized Losses" shall mean, for any Collection Period and for each
Receivable that became a Defaulted Receivable during such Collection Period, the
excess of (i) the aggregate Principal Balance of such Receivable over (ii)
Liquidation Proceeds received with respect to such Receivable during such
Collection Period, to the extent allocable to principal.
"Recoveries" mean, with respect to any Collection Period, all monies
received by the Servicer with respect to any Defaulted Receivable during any
Collection Period following the Collection Period in which such Receivable
became a Defaulted Receivable, net of any fees, costs and expenses incurred by
the Servicer in connection with the collection of such Receivable and any
payments required by law to be remitted to the Obligor.
[The Available Interest and the Available Principal on any Distribution
Date shall exclude the following: (i) amounts received in respect of interest on
Simple Interest Receivables during the preceding Collection Period in excess of
the amount of interest that would have been due during the Collection Period on
Simple
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Interest Receivables at their respective Contract Rates (assuming that a payment
is received on each Simple Interest Receivable on the due date thereof), [and]
(ii) Liquidation Proceeds with respect to a Simple Interest Receivable
attributable to accrued and unpaid interest thereon (but not including interest
for the then current Collection Period) but only to the extent of any
unreimbursed Outstanding Advances[, and (iii) amounts released from the
Pre-Funding Account.]]
Monthly Withdrawals from Collection Account. On each Distribution Date,
the Servicer will allocate amounts on deposit in the Collection Account as
described under "Description of the Transfer and Servicing
Agreements -- Distributions -- Allocation of Collections on Receivables" in the
Prospectus and will instruct the Indenture Trustee to make the following
deposits and distributions, to the extent of the amount then on deposit in the
Collection Account, in the following order of priority:
(i) to the Servicer, the Servicing Fee and all unpaid Servicing Fees
from prior Collection Periods;
(ii) to the Note Payment Account, from the Available Funds remaining
after the application of clause (i), the Accrued Note Interest [and the Net
Trust Swap Payment, if any];
(iii) to the Note Payment Account, from the Available Funds remaining
after the application of clauses (i) and (ii), the Noteholders' Principal
Payment Amount;
(iv) to the Certificate Distribution Account, from the Available Funds
remaining after the application of clauses (i) through (iii), the Accrued
Certificate Interest;
(v) to the Certificate Distribution Account, from the Available Funds
remaining after the application of clauses (i) through (iv), the
Certificateholders' Principal Distribution Amount, if any; and
(vi) to the Reserve Account, the Available Funds remaining after the
application of clauses (i) through (v).
Notwithstanding the foregoing, following the occurrence and during the
continuation of an Event of Default which has resulted in an acceleration of the
Notes or following an Insolvency Event with respect to NAFC, the Available Funds
remaining after the application of clauses (i) and (ii) above will be deposited
in the Note Payment Account to the extent necessary to reduce the principal
amount of all the Notes to zero, and the Certificateholders will not receive any
distributions until the principal amount and accrued interest on the Notes has
been paid in full.
On each Determination Date (other than the first Determination Date), the
Servicer will provide the Indenture Trustee with certain information with
respect to the Collection Period related to the prior Distribution Date,
including the amount of aggregate collections on the Receivables, the aggregate
amount of Receivables which were written off, the aggregate Advances to be made
by the Servicer and the aggregate Purchase Amount of Receivables to be
repurchased by the Sellers or to be purchased by the Servicer.
For purposes hereof, the following terms shall have the following meanings:
"Accrued Note Interest" means, with respect to any Distribution Date, the
sum of the Noteholders' Monthly Accrued Interest for such Distribution Date and
the Noteholders' Interest Carryover Shortfall for such Distribution Date.
"Noteholders' Interest Carryover Shortfall" means, with respect to any
Distribution Date, the excess of the Noteholders' Monthly Accrued Interest for
the preceding Distribution Date and any outstanding Noteholders' Interest
Carryover Shortfall on such preceding Distribution Date, over the amount in
respect of interest that is actually deposited in the Note Payment Account on
such preceding Distribution Date, plus interest on the amount of interest due
but not paid to Noteholders on the preceding [Distribution] [Payment] Date, to
the extent permitted by law, at the [respective] Note Interest Rate[s] borne by
[each class of] the Notes for the [related Interest Period] [period from and
including the prior Distribution Date to but excluding such Distribution Date]
[plus 2.00% per annum].
"Noteholders' Monthly Accrued Interest" means, with respect to any
Distribution Date, interest accrued for the [related Interest Period] [period
from and including the Closing Date (in the case of the first
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Distribution Date) or from and including the prior Distribution Date to but
excluding such Distribution Date] on [the] [each class of] Notes at the
[respective] Note Interest Rate [for such class] on the outstanding principal
amount of the Notes [of such class] on the immediately preceding [Distribution]
[Payment] Date after giving effect to all payments of principal to the
Noteholders [of such class] on or prior to such [Distribution] [Payment] Date
(or, in the case of the first [Distribution] [Payment] Date, on the Closing
Date).
"Noteholders' Monthly Principal" means, with respect to any Distribution
Date, the sum of (i) the Noteholders' Percentage of the Regular Principal and
(ii) the Noteholders' Accelerated Principal. [Or, state other formula for
determining the Noteholders' Monthly Principal.]
"Noteholders' Payment Amount" means, with respect to any Distribution Date,
the sum of the Noteholders' Principal Payment Amount and the Accrued Note
Interest.
"Noteholders' Percentage" means (i) 100% for each Distribution Date to and
including [the later to occur of (x)] the Distribution Date next succeeding the
Distribution Date, on which the principal amount of the [Class A-1] Notes is
reduced to zero [and (y) the 199 Distribution Date], [(ii) for each
Distribution Date thereafter to and including the Distribution Date on which the
principal amount of the [Class A-3] Notes is reduced to zero, the percentage
equivalent of a fraction, the numerator of which is the outstanding principal
amount of the Notes on the Distribution Date immediately preceding the
Distribution Date for which the Noteholders' Percentage is being calculated
(after giving effect to all distributions made on such immediately preceding
Distribution Date) and the denominator of which is the Pool[/Pre-Funding]
Balance on the last day of the Collection Period second preceding the
Distribution Date for which the Noteholders' Percentage is being calculated],
[unless the Reserve Account balance is less than [ % of] the Specified
Reserve Account Balance, then the Noteholders' Percentage shall be %,] and
(iii) zero for each Distribution Date thereafter [; provided, however, upon any
reduction or withdrawal by any Rating Agency of its rating of [the] [any class
of] Notes, then, with respect to each Distribution Date thereafter until the
principal amount of all the Notes is paid in full or such rating is restored,
the Noteholders' Percentage shall mean 100%]. [Or, state other methods for
determining the Noteholders' Percentage.]
"Noteholders' Principal Carryover Shortfall" means, as of the close of any
Distribution Date, the excess of the Noteholders' Monthly Principal and any
outstanding Noteholders' Principal Carryover Shortfall from the preceding
Distribution Date over the amount in respect of principal that is actually
deposited in the Note Payment Account.
"Noteholders' Principal Payment Amount" means, with respect to any
Distribution Date, the sum of the Noteholders' Monthly Principal for such
Distribution Date and the Noteholders' Principal Carryover Shortfall as of the
close of the preceding Distribution Date; provided, however, that the
Noteholders' Principal Payment Amount shall not exceed the outstanding principal
amount of the Notes; and provided, further, that (i) the Noteholders' Principal
Payment Amount on the [Class A-1] Final Scheduled [Distribution] [Payment] Date
shall not be less than the amount that is necessary (after giving effect to
other amounts [on deposit and] to be deposited in the Note Payment Account on
such Distribution Date and allocable to principal) to reduce the outstanding
principal amount of the [Class A-1] Notes to zero[; (ii) the Noteholders'
Principal Payment Amount on the Class A-2 Final Scheduled [Distribution]
[Payment] Date shall not be less than the amount that is necessary (after giving
effect to other amounts [on deposit and] to be deposited in the Note Payment
Account on such Distribution Date and allocable to principal) to reduce the
outstanding principal amount of the Class A-2 Notes to zero; and (iii) on the
Class A-3 Final Scheduled [Distribution] [Payment] Date the Noteholders'
Principal Payment Amount shall not be less than the amount that is necessary
(after giving effect to other amounts [on deposit and] to be deposited in the
Note Payment Account on such Distribution Date and allocable to principal) to
reduce the outstanding principal amount of the Class A-3 Notes to zero].
"Accrued Certificate Interest" means, with respect to any Distribution
Date, the sum of the Certificateholders' Monthly Accrued Interest for such
Distribution Date and the Certificateholders' Interest Carryover Shortfall for
such Distribution Date.
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"Certificate Balance" equals, initially, $ and, thereafter, equals
the initial Certificate Balance, reduced by all amounts allocable to principal
previously distributed to Certificateholders.
"Certificateholders' Distribution Amount" means, with respect to any
Distribution Date, the sum of the Certificateholders' Principal Distribution
Amount and the Accrued Certificate Interest.
"Certificateholders' Interest Carryover Shortfall" means, with respect to
any Distribution Date, the excess of the Certificateholders' Monthly Accrued
Interest for the preceding Distribution Date and any outstanding
Certificateholders' Interest Carryover Shortfall on such preceding Distribution
Date, over the amount in respect of interest that is actually deposited in the
Certificate Distribution Account on such preceding Distribution Date, plus
interest on such excess, to the extent permitted by law, at the Certificate Rate
for the related Interest Period.
"Certificateholders' Monthly Accrued Interest" means, with respect to any
Distribution Date, 30 days of interest (or, in the case of the first
Distribution Date, interest accrued from and including the Closing Date to but
excluding such Distribution Date) at the Certificate Rate on the Certificate
Balance on the immediately preceding Distribution Date, after giving effect to
all payments allocable to the reduction of the Certificate Balance made on or
prior to such Distribution Date (or, in the case of the first Distribution Date,
on the Closing Date).
"Certificateholders' Monthly Principal" means, with respect to any
Distribution Date, the Certificateholders' Percentage of the Regular Principal.
[Or, state other method for determining the Certificateholders' Monthly
Principal.]
"Certificateholders' Percentage" means (i) for each Distribution Date to
and including the later to occur of (x) the Distribution Date next succeeding
the Distribution Date on which the principal amount of [all classes of] the
[Class A-1] Notes is reduced to zero [and (y) the 199 Distribution
Date], zero, and (ii) for each Distribution Date thereafter to and including the
Distribution Date on which the Certificate Balance is reduced to zero, the
percentage equivalent of a fraction, the numerator of which is the outstanding
Certificate Balance on the Distribution Date immediately preceding the
Distribution Date for which the Certificateholders' Percentage is being
calculated (after giving effect to all distributions made on such immediately
preceding Distribution Date) and the denominator of which is the
Pool[/Pre-Funding] Balance on the last day of the Collection Period second
preceding the Distribution Date for which the Certificateholders' Percentage is
being calculated, [unless the Reserve Account balance is less than [ % of]
the Specified Reserve Account Balance, then the Certificateholders' Percentage
shall be %] [; provided, however, upon any reduction or withdrawal by any
Rating Agency of its rating of [the] [any class of] Notes, then, with respect to
each Distribution Date thereafter until the principal amount of all the Notes is
paid in full or such rating is restored, the Certificateholders' Percentage
shall mean zero]. [Or, state other methods for determining the
Certificateholders' Percentage.]
"Certificateholders' Principal Carryover Shortfall" means, as of the close
of any Distribution Date, the excess of the Certificateholders' Monthly
Principal and any outstanding Certificateholders' Principal Carryover Shortfall
from the preceding Distribution Date, over the amount in respect of principal
that is actually deposited in the Certificate Distribution Account.
"Certificateholders' Principal Distribution Amount" means, with respect to
any Distribution Date, the sum of the Certificateholders' Monthly Principal for
such Distribution Date and the Certificateholders' Principal Carryover Shortfall
as of the close of the preceding Distribution Date; provided, however, that the
Certificateholders' Principal Distribution Amount shall not exceed the
Certificate Balance. In addition, on the Final Scheduled Distribution Date, the
principal required to be distributed to Certificateholders will include the
lesser of (a) any principal due and remaining unpaid on each Simple Interest
Receivable, in each case, in the Trust as of the Final Scheduled Maturity Date
or (b) the portion of the amount required to be advanced under clause (a) above
that is necessary (after giving effect to the other amounts to be deposited in
the Certificate Distribution Account on such Distribution Date and allocable to
principal) to reduce the Certificate Balance to zero, and, in the case of
clauses (a) and (b), remaining after any required distribution in respect of the
Notes.
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On each [Distribution] [Payment] Date, all amounts on deposit in the Note
Payment Account [(other than [any] Investment Earnings [in excess of the
weighted average of the Note Interest Rates] [and the Certificate Rate])] will
be paid in the following order of priority:
(i) to the [applicable] Noteholders, accrued and unpaid interest on
the outstanding principal amount of the [applicable class of] Notes at the
[applicable] Note Interest Rate [and to the Swap Counterparty, the Net
Trust Swap Payment, if any, for such [Distribution] [Payment] Date, on a
pro rata basis with the amount[s] payable to the Noteholders pursuant to
this clause (i)]; [and]
(ii) to the [Class A-1] Noteholders in reduction of principal until
the principal amount of the [Class A-1] Notes has been reduced to zero[;
(iii) to the Class A-2 Noteholders in reduction of principal until the
principal amount of the Class A-2 Notes has been reduced to zero; and
(iv) to the Class A-3 Noteholders in reduction of principal until the
principal amount of the Class A-3 Notes has been reduced to zero].
On each Distribution Date, all amounts on deposit in the Certificate
Distribution Account will be distributed to the Certificateholders. [If more
than one Class of Certificates, describe any priority in and method of the
distribution.]
RESERVE ACCOUNT
The rights of the Certificateholders to receive distributions with respect
to the Receivables generally will be subordinated to the rights of the
Noteholders in the event of defaults and delinquencies on the Receivables as
provided in the Sale and Servicing Agreement. The protection afforded to the
Noteholders through subordination will be effected both by the preferential
right of the Noteholders to receive current distributions with respect to the
Receivables and by the establishment of the Reserve Account. The Reserve Account
will be created with a deposit initially by [the Sellers] NAFC [a third party]
on the Closing Date [and thereafter with deposits from funds in the Pre-Funding
Account that would otherwise be payable to the Sellers on each Subsequent
Transfer Date] (such deposit[s, respectively], the "Reserve Account Initial
Deposit" [and the "Additional Reserve Account Deposit."]). The initial deposit
on the Closing Date will also include the amount specified in clause (b) of the
following paragraph.
Subject to reduction as hereafter described, the "Specified Reserve Account
Balance" with respect to any Distribution Date means the sum of (i) [the sum of
(a)] % of the [Initial Pool Balance] [Pool Balance as of the Initial
Cut-Off Date] [, plus (b) an amount related to the difference between
anticipated investment earnings on the remaining Pre-Funded Amount and the
weighted average interest expense on the portion of the Notes and Certificates
represented by the remaining Pre-Funded Amount] and (ii) % of the Pool
Balance on the first day of the related Collection Period. [However, so long as
on any Distribution Date (except the first Distribution Date) the outstanding
principal amount of the Securities (after giving effect to distributions made on
the prior Distribution Date) is less than or equal to % of [the sum of]
[(a)] the Pool Balance on the first day of the related Collection Period [and
(b) the Pre-Funded Amount on such date]], then the portion of the Specified
Reserve Account Balance set forth in clause (i) above will be reduced to %
of the [Initial Pool Balance] [Pool Balance as of the Initial Cut-Off Date].]
[In addition, so long as on any Distribution Date (except the first Distribution
Date) the outstanding principal amount of the Securities (after giving effect to
distributions made on the prior Distribution Date) is less than or equal to
% of [the sum of] [(a)] the Pool Balance on the first day of the related
Collection Period [and (b) the Pre-Funded Amount on such day]], then such
portion of the Specified Reserve Account Balance set forth in clause (i) above
will be reduced to % of the [Initial Pool Balance] [Pool Balance as of the
Initial Cut-Off Date].] [With respect to the portion of the Specified Reserve
Account Balance set forth in clause (ii) above, so long as on any Distribution
Date (except the first Distribution Date) the outstanding principal amount of
the Securities (after giving effect to distributions made on the prior
Distribution Date) is less than or equal to % of [the sum of] [(a)] the
Pool Balance on the first day of the related Collection Period [and (b) the
Pre-Funded Amount on such day]], then such portion will be reduced to an amount
equal to the
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product of (I) the Pool Balance on the first day of the related Collection
Period and (II) the percentage (which shall not be greater than % or less
than zero) equal to (X) the percentage derived from the fraction, the numerator
of which is the outstanding principal amount of the Securities (after giving
effect to distributions made on the prior Distribution Date) and the denominator
of which is such Pool Balance less (Y) %.] The portion of the Specified
Reserve Account Balance specified in clause (ii) above may be invested in motor
vehicle sale contracts originated by the Sellers and secured by motor vehicles
financed thereby that are not included in the Pool Balance. [The Specified
Reserve Account Balance is further subject to adjustment in certain
circumstances described herein.]
[The Specified Reserve Account Balance would also be increased to the
extent that the Receivables in the Trust on a Subsequent Transfer Date,
including the Subsequent Receivables to be conveyed to the Trust on such
Subsequent Transfer Date, have a weighted average Contract Rate of less than
%. See "The Receivables Pool" herein. In addition, subject to certain
limitations, the Sellers have the option to increase the Specified Reserve
Account Balance in connection with the addition of Subsequent Receivables.]
If the amount on deposit in the Reserve Account on any Distribution Date
(after giving effect to all deposits or withdrawals therefrom on such
Distribution Date) is greater than the Specified Reserve Account Balance for
such Distribution Date, except as described below and subject to certain
limitations, the Servicer will instruct the Indenture Trustee to [distribute
such excess to [the Sellers] [NAFC] [apply such excess as Noteholders'
Accelerated Principal]. Upon any distribution to [the Sellers] [NAFC] of amounts
from the Reserve Account, neither the Noteholders nor the Certificateholders
will have any rights in, or claims to, such amounts. [Subsequent to any
reduction or withdrawal by any Rating Agency of its rating of [the] [any class
of] Notes, unless such rating has been restored, any such excess released from
the Reserve Account on a Distribution Date will be deposited in the Note Payment
Account for payment to Noteholders as an accelerated payment of principal on
[such Distribution] [the related Payment] Date.] [Or, state other methods for
determining the Specified Reserve Account Balance and applying such excess
amounts.]
Amounts held from time to time in the Reserve Account will be held for the
benefit of Noteholders and Certificateholders. [On each Distribution Date, funds
will be withdrawn from the Reserve Account up to the Available Reserve Amount to
the extent of the amount of the Advance Reserve Withdrawal for such Distribution
Date.] On each Distribution Date, funds will be withdrawn from the Reserve
Account up to the Available Reserve Amount to the extent that the [part of the]
Available Funds (after the payment of the Servicing Fee) with respect to any
Collection Period is less than the Noteholders' Payment Amount and will be
deposited in the Note Payment Account. In addition, funds will be withdrawn from
the Reserve Account up to the Available Reserve Amount (as reduced by any
withdrawal pursuant to the [preceding sentence][two preceding sentences]) to the
extent that the Available Funds remaining after the payment of the Servicing Fee
and the deposit of the Noteholders' Payment Amount in the Note Payment Account
is less than the Certificateholders' Distribution Amount and will be deposited
in the Certificate Distribution Account. [If funds applied in accordance with
the preceding sentence are insufficient to distribute interest due on the
Certificates, subject to certain limitations, funds will be withdrawn from the
Reserve Account and applied to distribute interest due on the Certificates to
the extent of the Certificate Interest Reserve Amount.] On each Distribution
Date, the Reserve Account will be reinstated up to the Specified Reserve Account
Balance to the extent, if any, of the Available Funds remaining after payment of
the Servicing Fee, the deposit of the Noteholders' Payment Amount into the Note
Payment Account and the deposit of the Certificateholders' Distribution Amount
into the Certificate Distribution Account.
"Available Reserve Amount" means, with respect to any Distribution Date,
the amount of funds on deposit in the Reserve Account on such Distribution Date
[(other than Investment Earnings)] [ less the Certificate Interest Reserve
Amount with respect to such Distribution Date, in each case,] before giving
effect to any reduction thereto on such Distribution Date.
["Certificate Interest Reserve Amount" means the lesser of (i) $
less the amount of any application of the Certificate Interest Reserve Amount to
pay interest on the Certificates on any prior Distribution Date and (ii) %
of the Certificate Balance on such Distribution Date (before giving effect to
any reduction thereof on such Distribution Date)[; provided, however, that the
Certificate Interest Reserve
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Amount shall be zero subsequent to any reduction by any Rating Agency to less
than " " or its equivalent, or withdrawal by any Rating Agency, of its
rating of [the] [any class of] Notes, unless such rating has been restored].]
If on any Distribution Date the entire Noteholders' Payment Amount for such
Distribution Date (after giving effect to any amounts withdrawn from the Reserve
Account) is not deposited in the Note Payment Account, the Certificateholders
generally will not receive any distributions.
After the payment in full, or the provision for such payment, of (i) all
accrued and unpaid interest on the Securities and (ii) the outstanding principal
amount of the Securities, any funds remaining on deposit in the Reserve Account,
subject to certain limitations, will be paid to [the Sellers] [NAFC].
The Reserve Account is intended to enhance the likelihood of receipt by the
Noteholders and the Certificateholders of the full amount of principal and
interest due them and to decrease the likelihood that the Noteholders and the
Certificateholders will experience losses. In addition, the subordination of the
Certificates to the Notes is intended to enhance further the likelihood of
receipt by Noteholders of the full amount of principal and interest due them and
to decrease the likelihood that the Noteholders will experience losses. However,
in certain circumstances, the Reserve Account could be depleted. If the amount
required to be withdrawn from the Reserve Account to cover shortfalls in
collections on the Receivables exceeds the amount of available cash in the
Reserve Account, Noteholders or Certificateholders could incur losses or a
shortfall in the amounts distributed to the Noteholders or the
Certificateholders could result, which could, in turn, increase the average life
of the Notes or the Certificates.
[YIELD SUPPLEMENT ACCOUNT; YIELD SUPPLEMENT AGREEMENT
If any Receivable has, as of the Cutoff Date, a Contract Rate below the
Required Rate, the Sellers, the Servicer and the Indenture Trustee will,
simultaneously with the sale and assignment of the Receivables, enter into the
Yield Supplement Agreement. The Yield Supplement Agreement will, with respect to
each Receivable subject thereto, if any, provide for the payment into the
Collection Account by the applicable Seller on or prior to each Deposit Date of
an amount calculated by the Servicer equal to one-twelfth of the excess, if any,
of (i) interest on such Receivable's principal balance as of the first day of
the preceding Collection Period at a rate equal to the Required Rate over (ii)
interest at the Contract Rate on such Receivable's principal balance as of the
first day of such Collection Period (in the aggregate for all Receivables with
respect to any Deposit Date, the "Yield Supplement Amount").
Each Seller's obligations under the Yield Supplement Agreement will be
secured by funds, if any, deposited by [the Sellers][NAFC][a third party] on the
Closing Date in an Eligible Deposit Account to be maintained by the Indenture
Trustee for the benefit of the holders of the Notes and the Certificates (the
"Yield Supplement Account"). The amount required to be retained (to the extent
of funds available therefor) in the Yield Supplement Account on any Distribution
Date will be equal to the Required Yield Supplement Amount.
Funds, if any, on deposit in the Yield Supplement Account may be invested
in Permitted Investments in the manner permitted by the Sale and Servicing
Agreement
Amounts on deposit in the Yield Supplement Account will be released to [the
Sellers] [NAFC] each Distribution Date to the extent the amount on deposit in
the Yield Supplement Account exceeds the Required Yield Supplement Amount. The
"Required [Initial] Yield Supplement Amount," on any date of determination, is
the sum of all projected Yield Supplement Amounts for all future Distribution
Dates, assuming that future scheduled payments on the [Initial] Receivables are
made on their scheduled due dates. No funds will be deposited in the Yield
Supplement Account, however, if the amount on deposit therein is less than the
Required [Initial] Yield Supplement Amount. [All investment earnings
attributable to the Yield Supplement Account will be distributed on each
Distribution Date to [the Sellers] [NAFC]. Upon any release of amounts from the
Yield Supplement Account, the Securityholders will not have any rights in, or
claims to, such amounts. Any monies remaining on deposit in the Yield Supplement
Account upon the termination of the Trust will be paid to [the Sellers] [NAFC]].
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[Pursuant to the Yield Supplement Agreement, on each Subsequent Transfer
Date, [the Sellers][NAFC][a third party] will deposit into the Yield Supplement
Account an amount equal to the Additional Yield Supplement Amount. The aggregate
of the Additional Yield Supplement Amounts in respect of Subsequent Receivables,
if any, is referred to herein as the "Required Subsequent Yield Supplement
Amount" and, together with the Required Initial Yield Supplement Amount, the
"Required Yield Supplement Amount."]]
[INTEREST RATE CAP
With respect to the [Class A-2] Notes, the Sellers will enter into an
Interest Rate Cap, dated as of the Closing Date (the "Interest Rate Cap") with
the Interest Rate Cap Provider. The notional amount of the Interest Rate Cap on
any [Distribution] [Payment] Date (the "Cap Notional Amount") will be at least
equal to the outstanding principal amount of the Class A-2 Notes as of the close
of the preceding [Distribution] [Payment] Date. Pursuant to the Interest Rate
Cap, on each [Distribution] [Payment] Date on which [the Class A-2 Rate] [LIBOR]
for the preceding [Distribution] [Payment] Date exceeds % (the "Cap Rate"),
the Interest Rate Cap Provider will make a payment to the Indenture Trustee, on
behalf of the Trust, in an amount equal to the product of (i) the difference
between [such Class A-2 Rate] [LIBOR] and the Cap Rate, (ii) the Cap Notional
Amount and (iii) the actual number of days from and including the preceding
[Distribution] [Payment] Date to but excluding such [Distribution] [Payment]
Date divided by 360. The Interest Rate Cap will terminate on the Class A-2
Scheduled Final [Distribution] [Payment] Date. Payments received by the
Indenture Trustee pursuant to the Interest Rate Cap will be deposited in the
Collection Account for the benefit of all Securityholders.
The payment obligations of the Interest Rate Cap Provider under the
Interest Rate Cap constitute general unsecured obligations of the Interest Rate
Cap Provider. No assurance can be given that the Trust will receive the payments
due to be received under the Interest Rate Cap when due. A failure by the
Interest Rate Cap Provider to make such payments or to make such payments on a
timely basis would reduce amounts available for distributions to
Securityholders, and in such event Securityholders could incur a loss on their
investment.
The Interest Rate Cap will be provided by (the "Interest
Rate Cap Provider"). The Interest Rate Cap Provider was incorporated in
. The Interest Rate Cap Provider is engaged in the business of
. As of , 199 , the Interest Rate Cap Provider had
total consolidated assets of $ , total consolidated liabilities of
$ and total consolidated stockholders' equity of $ .
[INTEREST RATE SWAP
With respect to the Class A-2 Notes, the Indenture Trustee, on behalf of
the Trust, will enter into one or more Interest Rate Swap Agreements, dated as
of the Closing Date (collectively, the "Interest Rate Swap") with the Swap
Counterparty. The notional amount of the Interest Rate Swap on any
[Distribution] [Payment] Date (the "Swap Notional Amount") will equal the
outstanding principal amount of the Class A-2 Notes as of the close of the
preceding [Distribution] [Payment] Date. Pursuant to the terms of the Interest
Rate Swap, the Swap Counterparty will pay to the Trust, on each [Distribution]
[Payment] Date, interest at a per annum rate equal to [the Class A-2 Rate]
[LIBOR] on the Swap Notional Amount. In exchange for such payments, the Trust
will pay to the Swap Counterparty, on each [Distribution] [Payment] Date,
interest at a per annum rate equal to [the lesser of] [ %] [and] [the Prime
Rate less %], on the Swap Notional Amount[, which rate will be reset [on
various dates in] each [month] [Interest Period]]. With respect to each
[Distribution] [Payment] Date, any difference between the [monthly] [quarterly]
payment by the Swap Counterparty to the Trust and the [monthly] [quarterly]
payment by the Trust to the Swap Counterparty will be referred to herein as the
"Net Trust Swap Receipt," if such difference is a positive number, and the "Net
Trust Swap Payment," if such difference is a negative number. Net Trust Swap
Receipts, if any, will be deposited in the Collection Account for the benefit of
all Securityholders and Net Trust Swap Payments, if any, will be paid from the
Collection Account in the same manner and priority as accrued and unpaid
interest on the Notes on each [Distribution] [Payment] Date.
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The payment obligations of the Swap Counterparty under the Interest Rate
Swap constitute general unsecured obligations of the Swap Counterparty. No
assurance can be given that the Trust will receive the payments due to be
received under the Interest Rate Swap when due. A failure by the Swap
Counterparty to make such payments or to make such payments on a timely basis
would reduce amounts available for distributions to Securityholders, and in such
event Securityholders could incur a loss on their investment.
The Interest Rate Swap will be provided by (the "Swap
Counterparty"). The Swap Counterparty was incorporated in . The
Swap Counterparty is engaged in the business of . As of
, 199 , the Swap Counterparty had total consolidated assets of
$ , total consolidated liabilities of $ and total consolidated
stockholders' equity of $ .
[GUARANTEED RATE AGREEMENT
The Sellers will enter into an Guaranteed Rate Agreement, dated as of the
Closing Date (the "Guaranteed Rate Agreement") with the Investment Provider.
Pursuant to the Guaranteed Rate Agreement, amounts on deposit in the
[Collection] [Note Payment] Account will be invested from the date of deposit to
the related [Distribution] [Payment] Date by the Indenture Trustee at the
direction of the Investment Provider in certain eligible investments (which are
substantially similar to Permitted Investments). Amounts invested pursuant to
the Guaranteed Rate Agreement will continue to be held in the name of the
Indenture Trustee for the benefit of Securityholders and will remain assets of
the Trust for purposes of bankruptcy, tax and other applicable laws. The
Guaranteed Rate Agreement provides that the Investment Provider will guarantee a
rate of return on such amounts equal to the weighted average of the Note
Interest Rates [and the Certificate Rate] and will be entitled to receive any
Investment Earnings in excess of such guaranteed return.
If the commercial paper rating or certificate of deposit rating of the
Investment Provider is at any time reduced below A-1+ or P1 by the applicable
Rating Agency, within 60 days of receiving notice of such decline, the Servicer
will either (i) with the prior written assurance of each Rating Agency that such
action will not result in a reduction of the rating of any of the Notes or the
Certificates, cause the Investment Provider to pledge securities, in a manner
conferring on the Indenture Trustee a perfected first lien in such securities,
securing the Investment Provider's performance of its obligations under the
Guaranteed Rate Agreement, (ii) direct the Indenture Trustee to terminate the
Guaranteed Rate Agreement and to obtain a Replacement Guaranteed Rate Agreement
or (iii) establish any other arrangement satisfactory to each Rating Agency such
that such Rating Agency will not reduce the rating of any of the Notes or the
Certificates. A "Replacement Guaranteed Rate Agreement" means an agreement (i)
which is substantially similar to the original Guaranteed Rate Agreement, (ii)
the obligor of which is an insurance company, trust company, commercial bank or
other entity which has a commercial paper or certificate of deposit rating of at
least A-1+ or P1 by the applicable Rating Agency and (iii) which provides for
either the payment of interest on funds invested pursuant thereto at a rate per
annum at least equal to the weighted average of the Note Interest Rates [and the
Certificate Rate]. If the Servicer is unable to obtain a Replacement Guaranteed
Rate Agreement or a pledge of securities or otherwise satisfy the applicable
Rating Agency within such 60-day period, then each following Distribution Date
will constitute a Payment Date and distributions in respect of the Notes and the
Certificates will be made monthly. See "Description of the Notes -- Payments of
Interest" herein.
The payment obligations of the Investment Provider under the Guaranteed
Rate Agreement constitute general unsecured obligations of the Investment
Provider. No assurance can be given that the Trust will receive the payments due
to be received under the Guaranteed Rate Agreement when due. A failure by the
Investment Provider to make such payments or to make such payments on a timely
basis would reduce amounts available for distributions to Securityholders, and
in such event Securityholders could incur a loss on their investment.
The Guaranteed Rate Agreement will be provided by (the
"Investment Provider"). The Investment Provider was incorporated in
. The Investment Provider is engaged in the business of
. As of , 199 , the Investment Provider had total
consolidated assets of $ , total consolidated liabilities of
$ and total consolidated stockholders' equity of $ . The
Investment Provider is currently rated / .
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FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of material anticipated federal income
tax consequences of the purchase, ownership and disposition of the Notes and the
Certificates. The summary does not purport to deal with federal income tax
consequences applicable to all categories of holders, some of which may be
subject to special rules. For example, it does not discuss the tax treatment of
Noteholders or Certificateholders that are insurance companies, regulated
investment companies ("RIC's") or dealers in securities. Moreover, there are no
cases or Internal Revenue Service ("IRS") rulings on similar transactions
involving both debt instruments and equity interests issued by a trust with
terms similar to those of the Notes and the Certificates. As a result, the IRS
may disagree with all or a part of the discussion below. Prospective investors
are urged to consult their own tax advisors in determining the federal, state,
local, foreign and any other tax consequences to them of the purchase, ownership
and disposition of the Notes and the Certificates.
The following summary is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated thereunder and judicial or ruling authority, all of which are
subject to change, which change may be retroactive. The Trust will be provided
with an opinion of Special Tax Counsel regarding certain federal income tax
matters discussed below. An opinion of Special Tax Counsel, however, is not
binding on the IRS or the courts. No ruling on any of the issues discussed below
will be sought from the IRS.
SCOPE OF THE TAX OPINIONS; TAX CHARACTERIZATION OF THE TRUST
In the opinion of Special Tax Counsel, upon issuance of the Notes and
Certificates the Trust will not be classified as an association (or publicly
traded partnership) taxable as a corporation for federal income tax purposes.
Any such opinion will be filed either as an exhibit to the registration
statement of which this Prospectus forms a part or will be filed as an exhibit
to a Form 8-K filed in connection with the establishment of the related Trust
and issuance of Securities. This opinion is based on the assumption that the
terms of the Trust Agreement and related documents will be complied with, and on
counsel's conclusions that (1) the Trust does not have certain characteristics
necessary for a business trust to be classified as an association taxable as a
corporation and (2) either the nature of the income of the Trust will exempt it
from the provisions of the Code requiring certain publicly traded partnerships
to be taxed as corporations or the Trust will otherwise qualify for an exemption
from the rules governing publicly traded partnerships. Further, with respect to
the Notes, Special Tax Counsel is of the opinion that the Notes will be
classified as debt for federal income tax purposes.
In addition, Special Tax Counsel has prepared or reviewed the statements
under the heading "Summary -- Tax Status" relating to federal income tax matters
and under the heading "Federal Income Tax Consequences" herein and "Federal
Income Tax Consequences" in the Prospectus and is of the opinion that such
statements are correct in all material respects. Such statements are intended as
an explanatory discussion of the possible effects of the classification of the
Trust as a partnership for federal income tax purposes on investors generally
and of related tax matters affecting investors generally, but do not purport to
furnish information in the level of detail or with the attention to the
investor's specific tax circumstances that would be provided by an investor's
own tax adviser. Accordingly, each investor is advised to consult its own tax
advisers with regard to the tax consequences to it of investing in the
certificates.
If the Trust were taxable as a corporation for federal income tax purposes,
the Trust would be subject to corporate income tax on its taxable income. The
Trust's taxable income would include all of its income on the Receivables,
possibly reduced by its interest expense on the Notes. Any such corporate income
tax could materially reduce the amount of cash available to make payments on the
Notes and distributions on the Certificates, and Certificateholders could be
liable for any such tax that is unpaid by the Trust.
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TAX CONSEQUENCES TO HOLDERS OF THE NOTES
Treatment of the Notes as Indebtedness. The Noteholders will be deemed to
have agreed by their purchase of the Notes, to treat the Notes as debt for
federal income tax purposes. The discussion below assumes that this
characterization of the Notes is correct.
Original Issue Discount. A Note will be treated as issued with Original
Issue Discount ("OID") if the excess of the Note's "stated redemption price at
maturity" over the issue price equals or exceeds a de minimis amount equal to
1/4 of 1 percent of the Note's stated redemption price at maturity multiplied
by the number of complete years (based on the anticipated weighted average life
of a Note) to its maturity.
In general, OID, if any, will equal the difference between the stated
redemption price at maturity of a Note and its issue price. A holder of a Note
must include such OID in gross income as ordinary interest income as it accrues
under a method taking into account an economic accrual of the discount. In
general, OID must be included in income in advance of the receipt of the cash
representing that income. The amount of OID on a Note will be considered to be
zero if it is less than a de minimis amount determined as described above.
However, the amount of any de minimis OID must be included in income as
principal payments are received on a Note, in the proportion that each such
payment bears to the original principal amount of the Note. The issue price of a
Note will generally be the initial offering price at which a substantial amount
of the Notes are sold. The Trust intends to treat the issue price as including,
in addition, the amount paid by the Noteholder for accrued interest that relates
to a period prior to the Closing Date of such Note. Under applicable Treasury
regulations governing the accrual of OID (the "OID Regulations"), the stated
redemption price at maturity is the sum of all payments on the Note other than
any "qualified stated interest" payments. Qualified stated interest is defined
as any one of a series of payments equal to the product of the outstanding
principal balance of the Note and a single fixed rate, or certain variable rates
of interest that is unconditionally payable at least annually.
The Holder of a Note issued with OID must include in gross income, for all
days during its taxable year on which it holds such Note, the sum of the "daily
portions" of such OID. Such daily portions are computed by allocating to each
day during a taxable year a pro rata portion of the OID that accrued during the
relevant accrual period. In the case of an obligation the principal on which is
subject to prepayment as a result of prepayments on the underlying collateral,
(a "Prepayable Obligation"), such as the Notes, OID is computed by taking into
account the anticipated rate of prepayments assumed in pricing the debt
instrument (the "Prepayment Assumption"). The Prepayment Assumption that will be
used in determining the rate of accrual of original issue discount, premium and
market discount, if any, is % ABS. The amount of OID that will accrue during
an accrual period (generally the period between interest payments or compounding
dates) is the excess (if any) of the sum of (a) the present value of all
payments remaining to be made on the Note as of the close of the accrual period
and (b) the payments during the accrual period of amounts included in the stated
redemption price of the Note, over the "adjusted issue price" of the Note at the
beginning of the accrual period. An "accrual period" is the period over which
OID accrues, and may be of any length, provided that each accrual period is no
longer than one year and each scheduled payment of interest or principal occurs
on either the last day or the first day of an accrual period. The Issuer intends
to report OID on the basis of an accrual period that corresponds to the interval
between payment dates. The adjusted issue price of a Note is the sum of its
issue price plus prior accruals of OID, reduced by the total payments made with
respect to such Note in all prior periods, other than qualified stated interest
payments. The present value of the remaining payments is determined on the basis
of three factors: (i) the original yield to maturity of the Note (determined on
the basis of compounding at the end of each accrual period and properly adjusted
for the length of the accrual period), (ii) events which have occurred before
the end of the accrual period and (iii) the assumption that the remaining
payments will be made in accordance with the original Prepayment Assumption.
The effect of this method is to increase the portions of OID required to be
included in income by a Noteholder to take into account prepayments on the
Receivables at a rate that exceeds the Prepayment Assumption, and to decrease
(but not below zero for any period) the portions of OID required to be included
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in income by a Noteholder to take into account prepayments with respect to the
Receivables at a rate that is slower than the Prepayment Assumption. Although
OID will be reported to Noteholders based on the Prepayment Assumption, no
representation is made to Noteholders that Receivables will be prepaid at that
rate or at any other rate.
A holder of a Note that acquires the Note for an amount that exceeds its
stated redemption price will not include any OID in gross income. A subsequent
holder of a Note which acquires the Notes for an amount that is less than its
stated redemption price will be required to include OID in gross income, but
such a holder who purchases such Note for an amount that exceeds its adjusted
issue price will be entitled (as will an initial holder who pays more than a
Note's issue price) to reduce the amount of OID included in income in each
period by the amount of OID multiplied by a fraction, the numerator of which is
the excess of (w) the purchaser's adjusted basis in the Note immediately after
purchase thereof over (x) the adjusted issue price of the Note, and the
denominator of which is the excess of (y) all amounts remaining to be paid on
the Note after the purchase date, other than qualified stated interest, over (z)
the adjusted issue price of the Note.
Total Accrual Election. As an alternative to separately accruing stated
interest, OID, de minimis OID, market discount, de minimis market discount,
unstated interest, premium, and acquisition premium, a holder of a Note may
elect to include all income that accrues on the Note using the constant yield
method. If a Noteholder makes this election, income on a Note will be calculated
as though (i) the issue price of the Note were equal to the Noteholder's
adjusted basis in the Note immediately after its acquisition by the Noteholder;
(ii) the Note were issued on the Noteholder's acquisition date; and (iii) none
of the interest payments on the Note were "qualified stated interest." A
Noteholder may make such an election for a Note that has premium or market
discount, respectively, only if the Noteholder makes, or has previously made, an
election to amortize bond premium or to include market discount in income
currently. See "-- Market Discount" and "-- Amortizable Bond Premium."
Market Discount. The Notes, whether or not issued with original issue
discount, will be subject to the "market discount rules" of section 1276 of the
Code. In general, these rules provide that if the Note Owner purchases a Note at
a market discount (that is, a discount from its stated redemption price at
maturity or, if the Notes were issued with OID, its original issue price plus
any accrued original issue discount that exceeds a de minimis amount specified
in the Code) and thereafter (a) recognizes gain upon a disposition, or (b)
receives payments of principal, the lesser of (i) such gain or principal payment
or (ii) the accrued market discount will be taxed as ordinary interest income.
Generally, the accrued market discount will be the total market discount on the
Note multiplied by a fraction, the numerator of which is the number of days the
Note Owner held the Note and the denominator of which is the number of days from
the date the Note Owner acquired the Note until its maturity date. The Note
Owner may elect, however, to determine accrued market discount under the
constant-yield method.
Limitations imposed by the Code which are intended to match deductions with
the taxation of income may defer deductions for interest on indebtedness
incurred or continued, or short-sale expenses incurred, to purchase or carry a
Note with accrued market discount. A Note Owner may elect to include market
discount in gross income as it accrues and, if the Note Owner makes such an
election, is exempt from this rule. Any such election will apply to all debt
instruments acquired by the taxpayer on or after the first day of the first
taxable year to which such election applies. The adjusted basis of a Note
subject to such election will be increased to reflect market discount included
in gross income, thereby reducing any gain or increasing any loss on a sale or
taxable disposition.
Amortizable Bond Premium. In general, if a Note Owner purchases a Note at
a premium (that is, an amount in excess of the amount payable upon the maturity
thereof), such Note Owner will be considered to have purchased such Note with
"amortizable bond premium" equal to the amount of such excess. Such Note Owner
may elect to amortize such bond premium as an offset to interest income and not
as a separate deduction item as it accrues under a constant-yield method over
the remaining term of the Note. Such Note Owner's tax basis in the Note will be
reduced by the amount of the amortized bond premium. Any such election shall
apply to all debt instruments (other than instruments the interest on which is
excludible from gross income) held by the Note Owner at the beginning of the
first taxable year for which the election applies
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or thereafter acquired and is irrevocable without the consent of the IRS. Bond
premium on a Note held by a Note Owner who does not elect to amortize the
premium will decrease the gain or increase the loss otherwise recognized on the
disposition of the Note.
Short-Term Obligations. Under the Code, special rules apply to Notes that
have a maturity of one year or less from their date of original issuance
("Short-Term Notes"). Such Notes are treated as issued with "acquisition
discount" which is calculated and included in income under principles similar to
those governing OID except that "acquisition discount" is equal to the excess of
all payments of principal and interest on the Short-Term Notes over their issue
price. In general, an individual or other cash basis holder of a short-term
obligation is not required to accrue acquisition discount for federal income tax
purposes unless it elects to do so. Accrual basis Noteholders and certain other
Noteholders, including banks, regulated investment companies, dealers in
securities and cash basis Noteholders who so elect, are required to accrue
acquisition discount on Short-Term Notes on either a straight-line basis or
under a constant yield method (based on daily compounding), at the election of
the Noteholder. In the case of a Noteholder not required and not electing to
include acquisition discount in income currently, any gain realized on the sale
or retirement of the Short-Term Notes will be ordinary income to the extent of
the acquisition discount accrued on a straight-line basis (unless an election is
made to accrue the acquisition discount under the constant yield method) through
the date of sale or retirement. Noteholders who are not required and do not
elect to accrue acquisition discount on Short-Term Notes will be required to
defer deductions for interest on borrowings allocable to short term obligations
in an amount not exceeding the deferred income until the deferred income is
realized.
Sale or Other Disposition. If a Noteholder sells a Note, the holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the holder's adjusted tax basis in the Note. The
adjusted tax basis of a Note to a particular Noteholder generally will equal the
holder's cost for the Note, increased by any market discount, acquisition
discount, OID and gain previously included by such Noteholder in income with
respect to the Note and decreased by any bond premium previously amortized and
principal payments previously received by such Noteholder with respect to such
Note. Any such gain or loss will be capital gain or loss if the Note was held as
a capital asset, except for gain representing accrued interest, accrued market
discount or OID that has not previously accrued, in each case to the extent not
previously included in income. Capital losses incurred on sale or disposition of
a Note generally may be used only to offset capital gains.
Non-U.S. Note Owners. In general, a non-U.S. Note Owner will not be
subject to U.S. federal income tax on interest (including OID) on a beneficial
interest in a Note unless (i) the non-U.S. Note Owner actually or constructively
owns 10 percent or more of the total combined voting power of all classes of
stock of the Sellers (or affiliate of the Seller) entitled to vote (or of a
profits or capital interest of the Trust), (ii) the non-U.S. Note Owner is a
controlled foreign corporation that is related to the Sellers (or the Trust)
through stock ownership, (iii) the non-U.S. Note Owner is a bank receiving
interest described in Code Section 881(c)(3)(A), (iv) such interest is
contingent interest described in Code Section 871(h)(4), or (v) the non-U.S.
Note Owner bears certain relationships to any Certificate Owner. To qualify for
the exemption from taxation, the Note Owner must comply with applicable
certification requirements.
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 tax and withholding tax, provided that (i) such gain is
not effectively connected with the conduct of a trade or business in the United
States by the foreign person and (ii) in the case of an individual foreign
person, the foreign person is not present in the United States for 183 days or
more in the taxable year.
Backup Withholding. Each holder of a Note (other than an exempt holder
such as a corporation, tax-exempt organization, qualified pension and
profit-sharing trust, individual retirement account or nonresident alien who
provides certification as to status as a nonresident) will be required to
provide, under penalties of perjury, a certificate containing the holder's name,
address, correct taxpayer identification number and a statement that the holder
is not subject to backup withholding. Should a nonexempt Noteholder fail to
provide the required certification, the Trust will be required to withhold 31
percent of the amount otherwise payable to
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the holder, and remit the withheld amount to the IRS as a credit against the
holder's federal income tax liability.
Possible Alternative Treatments of the Notes. If, contrary to the opinion
of Special Tax Counsel, the IRS successfully asserted that one or more of the
Notes did not represent debt for federal income tax purposes, the Notes might be
treated as equity interests in the Trust. If so treated, the Trust might be
taxable as a corporation with the adverse consequences described above (and the
taxable corporation would not be able to reduce its taxable income by deductions
for interest expense on Notes recharacterized as equity). Alternatively, the
Trust might be treated as a publicly traded partnership that would not be
taxable as a corporation because it would meet certain qualifying income tests.
Nonetheless, treatment of the Notes as equity interests in such a publicly
traded partnership could have adverse tax consequences to certain holders. For
example, income to certain tax-exempt entities (including pension funds) would
be "unrelated business taxable income," income to foreign holders generally
would be subject to U.S. federal tax and U.S. federal tax return filing and
withholding requirements, and individual holders might be subject to certain
limitations on their ability to deduct their share of Trust expenses.
TAX CONSEQUENCES TO HOLDERS OF OFFERED CERTIFICATES
Treatment of the Trust as a Partnership. The Sellers and the Servicer will
agree, and the Certificateholders of the Trust will agree by their purchase of
Certificates, to treat the Trust as a partnership for purposes of federal and
state income tax, franchise tax and any other tax measured in whole or in part
by income, with the assets of the partnership being the assets held by the
Trust, the partners of the partnership being the Certificateholders of the Trust
(including, potentially, the Sellers and NB-SPC), and the Notes being debt of
the partnership. However, the proper characterization of the arrangement
involving the Trust, the Certificates evidencing interests in the Trust, the
Notes, the Sellers and the Servicer is not clear because there is no authority
on transactions closely comparable to those contemplated herein.
A variety of alternative characterizations of the Certificates are
possible. For example, because the Certificates of beneficial interest in the
Trust generally will have certain features characteristic of debt, the
Certificates issued by the Trust might be considered debt of NAFC or the Trust.
Any such characterization would not result in materially adverse tax
consequences to Certificateholders as compared to the consequences from
treatment of the Certificates as equity in a partnership, described below. The
following discussion assumes that the Certificates represent equity interests in
a partnership.
The following discussion assumes that all payments on the Certificates are
denominated in U.S. dollars, the Certificates are not Indexed Securities or
Strip Certificates, and that a Series of Securities includes a single class of
Certificates.
Partnership Taxation. Assuming that the Trust is classified as a
partnership, the Trust 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 the Trust.
The Trust's income will consist primarily of interest accrued on the Receivables
(including appropriate adjustments for market discount (as discussed below), and
any OID and bond premium), investment income from investments of collections
held between Distribution Dates, any gain upon, or with respect to, collection
or disposition of the Receivables and any income earned on any notional
principal contracts. The Trust's deductions will consist primarily of interest
accruing on the Notes, servicing and other fees and losses or deductions upon,
or with respect to, collection or the disposition of the Receivables.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement. In the Trust
Agreement, the Certificateholders of the Trust will agree that the yield on a
Certificate is intended to qualify as a "guaranteed payment" and not as a
distributive share of partnership income. A guaranteed payment would be treated
by a Certificateholder as ordinary income, but may well not be treated as
interest income. The Trust Agreement will provide that, to the extent that such
treatment is not respected, the Certificateholders will be allocated ordinary
gross income of the Trust for each interest period equal to the sum of (i) the
amount of interest that accrues on the Certificates for such interest period
based on the Certificate Rate; (ii) an amount equivalent to interest that
accrues during such
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interest period on amounts previously due on the Certificates but not yet
distributed; and (iii) any Trust income attributable to discount on the
Receivables that corresponds to any excess of the principal amount of the
Certificates over their initial issue price. All remaining taxable income of the
Trust generally will be allocated to the [the Sellers] [NAFC], [[as "] [the]
[general partner]["] of the Trust].
Except as set forth below, losses and deductions generally will not be
allocated to the Certificateholders of the Trust except to the extent the
Certificateholders of the Trust are reasonably expected to bear the economic
burden of such losses or deductions. Further, losses and deductions will not be
allocated to Certificateholders of a particular class of Certificates except to
the extent the Certificateholders of such class of Certificates are expected to
bear the economic burden of such losses or deductions. Any such losses could be
characterized as capital losses deductible by the Certificateholder only against
capital gain income, while any such deductions would be subject to the
limitations set forth below. Accordingly, a Certificateholder's taxable income
from the Trust could exceed the cash it is entitled to receive from the Trust.
Although the allocation of gross income to Certificateholders provided
above as an alternative to the characterization of the yield on the Certificates
as guaranteed payments is intended to comply with applicable Treasury
regulations and other authorities, no assurance can be given that the IRS would
not instead require that Certificateholders be allocated a distributive share of
partnership net income or loss. Moreover, if losses or deductions were allocated
to Certificateholders, such losses or deductions would, to the extent that funds
were available therefor, later be reimbursed through allocations of ordinary
income.
It is believed that allocating partnership income on the foregoing basis
should comport with the partners' economic interests in the partnership,
although no assurance can be given that the IRS would not require a greater
amount of income to be allocated to Certificateholders of the Trust. Moreover,
under this alternative method of allocation, Certificateholders may be allocated
income equal to the amount of interest accruing on the Certificates based on the
Certificate Rate even though the Trust might not have sufficient cash to make
current cash distributions of such amount or Certificateholders may have no
right to cash equal to such amount. Thus, cash basis Certificateholders will in
effect be required to report income from the Certificates on the accrual basis
and Certificateholders may become liable for taxes on Trust income even if they
have not received cash from the Trust to pay such taxes. In addition, because
tax allocation and tax reporting will be done on a uniform basis for all
Certificateholders of the Trust but Certificateholders of the Trust may be
purchasing Certificates at different times and at different prices,
Certificateholders may be required to report on their tax returns taxable income
that is greater or less than the amount reported to them by the Trust.
Certificateholders will be required to report items of income, loss and
deduction allocated to them by the Trust in the Certificateholder's taxable year
in which or with which the taxable year of the Trust to which such allocations
relate ends. The Code prescribes certain rules for determining the taxable year
of the Trust. It is likely that, under these rules, the taxable year of the
Trust will be the calendar year. However, in the event that all of the
Certificateholders possessing a 5 percent or greater interest in the equity or
the profits of the Trust share a taxable year that is other than the calendar
year, the Trust would be required to use that year as its taxable year.
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. The
characterization under the Trust Agreement of yield on the Certificates as a
guaranteed payment could adversely affect taxpayers, such as RICs and real
estate investment trusts ("REITs"), that expect to earn "interest" income.
Limitations on Losses. Under the "passive activity" rules of the Code, any
loss allocated to a Certificateholder who is a natural person, estate, trust,
closely held "C" corporation or personal service corporation would be a passive
activity loss while, for purposes of those rules, income allocated to such a
Certificateholder would be "portfolio income."
In addition a taxpayer that is an individual, trust or estate may generally
deduct miscellaneous itemized deductions (which do not include interest expense)
only to the extent they exceed two percent of the individual's adjusted gross
income. Those limitations would apply to an individual Certificateholder's share
of
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expenses of the Trust (including fees paid to the Servicer) and might result in
such holder having net taxable income that exceeds the amount of cash actually
distributed to such holder over the life of the Trust.
The Trust intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Receivable, the Trust
might be required to incur additional expense but it is believed that there
would not be a material adverse effect on Certificateholders.
Discount and Premium. It is believed that the Receivables [were not]
[were] issued with OID or imputed interest, and, therefore, the Trust should not
have OID or imputed interest income. However, the purchase price paid by the
Trust for the Receivables may be greater or less than the remaining principal
balance of the Receivables at the time of purchase. If so, the Receivables will
have been acquired at a premium or discount, as the case may be. (As indicated
above, the Trust will make this calculation on an aggregate basis, but might be
required to recompute it on a Receivable-by-Receivable basis.)
If the Trust acquires the Receivables at a market discount or premium, the
Trust will elect to include any such discount in income currently as it accrues
over the life of the Receivables or to offset any such premium against interest
income on the Receivables. As indicated above, a portion of such market discount
income or premium deduction may be allocated to Certificateholders.
Section 708 Termination. Under Section 708 of the Code, the Trust will be
deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust are sold or exchanged within a
12-month period. If such a termination occurs, the Trust will be considered to
distribute its assets to the partners, who would then be treated as
recontributing those assets to the Trust, as a new partnership. The Trust will
not comply with certain technical requirements that might apply when such a
constructive termination occurs. As a result, the Trust may be subject to
certain tax penalties and may incur additional expenses if it is required to
comply with those requirements. Furthermore, the Trust might not be able to
comply due to lack of data.
Distributions to Certificateholders. Certificateholders generally will not
recognize gain or loss with respect to distributions from the Trust. A
Certificateholder will, however, recognize gain to the extent any money
distributed exceeds the Certificateholder's adjusted basis in the Certificates
(as described below under "Disposition of Certificates") immediately before
distribution, and a Certificateholder will recognize loss upon termination of
the Trust or termination of the Certificateholder's interest in the Trust if the
Trust only distributes money to the Certificateholder and the amount distributed
is less than the Certificateholder's adjusted basis in the Certificates. Any
such gain or loss would be long-term capital gain or loss if the holding period
of the Certificates were more than one year, assuming that the Certificates are
held as capital assets.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
A Certificateholder's tax basis in a Certificate will generally equal the
holder's cost increased by the holder's share of Trust income (includible in
income) and decreased by any distributions received with respect to such
Certificate. In addition, both the tax basis in the Certificates and the amount
realized on a sale of a Certificate would include the holder's share of the
Notes and other liabilities of the Trust. A holder acquiring Certificates at
different prices may be required to maintain a single aggregate adjusted tax
basis in such Certificates, and, upon sale or other disposition of some of the
Certificates, allocate a portion of such aggregate tax basis to the Certificates
sold (rather than maintaining a separate tax basis in each Certificate for
purposes of computing gain or loss on a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the holder's share of
unrecognized accrued market discount on the Receivables would generally be
treated as ordinary income to the holder and would give rise to special federal
income tax reporting requirements. The Trust does not expect to have any other
assets that would give rise to such special reporting requirements. Thus, to
avoid those special reporting requirements, the Trust will elect to include
market discount in income as it accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed miscellaneous itemized
deductions described above) over the life of the Certificates
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that exceeds the aggregate cash distributions with respect thereto, such excess
will generally give rise to a capital loss upon the retirement of the
Certificates.
Allocations Between Transferors and Transferees. In general, the Trust's
taxable income and losses will be determined monthly and the tax items for a
particular calendar month will be apportioned among the Certificateholders in
proportion to the principal amount of Certificates owned by them as of the close
of the last day of such month. As a result, a holder purchasing Certificates may
be allocated tax items (which will affect its tax liability and tax basis)
attributable to periods before the actual transaction.
The use of such a monthly convention may not be permitted by existing
Treasury regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Trust might be reallocated among the Certificateholders. The Sellers are
authorized to revise the Trust's method of allocation between transferors and
transferees to conform to a method permitted by future Treasury regulations.
Section 754 Election. In the event that a Certificateholder sells its
Certificates at a profit (loss), the purchasing Certificateholder will have a
higher (lower) basis in the Certificates than the selling Certificateholder had.
The tax basis of the Trust's assets will not be adjusted to reflect that higher
(or lower) basis unless the Trust were to file an election under Section 754 of
the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the Trust will not make such election. As a
result, Certificateholders might be allocated a greater or lesser amount of
Trust income than would be appropriate based on their own purchase price for
Certificates.
Administrative Matters. The Owner Trustee is required to keep or have kept
complete and accurate books of the Trust. Such books will be maintained for
financial reporting and federal income tax purposes on an accrual basis and the
fiscal year of the Trust will be the calendar year. The Trustee will file a
partnership information return (Form 1065) with the IRS for each taxable year of
the Trust and will report each Certificateholder's allocable share of items of
Trust income and expense to holders and the IRS on Schedule K-1. The Trust will
provide the Schedule K-1 information to nominees that fail to provide the Trust
with the information statement described below and such nominees will be
required to forward such information to the beneficial owners of the
Certificates. Generally, holders must file federal income tax returns that are
consistent with the information return filed by the Trust or be subject to
penalties unless the holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust with
a statement containing certain information on the nominee, the beneficial owners
and the Certificates so held. Such information includes (i) the name, address
and federal taxpayer identification number of the nominee and (ii) as to each
beneficial owner (x) the name, address and federal 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 either of the foregoing, and (z)
certain information on Certificates that were held, bought or sold on behalf of
such person throughout the year. In addition, brokers and financial institutions
that hold Certificates through a nominee are required to furnish directly to the
Trust information as to themselves and their ownership of Certificates. A
clearing agency registered under Section 17A of the Exchange Act is not required
to furnish any such information statement to the Trust. The information referred
to above for any calendar year must be furnished to the Trust on or before the
following January 31. Nominees, brokers and financial institutions that fail to
provide the Trust with the information described above may be subject to
penalties.
The Code provides for administrative examination of a partnership as if the
partnership were a separate taxpayer. Under these audit procedures, the tax
treatment of items of Trust income, gain, loss, deduction and credit would be
determined at the Trust level in a unified proceeding, rather than in separate
proceedings with each Certificateholder. Generally, the statute of limitations
for Trust items does not expire before three years after the date on which the
partnership information return is filed. The General Partner will be designated
the "tax matters partner" for the Trust and, as such, is designated to receive
notice on behalf of, and to provide
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notice to those Certificateholders not receiving notice from, the IRS, and to
represent the Certificateholders in any dispute with the IRS. Any adverse
determination following an audit of the return of the Trust by the appropriate
taxing authorities could result in an adjustment of the returns of the
Certificateholders, and while the Certificateholders may participate in any
adjudicative process that is undergone at the Trust level in arriving at such a
determination, such Certificateholders will be precluded from separately
litigating a proposed adjustment to the items of the Trust. As the tax matters
partner, the General Partner may enter into a binding settlement on behalf of
all Certificateholders with a less than a 1 percent interest in the Partnership
(except for any group of such Certificateholders with an aggregate interest of 5
percent or more in Trust profits that elects to form a notice group or
Certificateholders who otherwise notify the IRS that the General Partner is not
authorized to settle on their behalf). In the absence of a proceeding at the
Trust level, a Certificateholder under certain circumstances may pursue a claim
for credit or refund on his own behalf by filing a request for administrative
adjustment of a Trust item. Each Certificateholder is advised to consult its own
tax advisor with respect to the impact of these procedures on its particular
case.
Backup Withholding. Distributions made on the Certificates and proceeds
from the sale of the Certificates will not be subject to a "backup" withholding
tax of 31% unless, in general, the Certificateholder fails to comply with
certain identification procedure and is not an exempt recipient under applicable
provisions of the Code.
TAX CONSEQUENCES TO NON-U.S. CERTIFICATEHOLDERS
The Certificates may not be purchased by persons other than U.S. persons
and non-U.S. persons who will satisfy the Sellers and the Trustee of the Trust
that such non-U.S. person will be taxed with respect to its ownership of
Certificates as if it were a U.S. person. However, in the case of such a
non-U.S. person, the Trust will withhold U.S. income tax at the highest marginal
rate.
THE FEDERAL TAX DISCUSSIONS SET FORTH ABOVE ARE INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A NOTEHOLDER'S OR
CERTIFICATEHOLDER'S PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS SHOULD
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF NOTES AND CERTIFICATES, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE
EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
THE NOTES
The Notes may, in general, be purchased by or on behalf of (i) "employee
benefit plans" (as defined in Section 3(3) of ERISA), (ii) "plans" described in
Section 4975(e)(1) of the Code, including individual retirement accounts and
Keogh Plans, or (iii) entities whose underlying assets include plan assets by
reason of a plan's investment in such entity (each, a "Plan"). However, the
acquisition and holding of Notes by or on behalf of a Plan could be considered
to give rise to a prohibited transaction under ERISA and the Code if the Trust,
the Owner Trustee, the Indenture Trustee, any holder of the Certificates or any
of their respective affiliates, is or becomes a "party in interest" or a
"disqualified person" (as defined in ERISA and the Code, respectively) with
respect to such Plan. In such case, certain exemptions from the prohibited
transaction rules could be applicable to such acquisition and holding by a Plan
depending on the type and circumstances of the Plan fiduciary making the
decision to acquire a Note. For additional information regarding treatment of
the Notes under ERISA, see "ERISA Considerations" in the Prospectus.
THE CERTIFICATES
The Certificates may not be acquired by a Plan or a person investing "plan
assets" of a Plan (excluding, for this purpose, any entity registered under the
Investment Company Act of 1940, as amended) (each, a
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"Plan Investor"). In addition, investors other than Plan Investors should be
aware that a prohibited transaction under ERISA and the Code could be deemed to
occur if any holder of the Certificates or any of their respective affiliates,
is or becomes a party in interest or a disqualified person with respect to any
Plan that acquires and holds the Notes without such Plan being covered by one or
more exemptions from the prohibited transaction rules. For additional
information regarding treatment of the Certificates under ERISA, see "ERISA
Considerations" in the Prospectus.
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UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting Agreement
(the "Note Underwriting Agreement"), the Sellers have agreed to cause the Trust
to sell to each of the Note Underwriters named below (collectively, the "Note
Underwriters"), and each of the Note Underwriters has severally agreed to
purchase, the initial principal amount of Notes set forth opposite its name
below:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF [PRINCIPAL [PRINCIPAL
[CLASS AMOUNT OF AMOUNT OF
A-1] CLASS A-2 CLASS A-3
NOTE UNDERWRITERS NOTES NOTES] NOTES]
----------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
NationsBanc Capital Markets, Inc............. $ $ ][ $ ][
--------- --------- ---------
Total................................ $ $ ][ $ ][
=========== =========== ===========
</TABLE>
The Sellers have been advised by the Note Underwriters that they propose
initially to offer the Notes to the public at the prices set forth herein, and
to certain dealers at such prices less the initial concession not in excess of
% per [Class A-1] Note[, % per Class A-2 Note and % per Class A-3
Note]. The Note Underwriters may allow, and such dealers may reallow, a
concession not in excess of % per [Class A-1] Note[, % per Class A-2
Note and % per Class A-3 Note] to certain other dealers. After the initial
public offering of the Notes, the public offering price and such concessions may
be changed.
Subject to the terms and conditions set forth in an Underwriting Agreement
(the "Certificate Underwriting Agreement"), the Sellers have agreed to cause the
Trust to sell to each of the Certificate Underwriters named below (the
"Certificate Underwriters" and, together with the Note Underwriters, the
"Underwriters"), and each of the Certificate Underwriters has severally agreed
to purchase, the initial Certificate Balance [of each offered class] of
Certificates set forth opposite its name below:
<TABLE>
<CAPTION>
CERTIFICATE CERTIFICATE
BALANCE OF BALANCE OF
[CLASS C- ] [CLASS C- ]
CERTIFICATE UNDERWRITERS CERTIFICATES CERTIFICATES
------------------------------------------------------ ------------ ------------
<S> <C> <C>
NationsBanc Capital Markets, Inc.................... $ $
------------ ------------
Total....................................... $ $
============ ============
</TABLE>
The Sellers have been advised by the Certificate Underwriters that they
propose initially to offer the [Class C- and Class C- ] Certificates to the
public at the price set forth herein, and to certain dealers at such price less
the initial concession not in excess of % per [Class C- ] Certificate [and
% per Class C- Certificate]. The Certificate Underwriters may allow, and such
dealers may reallow, a concession not in excess of % per [Class C- ]
Certificate [and % per Class C- Certificates] to certain other
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dealers. After the initial public offering of the Certificates, the public
offering price and such concessions may be changed.
NationsBanc Capital Markets, Inc. ("NCMI") is a separate subsidiary of
NationsBank Corporation. NCMI is a registered broker-dealer and not a bank. Any
obligations of NCMI are the sole responsibility of NCMI and do not create any
obligation or guarantee on the part of any affiliate of NCMI.
LEGAL OPINIONS
In addition to the legal opinions described in the Prospectus, certain
legal matters relating to the Notes and the Certificates will be passed upon for
the Underwriters and certain federal income tax and other matters will be passed
upon for the Trust by [ ].
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ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered NationsBank
Auto Owner Trust % [Class A-1] Asset Backed Notes[, Floating Rate Class A-2
Asset Backed Notes and % Class A-3 Asset Backed Notes] (collectively, [the
"Global Notes") and % Asset Backed Certificates (the "Global Certificates"
and together with the Global Notes,] the "Global Securities") will be available
only in book-entry form. Investors in the Global Securities may hold such Global
Securities through any of The Depository Trust Company ("DTC"), Cedel Bank,
societe anonyme ("Cedel") or the Euroclear System ("Euroclear"). The Global
Securities will be tradeable as home market instruments in both the European and
U.S. domestic markets. Initial settlement and all secondary trades will settle
in same-day funds.
Secondary market trading between investors holding Global Securities
through Cedel and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Global Securities will be effected on a
delivery-against-payment basis through the respective Depositaries of Cedel and
Euroclear (in such capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities will
be represented through financial institutions acting on their behalf as direct
and indirect Participants in DTC. As a result, Cedel and Euroclear will hold
positions on behalf of their participants through their respective Depositaries,
which in turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to U.S. corporate debt obligations. Investor
securities custody accounts will be credited with their holdings against payment
in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to U.S. corporate
debt obligations in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
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Trading between DTC seller and Cedel or Euroclear purchaser. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a Cedel Participant or a Euroclear Participant, the purchaser will
send instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. Cedel or Euroclear
will instruct the respective Depositary, as the case may be, to receive the
Global Securities against payment. Payment will include interest accrued on the
Global Securities from and including the last coupon payment date to and
excluding the settlement date. Payment will then be made by the respective
Depositary to the DTC Participant's account against delivery of the Global
Securities. After settlement has been completed, the Global Securities will be
credited to the respective clearing system and by the clearing system, in
accordance with its usual procedures, to the Cedel Participant's or Euroclear
Participant's account. The securities credit will appear the next day (European
time) and the cash debit will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the Cedel or Euroclear cash debit
will be valued instead as of the actual settlement date.
Cedel Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Cedel or Euroclear. Under this approach,
they may take on credit exposure to Cedel or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, Cedel Participants or Euroclear Participants can elect not to pre-position
funds and allow that credit line to be drawn upon to finance settlement. Under
this procedure, Cedel Participants or Euroclear Participants purchasing Global
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each Cedel Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective Depositary for the benefit of Cedel Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participant a cross-market transaction will
settle no differently than a trade between two DTC Participants.
Trading between Cedel or Euroclear seller and DTC purchaser. Due to time
zone differences in their favor, Cedel Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through the
respective Depositary, to a DTC Participant. The seller will send instructions
to Cedel or Euroclear through a Cedel Participant or Euroclear Participant at
least one business day prior to settlement. In these cases, Cedel or Euroclear
will instruct the respective Depositary, as appropriate, to deliver the bonds to
the DTC Participant's account against payment. Payment will include interest
accrued on the Global Securities from and including the last coupon payment date
to and excluding the settlement date. The payment will then be reflected in the
account of the Cedel Participant or Euroclear Participant the following day, and
receipt of the cash proceeds in the Cedel Participant's or Euroclear
Participant's account would be back-valued to the value date (which would be the
preceding day, when settlement occurred in New York). Should the Cedel
Participant or Euroclear Participant have a line of credit with its respective
clearing system and elect to be in debit in anticipation of receipt of the sale
proceeds in its account, the back-valuation will extinguish any overdraft
charges incurred over that one-day period. If settlement is not completed on the
intended value date (i.e., the trade fails), receipt of the cash proceeds in the
Cedel Participant's or Euroclear Participant's account would instead be valued
as of the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase Global
Securities from DTC Participants for delivery to Cedel Participants or Euroclear
Participants should note that these trades would
I-2
<PAGE> 142
automatically fail on the sale side unless affirmative action were taken. At
least three techniques should be readily available to eliminate this potential
problem:
(a) borrowing through Cedel or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedel or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Cedel or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the Cedel Participant
or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
[Global Notes]
A beneficial owner of Global [Securities] [Notes] holding securities
through Cedel or Euroclear (or through DTC if the holder has an address outside
the U.S.) will be subject to the 30% U.S. withholding tax that generally applies
to payments of interest (including original issue discount) on registered debt
issued by U.S. Persons, unless (i) each clearing system, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business in the chain of intermediaries between such beneficial owner and the
U.S. entity required to withhold tax complies with applicable certification
requirements and (ii) such beneficial owner takes one of the following steps to
obtain an exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of
Global [Securities] [Notes] that are non-U.S. Persons can obtain a complete
exemption from the withholding tax by filing a signed Form W-8 (Certificate
of Foreign Status). If the information shown on Form W-8 changes, a new
Form W-8 must be filed within 30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a
U.S. branch, for which the interest income is effectively connected with
its conduct of a trade or business in the United States, can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a
Trade or Business in the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are beneficial owners of
Global [Securities] [Notes] residing in a country that has a tax treaty
with the United States can obtain an exemption or reduced tax rate
(depending on the treaty terms) by filing Form 1001 (Ownership, Exemption
or Reduced Rate Certificate). If the treaty provides only for a reduced
rate, withholding tax will be imposed at that rate unless the filer
alternatively files Form W-8. Form 1001 may be filed by the beneficial
owner of Global [Securities] [Notes] or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's
Request for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The beneficial owner of
a Global [Security] [Note] or in the case of a Form 1001 or a Form 4224
filer, his agent, files by submitting the appropriate form to the person
through whom it holds (the clearing agency, in the case of persons holding
directly on the books of the clearing agency). Form W-8 and Form 1001 are
effective for three calendar years and Form 4224 is effective for one
calendar year.
I-3
<PAGE> 143
[Global Certificates
The Global Certificates may not be purchased by persons other than U.S.
Persons and non-U.S. Persons who will have satisfied the Sellers and the Owner
Trustee that such non-U.S. Person will be taxed with respect to its beneficial
ownership of Global Certificates as if it were a U.S. Person.]
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof or (iii) an estate or trust
the income of which is includible in gross income for United States tax
purposes, regardless of its source. This summary does not deal with all aspects
of U.S. federal income tax withholding that may be relevant to foreign holders
of the Global [Securities] [Notes]. Investors are advised to consult their own
tax advisers for specific tax advice concerning their holding and disposing of
the Global Securities.
I-4
<PAGE> 144
INDEX OF TERMS
Set forth below is a list of the defined terms used in this Prospectus
Supplement and defined herein and the pages on which the definitions of such
terms may be found herein. Certain defined terms used in this Prospectus
Supplement are defined in the Prospectus. See "Index of Terms" beginning on page
68 of the Prospectus.
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
ABS................................................................................... S-30
ABS Table............................................................................. S-30
Accrued Certificate Interest.......................................................... S-45
Accrued Note Interest................................................................. S-44
Additional Yield Supplement Amount.................................................... S-16
Additional Reserve Account Deposit.................................................... S-14
Available Funds....................................................................... S-42
Available Interest.................................................................... S-42
Available Principal................................................................... S-42
Available Reserve Amount.............................................................. S-48
Bank, Banks.......................................................................Front Cover
Business Day.......................................................................... S-7
Cap Notional Amount................................................................... S-50
Cap Rate.............................................................................. S-50
Cede.................................................................................. S-3
CEDEL................................................................................. I-1
Certificate Balance................................................................... S-45
Certificate Interest Reserve Amount................................................... S-48
Certificate Pool Factor............................................................... S-34
Certificate Prepayment Amount......................................................... S-12
Certificate Prepayment Premium........................................................ S-12
Certificate Rate...................................................................... S-11
Certificate Underwriters.............................................................. S-62
Certificate Underwriting Agreement.................................................... S-62
Certificateholders.................................................................... S-11
Certificateholders' Distribution Amount............................................... S-45
Certificateholders' Interest Carryover Shortfall...................................... S-45
Certificateholders' Monthly Accrued Interest.......................................... S-46
Certificateholders' Monthly Principal................................................. S-46
Certificateholders' Percentage........................................................ S-46
Certificateholders' Principal Carryover Shortfall..................................... S-46
Certificateholders' Principal Distribution Amount..................................... S-46
Certificates......................................................................Front Cover
[Class A-1] Final Scheduled [Distribution] [Payment] Date............................. S-9
Class A-1 Notes....................................................................... S-4
[Class A-1] Notes.................................................................Front Cover
[Class A-1 Rate]...................................................................... S-7
Class A-2 Final Scheduled [Distribution] [Payment] Date............................... S-9
Class A-2 Notes...................................................................Front Cover
Class A-2 Rate........................................................................ S-7
Class A-3 Final Scheduled [Distribution] [Payment] Date............................... S-9
Class A-3 Notes...................................................................Front Cover
Class A-3 Rate........................................................................ S-7
[Class C- Certificates]..........................................................Front Cover
Closing Date.......................................................................... S-6
Code.................................................................................. S-19
Collection Account.................................................................... S-16
Collection Period..................................................................... S-8
Collections........................................................................... S-43
</TABLE>
i
<PAGE> 145
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Commission............................................................................ S-3
Contract Rate......................................................................... S-25
Cut-Off Date.......................................................................... S-25
Dealer Agreements..................................................................... S-5
Dealers............................................................................... S-5
Defaulted Receivable.................................................................. S-43
Determination Date.................................................................... S-8
Disposition of Certificates........................................................... S-58
Distribution Date..................................................................... S-2
[Distribution] [Payment] Date......................................................... S-2
DTC................................................................................... S-3
ERISA................................................................................. S-19
Euroclear............................................................................. I-1
Exchange Act.......................................................................... S-3
Final Scheduled Distribution Date..................................................... S-2
Final Scheduled Maturity Date......................................................... S-6
Financed Vehicles..................................................................... S-5
Forced-Placed Insurance............................................................... S-25
Funding Period........................................................................ S-14
Global Certificates................................................................... I-1
Global Notes.......................................................................... I-1
Global Securities..................................................................... I-1
Guaranteed Rate Agreement............................................................. S-51
Indenture............................................................................. S-4
Indenture Trustee..................................................................... S-4
Index Maturity........................................................................ S-2
[Initial] Cut-Off Date................................................................ S-5
Initial Pool Balance.................................................................. S-9
[Initial] Pool Balance................................................................ S-6
[Initial] Receivables................................................................. S-6
Interest Collections.................................................................. S-43
Interest Period....................................................................... S-2
Interest Rate Cap..................................................................... S-50
Interest Rate Cap Provider............................................................ S-13
Interest Rate Swap.................................................................... S-13
Interest Reset Period................................................................. S-2
Investment Provider................................................................... S-17
IRS................................................................................... S-52
Issuer................................................................................ S-4
Liquidation Proceeds.................................................................. S-43
Mandatory Redemption.................................................................. S-9
Mandatory Repurchase.................................................................. S-12
NAFC.................................................................................. S-2
NationsBank South..................................................................... S-4
NationsBank Texas..................................................................... S-4
Net Trust Swap Payment................................................................ S-13
Net Trust Swap Receipt................................................................ S-13
Note Interest Rate[s]................................................................. S-7
Note Pool Factor...................................................................... S-34
Note Prepayment Amount................................................................ S-10
Note Prepayment Premium............................................................... S-10
Note Underwriters..................................................................... S-62
Note Underwriting Agreement........................................................... S-62
Noteholders........................................................................... S-7
Noteholders' Accelerated Principal.................................................... S-8
Noteholders' Interest Carryover Shortfall............................................. S-44
</TABLE>
ii
<PAGE> 146
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Noteholders' Monthly Accrued Interest................................................. S-44
Noteholders' Monthly Principal........................................................ S-45
Noteholders' Payment Amount........................................................... S-45
Noteholders' Percentage............................................................... S-45
Noteholders' Principal Carryover Shortfall............................................ S-45
Noteholders' Principal Payment Amount................................................. S-8
Notes................................................................................. S-4
Obligor............................................................................... S-5
OID................................................................................... S-53
OID Regulations....................................................................... S-53
Owner Trustee......................................................................... S-4
Plan.................................................................................. S-60
Plan Investor......................................................................... S-61
Pool Balance.......................................................................... S-7
Pool [/Prefunding] Balance............................................................ S-7
Pre-Funded Amount..................................................................... S-6
Pre-Funded Percentage................................................................. S-10
Pre-Funding Account................................................................... S-14
Prepayable Obligation................................................................. S-53
Prepayment Assumption................................................................. S-53
Prospectus............................................................................ S-3
Purchase Receivable................................................................... S-43
Rating Agencies....................................................................... S-19
Receivables........................................................................... S-5
Receivables Pool...................................................................... S-25
Record Date........................................................................... S-7
Recoveries............................................................................ S-43
Redemption Price...................................................................... S-38
Regular Principal..................................................................... S-8
Replacement Guaranteed Rate Agreement................................................. S-51
Required Rate......................................................................... S-16
Required Subsequent Yield Supplement Amount........................................... S-49
Required Yield Supplement Amount...................................................... S-49
Required [Initial] Yield Supplement Amount............................................ S-49
Reserve Account....................................................................... S-14
Reserve Account Initial Deposit....................................................... S-14
Sale and Servicing Agreement.......................................................... S-5
Securities............................................................................ S-4
Securities Act........................................................................ S-3
Securityholders....................................................................... S-11
Seller, Sellers....................................................................... S-4
Servicer.............................................................................. S-4
Servicer's Certificate................................................................ S-42
Servicing Fee Rate.................................................................... S-17
Short-Term Notes...................................................................... S-55
Simple Interest Receivable............................................................ S-29
Special Tax Counsel................................................................... S-18
Specified Reserve Account Balance..................................................... S-15
Subsequent Cut-Off Date............................................................... S-6
Subsequent Receivables............................................................Front Cover
Subsequent Transfer Date.............................................................. S-6
Supplemental Servicing Fee............................................................ S-41
Swap Counterparty..................................................................... S-13
Swap Notional Amount.................................................................. S-50
Transfer and Servicing Agreements..................................................... S-40
Trust.............................................................................Front Cover
</TABLE>
iii
<PAGE> 147
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Trust Agreement....................................................................... S-4
Trust Property........................................................................ S-5
U.S. Person........................................................................... I-4
Underwriters.......................................................................... S-62
Yield Supplement Account.............................................................. S-16
Yield Supplement Agreement............................................................ S-16
Yield Supplement Amount............................................................... S-16
</TABLE>
iv
<PAGE> 148
- ------------------------------------------------------------
- ------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES
OFFERED HEREBY, NOR AN OFFER OF THE SECURITIES IN ANY STATE OR JURISDICTION IN
WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF
THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT
INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Reports to Securityholders....................... S-
Summary.......................................... S-
Risk Factors..................................... S-
The Trust........................................ S-
The Receivables Pool............................. S-
Pool Factors..................................... S-
Maturity and Prepayment Considerations........... S-
Description of the Notes......................... S-
Description of the Certificates.................. S-
Description of the Transfer and Servicing
Agreements..................................... S-
Federal Income Tax Consequences.................. S-
ERISA Considerations............................. S-
Underwriting..................................... S-
Legal Opinions................................... S-
Annex I -- Global Clearance, Settlement and Tax
Documentation Procedures....................... I-
Index of Terms...................................
PROSPECTUS
Reports to Securityholders....................... 1
Available Information............................ 1
Incorporation of Certain Documents by
Reference...................................... 1
Summary.......................................... 3
Risk Factors..................................... 14
The Trusts....................................... 21
The Receivables Pools............................ 23
Maturity and Prepayment Considerations........... 26
Pool Factors and Trading Information............. 27
Use of Proceeds.................................. 27
The Banks, NationsBank Corporation and NAFC...... 28
The Servicer..................................... 28
Description of the Notes......................... 29
Description of the Certificates.................. 34
Description of Fixed and Floating Rate Options... 35
Book-Entry and Definitive Securities; Reports to
Securityholders................................ 39
Description of the Transfer and Servicing
Agreements..................................... 44
Certain Legal Aspects of the Receivables......... 57
Federal Income Tax Consequences.................. 61
ERISA Considerations............................. 62
Plan of Distribution............................. 66
Legal Opinions................................... 67
Index of Terms................................... 68
</TABLE>
UNTIL , 199 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS
SUPPLEMENT), ALL DEALERS EFFECTING TRANSACTIONS IN THE NOTES OR THE
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS SUPPLEMENT AND A PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
$
NATIONSBANK
AUTO OWNER TRUST 199 -
$ % ASSET
BACKED NOTES[, CLASS A-1]
[$ FLOATING RATE
ASSET BACKED NOTES,
CLASS A-2]
[$ % [CLASS C- ] ASSET
BACKED NOTES, CLASS A-3]
$ % [CLASS C- ] ASSET
BACKED CERTIFICATES
NATIONSBANK, N.A.
NATIONSBANK, N.A. (SOUTH)
NATIONSBANK OF TEXAS, N.A.
SELLERS
---------------------
NATIONSBANK, N.A.
SERVICER
---------------------
---------------------
PROSPECTUS
SUPPLEMENT
---------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 149
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED , 1996
GRANTOR TRUST PROSPECTUS SUPPLEMENT
(To Prospectus dated , 1996)
$
NATIONSBANK AUTO GRANTOR TRUST 199
$ % ASSET BACKED CERTIFICATES, CLASS A
[$ % ASSET BACKED CERTIFICATES, CLASS B]
NATIONSBANK, N.A.
NATIONSBANK, N.A. (SOUTH)
NATIONSBANK OF TEXAS, N.A.
SELLERS
---------------------
NATIONSBANK, N.A.
SERVICER
---------------------
The NationsBank Auto Grantor Trust 199 (the "Trust") will be formed
pursuant to a Pooling and Servicing Agreement (the "Agreement"), to be dated as
of , 199 , among NationsBank, N.A., NationsBank, N.A. (South) and
NationsBank of Texas, N.A. (each, "Seller" and collectively, the "Sellers"),
NationsBank, N.A. (the "Servicer") and , as Trustee, and will issue
$ aggregate initial principal balance of % Asset Backed
Certificates, Class A (the "Class A Certificates") and $ aggregate
initial principal balance of % Asset Backed Certificates, Class B (the
"Class B Certificates" and, together with the Class A Certificates, the
"Certificates"). [Only the Class A Certificates are being offered hereby.] The
Class A Certificates will evidence in the aggregate an undivided ownership
interest of approximately % in the Trust. The Class B Certificates will
evidence in the aggregate an undivided ownership interest of approximately
% in the Trust. The rights of the Class B Certificateholders to receive
distributions with respect to the Receivables are subordinated to the rights of
the Class A Certificateholders to the extent described herein. The Trust
property will include a pool of fixed rate simple interest retail motor vehicle
installment sales contracts originated by Dealers and purchased by the Sellers
(the "Receivables") secured by security interests in the motor vehicles financed
thereby, including certain monies due or received thereunder on ,
199 (the "Cut-Off Date"), other than the portion thereof payable to the Servicer
as its Servicing
(Continued on next page)
PROSPECTIVE INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION SET
FORTH IN
"RISK FACTORS" ON PAGE S- HEREIN AND ON PAGE 14 OF THE ACCOMPANYING
PROSPECTUS.
---------------------
THE CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN THE TRUST ONLY AND DO NOT
REPRESENT OBLIGATIONS OF OR INTERESTS IN, AND ARE NOT GUARANTEED OR
INSURED BY, NATIONSBANK, N.A., NATIONSBANK, N.A. (SOUTH), NATIONSBANK
OF TEXAS, N.A. OR NATIONSBANK CORPORATION OR ANY OF THEIR
RESPECTIVE AFFILIATES.
A CERTIFICATE IS NOT A DEPOSIT AND NEITHER THE CERTIFICATES NOR THE RECEIVABLES
ARE INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENTAL
AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR
THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
---------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT THE SELLER(1)(2)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Class A Certificate..................... % % %
- -----------------------------------------------------------------------------------------------------------
[Per Class B Certificate.................... % % %
- -----------------------------------------------------------------------------------------------------------
Total....................................... $ $ $]
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from , 199 .
(2) Before deducting expenses, estimated to be $ .
<PAGE> 150
(Continued from previous page)
Fee as described herein and certain other property, as more fully described
herein. See "Summary -- The Trust Property" herein. [The Trustee also will hold
monies on deposit in a trust account (the "Pre-Funding Account"). Additional
retail motor vehicle installment sales contracts (the "Subsequent Receivables")
will be purchased by the Trust from the Seller from time to time on or before
, 199 out of funds on deposit in the Pre-Funding Account.] (Certain
capitalized terms used in this Prospectus Supplement are defined elsewhere in
this Prospectus Supplement on the pages indicated in the "Index of Terms"
beginning on page .)
Principal and interest to the extent of the [applicable] Certificate Rate
generally will be distributed on the day of each month (the "Distribution
Date"), commencing , 199 . The final scheduled Distribution Date on
the [Class A] Certificates will be , 199 (the "Final Scheduled
Distribution Date").
The [Class A] Certificates are offered by the Underwriters when, as and if
issued and accepted by the Underwriters and subject to their right to reject
orders in whole or in part. It is expected that delivery of the [Class A]
Certificates will be made in book-entry form only through the Same Day Funds
Settlement System of The Depository Trust Company, or through Cedel Bank,
societe anonyme or the Euroclear System on or about the Closing Date.
The date of this Prospectus Supplement is , 199 .
<PAGE> 151
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE [CLASS A] CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED IN
THE PROSPECTUS AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE [CLASS A] CERTIFICATES MAY
NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE [CLASS A]
CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates are issued, monthly and annual
unaudited reports containing information concerning the Receivables will be
prepared by the Servicer and sent on behalf of the Trust only to Cede & Co.
("Cede"), as nominee of The Depository Trust Company ("DTC") and registered
holder of the [Class A] Certificates. See "Book-Entry and Definitive
Securities -- Book-Entry Registration" and "-- Reports to Securityholders" in
the accompanying Prospectus (the "Prospectus"). Such reports will not constitute
financial statements prepared in accordance with generally accepted accounting
principles. The Servicer, on behalf of the Trust, will file with the Securities
and Exchange Commission (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. The Servicer intends to
continue to file with respect to the Trust such periodic reports pursuant to the
requirements of the Exchange Act for the period after such filings could be
discontinued in reliance on Section 15(d) thereof until the Certificates issued
by the Trust are no longer outstanding.
The Sellers have filed with the Commission, on behalf of the Trust, a
Registration Statement under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Certificates offered pursuant to this
Prospectus. For further information, reference is made to such Registration
Statement, and the exhibits thereto, which are available for inspection without
charge at the public reference facilities of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, as well as the Midwest Regional Offices of the
Commission at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511,
and at the Northeast Regional Office of the Commission at 7 World Trade Center,
Suite 1300, New York, New York 10048. Copies of such information can be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, the Commission
maintains a public access site on the Internet through a World Wide Web at which
reports, information statements and other information, including all electronic
filings, regarding the Sellers and NationsBank Corporation, the parent
corporation of each of the Sellers, may be viewed. The Internet address of such
World Wide Web site is http://www.sec.gov. See "Available Information" in the
Prospectus.
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SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus. Certain
capitalized terms used herein are defined elsewhere in this Prospectus
Supplement on the pages indicated in the "Index of Terms" or, to the extent not
defined herein, have the meanings assigned to such terms in the Prospectus.
ISSUER..................... NationsBank Auto Grantor Trust 199 (the "Trust" or
the "Issuer"), a trust to be formed by the
Sellers and the Trustee pursuant to the
Agreement.
SELLERS.................... NationsBank, N.A., NationsBank, N.A. (South)
("NationsBank South"), and NationsBank of Texas,
N.A. ("NationsBank Texas") (each a "Seller" and a
"Bank" and, collectively, the "Sellers" and the
"Banks").
SERVICER................... NationsBank, N.A., in its capacity as servicer (the
"Servicer").
TRUSTEE.................... , a , as trustee
under the Agreement (the "Trustee").
COLLATERAL AGENT........... , a , in its capacity
as collateral agent (the "Collateral Agent").
THE TRUST PROPERTY......... The property of the Trust (the "Trust Property")
includes a pool of fixed rate simple interest
retail motor vehicle installment sales contracts
purchased by the Sellers from motor vehicle
dealers (the "Dealers") that provide for the
allocation of payments between principal and
interest according to the simple interest method
(collectively, the "Receivables"), all monies
received under the [Initial] Receivables after
the close of business of the Servicer on
, 1996 (the "[Initial] Cut-Off Date")
[and all monies received under the Subsequent
Receivables after the close of business of the
Servicer on each applicable Subsequent Transfer
Date] and will also include: (i) such amounts as
from time to time are on deposit in one or more
accounts maintained pursuant to the Pooling and
Servicing Agreement to be dated as of
, 199 (as amended and supplemented from time
to time, the "Agreement") among the Banks, as
Sellers, the Servicer, the Trustee and the
Collateral Agent, as described herein[, including
the Yield Supplement Account][and the Pre-Funding
Account]; (ii) security interests in the new and
used automobiles, vans and light-duty trucks
financed thereby (collectively, the "Financed
Vehicles") and any accessions thereto; (iii) the
Sellers' rights (if any) to receive proceeds from
claims under certain insurance policies covering
the Financed Vehicles or the obligors under the
Receivables (each, an "Obligor"), as the case may
be; (iv) certain rights of the Trust to receive
payments from the Reserve Account [and pursuant
to the Yield Supplement Agreement] as described
below; (v) any property that shall have secured a
Receivable and shall have been acquired by the
Trust; (vi) each Seller's rights relating to the
repurchase of Receivables under agreements
between each Seller and the Dealers that sold the
Financed Vehicles to the Obligors and any
assignments and other documents related thereto
(collectively, the "Dealer Agreements") and under
the documents and instruments contained in the
Receivable Files; (vii) certain rebates of
premiums and other amounts relating to certain
insurance policies and other
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items financed under the Receivables; (viii) all
other rights of the Trust under the Agreement;
and (ix) any and all proceeds of the foregoing.
The Reserve Account [and the Yield Supplement
Account,] and any amounts therein, will not be
property of the Trust, but such accounts will be
pledged to and held by acting in
its capacity as property-holding agent for the
benefit of the Certificateholders (the
"Collateral Agent").
THE CERTIFICATES........... The Trust will issue Asset Backed Certificates (the
"Certificates") in an aggregate initial balance
of $ . The Certificates represent
fractional undivided interests in the Trust and
will be issued pursuant to the Agreement.
The Certificates will consist of $
aggregate initial principal amount of % Asset
Backed Certificates, Class A (the "Class A
Certificates") [and $ aggregate initial
principal amount of % Asset Backed
Certificates, Class B (the "Class B
Certificates")]. [Only the Class A Certificates
are being offered hereby.] Each Certificate will
represent a fractional undivided ownership
interest in the Trust.
The [Class A] Certificates will be available for
purchase in book entry form only in minimum
denominations of $1,000 and integral multiples
thereof. The [Class A] Certificateholders will
not be entitled to receive Definitive
Certificates except in the limited circumstances
described herein. See "Book-Entry and Definitive
Securities; Reports to
Securityholders -- Definitive Securities" in the
Prospectus.
[The Class A Certificates will evidence in the
aggregate an undivided ownership interest (the
"Class A Percentage") of approximately % in
the Trust (initially representing $ )
and the Class B Certificates will evidence in the
aggregate an undivided ownership interest (the
"Class B Percentage") of approximately % in
the Trust (initially representing $ ).
The Class B Certificates are subordinated to the
Class A Certificates to the extent described
herein.] [The Class B Certificates are not being
offered hereby.]
REGISTRATION OF
CERTIFICATES............... Except in certain limited circumstances, the
Certificates will be available only in book-entry
form and will each be represented initially by
global certificates registered in the name of
Cede & Co. ("Cede"), as nominee of The Depository
Trust Company ("DTC")(for Certificates held in
the United States), [Cedel Bank, societe anonyme
("Cedel") or the Euroclear System
("Euroclear")(for Certificates held in Europe).
No person acquiring a beneficial ownership
interest in the Certificates (a "Certificate
Owner") will be entitled to receive a Definitive
Certificate representing such person's interest
in the Trust except under certain limited
circumstances. Under the terms of the Agreement,
Certificate Owners will not be recognized as
Certificateholders and will be permitted to
exercise the rights of the Certificateholders
only indirectly through DTC. See "Risk
Factors -- Form of Certificates; Certificate
Owners Not Recognized as Certificateholders" and
"Description of the Certificates -- Book-Entry
Registration," "-- Definitive Certificates" and
Annex I to this Prospectus Supplement, "Global
Clearance, Settlement and Tax Documentation
Procedures."
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THE RECEIVABLES............ On , 199 (the "Closing Date"), the
Trust will purchase Receivables (the "[Initial]
Receivables") having an aggregate principal
balance of approximately $ as of
, 199 (the "[Initial] Cut-Off
Date"), from the Sellers pursuant to the
Agreement. As of the [Initial] Cut-Off Date, the
weighted average annual percentage rate of the
[Initial] Receivables was approximately %,
the weighted average remaining maturity of the
[Initial] Receivables was approximately months
and the weighted average original maturity of the
[Initial] Receivables was approximately months.
[On and following the Closing Date, pursuant to the
Agreement, the Sellers will be obligated, subject
only to the availability thereof, to sell, and
the Trust will be obligated to purchase, subject
to the satisfaction of certain conditions set
forth therein, additional Receivables (the
"Subsequent Receivables") from time to time
during the Funding Period having an aggregate
principal balance equal to approximately $
(such amount being equal to an amount on deposit
in the Pre-Funding Account (the "Pre-Funded
Amount") on the Closing Date). The Sellers will
designate as a Cut-Off Date (each a "Subsequent
Cut-Off Date") the date as of which Subsequent
Receivables are conveyed to the Trust. It is
expected that certain of the Subsequent
Receivables arising between the Initial Cut-Off
Date and the Closing Date will be conveyed to the
Trust on the Closing Date and that other
Subsequent Receivables will be conveyed to the
Trust as frequently as daily thereafter on dates
specified by the Sellers (each date on which
Subsequent Receivables are conveyed to the Trust
being referred to as a "Subsequent Transfer
Date") occurring during the Funding Period. See
"Description of the Certificates -- Sale and
Assignment of Receivables; Subsequent
Receivables" herein.]
The [Initial] Receivables [and the Subsequent
Receivables] arise or will arise from loans
originated by Dealers and purchased by the
Sellers pursuant to Dealer Agreements. The
[Initial] Receivables have been selected[, and
the Subsequent Receivables will be selected,]
from the contracts owned by Sellers based on the
criteria specified in the Agreement and described
herein and in the Prospectus. No Initial
Receivable has[, and no Subsequent Receivable
will have,] a scheduled maturity later than
(the "Final Scheduled Maturity
Date").
[Subsequent Receivables may be originated by the
Dealers and purchased by the Sellers at a later
date using credit criteria different from those
which were applied to the Initial Receivables and
may be of a different credit quality and
seasoning. In addition, following the transfer of
Subsequent Receivables to the Trust, the
characteristics of the entire pool of Receivables
included in the Trust may vary significantly from
those of the Initial Receivables. See "Risk
Factors -- The Subsequent Receivables and the
Pre-Funding Account" and "The Receivables Pool"
herein.]
The "Pool[/Pre-Funding] Balance" at any time [will
represent] [is the sum of (i)] the aggregate
principal balance of the Receivables at the end
of the preceding Collection Period, after giving
effect to all payments received from Obligors,
Liquidation Proceeds and Purchase
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<PAGE> 155
Amounts to be remitted by the Servicer or the
Sellers, as the case may be, all for such
Collection Period and all Realized Losses during
such Collection Period [(such amount, the "Pool
Balance") and (ii) the amount on deposit in the
Pre-Funding Account (excluding any Investment
Earnings)].
DISTRIBUTION DATES......... Distributions with respect to the Certificates will
be made on the day of each month or, if any
such day is not a Business Day, on the next
succeeding Business Day (each, a "Distribution
Date") commencing , 199 .
Distributions will be made to holders of the
[Class A] Certificates (the "[Class A]
Certificateholders") of record as of the day
immediately preceding such Distribution Date or,
if Definitive Certificates are issued, as of the
day of the preceding month (a "Record
Date"). A "Business Day" is a day that in The
City of New York or in the city in which the
corporate trust office of the Trustee is located
is neither a legal holiday nor a day on which
banking institutions are authorized by law,
regulation or executive order to be closed.
CERTIFICATE RATE........... % per annum with respect to the Class A
certificates (the "[Class A] Certificate Rate"),
[and % per annum with respect to the Class B
Certificates (the "[Class B] Certificate Rate"),
in each case] calculated on the basis of a
360-day year consisting of twelve 30-day months.
[The Class A Certificate Rate and the Class B
Certificate Rate are both sometimes referred to
as the applicable "Pass-Through Rate."]
INTEREST................... On each Distribution Date, interest at one-twelfth
of the applicable Pass-Through Rate, calculated
on the basis of a 360-day year consisting of
twelve 30-day months, on the Class A Certificate
Balance [and the Class B Certificate Balance,
respectively, in each case] as of the preceding
Distribution Date (after giving effect to all
payments of principal made on such preceding
Distribution Date) or, in the case of the first
Distribution Date, as of the Closing Date, will
be distributed to the registered holders of the
Class A Certificates (the "Class A
Certificateholders") [and the registered holders
of the Class B Certificates (the "Class B
Certificateholders" and, together with the Class
A Certificateholders,] the "Certificateholders")
as of the day immediately preceding such
Distribution Date (or, if Definitive Certificates
are issued, the last day of the related
Collection Period) (in each case, the "Record
Date"), to the extent that sufficient funds are
on deposit in the Certificate Account or
available in the Reserve Account to make such
distribution. A "Collection Period" means the
calendar month preceding each Distribution Date.
See "Description of the
Certificates -- Distributions on Certificates"
and "-- Reserve Account." [The rights of the
Class B Certificateholders to receive
distributions of interest will be subordinated to
the rights of the Class A Certificateholders to
receive distributions of interest to the extent
described herein. See "Risk Factors -- Limited
Assets" and "-- Subordination of Class B
Certificates."]
PRINCIPAL.................. On each Distribution Date, as described more fully
herein, all payments of principal on the
Receivables received by the Servicer during the
preceding Collection Period, plus an amount equal
to the principal balance of any Receivables which
became Defaulted Receivables
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<PAGE> 156
during the preceding Collection Period, will be
distributed by the Trustee to the Class A
Certificateholders [and to the Class B
Certificateholders] of record on the preceding
Record Date, to the extent that sufficient funds
are available therefor on deposit in the
Certificate Account or available in the Reserve
Account to make such distribution. See "The
Certificates -- Distributions on Certificates"
and "-- Reserve Account." [The rights of the
Class B Certificateholders to receive
distributions of principal will be subordinated
to the rights of the Class A Certificateholders
to receive distributions of interest and
principal to the extent described herein.]
[SUBORDINATION OF CLASS B
CERTIFICATES............. Distributions of interest on the Class B
Certificates will be subordinated in priority of
payment to distributions of interest (but not
principal) due on the Class A Certificates, and
distributions of principal on the Class B
Certificates will be subordinated in priority of
payment to distributions of interest and
principal due on the Class A Certificates, in the
event of defaults on the Receivables to the
extent described herein. The Class B
Certificateholders will not receive any
distributions of interest with respect to a
Collection Period until the full amount of
interest on the Class A Certificates relating to
such Collection Period has been deposited in the
Distribution Account. The Class B
Certificateholders will not receive any
distributions of principal with respect to a
Collection Period until the full amount of
interest on and principal of the Class A
Certificates relating to such Collection Period
has been deposited in the Distribution Account.
See "Risk Factors -- Limited Assets" and
"-- Subordination of the Class B Certificates"
herein.]
OPTIONAL PURCHASE.......... If the Servicer exercises its option to purchase
the Receivables, which can occur after the Pool
Balance declines to 5% or less of the Initial
Pool Balance, the Class A Certificateholders will
receive an amount equal to the Class A
Certificate Balance together with accrued
interest at the [Class A] Certificate Rate, [the
Class B Certificateholders will receive and
amount equal to the Class B Certificate Balance
together with accrued interest at the Class B
Certificate Rate] and the [Class A] Certificates
will be retired. The "Initial Pool Balance" will
equal [the sum of (i)] the Pool Balance as of the
[Initial] Cut-Off Date [plus (ii) the aggregate
principal balances of all Subsequent Receivables
added to the Trust as of their respective
Subsequent Cut-Off Dates]. See "Description of
the Certificates -- Optional Purchase" herein.
[MANDATORY REPURCHASE FROM
PRE-FUNDING ACCOUNT...... The [Class A] Certificates will be prepaid, in
part, on the Distribution Date on or immediately
following the last day of the Funding Period in
the event that any amount remains on deposit in
the Pre-Funding Account after giving effect to
the purchase of all Subsequent Receivables,
including any such purchase on such date (a
"Mandatory Repurchase"). The aggregate principal
balance of [Class A] Certificates to be prepaid
will be an amount equal to the amount then on
deposit in the Pre-Funding Account.
A limited recourse mandatory prepayment premium
(the "Certificate Prepayment Premium") will be
payable by the Trust to the [Class A]
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<PAGE> 157
Certificateholders if the aggregate principal
balance of [Class A] Certificates to be prepaid
pursuant to a Mandatory Repurchase exceeds
$ . The Certificate Prepayment Premium
will equal the excess, if any, discounted as
described below, of (i) the amount of interest
that would accrue on the remaining Pre-Funded
Amount (the "Certificate Prepayment Amount") at
the related Certificate Rate during the period
commencing on and including the Distribution Date
on which such Certificate Prepayment Amount is
required to be distributed to Certificateholders
to but excluding , over (ii) the amount
of interest that would have accrued on such
Certificate Prepayment Amount over the same
period at a per annum rate of interest equal to
the bond equivalent yield to maturity on the
Determination Date preceding such Distribution
Date on the , in the case of a Class
A Certificate, and on the , in the
case of a Class B Certificate. Such excess shall
be discounted to present value to such
Distribution Date at the applicable yield
described in clause (ii) above. Pursuant to the
Agreement, the Sellers will be obligated to pay
the Certificate Prepayment Premium to the Trust
as liquidated damages for the failure to deliver
Subsequent Receivables having an aggregate
principal balance equal to the Pre-Funded Amount.
The Trust's obligation to pay the Certificate
Prepayment Premium will be limited to funds
received from the Sellers pursuant to the
preceding sentence. In the event that such funds
are insufficient to pay the aggregate Certificate
Prepayment Premium in full, [Class A]
Certificateholders [of each class of
Certificates] will receive their ratable share
[(based upon the Certificate Prepayment Premium
for each class of Certificates)] of the aggregate
amount available to be distributed in respect of
the Certificate Prepayment Premium. No other
assets of the Trust will be available for the
purpose of making such payment.]
[PRE-FUNDING ACCOUNT....... During the period (the "Funding Period") from and
including the Closing Date until the earliest of
(i) the date on which (a) the amount on deposit
in the Pre-Funding Account is less than
$ , (b) an Event of Default occurs under
the Agreement or (c) certain events of insolvency
occur with respect to any of the Sellers or the
Servicer or (ii) the close of business on the
Distribution Date, the Pre-Funded Amount
will be maintained as an account in the name of
the Trustee (the "Pre-Funding Account"). The
Pre-Funded Amount will initially equal
approximately $ , and, during the Funding
Period, will be reduced by the amount thereof
used to purchase Subsequent Receivables in
accordance with the Agreement and the amount
thereof deposited in the Reserve Account in
connection with the purchase of such Subsequent
Receivables. The Sellers expect that the
Pre-Funded Amount will be reduced to less than
$ by the Distribution Date. Any
Pre-Funded Amount remaining at the end of the
Funding Period will be payable to the
Certificateholders pro rata in proportion to
their initial principal balances.]
[YIELD SUPPLEMENT ACCOUNT;
YIELD SUPPLEMENT
AGREEMENT................ If any Receivable has, as of the Cutoff Date, a
Contract Rate below the sum of (i) the weighted
average of the Certificate Rates and (ii) the
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<PAGE> 158
Servicing Fee Rate (the "Required Rate"), the
Sellers, the Servicer and the Trustee will enter
into a yield supplement agreement (the "Yield
Supplement Agreement"). The Yield Supplement
Agreement will, with respect to each Receivable
subject thereto, provide for payment by the
applicable Seller, on the each Deposit Date, of
an amount calculated by the Servicer to be equal
to one-twelfth of the excess, if any, of (i)
interest on such Receivable's principal balance
as of the first day of the preceding Collection
Period at a rate equal to the Required Rate over
(ii) interest at the Contract Rate on such
Receivable's principal balance as of the first
day of the related Collection Period (in the
aggregate for all Receivables with respect to any
Deposit Date, the "Yield Supplement Amount"). The
Sellers will establish a yield supplement account
with (the "Collateral Agent") for
the benefit of the Certificateholders (the "Yield
Supplement Account"). The Yield Supplement
Account is designed solely to hold funds to
provide security for the payment by the Sellers
of the Yield Supplement Amount on any Deposit
Date. The Yield Supplement Account will be
created with a deposit by the Sellers in an
amount equal to the Required [Initial] Yield
Supplement Amount.
[Pursuant to the Yield Supplement Agreement, on
each Subsequent Transfer Date, the Sellers will
deposit an amount into the Yield Supplement
Account (the "Additional Yield Supplement
Amount") equal to the aggregate Yield Supplement
Amounts in respect of the such Subsequent
Receivable for the period commencing with the
related Subsequent Cut-Off Date and ending with
the scheduled maturity of each such Subsequent
Receivable, assuming that payments on such
Receivables are made as scheduled and no
prepayments are made. See "Description of the
Certificates -- Yield Supplement Account; Yield
Supplement Agreement" herein.]]
RESERVE ACCOUNT............ A reserve account (the "Reserve Account") will be
established by the Sellers and maintained by the
Collateral Agent with an initial deposit (the
"Reserve Account Initial Deposit") of cash of at
least $ [plus an amount attributable to
the difference between the anticipated investment
earnings on the Pre-Funded Amount and the
weighted average interest expense on the portion
of the Certificates represented by the Pre-Funded
Amount]. [On each Subsequent Transfer Date, cash
or Permitted Investments having a value
approximately equal to % of the aggregate
principal balance of the Subsequent Receivables
conveyed to the Trust on such Subsequent Transfer
Date will be withdrawn from the Pre-Funding
Account from amounts otherwise distributable to
the Sellers in connection with the sale of
Subsequent Receivables and shall be deposited in
the Reserve Account. The aggregate amount
transferred from the Pre-Funding Account to the
Reserve Account on each Subsequent Transfer Date
is referred to as the "Additional Reserve Account
Deposit."] On each Distribution Date, any amounts
on deposit in the Certificate Account with
respect to the related Collection Period after
all payments to the Certificateholders and the
Servicer have been made will be deposited into
the Reserve Account until the amount on deposit
in the Reserve Account is equal to the Specified
Reserve Account Balance.
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On each Distribution Date, the Collateral Agent
will withdraw funds from the Reserve Account, to
the extent of the funds therein (exclusive of any
investment earnings on such funds), [(i) first to
reimburse the Servicer for certain Advances
previously made but not reimbursed ("Outstanding
Advances") and (ii) second] to make available to
Certificateholders the excess, if any, of (x) the
sum of the amounts required to be distributed to
Certificateholders and the Servicer on the
related Distribution Date over (y) the amount to
be deposited in the Certificate Account with
respect to the preceding Collection Period
(exclusive of investment earnings thereon). If
the amount in the Reserve Account is reduced to
zero, Certificateholders will bear directly the
credit and other risks associated with ownership
of the Receivables, including the risk that the
Trust may not have a perfected security interest
in the Financed Vehicles. See "Risk Factors"
herein and in the Prospectus, "The
Certificates -- Reserve Account" herein and
"Certain Legal Aspects of the Receivables;
Repurchase Obligations" in the Prospectus.
SPECIFIED RESERVE ACCOUNT
BALANCE.................. On any Distribution Date, the "Specified Reserve
Account Balance" will equal % (or %
under certain circumstances described herein) of
the Pool Balance as of the last day of the
preceding Collection Period, but in any event not
less than the lesser of (i) $ and (ii)
the sum of the Pool Balance and an amount
sufficient to pay interest on such Pool Balance
at a rate equal to the weighted average
Pass-Through Rate plus the Servicing Fee Rate
through the Final Scheduled Distribution Date.
The Specified Reserve Account Balance may be
reduced to a lesser amount as determined by the
Sellers, provided that each Rating Agency shall
have confirmed in writing that such action will
not result in a withdrawal or reduction in its
rating of the Certificates (the "Rating Agency
Condition"). Amounts in the Reserve Account on
any Distribution Date (after giving effect to all
distributions made on that date) in excess of the
Specified Reserve Account Balance will be paid to
the Servicer on behalf of the Sellers.
SERVICER FEE............... The Servicer will receive each month a fee for
servicing the Receivables equal to (a) the
product of one-twelfth of [1.00]% (the "Servicing
Fee Rate") and the Pool Balance outstanding at
the beginning of the previous month, plus (b) any
late, prepayment, and other administrative fees
and expenses collected during such month [plus
reinvestment proceeds on any payments received in
respect of the Receivables].
PREPAYMENT
CONSIDERATIONS............. The weighted average life of the Certificates may
be reduced by full or partial prepayments on the
Receivables. The Receivables are prepayable at
any time. Prepayments may also result from
liquidations due to default, the receipt of
monthly installments earlier than the scheduled
due dates for such installments, the receipt of
proceeds from credit life, credit disability,
theft or physical damage insurance, repurchases
by the Sellers as a result of certain uncured
breaches of the warranties made by them in the
Agreement with respect to the Receivables,
purchases by the Servicer as a result of certain
uncured breaches of the covenants made by it in
the Agreement with respect to the Receivables, or
the Servicer exercising its option to purchase
all of the
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remaining Receivables. The rate of prepayments on
the Receivables may be influenced by a variety of
economic, social and other factors, including
Obligor refinancings resulting from decreases in
interest rates and the fact that the Obligor is
generally not permitted to sell or transfer the
Financed Vehicle securing a Receivable without
the consent of the relevant Seller. No prediction
can be made as to the actual prepayment rates
which will be experienced on the Receivables. If
prepayments were to occur after a decline in
interest rates, investors seeking to reinvest
their distributed funds might be required to
invest at a rate of return lower than the
applicable Pass-Through Rate. Certificate Owners
will bear all reinvestment risk resulting from
prepayment of the Receivables. See "Risk
Factors -- Effects of Prepayments of Receivables"
herein and "Maturity and Prepayment
Considerations" herein.
CLEARANCE AND SETTLEMENT... [Class A] Certificateholders may elect to hold
their [Class A] Certificates through any of DTC
(in the United States) or Cedel or Euroclear (in
Europe). Transfers within DTC, Cedel or
Euroclear, as the case may be, will be in
accordance with the usual rules and operation
procedures of the relevant system. Cross-market
transfers between persons holding directly or
indirectly through DTC, on the one hand, and
counterparties holding directly or indirectly
through Cedel or Euroclear, on the other, will be
effected in DTC through the relevant Depositaries
of Cedel or Euroclear. See "Book-Entry and
Definitive Securities; Reports to
Securityholders -- Book-Entry Registration" in
the Prospectus and Annex I to this Prospectus
Supplement, "Global Clearance, Settlement and Tax
Documentation Procedures."
TAX STATUS................. In the opinion of [Skadden, Arps, Slate, Meagher &
Flom, special tax counsel to the Sellers]
("Special Tax Counsel"), the Trust will be
treated as a grantor trust for federal income tax
purposes and will not be subject to federal
income tax. Certificate Owners will report their
pro rata share of all income earned on the
Receivables (other than amounts, if any, treated
as "stripped coupons") and, subject to certain
limitations in the case of Certificate Owners who
are individuals, trusts, or estates, may deduct
their pro rata share of reasonable servicing and
other fees paid or incurred by the Trust. See
"Federal Income Tax Consequences" herein and in
the Prospectus for additional information
concerning the application of federal income tax
laws, respectively, to the Trust and the
Certificates.
ERISA CONSIDERATIONS....... The Class A Certificates may, in general, be
purchased by employee benefit plans that are
subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), upon
satisfaction of certain conditions described
under "ERISA Considerations" herein and in the
Prospectus with respect to the Exemption.
[However, as set forth in "ERISA Considerations"
in the Prospectus, certain special considerations
may apply with respect to the Pre-Funding
Account.]
[The Exemption does not apply to the Class B
Certificates, which may be purchased by employee
benefit plans subject to ERISA only if some other
statutory or administrative exemption from the
prohibited transaction rules of ERISA and the
Internal Revenue Code of 1986, as amended (the
"Code") applies to such purchases. These exemp-
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<PAGE> 161
tions may apply with respect to, inter alia,
purchases by certain insurance company general
accounts, insurance company pooled separate
accounts, and bank collective investment funds,
and on behalf of employee benefit plans by
certain qualified professional asset managers.]
Any benefit plan fiduciary considering a purchase
of [Class A] Certificates should, among other
things, consult with legal counsel in determining
whether all required conditions with respect to
the various exemptions have been satisfied. See
"ERISA Considerations" herein and in the
Prospectus.
RATINGS OF THE
CERTIFICATES............... It is a condition to the issuance of the Class A
Certificates that they be rated in the highest
investment rating category by at least two of the
nationally recognized statistical rating
organizations (the "Rating Agencies") [, and it
is a condition to the issuance of the Class B
Certificates that they be rated by at least two
nationally recognized rating agencies [at least]
" " or its equivalent]. Any such rating
assigned to the Certificates will address the
likelihood of the timely payment of interest on
and the ultimate payment of principal of the
Certificates pursuant to the Pooling and
Servicing Agreement. [However, the rating
agencies do not evaluate, and the ratings do not
address, the likelihood that the Certificate
Prepayment Premium will be paid.] There can be no
assurance that a rating will not be lowered or
withdrawn by a rating agency if circumstances so
warrant.
RISK FACTORS............... Prospective investors should consider the factors
set forth under "Risk Factors" on pages S-
through S- .
S-12
<PAGE> 162
RISK FACTORS
LIMITED LIQUIDITY
There is currently no secondary market for the Class A Certificates [or the
Class B Certificates]. The Underwriters currently intend to make a market in the
Class A Certificates [and the Class B Certificates], but they are under no
obligation to do so. There can be no assurance that a secondary market. The lack
of a secondary market for the Class A Certificates [or the Class B Certificates]
may result in an investor being unable to liquidate its interest in the Class A
Certificates [or the Class B Certificates] in a time period and manner
satisfactory to the investor or at a price comparable to that which would be
available in a more liquid market.
[THE SUBSEQUENT RECEIVABLES AND THE PRE-FUNDING ACCOUNT
On the Closing Date, the Sellers will transfer to the Trust the
approximately $ of Initial Receivables and approximately $
Pre-Funded Amount on deposit in the Pre-Funding Account. If the principal
balance of eligible Receivables originated by the Sellers during the Funding
Period is less than the Pre-Funded Amount, the Sellers will have insufficient
Receivables to sell to the Trust on the Subsequent Transfer Dates, thereby
resulting in a prepayment of principal to the Certificateholders as described in
the following paragraph. See "Risk Factors -- Trust's Relationship to Sellers,
NationsBank Corporation and their Affiliates" in the Prospectus. In addition,
any conveyance of Subsequent Receivables is subject to the satisfaction, on or
before the related Subsequent Transfer Date, of the following conditions
precedent, among others: (i) each such Subsequent Receivable must satisfy the
eligibility criteria specified in the Agreement; (ii) the Sellers will not
select such Subsequent Receivables in a manner believed by the Sellers to be
adverse to the interests of the Certificateholders; (iii) as of the related
Subsequent Cut-Off Date, the Receivables in the Trust at that time, including
the Subsequent Receivables to be conveyed by the Sellers as of such Subsequent
Cut-Off Date, will satisfy the parameters described under "The Receivables Pool"
herein and under "The Receivables Pools" in the Prospectus; (iv) the applicable
Additional Reserve Account Deposit [and any applicable Additional Yield
Supplement Amount] for such Subsequent Transfer Date shall have been made; and
(v) the Sellers shall have executed and delivered to the Trustee a written
assignment conveying such Subsequent Receivables to the Trustee (including a
schedule identifying such Subsequent Receivables). Moreover, any such conveyance
of Subsequent Receivables made during any given Collection Period will also be
subject to the satisfaction, on or about the fifteenth day of the month
following the end of such Collection Period, of the following conditions
subsequent, among others: (a) the Sellers will deliver certain opinions of
counsel to the Trustee and the Rating Agencies with respect to the validity of
the conveyance of all such Subsequent Receivables conveyed during such
Collection Period; (b) the Trustee shall have received written confirmation from
a firm of independent certified public accountants that, as of the end of the
preceding Collection Period, the Receivables in the Trust at that time,
including the Subsequent Receivables conveyed by the Sellers during such
Collection Period, satisfied the parameters described under "The Receivables
Pool" herein and under "The Receivables Pools" in the Prospectus; and (c) the
Rating Agencies shall have each notified the Sellers in writing that, following
the addition of all such Subsequent Receivables, the Certificates will be rated
by the Rating Agencies in the same respective rating categories in which they
were rated on the Closing Date. The Sellers will immediately repurchase any
Subsequent Receivable, at a price equal to the Purchase Amount thereof, upon the
failure of the Sellers to satisfy any of the foregoing conditions subsequent
with respect thereto. Such confirmation of the ratings of the Certificates may
depend on factors other than the characteristics of the Subsequent Receivables,
including the delinquency, repossession and net loss experience on the
automobile, van and light truck receivables in the portfolio serviced by the
Servicer.
To the extent that amounts on deposit in the Pre-Funding Account have not
been fully applied to the conveyance of Subsequent Receivables to the Trust by
the end of the Funding Period, the Certificateholders will receive, on the
Distribution Date on or immediately following the last day of the Funding
Period, a prepayment of principal in an amount equal to the Pre-Funded Amount
remaining in the Pre-Funding Account following the purchase of any Subsequent
Receivables on such Distribution Date. It is anticipated that the principal
balance of Subsequent Receivables sold to the Trust will not be exactly equal to
the amount
S-13
<PAGE> 163
on deposit in the Pre-Funding Account and that therefore there will be at least
a nominal amount of principal prepaid to the Certificateholders.
Each Subsequent Receivable must satisfy the eligibility criteria specified
in the Agreement and any additional criteria specified by the Rating Agencies at
the time of its addition. However, Subsequent Receivables may have been
originated by the Sellers at a later date using credit criteria different from
those which were applied to the Initial Receivables and may be of a different
credit quality and seasoning. [In addition, an increasing percentage of the
Subsequent Receivables may be Balloon Receivables.] Therefore, following the
transfer of Subsequent Receivables to the Trust, the characteristics of the
entire Receivables Pool included in the Trust may vary significantly from those
of the Initial Receivables. See "The Receivables Pool" herein and "The
Receivables Pools" in the Prospectus. The ability of the Sellers to generate
Subsequent Receivables is largely dependent upon the Sellers' ability to offer
competitive rates of interest on motor vehicle installment sales contracts to be
acquired by the Sellers. In addition, the number of Dealers from which the
Sellers acquire motor vehicle installment sales contracts may effect the
Sellers' ability to generate Subsequent Receivables. In addition, the level of
retail sales of automobiles, vans and light-duty trucks may change as a result
of a variety of social and economic factors. Economic factors include interest
rates, unemployment levels, the rate of inflation and consumer perceptions of
economic conditions generally. There can be no assurance, therefore, that the
Sellers will be able to generate receivables at the same rate as in prior years.
The Sellers are unable to determine and have no basis to predict to what extent
these factors will affect the Sellers' ability to generate Subsequent
Receivables.
LIMITED ASSETS
The Trust will not have, nor is it permitted or expected to have, any
significant assets or sources of funds other than the Receivables[, the
Pre-Funding Account] [, the Yield Supplement Account] and the Reserve Account.
Holders of the Certificates must rely for repayment upon payments on the
Receivables and, if and to the extent available, amounts on deposit in the
[Pre-Funding Account[, the Yield Supplement Account] and the] Reserve Account.
[The Pre-Funding Account will be available only during the Funding Period and is
designed solely to cover obligations of the Trust relating to a portion of its
funds not invested in Receivables and is not designed to cover losses on the
Receivables.] [The Yield Supplement Account is designed solely to hold funds to
be applied to provide payments to the Certificateholders in respect of
Receivables the Contract Rate of which is less than the Required Rate.] Funds in
the Reserve Account will be available on each Distribution Date to cover
shortfalls in distributions of interest and principal on the Certificates.
However, amounts to be deposited in the [Pre-Funding Account[, the Yield
Supplement Account] and the] Reserve Account are limited in amount. If the
[Pre-Funding Account[, the Yield Supplement Account] and the] Reserve Account is
[are] exhausted[, and in the case of the Reserve Account,] and not replenished,
the Trust will depend solely on current distributions on the Receivables to make
distributions on the Certificates, and Certificateholders will bear directly,
without any additional credit enhancement (except to the extent that the Reserve
Account is replenished from Collections on Receivables), the risk of
delinquencies, loan losses and repossessions with respect to the Receivables.
There can be no assurance that the future delinquency, loan loss and
repossession experience of the Trust with respect to the Receivables will be
better or worse than that set forth herein with respect to the total portfolio
of Motor Vehicle Loans currently and historically owned and serviced by the
Banks and thus whether the credit enhancement available to Certificateholders
will be sufficient. See "The Receivables Pool -- Delinquency and Loss
Experience," "Description of the Certificates -- Reserve Account" and
"-- Distributions on Certificates."
[SUBORDINATION OF THE CLASS B CERTIFICATES
Distributions of interest on the Class B Certificates will be subordinated
in priority of payment to distributions of interest on the Class A Certificates,
and distributions of principal on the Class B Certificates will be subordinated
to distributions of interest and principal on the Class A Certificates, to the
extent described herein. In particular, the Class B Certificateholders will not
receive any distributions of interest with respect to a Collection Period until
the full amount of interest on the Class A Certificates relating to such
Collection Period has been deposited in the Class A Distribution Account. Class
B Certificateholders will not
S-14
<PAGE> 164
receive any distributions of principal with respect to a Collection Period until
the full amount of interest on and principal of the Class A Certificates
relating to such Collection Period has been deposited in the Class A
Distribution Account. However, distributions of interest on the Class B
Certificates, to the extent of collections on the Receivables allocable to
interest and the amounts on deposit in the Reserve Account available after the
distribution of interest on the Class A Certificates has been made, will not be
subordinated to the distribution of principal of the Class A Certificates. See
"Description of the Certificates -- Distributions on Certificates."]
EFFECTS OF PREPAYMENTS OF RECEIVABLES
The weighted average life of the Certificates may be reduced by full or
partial prepayments on the Receivables. Such a reduction in the weighted average
life of the Certificates would mean that Certificateholders would not receive
the benefit of the applicable Pass-Through Rate for the period of time
originally expected. The Receivables are prepayable at any time. Prepayments may
also result from liquidations due to default, the receipt of monthly
installments earlier than the scheduled due dates for such installments, the
receipt of proceeds from credit life, credit disability, theft or physical
damage insurance, repurchases by the Sellers as a result of certain uncured
breaches of the warranties made by them in the Agreement with respect to the
Receivables, purchases by the Servicer as a result of certain uncured breaches
of the covenants made by it in the Agreement with respect to the Receivables, or
the Servicer exercising its option to purchase all of the remaining Receivables.
The rate of prepayments on the Receivables may be influenced by a variety of
economic, social and other factors, including changes in interest rates, general
or regional economic conditions, the conditions of the resale market for motor
vehicles and the fact that the Obligor is generally not permitted to sell or
transfer the Financed Vehicle securing a Receivable without the consent of the
relevant Seller. The Sellers have no basis on which to assess the specific
effects of the foregoing factors (or the magnitude of such effects) on the rate
of prepayment on the Banks' portfolio of Motor Vehicle Loans generally or on the
Receivables. No prediction can be made as to the actual prepayment rates which
will be experienced on the Receivables. If prepayments were to occur after a
decline in interest rates, investors seeking to reinvest their funds might be
required to invest their distributed funds at a rate of return lower than the
applicable Pass-Through Rate. Certificate Owners will bear all reinvestment risk
resulting from prepayment of the Receivables. See "Maturity and Prepayment
Considerations" herein and in the Prospectus.
GEOGRAPHIC CONCENTRATION
Economic conditions in states where Obligors reside may affect the
delinquency, loan loss and repossession experience of the Trust with respect to
the Receivables. As of the Cut-Off Date, the Sellers' records indicate that the
mailing addresses of Obligors with respect to approximately %, %,
%, % and % by principal balance of the Receivables were in
[Texas, North Carolina, Florida, Georgia and South Carolina], respectively. As a
result, economic conditions in such states may have a disproportionate impact on
the Trust. In particular, an economic downturn in one or more of such states
could adversely affect the performance of the Trust (even if national economic
conditions remain unchanged or improve) as Obligors in such state or states
experience the effects of such a downturn and face greater difficulty in making
payments on their Financed Vehicles. See "The Receivables Pool."
[FEDERAL INCOME TAX; EFFECTS OF SUBORDINATION ON CLASS B CERTIFICATEHOLDERS
It is expected that, for federal income tax purposes, amounts otherwise
distributable to the Class B Certificate Owners that are paid to the Class A
Certificate Owners pursuant to the subordination provisions described above
under "-- Subordination of Class B Certificates" will be deemed to have been
received by the Class B Certificate Owners and then paid by them to the Class A
Certificate Owners pursuant to a guaranty. See generally "Federal Income Tax
Consequences -- Tax Characterization of the Trust as a Grantor Trust" herein.
If the Class B Certificate Owners received distributions of less than their
share of the Trust's receipts of principal or interest (the "Shortfall Amount")
because of the subordination of the Class B Certificates, holders of Class B
Certificates would probably be treated for federal income tax purposes as if
they had
S-15
<PAGE> 165
(1) received as distributions their full share of such receipts, (2) paid over
to the Class A Certificate Owners an amount equal to such Shortfall Amount and
(3) retained the right to reimbursement of such amounts to the extent of future
collections otherwise available for deposit in the Reserve Account.
Under this analysis (1) Class B Certificate Owners would be required to
accrue as current income any interest or OID income of the Trust that was a
component of the Shortfall Amount, even though such amount was in fact paid to
the Class A Certificate Owners, (2) a loss would only be allowed to the Class B
Certificate Owners when their right to receive reimbursement of such Shortfall
Amount became worthless (i.e., when it becomes clear that such Shortfall Amount
will not be reimbursed from any source) and (3) reimbursement of such Shortfall
Amount prior to such a claim of worthlessness would not be taxable income to
Class B Certificate Owners because such amount was previously included in
income. Those results should not significantly affect the inclusion of income
for Class B Certificate Owners on the accrual method of accounting, but could
accelerate inclusion of income to Class B Certificate Owners on the cash method
of accounting by, in effect, placing them on the accrual method. Moreover, the
character and timing of loss deductions is unclear.]
FEDERAL INCOME TAX; TAX ACCOUNTING ISSUES
There is uncertainty regarding a number of issues that could affect the
amount, character, and timing of income required to be reported by
Certificateholders because there are no judicial or administrative authorities
addressing substantially similar facts. Such issues, in general, include: the
possibility that the Trust could be treated as holding a debt obligation of the
Sellers rather than an ownership interest in the Receivables; the allocation of
basis among the assets of the Trust; the method (including assumptions) of
calculating original issue discount; whether any portion of the Servicing Fee
exceeds reasonable compensation for the services performed by the Servicer and
thus would be treated as additional "stripped coupons" under Section 1286 of the
Code; the interaction of the "imputed interest" and market discount rules of the
Code; [accounting for the Class B Certificates (see "Federal Income Tax; Effects
of Subordination of the Class B Certificateholders" above);][ and the proper
manner of allocating basis to, amortizing basis in, and calculating income
attributable to the Yield Supplement Agreement.] Furthermore, for administrative
convenience the Servicer has adopted certain conventions for calculating income
on the Receivables, which include estimation of accrued amounts and aggregation
of all of the Receivables and the Yield Supplement Agreement, if applicable. The
use of such methods could result in the income reported to Certificateholders
for any period being different from the income that would be reported if income
were reported on a Receivable-by-Receivable basis over the period during which
income accrues on each Receivable. If reporting on such basis resulted in
under-reporting of income, or if the Internal Revenue Service were to take a
position different from that adopted by the Trust with respect to any issue, a
Certificate Owner could be required to pay interest on overdue amounts and could
be subject to penalties for under-reporting of income. For a further discussion
of the foregoing, see "Federal Income Tax Consequences" herein and in the
Prospectus.
FORM OF CERTIFICATES; CERTIFICATE OWNERS NOT RECOGNIZED AS CERTIFICATEHOLDERS
The Class A Certificates [and the Class B Certificates] will [each] be
represented initially by global certificates registered in the name of Cede, as
nominee of DTC (for Certificates held in the United States), [Cedel Bank,
societe anonyme ("Cedel") or the Euroclear System ("Euroclear")(for Certificates
held in Europe)]. No Certificate Owner will be entitled to receive a Definitive
Certificate representing such person's interest in the Trust except in certain
limited circumstances. Under the terms of the Agreement, Certificate Owners will
not be recognized as Certificateholders, and will be permitted to exercise the
rights of the Certificateholders only indirectly through DTC. See "Description
of the Certificates -- Book-Entry Registration" and "-- Definitive Certificates"
herein and in the Prospectus and Annex I to this Prospectus Supplement, "Global
Clearance, Settlement and Tax Documentation Procedures."
RATINGS
It is a condition to the issuance of the [Class A] Certificates that the
Class A Certificates be rated in the highest rating category [and the Class B
Certificates be rated [at least] " " or its equivalent] by at least
S-16
<PAGE> 166
two nationally recognized rating agencies (the "Rating Agencies"). A rating is
not a recommendation to purchase, hold or sell Certificates, inasmuch as such
rating does not comment as to market price or suitability for a particular
investor. The ratings of the Certificates address the likelihood of the payment
of principal and interest on the Certificates pursuant to their terms. [However,
the Rating Agencies do not evaluate, and the ratings of the Certificates do not
address, the likelihood that the Certificate Prepayment Premium will be paid.]
There can be no assurance that a rating will remain for any given period of time
or that a rating will not be lowered or withdrawn entirely by a Rating Agency if
in its judgment circumstances in the future so warrant.
THE TRUST
GENERAL
The Sellers will establish the Trust by selling and assigning the Trust
property, as described below, to the Trustee in exchange for the Certificates.
Prior to such sale and assignment, the Trust will have no assets or obligations
or any operating history. The Servicer will service the Receivables, either
directly or through subservicers, pursuant to the Agreement and will be
compensated for acting as the Servicer. See "Description of the
Certificates -- Servicing Compensation and Expenses" herein. The Servicer will
hold or appoint its affiliate, NSI, to hold the Receivables and Receivable Files
as custodian for the Trustee. Although the Receivables will not be marked or
stamped to indicate that they have been sold to the Trust, and the certificates
of title or ownership for the Financed Vehicles will not be endorsed or
otherwise amended to identify the Trust as the new secured party, the Servicer
and the Sellers will indicate in their computer records that the Receivables
have been sold to the Trust. Under such circumstances and in certain
jurisdictions, the Trust's interest in the Receivables and the Financed Vehicles
may be defeated. See "Certain Legal Aspects of the Receivables" in the
Prospectus.
If the protection provided to the [Class A] Certificateholders by the
[Yield Supplement Account and the] Reserve Account and[, in the case of the
Class A Certificateholders,] the subordination of the Class B Certificates is
insufficient, the Trust would have to look to the Obligors on the Receivables,
the proceeds from the repossession and sale of Financed Vehicles which secure
defaulted Receivables [and from the Pre-Funding Account]. In such event, certain
factors, such as the Trust's not having perfected security interests in the
Financed Vehicles in all states, may affect the Servicer's ability to repossess
and sell the collateral securing the Receivables, and thus may reduce the
proceeds to be distributed to the Certificateholders. See "Description of the
Certificates -- Distributions on Certificates" [, "-- Yield Supplement Account;
Yield Supplement Agreement"] and "-- Reserve Account" herein and "Certain Legal
Aspects of the Receivables" in the Prospectus.
Each [Class A] Certificate represents a fractional undivided ownership
interest in the Trust. The Trust property includes the Receivables and all
monies received under the [Initial] Receivables after the [Initial] Cut-Off Date
[and all monies received under the Subsequent Receivables after the close of
business of the Servicer on each applicable Subsequent Transfer Date] and also
includes (i) such amounts as from time to time may be held in one or more
accounts maintained pursuant to the Agreement [and the Yield Supplement
Agreement], as described herein[, including the Yield Supplement Account] [and
the Pre-Funding Account]; (ii) security interests in the Financed Vehicles and
any accessions thereto; (iii) the rights to proceeds from claims on certain
physical damage, credit life, credit disability or other insurance policies, if
any, covering the Financed Vehicles or the Obligors; (iv) certain rights under
the Agreement, including the right to receive payments from the Reserve Account
[and pursuant to the Yield Supplement Agreement]; (v) any property that shall
have secured a Receivable and shall have been acquired by the Trust; (vi)
certain rights of each of the Sellers relating to the repurchase of Receivables
under each Dealer Agreement and under the documents and instruments contained in
the Receivable Files; (vii) certain rebates of premiums and other amounts
relating to certain insurance policies and other items financed under the
Receivables; (viii) all other rights of the Trust under the Agreement; and (ix)
any and all proceeds of the foregoing. The property of the Trust does not
include [the Yield Supplement Account] and the Reserve Account[, but such
account[s] will be pledged to and held by the Collateral Agent, as secured party
for the benefit of the Certificateholders].
S-17
<PAGE> 167
THE RECEIVABLES POOL
The pool of Receivables (the "Receivables Pool") will include the [Initial]
Receivables purchased as of the [Initial] Cut-Off Date [and will include any
Subsequent Receivables purchased as of any Subsequent Cut-Off Date (the Initial
Cut-Off Date or any Subsequent Cut-Off Date being individually referred to
herein as a "Cut-Off Date")]. The [Initial] Receivables were purchased[, and the
Subsequent Receivables were or will be purchased,] by the Sellers from Dealers
in the ordinary course of business. The Receivables were randomly selected from
among the Motor Vehicle Loans owned by the Sellers. The Sellers will warrant in
the Agreement that all the Receivables have the following individual
characteristics, among others: (i) the obligation of the related Obligor under
each Receivable is secured by a security interest in either a new or used
automobile, van or light-duty truck; (ii) each Receivable has a contractual
interest rate ("Contract Rate") of at least % and no more than %;
(iii) each Receivable has a remaining maturity, as of the Cut-Off Date, of not
less than months and not more than months]; (iv) no Receivable was
more than days past due as of the Cut-Off Date; (v) each Receivable is a
Simple Interest Receivable (as defined below) that [(except for those
Receivables which are Balloon Receivables)], at origination, provides for level
monthly payments that fully amortize the amount financed over the original term;
(vi) as of the Cut-Off Date, each Receivable has a remaining principal balance
of no less than $ and no more than $ ; (vii) each Receivable
is not a Defaulted Receivable; and (viii) each Receivable is not related to a
motor vehicle that is the subject of forced-placed insurance. "Forced-placed
insurance" is insurance placed on a motor vehicle by the lienholder to protect
the motor vehicle as collateral for a loan when there is evidence that the
borrower has neglected to do so as required by the applicable loan agreement.
See "-- Certain Characteristics of the [Initial] Receivables" below. No
selection procedures believed by the Sellers to be adverse to the
Certificateholders were [or will be] used in selecting the Receivables. [As of
the [Initial] Cut-Off Date, % of the [Initial] Receivables, by aggregate
principal balance, were Balloon Receivables.]
[The obligation of the Trust to purchase the Subsequent Receivables on a
Subsequent Transfer Date will be subject to the Receivables in the Trust,
including the Subsequent Receivables to be conveyed to the Trust on such
Subsequent Transfer Date, meeting the following criteria: (i) not more than
% of the principal balances of the Receivables in the Trust will represent
vehicles financed at [less than] [more than %]; and (ii) the weighted
average Contract Rate of the Receivables in the Trust will not be less than
%, [and (iii) not more than % of the aggregate principal balance of
the Receivables in the Trust will be Balloon Receivables] unless the Sellers
increase the Reserve Account Initial Deposit by the amounts, if any, specified
by the Rating Agencies to maintain the ratings of the Certificates. In addition,
such obligation will be subject to the Receivables, including the Subsequent
Receivables to be transferred to the Trust on such Subsequent Transfer Date,
having a weighted average remaining term not greater than months. Such
criteria will be based on the characteristics of the Initial Receivables on the
Initial Cut-Off Date and any Subsequent Receivables on the related Subsequent
Cut-Off Dates.]
[The Initial Receivables will represent approximately % of the
aggregate initial principal balance of the Certificates. However, except for the
criteria described in the preceding paragraphs and the criteria, if any,
specified by the Rating Agencies to maintain the ratings of the Certificates,
there will be no required characteristics of the Subsequent Receivables.
Therefore, following the transfer of Subsequent Receivables to the Trust, the
aggregate characteristics of the entire Receivables Pool, including the
composition of the Receivables, the distribution by Contract Rate and the
geographic distribution described in the following tables, may vary
significantly from those of the Initial Receivables.]
THE SERVICER
NationsBank, N.A., through DFSG and units in predecessor banks of
NationsBank, N.A., has been servicing indirect motor vehicle loan portfolios
since 1970. The indirect motor vehicle loan portfolio serviced either directly
by NationsBank, N.A. or through its affiliates was approximately $5.5 billion as
of March 31, 1996. DFSG also services other indirect and direct consumer loan
portfolios totalling over $25.3 billion (including the indirect motor vehicle
loan portfolio) as of March 31, 1996.
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<PAGE> 168
CERTAIN CHARACTERISTICS OF THE [INITIAL] RECEIVABLES
As of the [Initial] Cut-Off Date, the [Initial] Receivables had, in the
aggregate, the following characteristics: (i) approximately [ ]% of the
[Initial] Receivables was attributable to loans for purchases of new Financed
Vehicles and approximately [ ]% of the Initial Pool Balance was attributable to
loans for purchases of used Financed Vehicles; (ii) the weighted average
Contract Rate of the [Initial] Receivables was [ ]%; (iii) there were [ ]
[Initial] Receivables being conveyed by the Sellers to the Trust; (iv) the
average principal balance of the [Initial] Receivables, as of the [Initial]
Cut-Off Date, was $[ ]; and (v) the weighted average original term and
weighted average remaining term of the [Initial] Receivables were [ . ] months
and [ . ] months, respectively. Approximately % of the [Initial]
Receivables by principal balance as of the [Initial] Cut-Off Date were
contributed to the Trust by NationsBank, N.A.
The Composition of the [Initial] Receivables, Distribution of the [Initial]
Receivables by New/Used Motor Vehicles, Distribution of the [Initial]
Receivables by Contract Rate, Distribution of the [Initial] Receivables by
Remaining Term, Distribution of the [Initial] Receivables by Principal Balance
and Geographic Distribution of the [Initial] Receivables, each as of the Cut-Off
Date, are set forth in the following tables.
COMPOSITION OF THE [INITIAL] RECEIVABLES
<TABLE>
<S> <C>
Weighted Average Contract Rate....................................................
Range of Contract Rates...........................................................
Aggregate Principal Balance.......................................................
Number of [Initial] Receivables...................................................
Weighted Average Remaining Term...................................................
Range of Remaining Terms..........................................................
Weighted Average Original Term....................................................
Range of Original Terms...........................................................
Average Principal Balance.........................................................
Average Original Amount Financed..................................................
Range of Original Amounts Financed................................................
</TABLE>
DISTRIBUTION OF THE [INITIAL] RECEIVABLES BY NEW/USED MOTOR VEHICLES
<TABLE>
<CAPTION>
WEIGHTED
AGGREGATE ORIGINAL AVERAGE
NUMBER OF PRINCIPAL PRINCIPAL CONTRACT
RECEIVABLES BALANCE BALANCE RATE(%)
----------- --------- --------- --------
<S> <C> <C> <C> <C>
New Autos, Vans and Light-Duty Trucks.................
Used Autos, Vans and Light-Duty Trucks................
All [Initial] Receivables.............................
</TABLE>
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<PAGE> 169
DISTRIBUTION OF THE [INITIAL] RECEIVABLES BY CONTRACT RATE
<TABLE>
<CAPTION>
% OF
AGGREGATE AGGREGATE
NUMBER OF % OF TOTAL PRINCIPAL PRINCIPAL
RECEIVABLES RECEIVABLES BALANCE BALANCE
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
7.50 to 7.99%........................................
8.00 to 8.99.........................................
9.00 to 9.99.........................................
10.00 to 10.99........................................
11.00 to 11.99........................................
12.00 to 12.99........................................
13.00 to 13.99........................................
14.00 to 14.99........................................
15.00 to 15.99........................................
16.00 to 16.99........................................
17.00 to 17.99........................................
18.00 to 18.99........................................
19.00 to 19.99........................................
20.00 to 21.00........................................
Total.......................................
</TABLE>
DISTRIBUTION OF THE [INITIAL] RECEIVABLES BY REMAINING TERM
<TABLE>
<CAPTION>
% OF
AGGREGATE AGGREGATE
NUMBER OF % OF PRINCIPAL PRINCIPAL
RECEIVABLES RECEIVABLES BALANCE BALANCE
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
12 to 18 months.......................................
19 to 24 months.......................................
25 to 30 months.......................................
31 to 36 months.......................................
37 to 42 months.......................................
43 to 48 months.......................................
49 to 54 months.......................................
55 to 60 months.......................................
61 to 66 months.......................................
67 to 72 months.......................................
Total.......................................
</TABLE>
DISTRIBUTION OF THE [INITIAL] RECEIVABLES BY PRINCIPAL BALANCE
<TABLE>
<CAPTION>
% OF
AGGREGATE AGGREGATE
NUMBER OF % OF PRINCIPAL PRINCIPAL
RECEIVABLES RECEIVABLES BALANCE BALANCE
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
$ 2,000 to $9,999.....................................
10,000 to 19,999....................................
20,000 to 29,999....................................
30,000 to 39,999....................................
40,000 to 49,999....................................
Total............................................
</TABLE>
S-20
<PAGE> 170
GEOGRAPHIC DISTRIBUTION OF THE [INITIAL] RECEIVABLES
<TABLE>
<CAPTION>
% OF
AGGREGATE AGGREGATE
NUMBER OF % OF PRINCIPAL PRINCIPAL
STATE(1) RECEIVABLES RECEIVABLES BALANCE BALANCE
- ------------------------------------------------------ ----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Florida...............................................
Georgia...............................................
North Carolina........................................
South Carolina........................................
Texas.................................................
Other(2)..............................................
Total.......................................
</TABLE>
- ---------------
(1) Receivables are categorized by the Sellers' records of the mailing addresses
of the Obligors as of the Cut-Off Date.
(2) Each other state represents less than [5]% of the total number of
Receivables.
DELINQUENCY AND LOSS EXPERIENCE
The tables set forth below indicate the delinquency and credit
loss/repossession experience for each of the last three calendar years and for
the three month periods ending March 31, 1996 and 1995 of the Banks' portfolio
of Motor Vehicle Loans from which the Receivables have been selected (which
portfolio excludes certain Motor Vehicle Loans acquired by the Banks in
acquisitions). No assurance can be made, however, that the delinquency and loss
experience for the Motor Vehicle Loans or the Receivables in the future will be
similar to the historical experience set forth in the following tables.
DELINQUENCY EXPERIENCE (DOLLARS IN THOUSANDS)(1)
<TABLE>
<CAPTION>
AS OF [MARCH 31], AS OF DECEMBER 31,
------------------------------------ -------------------------------------------------------
1996 1995 1995 1994 1993
----------------- ----------------- ----------------- ----------------- -----------------
NUMBER NUMBER NUMBER NUMBER NUMBER
OF OF OF OF OF
LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT
------- -------- ------- -------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Serviced Portfolio at the
Period End.....................
Delinquency(2)
30-59 Days.....................
60-89 Days.....................
90 Days or More................
Total Delinquencies...... .
Total Delinquencies as a
Percentage of the Total
Serviced Portfolio.....
</TABLE>
- ---------------
(1) Delinquencies shown in dollars include principal amounts only.
(2) The period of delinquencies is based on the number of days payments are
contractually past due until the applicable Motor Vehicle Loan is charged
off.
S-21
<PAGE> 171
CREDIT LOSS/REPOSSESSION EXPERIENCE (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
[MARCH 31], DECEMBER 31,
------------------- ------------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Period End Outstandings(1)..................
Average Amount Outstanding During the
Period(2).................................
Average Number of Loans Outstanding During
the Period(3).............................
Gross Charge-offs(4)........................
Recoveries on Losses(5).....................
Net Charge-offs.............................
Net Charge-offs as a Percentage of the
Period End Outstanding(6).................
Net Charge-offs as a Percentage of the
Average Amount Outstanding(6).............
</TABLE>
- ---------------
(1) Amount represents principal amounts only.
(2) Amount represents principal amounts only and reflects a daily weighted
average of such amounts during the periods shown.
(3) Amount based on the average outstanding for the period divided by the
average loan amount. the average loan amount was derived from the month end
outstanding balances divided by month end number of loans.
(4) Amount of charge-off is the remaining principal balance less the net
proceeds from sale of loan collateral.
(5) Recoveries include post-disposition monies and are net of any related
expenses.
(6) Figures for the [three] months ended [March 31], 1996 and [March 31], 1995
are annualized.
PAYMENTS ON THE RECEIVABLES
[The entire Initial Pool Balance is attributable to Receivables that
provide for the allocation of payments according to the "Simple Interest" method
(each a "Simple Interest Receivable"). See "The Receivables Pool -- General" in
the Prospectus for a description of the application of payments received on
Simple Interest Receivables.]
[The Receivables are prepayable at any time. Prepayments may also result
from liquidations due to default, the receipt of monthly installments earlier
than the scheduled due dates for such installments, the receipt of proceeds from
credit life, credit disability, theft or physical damage insurance, repurchases
by the Sellers as a result of certain uncured breaches of the warranties made by
them in the Agreement with respect to the Receivables, purchases by the Servicer
as a result of certain uncured breaches of the covenants made by it in the
Agreement with respect to the Receivables, or the Servicer exercising its option
to purchase all of the remaining Receivables. The rate of prepayments on the
Receivables may be influenced by a variety of economic, social and other
factors, including Obligor refinancings resulting from decreases in interest
rates and the fact that the Obligor is generally not permitted to sell or
transfer the Financed Vehicle securing a Receivable without the consent of the
relevant Seller.]
[Neither DFSG, the Servicer, the Sellers nor any of their affiliates
maintain records adequate to provide quantitative data regarding prepayment
experience on the Sellers' portfolio of Motor Vehicle Loans. However, the
Sellers (i) believe that the actual rate of prepayments will result in a
substantially shorter weighted average life than the scheduled weighted average
life and (ii) estimate that the actual weighted average life of its portfolio of
Motor Vehicle Loans ranges between [60% and 70%] of their scheduled weighted
average life. See "Maturity and Prepayment Considerations" herein and in the
Prospectus.]
S-22
<PAGE> 172
POOL FACTORS
The "Certificate Pool Factor" for [the Class A] [each class of]
Certificates will be a seven-digit decimal which the Servicer will compute prior
to each distribution with respect to such [class of] Certificates indicating the
remaining Certificate Balance of such [class of] Certificates, as of the
applicable Distribution Date (after giving effect to distributions to be made on
such Distribution Date), as a fraction of the initial Certificate Balance of
such [class of] Certificates. [The] [Each] Certificate Pool Factor will
initially be 1.0000000 and thereafter will decline to reflect reductions of the
Certificate Balance of the [Class A] [applicable class of] Certificates as a
result of scheduled payments, prepayments and liquidations of the Receivables
[(and also as a result of a prepayment arising from application of the
Pre-Funding Account)]. [[The] [Each] Certificate Pool Factor will not change as
a result of the addition of Subsequent Receivables.] A Certificateholder's
portion of the aggregate outstanding Certificate Balance for the [Class A]
[related class of] Certificates is the product of (a) the original denomination
of such Certificateholder's Certificate and (b) the [applicable] Certificate
Pool Factor.
MATURITY AND PREPAYMENT CONSIDERATIONS
Information regarding certain maturity and prepayment considerations with
respect to the Certificates is set forth under "Maturity and Prepayment
Considerations" in the Prospectus. It is expected that the final distribution in
respect of the Certificates will occur on or prior to the Final Scheduled
Distribution Date. However, if sufficient funds are not available to reduce the
aggregate Certificate Balance of [either class of] the Certificates to zero on
or prior to the Final Scheduled Distribution Date, the final distribution in
respect of [such class of] the Certificates could occur later than such date. In
addition, full or partial prepayments on the Receivables will have the effect of
reducing the weighted average life of the Certificates, while delinquencies by
Obligors under the Receivables, as well as extensions and deferrals on the
Receivables, will have the effect of increasing the weighted average life of the
Certificates. The Receivables may be prepaid at any time and mandatory
prepayments of a Receivable may result from, among other things, the sale,
insured loss or other disposition of the Financed Vehicle or the Receivable
becoming a Defaulted Receivable.
No prediction can be made as to the prepayment rates that will be
experienced on the Receivables. The rate of prepayments of the Receivables may
be influenced by a variety of economic, social and other factors, and under
certain circumstances relating to breaches of representations, warranties or
covenants, the Sellers and/or the Servicer will be obligated to repurchase
Receivables from the Trust. See "The Receivables Pool" herein and "Description
of the Transfer and Servicing Agreements -- Sale and Assignment of Receivables"
in the Prospectus. A higher than anticipated rate of prepayments will reduce the
aggregate principal balance of the Receivables more quickly than expected and
thereby reduce anticipated aggregate distributions of interest on the
Certificates. Any reinvestment risks resulting from a faster or slower incidence
of prepayment of Receivables will be borne entirely by the Certificateholders.
Such reinvestment risks include the risk that interest rates may be lower at the
time such holders received payments from the Trust than interest rates would
otherwise have been had such prepayments not been made or had such prepayments
been made at a different time.
Holders of Certificates should consider, in the case of Certificates
purchased at a discount, the risk that a slower than anticipated rate of
principal payments on the Receivables could result in an actual yield that is
less than the anticipated yield and, in the case of Certificates purchased at a
premium, the risk that a faster than anticipated rate of principal payments on
the Receivables could result in an actual yield that is less than the
anticipated yield.
YIELD CONSIDERATIONS
On each Distribution Date, interest on the Certificates will be distributed
at the applicable Pass-Through Rate on the Class A Certificate Balance and the
Class B Certificate Balance, respectively, as of the preceding Distribution Date
(after giving effect to all distributions made on such preceding Distribution
Date) or, in the case of the first Distribution Date, as of the Closing Date. In
the event of a principal prepayment on a
S-23
<PAGE> 173
Receivable during a Collection Period, Certificateholders will receive their pro
rata share of interest for the full Collection Period with respect to the unpaid
principal balance of such Receivable as of the first day of such Collection
Period to the extent that amounts on deposit in the Certificate Account and in
the Reserve Account are available for such purpose. The Receivables are Simple
Interest Receivables and, to the extent that payments of the fixed monthly
installments thereunder are received prior to the scheduled due dates for such
installments, the portions of such installments allocable to interest will be
less than they would be if the payments were received as scheduled [(although
the Servicer will make an advance for the shortfall)][(although an Advance
Reserve Withdrawal may be made for the shortfall)]. If the Reserve Account is
exhausted, the amount of interest distributed to the Class B Certificateholders
and, in certain circumstances, the Class A Certificateholders, may be less than
that described above. See "Description of the Certificates -- Distributions on
Certificates."
[Although the Receivables have different Contract Rates, disproportionate
rates of prepayments between Receivables with Contract Rates greater than or
less than a rate equal to the sum of the highest Pass-Through Rate and the
Servicing Fee Rate should generally not affect the yield to Certificateholders
because the Sellers will, if there are any Receivables having a Contact Rate, as
of the [Initial] Cut-Off Date, below the sum of the highest Pass-Through Rate
and the Servicing Fee Rate, enter into the Yield Supplement Agreement with the
Trust. Pursuant to the Yield Supplement Agreement the Sellers will be obligated
to pay to the Trust an amount equal to the excess of (i) interest on the
affected Receivable's principal balance at a rate equal to the sum of the
highest Pass-Through Rate and the Servicing Fee Rate over (ii) interest on such
Receivable's principal balance at its Contract Rate. Thus, even a Receivable
with a Contract Rate below the sum of the highest Pass-Through Rate and the
Servicing Fee Rate will, when payments with respect to such Receivable are made
by the Obligor under the Receivable and by the applicable Seller under the Yield
Supplement Agreement, yield enough to support payments on the Certificates.
However, higher rates of prepayments of Receivables with higher Contract Rates
will decrease the amount available to cover delinquencies and defaults on the
Receivables. See "Description of the Certificates -- Distributions on
Certificates."]
USE OF PROCEEDS
The Sellers will receive the Certificates in exchange for the contribution
to the Trust of the Receivables and the other Trust Property. The net proceeds
to be received by the Sellers from the sale of the Certificates will be added to
their general corporate funds and will be used [to purchase additional Motor
Vehicle Loans and] for general corporate purposes.
DESCRIPTION OF THE CERTIFICATES
The [Class A] Certificates will be issued pursuant to the terms of the
Agreement, a form of which has been filed as an exhibit to the Registration
Statement. Copies of the Agreement may be obtained free of charge (except for
copying and postage costs) by the Certificateholders and Certificate Owners upon
written request to the Trustee at [ , New York, New York 100 ,
Attention: .] A copy of the Agreement will be filed with the
Commission following the issuance of the [Class A] Certificates. The following
summary describes certain terms of the [Class A] Certificates and the Agreement.
The summary does not purport to be complete and is subject to, and qualified in
its entirety by reference to, all the provisions of the [Class A] Certificates
and the Agreement. The following summary supplements the description of the
general terms and provisions of the [Class A] Certificates of any given series
and the related Agreement set forth in the Prospectus, to which description
reference is hereby made.
GENERAL
The Certificates will evidence interests in the Trust created pursuant to
the Agreement. The Class A Certificates will evidence in the aggregate an
undivided fractional ownership interest (the "Class A Percentage") of
approximately % in the Trust [and the Class B Certificates will evidence in
the aggregate an undivided fractional ownership interest (the "Class B
Percentage") of approximately % in the Trust.]
S-24
<PAGE> 174
The Certificates will be offered for purchase in denominations of $1,000
and integral multiples thereof and will be represented initially by global
certificates registered in the name of Cede, as nominee of DTC. No Certificate
Owner will be entitled to receive a Definitive Certificate representing such
person's interest in the Trust unless Definitive Certificates are issued under
the limited circumstances described herein. Unless and until Definitive
Certificates are issued, all references to actions by Certificateholders shall
refer to actions taken by DTC upon instructions from its Direct Participants and
all references to distributions, notices, reports and statements to
Certificateholders shall refer to distributions, notices, reports and statements
to DTC. See "-- Definitive Certificates."
[MANDATORY REPURCHASE OF CERTIFICATES
Cash distributions to Certificateholders will be made, on a pro rata basis,
on the Distribution Date on or immediately following the last day of the Funding
Period in the event that the amount on deposit in the Pre-Funding Account after
giving effect to the purchase of all Subsequent Receivables, including any such
purchase on such date, exceeds $ (a "Mandatory Repurchase").
[The Certificate Prepayment Premium will be payable by the Trust to the
Certificateholders pursuant to a Mandatory Repurchase if the amount on deposit
in the Pre-Funding Account exceeds $ . The Certificate Prepayment
Premium will equal the excess, if any, discounted as described below, of (i) the
amount of interest that would accrue on the remaining Pre-Funded Amount (the
"Certificate Prepayment Amount") at the Class A Certificate Rate or Class B
Certificate Rate, as applicable, during the period commencing on and including
the Distribution Date on which such Certificate Prepayment Amount is required to
be distributed to Certificateholders to but excluding over (ii) the
amount of interest that would have accrued on such Certificate Prepayment Amount
over the same period at a per annum rate of interest equal to the bond
equivalent yield to maturity on the Determination Date preceding such
Distribution Date on the , in the case of a Class A Certificate, and
on the , in the case of a Class B Certificate. Such excess shall be
discounted to present value to such Distribution Date at the applicable yield
described in clause (ii) above. Pursuant to the Agreement, the Sellers will be
obligated to pay the Certificate Prepayment Premium to the Trust as liquidated
damages for the failure to deliver Subsequent Receivables having an aggregate
principal balance equal to the Pre-Funded Amount. The Trust's obligation to pay
the Certificate Prepayment Premium will be limited to funds received from the
Sellers pursuant to the preceding sentence. In the event that such funds are
insufficient to pay the aggregate Certificate Prepayment Premium in full, [Class
A] Certificateholders [of each class of Certificates] will receive their ratable
share [(based upon the Certificate Prepayment Premium for each class of
Certificates)] of the aggregate amount available to be distributed in respect of
the Certificate Prepayment Premium. No other assets of the Trust will be
available for the purpose of making such payment.]]
OPTIONAL PURCHASE
If the Servicer exercises its option to purchase the Receivables when the
Pool Balance declines to [5]% or less of the Initial Pool Balance, the Class A
Certificateholders will receive an amount in respect of the Class A Certificates
equal to the outstanding Class A Certificate Balance together with accrued
interest at the [Class A] Certificate Rate, [the Class B Certificateholders will
receive an amount in respect of the Class B Certificates equal to the
outstanding Class B Certificate Balance together with accrued interest at the
Class B Certificate Rate,] which distributions shall effect early retirement of
the Certificates. See "Description of the Transfer and Servicing
Agreements -- Termination" in the Prospectus.
BOOK-ENTRY REGISTRATION
For information related to the settlement and clearance procedures for the
Certificates, investors should refer to Annex I to this Prospectus Supplement,
"Global Clearance, Settlement and Tax Documentation Procedures" and "Book-Entry
and Definitive Securities; Reports to Securityholders -- Book-Entry
Registration" in the Prospectus.
S-25
<PAGE> 175
DEFINITIVE CERTIFICATES
The Certificates will be issued in fully registered, certificated form
("Definitive Certificates") to Certificate Owners or their nominees, rather than
to DTC or its nominee, only if (i) the Sellers advise the Trustee in writing
that DTC is no longer willing or able to discharge properly its responsibilities
as depository with respect to the Certificates and the Trustee or the Sellers
are unable to locate a qualified successor, (ii) the Sellers, at their option,
elect to terminate the book-entry system through DTC or (iii) after the
occurrence of an Event of Servicing Termination, Certificate Owners representing
in the aggregate not less than a majority of the aggregate outstanding principal
balance of the Certificates advise the Trustee and DTC through Direct
Participants in writing that the continuation of a book-entry system through DTC
(or a successor thereto) is no longer in the Certificate Owners' best interests.
Upon the occurrence of any event described in the immediately preceding
paragraph, DTC is required to notify all Direct Participants of the availability
through DTC of Definitive Certificates. Upon surrender by DTC to the Trustee of
the global certificates representing the Certificates and receipt by the Trustee
of instructions for re-registration, the Trustee will reissue the Certificates
as Definitive Certificates and thereafter the Trustee will recognize the holders
of such Definitive Certificates as Certificateholders under the Agreement
("Holders").
[SALE AND ASSIGNMENT OF RECEIVABLES; SUBSEQUENT RECEIVABLES
Certain information with respect to the conveyance of the Initial
Receivables from the Sellers to the Trust on the Closing Date pursuant to the
Agreement is set forth under "Description of the Transfer and Servicing
Agreements -- Sale and Assignment of Receivables" in the Prospectus. In
addition, during the Funding Period, pursuant to the Agreement, the Sellers will
be obligated to sell to the Trust Subsequent Receivables having an aggregate
principal balance equal to approximately $ (such amount being equal to
the initial Pre-Funded Amount) to the extent that such Subsequent Receivables
are available.
During the Funding Period on each Subsequent Transfer Date, subject to the
conditions described below, the Sellers will sell and assign to the Trust,
without recourse, the Sellers' entire interest in the Subsequent Receivables
designated by the Sellers as of the related Subsequent Cut-Off Date and
identified in a schedule attached to a subsequent transfer assignment relating
to such Subsequent Receivables executed on such date by the Sellers. It is
expected that on the Closing Date, subject to the conditions described below,
certain of the Subsequent Receivables designated by the Sellers and arising
between the Initial Cut-Off Date and the Closing Date will be conveyed to the
Trust. Upon the conveyance of Subsequent Receivables to the Trust on a
Subsequent Transfer Date, (i) the Pool Balance will increase in an amount equal
to the aggregate principal balance of the Subsequent Receivables, (ii) an amount
equal to % of the aggregate principal balance of such Subsequent
Receivables will be withdrawn from the Pre-Funding Account and will be deposited
in the Reserve Account (each, an "Additional Reserve Account Deposit") and (iii)
an amount equal to the excess of the aggregate principal balance of such
Subsequent Receivables over the amount described in clause (ii) will be
withdrawn from the Pre-Funding Account and paid to the Sellers. [Coincident with
each such transfer of Subsequent Receivables, the Yield Supplement Agreement
will require the Sellers to deposit into the Yield Supplement Account an amount
equal to the Additional Yield Supplement Amount, if any, in respect of such
Subsequent Receivables. See "-- Yield Supplement Account; Yield Supplement
Agreement" herein.]
[Any conveyance of Subsequent Receivables is subject to the satisfaction,
on or before the related Subsequent Transfer Date, of the following conditions
precedent, among others: (i) each such Subsequent Receivable must satisfy the
eligibility criteria specified in the Agreement; (ii) the Sellers will not have
selected such Subsequent Receivables in a manner that they believe is adverse to
the interests of the Certificateholders; (iii) as of the related Subsequent
Cut-Off Date, the Receivables, including any Subsequent Receivables conveyed by
the Sellers as of such Subsequent Cut-Off Date, satisfy the criteria described
under "The Receivables Pool" herein and "The Receivables Pools" in the
Prospectus; (iv) the applicable Additional Reserve Account Deposit [and any
Additional Yield Supplement Amount] for such Subsequent Transfer Date shall have
been made; and (v) the Sellers shall have executed and delivered to the Trustee
a written assignment conveying such Subsequent Receivables to the Trust
(including a schedule identifying
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<PAGE> 176
such Subsequent Receivables). Moreover, any such conveyance of Subsequent
Receivables made during any Collection Period will also be subject to the
satisfaction, on or about the fifteenth day of the month following the end of
such Collection Period, of the following conditions subsequent, among others:
(i) the Sellers will have delivered certain opinions of counsel to the Trustee
and the Rating Agencies with respect to the validity of the conveyance of all
such Subsequent Receivables conveyed during such Collection Period; (ii) the
Trustee shall have received written confirmation from a firm of independent
certified public accountants that, as of each applicable Subsequent Cut-Off
Date, the Receivables in the Trust at that time, including the Subsequent
Receivables conveyed by the Sellers as of such Subsequent Cut-Off Date,
satisfied the parameters described under "The Receivables Pool" herein and under
"The Receivables Pools" in the Prospectus; and (iii) the Rating Agencies shall
have each notified the Sellers in writing that, following the addition of all
such Subsequent Receivables, the Class A Certificates are rated in the same
rating categories in which they were rated at the Closing Date. The Sellers will
immediately repurchase any Subsequent Receivable, at a price equal to the
Purchase Amount thereof, upon the failure of the Sellers to satisfy any of the
foregoing conditions subsequent with respect thereto.
[Subsequent Receivables may have been originated by the Sellers at a later
date using credit criteria different from those which were applied to the
Initial Receivables. See "Risk Factors -- The Subsequent Receivables and the
Pre-Funding Account" and "The Receivables Pool" herein.]]
ACCOUNTS
In addition to the accounts referred to under "Description of the Transfer
and Servicing Agreements -- Accounts" in the Prospectus, the Trustee will also
establish and maintain [the Prefunding Account] [the Yield Supplement Account]
[and] the Reserve Account. The Reserve Account [and the Yield Supplement
Account] will not be part of the Trust. In addition, the Trustee will establish
a segregated account in the name of the Trustee on behalf of the Trust and for
the benefit of the Certificateholders (the "Distribution Account") from which
all distributions with respect to the Certificates will be made.
SERVICING COMPENSATION AND EXPENSES
The Servicing Fee Rate with respect to the Servicing Fee for the Servicer
will be [1.00]% per annum of the Pool Balance as of the first day of the
Collection Period (after giving effect to distributions to be made on the
following Distribution Date). The Servicing Fee (together with any portion of
the Servicing Fee that remains unpaid from prior Distribution Dates) will be
paid on each Distribution Date solely to the extent of the Available Interest.
The Servicer is also entitled to receive a supplemental servicing fee (the
"Supplemental Servicing Fee") for each Collection Period equal to any late,
prepayment, and other administrative fees and expenses collected during the
Collection Period[, plus any interest earned during the Collection Period on
deposits made with respect to the Receivables]. See "Description of the Transfer
and Servicing Agreements -- Servicing Compensation and Expenses" in the
Prospectus.
[ADVANCES] [ADVANCE RESERVE WITHDRAWALS]
[Servicer Advances. As of the last day of each Collection Period, the
Servicer will, subject to the limitations described in the following sentence,
make a payment (an "Advance") with respect to each Receivable (other than a
Defaulted Receivable) in an amount equal to the excess, if any, of (x) the
amount of interest due on such Receivable at its applicable Contract Rate, over
(y) the interest actually received by the Servicer with respect to such
Receivable (whether from the Obligor, [the Yield Supplement Agreement] or
payments of the Purchase Amount) during or with respect to such Collection
Period. The Servicer may elect not to make an Advance of due and unpaid interest
with respect to a Receivable to the extent that the Servicer, in its sole
discretion, determines that such Advance is not recoverable from subsequent
payments on such Receivable or from funds in the Reserve Account.
To the extent that the amount set forth in clause (y) above with respect to
a Receivable is greater than the amount set forth in clause (x) above with
respect thereto, such amount shall be distributed to the Servicer
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<PAGE> 177
on the related Distribution Date. Any such payment will only be from accrued
interest due from the Obligor under such Receivable.
The Servicer will deposit Advances, if any, into the Collection Account on
the applicable Deposit Date.]
[Advance Reserve Withdrawals. The Servicer shall, as of the last day of
the Collection Period, withdraw from the Reserve Account funds in an amount with
respect to each Receivable (other than a Defaulted Receivable) equal to the
excess, if any, of (x) the amount of interest due on such Receivable at its
applicable Contract Rate, over (y) the interest actually received by the
Servicer with respect to such Receivable (whether from the Obligor, [the Yield
Supplement Agreement] or payments of the Purchase Amount) during or with respect
to such Collection Period (the "Advance Reserve Withdrawal"). The Servicer will
deposit Advance Reserve Withdrawals, if any, into the Collection Account on the
applicable Deposit Date.]
RESERVE ACCOUNT
The Reserve Account will be created with an initial deposit of cash having
a value of at least the Reserve Account Initial Deposit. In addition, on each
Distribution Date, any amounts on deposit in the Collection Account with respect
to the preceding Collection Period after payments to the Certificateholders and
the Servicer have been made will be deposited into the Reserve Account until the
amount of the Reserve Account is equal to the Specified Reserve Account Balance.
The Reserve Account will be an Eligible Account which the Sellers shall
establish and maintain in the name of, and under the control of, the Collateral
Agent. Funds on deposit in the Reserve Account will be invested in Permitted
Investments. See "Description of the Transfer and Servicing
Agreements -- Accounts" in the Prospectus.
On each Distribution Date, the amount available in the Reserve Account (the
"Available Reserve Amount") will equal the lesser of (i) the amount on deposit
in the Reserve Account [(exclusive of Investment Earnings)] and (ii) the
Specified Reserve Account Balance. On each Deposit Date, the Collateral Agent
will withdraw funds from the Reserve Account to make available to
Certificateholders the excess, if any, of (x) the sum of the amounts required to
be distributed to Certificateholders, any accrued and unpaid Servicing Fees
payable to the Servicer on such Distribution Date [and any amounts required to
reimburse any Outstanding Advances (excluding Advances made as a result of
prepayments by Obligors)] over (y) the amounts to be deposited in the Collection
Account with respect to the preceding Collection Period [(exclusive of
Investment Earnings)]. Such deficiencies in the Collection Account may result
from, among other things, Receivables becoming Defaulted Receivables or the
failure by a Servicer to make any remittance required to be made under the
Agreement. The aggregate amount to be withdrawn from the Reserve Account on any
Distribution Date will not exceed the Available Reserve Amount with respect to
the related Distribution Date. The Collateral Agent will deposit the proceeds of
such withdrawal from the Reserve Account into the Distribution Account or pay
such proceeds to the Servicer, as applicable, on the Distribution Date with
respect to which such withdrawal was made.
The Specified Reserve Account Balance on any Distribution Date will
equal % of the Pool Balance as of the last day of the preceding Collection
Period, but in any event will not be less than the lesser of (i) $ and
(ii) the sum of such Pool Balance plus an amount sufficient to pay interest on
such Pool Balance at a rate equal to the sum of the weighted average
Pass-Through Rate and the Servicing Fee Rate through the Final Scheduled
Distribution Date; provided, however, that the Specified Reserve Account Balance
will be calculated using a percentage of % for any Distribution Date
(beginning on the , 199 Distribution Date) [on which the
[Average Net Loss Ratio] exceeds % or the [Average Delinquency Ratio] exceeds
%] [describe alternative test].
"Average Delinquency Ratio" means, as of any Distribution Date, the average
of the Delinquency Ratios for the preceding [three] Collection Periods.
["Average Net Loss Ratio" means, as of any Distribution Date, the average
of the Net Loss Ratios for the preceding three Collection Periods.]
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"Defaulted Receivable" means, with respect to any Collection Period, a
Receivable (other than a Purchased Receivable) which the Servicer, on behalf of
the Trust, has determined to charge off during such Collection Period in
accordance with its customary servicing practices.
["Delinquency Ratio" means, for any Collection Period, the ratio, expressed
as a percentage, of (i) the principal amount of all outstanding Receivables
(other than Purchased Receivables and Defaulted Receivables) which are 60 or
more days delinquent as of the end of such Collection Period, determined in
accordance with the Servicer's customary practices, divided by (ii) the Pool
Balance as of the last day of such Collection Period.]
"Liquidation Proceeds" mean, with respect to any Distribution Date and a
Receivable that has become a Defaulted Receivable during a related Collection
Period, (i) insurance proceeds received during such Collection Period by the
Servicer, with respect to insurance policies relating to the Financed Vehicle or
the Obligor, (ii) amounts received by the Servicer during such Collection Period
from a Dealer in connection with such Defaulted Receivable pursuant to the
exercise of rights under a Dealer Agreement, and (iii) the monies collected by
the Servicer (from whatever source, including, but not limited to proceeds of a
sale of a Financed Vehicle or deficiency balance recovered after the charge off
of the related Receivable) during such Collection Period on such Defaulted
Receivable net of any fees, costs and expenses incurred by the Servicer in
connection therewith and any payments required by law to be remitted to the
Obligor. Liquidation Proceeds shall be applied first to accrued and unpaid
interest on the Receivable and then to the principal balance thereof.
["Net Loss Ratio" means, for any Collection Period, an amount, expressed as
an annualized percentage, equal to (i) Realized Losses minus Recoveries for such
Collection Period, divided by (ii) the average of the Pool Balances on the first
day of such Collection Period and the last day of such Collection Period.]
"Recoveries" mean, with respect to any Collection Period, all monies
received by the Servicer with respect to any Defaulted Receivable during any
Collection Period following the Collection Period in which such Receivable
became a Defaulted Receivable, net of any fees, costs and expenses incurred by
the Servicer in connection with the collection of such Receivable and any
payments required by law to be remitted to the Obligor.
The Specified Reserve Account Balance may be reduced to a lesser amount as
determined by the Sellers, subject to satisfaction of the Rating Agency
Condition. Amounts on deposit in the Reserve Account will be released to the
Servicer on each Distribution Date to the extent that the amount on deposit in
the Reserve Account would exceed the Specified Reserve Account Balance. The
Collateral Agent will cause all investment earnings attributable to the Reserve
Account to be distributed on each Distribution Date to the Servicer on behalf of
the Sellers. Upon any distribution to the Servicer of amounts from the Reserve
Account, the Certificateholders will not have any rights in, or claims to, such
amounts.
In the event that the funds in the Reserve Account are reduced to zero, the
Certificateholders will bear directly the credit and other risks associated with
ownership of the Receivables. In such a case, the amount available for
distribution may be less than that described below, and the Certificateholders
may experience delays or suffer losses as a result of, among other things,
defaults or delinquencies by the Obligors or previous extensions made by the
Servicer.
DISTRIBUTIONS ON CERTIFICATES
Deposits to Collection Account. On or before each Determination Date, the
Servicer will provide the Trustee with a certificate (the "Servicer's
Certificate") containing certain information with respect to the preceding
Collection Period, including the amount of aggregate collections on the
Receivables during such Collection Period, the aggregate amount of Receivables
which became Defaulted Receivables during such Collection Period, [the Yield
Supplement Amount,] the aggregate Purchase Amounts of Receivables to be
repurchased by the Sellers or to be purchased by the Servicer on the related
Deposit Date [and the aggregate amount to be withdrawn from the Reserve
Account].
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On or before each Deposit Date (a) the Servicer will cause all Collections
and Liquidation Proceeds and Recoveries to be deposited into the Collection
Account and will deposit into the Collection Account all Purchase Amounts of
Receivables to be purchased by the Servicer on such Deposit Date, (b) the
Sellers will deposit into the Collection Account all Purchase Amounts of
Receivables to be repurchased by the Sellers on such Deposit Date, (c) the
Servicer will deposit [all Advances for the related Distribution Date] [the
amount of the Advance Reserve Withdrawal with respect to the related
Distribution Date] into the Collection Account [and (d) the Sellers (or, in
certain circumstances, the Collateral Agent) will deposit the Yield Supplement
Amount for the related Distribution Date into the Collection Account].
"Available Interest" means, with respect to any Distribution Date, [the
excess of (a)] the sum of (i) Interest Collections for such Distribution Date,
[(ii) the Yield Supplement Amount for such Distribution Date], [(iii) [all
Advances][the proceeds of any Advance Reserve Withdrawal] made by the Servicer
with respect to such Distribution Date], and [(iv) Investment Earnings for such
Distribution Date,] [over (b) the amount of Outstanding Advances to be
reimbursed on or with respect to such Distribution Date].
"Available Principal" means, with respect to any Distribution Date, the sum
of the following amounts with respect to the preceding Collection Period: (i)
that portion of all Collections on the Receivables allocable to principal in
accordance with the terms of the Receivables and the Servicer's customary
servicing procedures; (ii) to the extent attributable to principal, the Purchase
Amount received with respect to each Receivable repurchased by the Sellers or
purchased by the Servicer under an obligation which arose during the related
Collection Period; and (iii) all Liquidation Proceeds, to the extent allocable
to principal, received during such Collection Period. "Available Principal" on
any Distribution Date shall exclude all payments and proceeds of any Receivables
the Purchase Amount of which has been distributed on a prior Distribution Date.
"Collections" mean, with respect to any Distribution Date, all collections
on the Receivables.
"Interest Collections" mean, with respect to any Distribution Date, the sum
of the following amounts with respect to the preceding Collection Period: (i)
that portion of all Collections on the Receivables allocable to interest in
accordance with the terms of the Receivables and the Servicer's customary
servicing procedures; (ii) all Liquidation Proceeds, to the extent allocable to
interest, received during such Collection Period; (iii) all Recoveries on
Receivables which became Defaulted Receivables received during any Collection
Period following the Collection Period in which such Receivable became a
Defaulted Receivable; and (iv) to the extent attributable to accrued interest,
the Purchase Amount with respect to each Receivable repurchased by the Sellers
or purchased by the Servicer under an obligation which arose during such
Collection Period. "Interest Collections" for any Distribution Date shall
exclude all payments and proceeds of any Receivables the Purchase Amount of
which has been distributed on a prior Distribution Date.
"Purchased Receivable" means, at any time, a Receivable as to which payment
of the Purchase Amount has previously been made by the Sellers or the Servicer
pursuant to the Sale and Servicing Agreement.
Deposits to the Distribution Account. On each Distribution Date, [after
making reimbursements of Outstanding Advances to the Servicer from Available
Interest to the extent then reimbursable pursuant to the Agreement], the Trustee
will make the following deposits and distributions, to the extent of Available
Interest and any Available Reserve Amount remaining after such reimbursements
(and, in the case of shortfalls occurring under clause (ii) below in the Class A
Interest Distribution, the Class B Percentage of Available Principal to the
extent of such shortfalls), in the following priority:
(i) to the Servicer, first from Available Interest, and then, if
necessary, from the Available Reserve Amount, any unpaid Servicing Fee for
the related Collection Period and all unpaid Servicing Fees from prior
Collection Periods;
(ii) to the Distribution Account, first from Available Interest, then,
if necessary, from the Available Reserve Amount, and finally, if necessary,
from the Class B Percentage of Available Principal, the Class A Interest
Distribution for such Distribution Date; and
(iii) to the Distribution Account, first from Available Interest and
then, if necessary, from the Available Reserve Amount, the Class B Interest
Distribution for such Distribution Date.
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On each Distribution Date, the Trustee will make the following deposits and
distributions, to the extent of the portion of Available Principal, Available
Interest and Available Reserve Amount (to be applied in that order of priority)
remaining after the application of clauses (i), (ii) and (iii) above, in the
following priority:
(iv) to the Distribution Account, the Class A Principal Distribution
for such Distribution Date;
(v) to the Distribution Account, the Class B Principal Distribution
for such Distribution Date;
(vi) to the Reserve Account, any amounts remaining, until the amount
on deposit in the Reserve Account equals the Specified Reserve Account
Balance; and
(vii) to the Sellers, any amounts remaining.
On each Distribution Date, from amounts on deposit in the Distribution
Account, the Class A Interest Distribution and the Class A Principal
Distribution will be distributed to the Class A Certificateholders and the Class
B Interest Distribution and the Class B Principal Distribution will be
distributed to the Class B Certificateholders by the Trustee.
"Class A Certificate Balance," at any time, equals the Original Class A
Certificate Balance, as reduced by all principal amounts distributed to Class A
Certificateholders prior to such time.
"Class A Interest Carryover Shortfall" means, (i) with respect to the
initial Distribution Date, zero, and (ii) with respect to any other Distribution
Date, the excess of Class A Monthly Interest for the preceding Distribution Date
and any outstanding Class A Interest Carryover Shortfall on such preceding
Distribution Date, over the amount in respect of interest that was actually
distributed on the Class A Certificates on such preceding Distribution Date,
plus 30 days of interest on such excess, to the extent permitted by law, at the
Class A Pass-Through Rate.
"Class A Interest Distribution" means, with respect to any Distribution
Date, the sum of Class A Monthly Interest for such Distribution Date and the
Class A Interest Carryover Shortfall for such Distribution Date.
"Class A Monthly Interest" means, with respect to any Distribution Date,
one-twelfth of the Class A Pass-Through Rate multiplied by the Class A
Certificate Balance as of the preceding Distribution Date (after giving effect
to all payments of principal made on such Distribution Date) or, in the case of
the first Distribution Date, as of the Closing Date.
"Class A Monthly Principal" means, with respect to any Distribution Date,
the Class A Percentage of Available Principal for such Distribution Date plus
the Class A Percentage of Realized Losses with respect to the related Collection
Period.
"Class A Percentage" means %.
"Class A Principal Carryover Shortfall" means, (i) with respect to the
initial Distribution Date, zero, and (ii) with respect to any other Distribution
Date, the excess of Class A Monthly Principal for such Distribution Date and any
outstanding Class A Principal Carryover Shortfall from the preceding
Distribution Date over the amount in respect of principal that was actually
distributed on the Class A Certificates on such Distribution Date.
"Class A Principal Distribution" means, with respect to any Distribution
Date, the sum of Class A Monthly Principal for such Distribution Date and, in
the case of any Distribution Date other than the initial Distribution Date, the
Class A Principal Carryover Shortfall as of the preceding Distribution Date. In
addition, on the Final Scheduled Distribution Date, the Class A Principal
Distribution shall include any additional amount required to reduce the
outstanding principal balance of the Class A Certificates to zero.
"Class B Certificate Balance", at any time, equals the Original Class B
Certificate Balance, as reduced by all principal amounts distributed to Class B
Certificateholders prior to such time.
"Class B Interest Carryover Shortfall" means, (i) with respect to the
initial Distribution Date, zero, and (ii) with respect to any other Distribution
Date, the excess of Class B Monthly Interest for the preceding
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Distribution Date and any outstanding Class B Interest Carryover Shortfall on
such preceding Distribution Date, over the amount in respect of interest that
was actually distributed on the Class B Certificates on such preceding
Distribution Date, plus 30 days of interest on such excess, to the extent
permitted by law, at the Class B Pass-Through Rate.
"Class B Interest Distribution" means, with respect to any Distribution
Date, the sum of Class B Monthly Interest for such Distribution Date and the
Class B Interest Carryover Shortfall for such Distribution Date.
"Class B Monthly Interest" means, with respect to any Distribution Date,
one-twelfth of the Class B Pass-Through Rate multiplied by the Class B
Certificate Balance as of the preceding Distribution Date (after giving effect
to all payments of principal made on such Distribution Date) or, in the case of
the first Distribution Date, as of the Closing Date.
"Class B Monthly Principal" means, with respect to any Distribution Date,
the Class B Percentage of Available Principal for such Distribution Date plus
the Class B Percentage of Realized Losses with respect to the related Collection
Period.
"Class B Percentage" means %.
"Class B Principal Carryover Shortfall" means, (i) with respect to the
initial Distribution Date, zero and (ii) with respect to any other Distribution
Date, the excess of Class B Monthly Principal for such Distribution Date and any
outstanding Class B Principal Carryover Shortfall from the preceding
Distribution Date over the amount in respect of principal that was actually
distributed on the Class B Certificates on such Distribution Date.
"Class B Principal Distribution" means, with respect to any Distribution
Date, the sum of Class B Monthly Principal for such Distribution Date and, in
the case of any Distribution Date other than the initial Distribution Date, the
Class B Principal Carryover Shortfall as of the preceding Distribution Date. In
addition, on the Final Scheduled Distribution Date, the Class B Principal
Distribution will include any additional amount required to reduce the
outstanding principal balance of the Class B Certificates to zero.
"Realized Losses" mean, for any Collection Period and for each Receivable
that became a Defaulted Receivable during such Collection Period, the excess of
the aggregate principal balance of such Receivable over Liquidation Proceeds
received with respect to such Receivable during such Collection Period, to the
extent allocable to principal.
The following chart sets forth an example of the application of the
foregoing provisions to a hypothetical monthly distribution:
<TABLE>
<S> <C>
March 1 -- March 31........... Collection Period. The Servicer receives monthly
payments, prepayments and other proceeds in respect
of the Receivables.
April 8....................... Determination Date. On or before this date, the
Servicer delivers to the Trustee the Servicer's
Certificate, which notifies the Trustee of the
amounts required to be distributed and the amounts
available for distribution on the next Distribution
Date.
April 14...................... Record Date. Distributions on the next Distribution
Date are made to Certificateholders of record as of
the close of business on this date (or, if Definitive
Certificates are issued, the last day of the
preceding Collection Period, in this example March
31).
April 14...................... Deposit Date. All Collections, [Advances], Purchase
Amounts [and any Yield Supplement Amount] relating to
the preceding Collection Period are required to be
deposited in the Collection Account on or before this
date.
</TABLE>
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<TABLE>
<S> <C>
April 15...................... Distribution Date. The Trustee distributes to
Certificateholders amounts payable in respect of the
Certificates, pays the Servicing Fee [and reimburses
Outstanding Advances to the Servicer to the extent
then reimbursable], withdraws funds from the Reserve
Account to the extent necessary, deposits any excess
funds to the Reserve Account and, if the amount on
deposit in the Reserve Account is equal to the
Specified Reserve Account Balance, pays any remaining
funds to the Sellers.
</TABLE>
[YIELD SUPPLEMENT ACCOUNT; YIELD SUPPLEMENT AGREEMENT
If any Receivable has, as of the Cutoff Date, a Contract Rate below the
Required Rate, the Sellers, the Servicer and the Trustee will, simultaneously
with the sale and assignment of the Receivables, enter into the Yield Supplement
Agreement. The Yield Supplement Agreement will, with respect to each Receivable
subject thereto, if any, provide for the payment into the Collection Account by
the applicable Seller on or prior to each Deposit Date of an amount calculated
by the Servicer equal to one-twelfth of the excess, if any, of (i) interest on
such Receivable's principal balance as of the first day of the preceding
Collection Period at a rate equal to the Required Rate over (ii) interest at the
Contract Rate on such Receivable's principal balance as of the first day of such
Collection Period (in the aggregate for all Receivables with respect to any
Deposit Date, the "Yield Supplement Amount").
Each Seller's obligations under the Yield Supplement Agreement will be
secured by funds, if any, deposited by the Sellers on the Closing Date in an
Eligible Deposit Account to be maintained by the Collateral Agent for the
benefit of the holders of the Certificates (the "Yield Supplement Account"). The
amount required to be retained (to the extent of funds available therefor) in
the Yield Supplement Account on any Distribution Date will be equal to the
Specified Yield Supplement Balance.
Funds, if any, on deposit in the Yield Supplement Account may be invested
in Permitted Investments in the manner permitted by the Pooling and Servicing
Agreement
Amounts on deposit in the Yield Supplement Account will be released to the
Seller each Distribution Date to the extent the amount on deposit in the Yield
Supplement Account exceeds the Required Yield Supplement Balance. The "Required
[Initial] Yield Supplement Balance," on any date of determination, is the sum of
all projected Yield Supplement Amounts for all future Distribution Dates,
assuming that future scheduled payments on the [Initial] Receivables are made on
their scheduled due dates. No funds will be deposited in the Yield Supplement
Account, however, if the amount on deposit therein is less than the Required
[Initial] Yield Supplement Balance. [All investment earnings attributable to the
Yield Supplement Account to be distributed on each Distribution Date to the
Sellers]. Upon any release of amounts from the Yield Supplement Account, the
Certificateholders will not have any rights in, or claims to, such amounts. Any
monies remaining on deposit in the Yield Supplement Account upon the termination
of the Trust will be paid to the Sellers.
[Pursuant to the Yield Supplement Agreement, on each Subsequent Transfer
Date, the Sellers will deposit into the Yield Supplement Account an amount equal
to the Additional Yield Supplement Amount. The aggregate of the Additional Yield
Supplement Amounts in respect of Subsequent Receivables, if any, is referred to
herein as the "Required Subsequent Yield Supplement Amount" and, together with
the Required Initial Yield Supplement Amount, the "Required Yield Supplement
Amount."]]
STATEMENTS TO CERTIFICATEHOLDERS
Certificate Owners may obtain the monthly statements and annual tax
statement and tax information provided to the Trustee by the Servicer free of
charge (except for copying and postage costs) by request in writing to the
Trustee at [ , Attention: .] See "Description
of Transfer and Servicing Agreements -- Statements to Trustee and Trust" in the
Prospectus for a description of such statements.
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<PAGE> 183
TERMINATION
The Trust, and the respective obligations of the Sellers, the Servicer, the
Trustee and the Collateral Agent under the Agreement will, except with respect
to certain reporting requirements, terminate upon the earliest of (i) the
Distribution Date next succeeding the Servicer's purchase of the remaining Trust
Property, as described below, (ii) payment to Certificateholders of all amounts
required to be paid to them pursuant to the Agreement and (iii) the Distribution
Date next succeeding the month which is six months after the maturity or
liquidation of the last Receivable and the disposition of any amounts received
upon liquidation of any property remaining in the Trust in accordance with the
terms and priorities set forth in the Agreement.
The Trustee will give written notice of termination of the Trust to each
Certificateholder of record at such time. The final distribution to any
Certificateholder will be made only upon surrender and cancellation of such
holder's Certificate (whether a Definitive Certificate or the physical
certificate representing the Certificates) at the office or agency of the
Trustee specified in the notice of termination. Any funds remaining in the Trust
after setting aside all funds required to be distributed to Certificateholders
will be distributed to the Sellers or as otherwise provided in the Agreement.
THE TRUSTEE
[ ] a [ banking corporation], will be
the Trustee. The Trustee, in its individual capacity or otherwise, and any of
its affiliates, may hold Certificates in their own names or as pledgee. In
addition, for the purpose of meeting the legal requirements of certain
jurisdictions, the Servicer and the Trustee, acting jointly (or in some
instances, the Trustee, acting alone), will have the power to appoint
co-trustees or separate trustees of all or any part of the Trust. In the event
of such appointment, all rights, powers, duties, and obligations conferred or
imposed upon the Trustee by the Agreement will be conferred or imposed upon the
Trustee and such co-trustee or separate trustee jointly, or, in any jurisdiction
where the Trustee is incompetent or unqualified to perform certain acts, singly
upon such co-trustee or separate trustee who shall exercise and perform such
rights, powers, duties and obligations solely at the direction of the Trustee.
The Agreement will provide that the Servicer will pay the Trustee's reasonable
fees, costs and expenses.
The Trustee may resign at any time upon thirty (30) days prior written
notice to the Servicer, in which event the Servicer will be obligated to appoint
a successor Trustee. The Servicer may also remove the Trustee if the Trustee
ceases to be eligible to serve, becomes legally unable to act, is adjudged
insolvent or is placed in receivership or similar proceedings. In such
circumstances, the Servicer will be obligated to appoint a successor Trustee.
Any resignation or removal of the Trustee and appointment of a successor Trustee
will not become effective until acceptance of the appointment by the successor
Trustee.
The Trustee's Corporate Trust Office is located at
[ .] The Sellers, the Servicer and their respective
affiliates may have other banking relationships with the Trustee and its
affiliates in the ordinary course of their business.
DUTIES OF THE TRUSTEE
The Trustee will make no representations as to the validity or sufficiency
of the Agreement, the Certificates (other than the execution and authentication
of the Certificates), the Receivables, or any related documents, and will not be
accountable for the use or application by the Sellers or the Servicer of any
funds paid to the Sellers or the Servicer in respect of the Certificates or the
Receivables or for any monies prior to the time such monies are deposited into
the Certificate Account. The Trustee will not independently verify the existence
or status of the Receivables.
If no Event of Servicing Termination has occurred and is continuing, the
Trustee will be required to perform only those duties specifically required of
it under the Agreement. Generally, those duties are limited to the receipt of
the various certificates, reports or other instruments required to be furnished
by the Servicer to the Trustee under the Agreement, in which case the Trustee
will only be required to examine such instruments to determine whether they
conform to the requirements of the Agreement.
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<PAGE> 184
The Trustee will be under no obligation to exercise any of the rights or
powers vested in it by the Agreement or to institute, conduct or defend any
litigation thereunder or in relation thereto at the request, order, or direction
of any of the Certificateholders, unless such Certificateholders have offered
the Trustee reasonable security or indemnity against the fees, costs, expenses
and liabilities which may be incurred therein or thereby. No Class A
Certificateholder or Class B Certificateholder will have any right under the
Agreement to institute any proceeding with respect to the Agreement, unless such
holder has given the Trustee written notice of default and unless, with respect
to the Class A Certificates, the holders of Class A Certificates evidencing not
less than a majority of the aggregate outstanding principal balance of the Class
A Certificates [or with respect to the Class B Certificates, the holders of
Class B Certificates evidencing not less than a majority of the aggregate
outstanding principal balance of the Class B Certificates,] have made a written
request to the Trustee to institute such proceeding in its own name as Trustee
thereunder and have offered to the Trustee reasonable security or indemnity, and
the Trustee for 30 days has neglected or refused to institute any such
proceeding.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material anticipated United States
federal income tax consequences of the purchase, ownership, and disposition of
Certificates. This summary is based upon laws, regulations, rulings, and
decisions currently in effect, all of which are subject to change. The
discussion does not deal with all federal income tax consequences applicable to
all categories of investors, some of which may be subject to special rules.
Consequences to individual investors of investment in the Certificates will vary
according to circumstances. In addition, this summary is generally limited to
investors who will hold the Certificates as "capital assets" (generally,
property held for investment) within the meaning of Section 1221 of the Internal
Revenue Code of 1986, as amended (the "Code"). Prospective investors should note
that no rulings have been or will be sought from the Internal Revenue Service
(the "IRS") with respect to any of the federal income tax consequences discussed
below, and no assurance can be given that the IRS will not take contrary
positions.
INVESTORS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISERS TO DETERMINE THE
FEDERAL, STATE, LOCAL, AND OTHER TAX CONSEQUENCES TO THEM OF THEIR PURCHASE,
OWNERSHIP AND DISPOSITION OF THE CERTIFICATES.
TAX STATUS OF THE TRUST; SCOPE OF TAX OPINION
In the opinion of Skadden, Arps, Slate, Meagher & Flom, special tax counsel
to the Sellers ("Special Tax Counsel"), the Trust will not be classified as an
association taxable as a corporation for federal income tax purposes, but will
be classified as a grantor trust, and each Certificate Owner will be subject to
federal income taxation as if it owned directly its interest in each asset owned
by the Trust and paid directly its share of reasonable expenses paid by the
Trust. In addition, Special Tax Counsel has prepared or reviewed the statements
in this Prospectus under the headings "Prospectus Summary -- Tax Status" and
"Federal Income Tax Consequences," and is of the opinion that such statements
are correct in all material respects. Such statements are intended as an
explanatory discussion of the possible effects of the classification of the
Trust as a grantor trust for federal income tax purposes on investors generally
and of related tax matters affecting investors generally, but do not purport to
furnish information in the level of detail or with the attention to an
investor's specific tax circumstances that would be provided by an investor's
own tax adviser. Accordingly, each investor is advised to consult its own tax
advisers with regard to the tax consequences to it of investing in the
Certificates.
TAX CHARACTERIZATION OF THE TRUST AS A GRANTOR TRUST
Special Tax Counsel will deliver its opinion that the Trust will not be
classified as an association taxable as a corporation but that such Trust will
be classified as a grantor trust under subpart E, Part I of subchapter J of the
Code. In this case, owners of Certificates (referred to herein as "Grantor Trust
Certificateholders"), subject to the discussion of stripped coupons below under
"-- Tax Consequences to Holders of Offered Certificates -- Characterization of
Fees," will be treated for federal income tax purposes as owners of a
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<PAGE> 185
portion of the Trust's assets as described below. The Certificates issued by a
Trust that is treated as a grantor trust are referred to herein as "Grantor
Trust Certificates."
TAX CONSEQUENCES TO HOLDERS OF OFFERED CERTIFICATES
Income on the Receivables. If the Receivables are not characterized as
"stripped bonds" or otherwise recharacterized, each Grantor Trust
Certificateholder will be required to report on its federal income tax return
its pro rata share of the entire income of the Trust indicated herein for the
period during which it owns a Grantor Trust Certificate, including interest or
finance charges earned on the Receivables, and any gain or loss upon collection
or disposition of the Receivables. Because the Receivables, when originally
issued by the Obligors to the Dealers, are believed to have had adequate stated
interest, the OID and imputed interest rules should not apply to the Receivables
except to the extent that a Receivable is treated as a "stripped bond," as
discussed below. The portion of each monthly payment to a Grantor Trust
Certificateholder that is allocable to principal on the Receivables will
represent a recovery of capital, which will reduce the tax basis of such Grantor
Trust Certificateholder's undivided interest in the Receivables. In computing
its federal income tax liability, a Grantor Trust Certificateholder will be
entitled to deduct, consistent with its method of accounting, its pro rata share
of reasonable servicing fees, and other fees paid or incurred by the Trust as
provided in Section 162 or 212 of the Code. If a Grantor Trust Certificateholder
is an individual, estate or trust the deduction for his pro rata share of such
fees will be allowed only to the extent that all of his miscellaneous itemized
deductions, including his share of such fees, exceed 2% of his adjusted gross
income. In addition, in the case of Grantor Trust Certificateholders who are
individuals, otherwise allowable itemized deductions will be reduced, but not
more than 80%, by an amount equal to 3% of the Grantor Trust Certificateholder's
adjusted gross income in excess of statutorily defined threshold ($117,950 in
the case of a married couple filing jointly for taxable years beginning in 1996,
which amount will be adjusted for inflation). Because the Servicer will not
report to holders of Grantor Trust Certificates offered by Prospectus Supplement
the amount of income or deductions attributable to the Supplemental Servicing
Fee, such a Grantor Trust Certificateholder may effectively underreport his net
taxable income. To the extent that the Receivables are characterized as
"stripped bonds," as discussed below, the portion of interest treated as
retained by the Sellers or the Servicer would not be included in the income of
Grantor Trust Certificateholders. See "-- Characterization of Fees" below.
To the extent that the purchase price of a Grantor Trust Certificate
allocated to a Grantor Trust Certificateholder's undivided interest in a
Receivable is greater than or less than the portion of the principal balance of
the Receivable allocable to the Grantor Trust Certificate, such interest in the
Receivable will have been acquired at a premium or discount, as the case may be.
In determining whether a Grantor Trust Certificateholder has purchased its
interest in the Receivables (or any Receivable) at a discount, a portion of the
purchase price for a Grantor Trust Certificate may be allocated to accrued
interest on each Receivable and to amounts held in the Collection Account
pending distribution to Certificateholders at the time of purchase as though
such accrued interest and collections on the Receivables were separate assets
purchased by the Grantor Trust Certificateholder, thus reducing the portion of
the purchase price allocable to a Grantor Trust Certificateholder's undivided
interest in each Receivable (the "Purchase Price") and increasing the potential
discount on the Receivables.
Characterization of Fees. The Servicer intends to report income to Grantor
Trust Certificateholders on the assumption that the holders of the Grantor Trust
Certificates ("Offered Grantor Trust Certificates") own an interest (equal to
the percentage indicated in the related Prospectus Supplement) in all of the
principal and interest derived from the Receivables. However, to the extent that
the amounts paid to the Servicer or the Sellers exceed reasonable fees for
services rendered, by reason of the extent to which either the weighted average
Contract Rate of the Receivables, or the individual stated Contract Rates of
some of the Receivables, exceed the Certificate Rate, such amounts will be
treated as an interest in the Receivables retained by the Sellers or the
Servicer. There are no authoritative pronouncements for federal income tax
purposes as to either the maximum amount of compensation that may be considered
reasonable for servicing Receivables or performing other services in the context
of transactions involving receivables such as the Receivables, although the
Service has issued such guidelines in the context of mortgage loans. To the
extent that amounts paid to the
S-36
<PAGE> 186
Servicer or the Sellers exceed reasonable compensation for services provided,
they would be viewed as having retained for federal income tax purposes an
ownership interest in a portion of each interest payment with respect to the
certain Receivables (each such payment, a "stripped coupon"). As a result, such
Receivables would be treated as "stripped bonds" within the meaning of the Code.
To the extent that the Receivables are characterized as "stripped bonds,"
the income and deductions of the Trust allocable to holders of Offered Grantor
Trust Certificates will not include the portion of the interest on the
Receivables treated as having been retained by the Sellers (or other holder of
non-Offered Grantor Trust Certificates) and the Trust's deductions will be
limited to reasonable servicing and other fees. In addition, a holder of Offered
Grantor Trust Certificates will not be subject to the market discount rules
discussed below with respect to the stripped Receivables, but instead will be
subject to the OID rules. However, if the price at which such 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, the amount of OID on a Receivable treated as
a "stripped bond" will be de minimis if it is less than 1/4 of one percent for
each remaining full year of weighted average life of the Receivable (probably
based on a prepayment assumption) remaining after the purchase date until the
final maturity of the Receivable. If the amount of OID is de minimis under this
rule, the actual amount of OID on such a Receivable would be includible in
income proportionately as principal payments are received on the Receivable in
the proportion that the amount of the principal payment made bears to the total
principal amount of the Receivable.
If the OID on a Receivable, which may differ for each Receivable, based on
the Purchase Price paid by a holder of an Offered Grantor Trust Certificate, is
not treated as being de minimis, such a Certificateholder will be required to
include any OID on a Receivable in income as it accrues, regardless of when cash
payments are received, using a method reflecting a constant yield to maturity on
the Receivable. It is possible that the IRS could require use of a prepayment
assumption in computing the yield of a stripped Receivable. If a stripped
Receivable is deemed to be acquired by a holder of an Offered Grantor Trust
Certificate at a greater than de minimis OID, such treatment would accelerate
the accrual of income by such holder. Prospective investors are advised to
consult their own tax advisors regarding the extent to which a portion of the
amounts paid to the Servicer (or other holder of non-Offered Grantor Trust
Certificates) could be characterized other than as compensation for services
rendered for federal income tax purposes and the calculation of OID on the
Receivables.
It is also possible that any fees deemed to be excessive could be
characterized as deferred purchase price payable to the Sellers by holders of
Offered Grantor Trust Certificates in exchange for the Receivables. The likely
effect of such recharacterization would be to accelerate realization of taxable
income by such a holder.
Market Discount. If the Receivables are not treated as "stripped bonds,"
the interest of a holder of Offered Grantor Trust Certificates in each
Receivable whose Purchase Price is less than the original issue price (plus OID,
if any, previously includible in the income of any holder) of the Receivable
will be treated as having been purchased at a "market discount". The market
discount on a Receivable will be considered to be zero if it is less than a
statutorily defined de minimis amount.
In general, under the market discount provisions of the Code, principal
payments received by the Trust, and all or a portion of the gain recognized upon
a sale or other disposition of a Receivable or upon the sale or other
disposition of an Offered Grantor Trust Certificate by a holder thereof, will be
taxable as ordinary income to the extent of accrued market discount, and a
portion of the interest deductions attributable to indebtedness treated as
incurred or continued to purchase or carry a Receivable or an Offered Grantor
Trust Certificate must be deferred. The ordinary income treatment on
dispositions and deferral of interest deductions described in the preceding
sentence will not apply if a holder of an Offered Grantor Trust Certificate
elects to include market discount in income currently as it accrues for each
taxable year during which it holds the Offered Grantor Trust Certificate. Market
discount will accrue in the manner to be provided in Treasury regulations, but
the Conference Report accompanying the Tax Reform Act of 1986 states that, until
such regulations are issued, it is intended that taxpayers may elect to accrue
market discount either (i) under a constant yield (economic accrual) method or
(ii) at the election of the taxpayer, in the proportion
S-37
<PAGE> 187
that the stated interest paid on the obligation for the current period bears to
total remaining interest on the obligation. As described above, if the Offered
Grantor Trust Certificates are characterized as "stripped bonds," any discount
would be treated as OID, the amount and timing of which should be comparable to
the amount and timing of market discount if an election is made to include
market discount in income currently on the constant yield method. See
"-- Characterization of Fees" above. Due to the complexity of the market
discount rules, the holders of Offered Grantor Trust Certificates are urged to
consult their tax advisors as to whether market discount will result from the
acquisition of Offered Grantor Trust Certificates, and as to the tax treatment
of any such discount.
Premium. In the event that a Receivable is treated as purchased at a
premium (i.e., the Purchase Price exceeds the sum of principal payments to be
made thereon), such premium will be amortizable by a holder of an Offered
Grantor Trust Certificate as an offset to interest income (with a corresponding
reduction in such holder's basis) under a constant yield method over the term of
the Receivable if an election under Section 171 of the Code is made (or
previously in effect in accordance with the provisions of the Tax Reform Act of
1986) with respect to the Offered Grantor Trust Certificates. Any such election
will also apply to debt instruments held by the taxpayer during the year in
which the election is made and all debt instruments acquired thereafter.
Sale of a Class A Certificate or a Receivable. If an Offered Grantor Trust
Certificate is sold, gain or loss will be recognized equal to the difference
between the amount realized on the sale and the adjusted basis of the holder of
the Offered Grantor Trust Certificate in the Receivables and any other assets
held by the Trust. A holder of an Offered Grantor Trust Certificate's adjusted
basis will equal such holder's cost for the Offered Grantor Trust Certificate,
increased by any discount previously included in income, and decreased by any
deduction previously allowed for accrued premium and by the amount of principal
payments previously received on the Receivables. Any gain or loss will be
capital gain or loss if the Offered Grantor Trust Certificate was held as a
capital asset, except that gain will be treated in whole or in part as ordinary
interest income to the extent of the seller's interest in accrued market
discount not previously taken into income on Receivables having a fixed maturity
date of more than one year from the date of origination.
Under proposed Treasury regulations, the grant of an extension of the
maturity of a Receivable to the Obligor thereon could be treated as an exchange
if it changes the yield on the Receivable by more than a de minimis amount,
potentially resulting in taxable gain or loss to Certificateholders. Reports to
Certificateholders will not include information sufficient to calculate any such
gain or loss and accordingly, in the event that an extension were to result in a
deemed exchange, a Certificateholder could underreport its taxable income. No
assurance can be given as to whether the proposed regulations will be adopted as
final regulations in their present form or whether, if adopted, they will apply
to the Receivables.
Foreign Class A Certificate Owners. Interest attributable to Receivables
which is received by a foreign holder of an Offered Grantor Trust Certificate
will generally not be subject to the 30% withholding tax imposed with respect to
payments of interest, provided that such foreign holder is not engaged in a
trade or business in the United States and that such foreign holder fulfills
certain certification requirements. Under such requirements, the holder must
certify, under penalties of perjury, that it is not a "United States person" and
provide its name and address. For this purpose, "United States person" means a
citizen or resident of the U.S., a corporation, partnership, or other entity
created or organized in or under the laws of the U.S. or any political
subdivision thereof, or an estate or trust the income of which is includible in
gross income for U.S. federal income tax purposes, regardless of its source.
Backup Withholding. Payments made on the Offered Grantor Trust
Certificates and proceeds from the sale of the Offered Grantor Trust
Certificates will not be subject to a "backup" withholding tax of 31% unless, in
general, a holder of an Offered Grantor Trust Certificate fails to comply with
certain reporting procedures and is not an exempt recipient under applicable
provisions of the Code.
THE FEDERAL TAX DISCUSSIONS SET FORTH ABOVE ARE INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A CERTIFICATEHOLDER'S
PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR TAX
ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM
S-38
<PAGE> 188
OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF NOTES AND CERTIFICATES, INCLUDING
THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE
POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
[THE CLASS A CERTIFICATES]
The Class A Certificates may, in general, be purchased by or on behalf of
(i) "employee benefit plans" (as defined in Section 3(3) of ERISA), (ii) "plans"
described in Section 4975(e)(1) of the Code, including individual retirement
accounts and Keogh Plans, or (iii) entities whose underlying assets include plan
assets by reason of a plan's investment in such entity (each, a "Plan"),
provided that certain conditions are met with respect to an individual
administrative exemption issued by the United States Department of Labor to
, , (the "Underwriters'
Exemption"). The Sellers believes that the Exemption will apply to the
acquisition and holding of the Class A Certificates by a Plan and that all
conditions of the Exemption other than those within the control of the investors
have been or will be met. Any Plan fiduciary considering whether to purchase a
Class A Certificate on behalf of a Plan should consult with its counsel
regarding the applicability of the Underwriters' Exemption and other relevant
issues. For additional information regarding treatment of the Class A
Certificates under ERISA, [including certain special considerations that apply
with respect to the Pre-Funding Account,] see "ERISA Considerations" in the
Prospectus.
[THE CLASS B CERTIFICATES
Because the Class B Certificates are subordinated to the Class A
Certificates in certain respects, the Exemption will not apply to the purchase
of Class B Certificates by or on behalf of a Plan. However, other prohibited
transaction exemptions may be applicable. These exemptions may apply with
respect to, inter alia, purchases by certain insurance company general accounts,
insurance company pooled separate accounts and bank collective investment funds,
and on behalf of employee benefit plans by certain qualified professional asset
managers. Any Plan fiduciary considering whether to purchase a Class B
Certificate on behalf of a Plan should consult with its counsel regarding the
applicability of one or more of such exemptions to such purchase. For additional
information regarding treatment of the Class B Certificates under ERISA, see
"ERISA Considerations" in the Prospectus.]
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<PAGE> 189
UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting Agreement
(the "Underwriting Agreement"), the Sellers have agreed to cause the Trust to
sell to each of the Underwriters named below (the "Underwriters"), and each of
the Underwriters has severally agreed to purchase, the principal balance of the
Class A Certificates [and Class B Certificates] set forth opposite its name
below:
<TABLE>
<CAPTION>
PRINCIPAL
BALANCE OF
CLASS A
UNDERWRITERS CERTIFICATES
------------------------------------------------------------------------- ----------
<S> <C>
NationsBanc Capital Markets, Inc......................................... $
----------
Total.......................................................... $
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
BALANCE OF
CLASS B
UNDERWRITERS CERTIFICATES
------------------------------------------------------------------------- ----------
<S> <C>
NationsBanc Capital Markets, Inc......................................... $
----------
Total.......................................................... $
----------
</TABLE>
The Sellers have been advised by the Underwriters that they propose
initially to offer the Class A Certificates to the public at the prices set
forth herein, and to certain dealers at such price less the initial concession
not in excess of % per Class A Certificate. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of % per Class A
Certificate to certain other dealers. After the initial public offering of the
Class A Certificates, the public offering prices and such concessions may be
changed.
[The Sellers have been advised by the Underwriters that they propose
initially to offer the Class B Certificates to the public at the prices set
forth herein, and to certain dealers at such price less the initial concession
not in excess of % per Class B Certificate. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of % per Class B
Certificate to certain other dealers. After the initial public offering of the
Class B Certificates, the public offering prices and such concessions may be
changed.]
The Sellers will indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act, or contribute to payments the
Underwriters may be required to make in respect thereof.
NationsBanc Capital Markets, Inc. ("NCMI") is a separate subsidiary of
NationsBank Corporation. NCMI is a registered broker/dealer and not a bank. Any
obligations of NCMI are the sole responsibility of NCMI and do not create any
obligation or guarantee on the part of any affiliate of NCMI.
LEGAL OPINIONS
In addition to the legal opinions described in the Prospectus, certain
legal matters relating to the Certificates will be passed upon for the
Underwriters and certain federal income tax and other matters will be passed
upon for the Trust by . [
has represented and may from time to time in the future render
legal services to one or more of the Sellers and their affiliates.]
S-40
<PAGE> 190
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered NationsBank
Auto Grantor Trust % Asset Backed Certificates, Class A [and % Asset
Backed Certificates, Class B] ([collectively,] the "Global Securities") will be
available only in book-entry form. Investors in the Global Securities may hold
such Global Securities through any of The Depository Trust Company ("DTC"),
Cedel Bank, societe anonyme ("Cedel") or the Euroclear System ("Euroclear"). The
Global Securities will be tradeable as home market instruments in both the
European and U.S. domestic markets. Initial settlement and all secondary trades
will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through Cedel and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Global Securities will be effected on a
delivery-against-payment basis through the respective Depositaries of Cedel and
Euroclear (in such capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities will
be represented through financial institutions acting on their behalf as direct
and indirect Participants in DTC. As a result, Cedel and Euroclear will hold
positions on behalf of their participants through their respective Depositaries,
which in turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to U.S. corporate debt obligations. Investor
securities custody accounts will be credited with their holdings against payment
in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to U.S. corporate
debt obligations in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
I-1
<PAGE> 191
Trading between DTC seller and Cedel or Euroclear purchaser. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a Cedel Participant or a Euroclear Participant, the purchaser will
send instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. Cedel or Euroclear
will instruct the respective Depositary, as the case may be, to receive the
Global Securities against payment. Payment will include interest accrued on the
Global Securities from and including the last coupon payment date to and
excluding the settlement date. Payment will then be made by the respective
Depositary to the DTC Participant's account against delivery of the Global
Securities. After settlement has been completed, the Global Securities will be
credited to the respective clearing system and by the clearing system, in
accordance with its usual procedures, to the Cedel Participant's or Euroclear
Participant's account. The securities credit will appear the next day (European
time) and the cash debit will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the Cedel or Euroclear cash debit
will be valued instead as of the actual settlement date.
Cedel Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Cedel or Euroclear. Under this approach,
they may take on credit exposure to Cedel or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, Cedel Participants or Euroclear Participants can elect not to pre-position
funds and allow that credit line to be drawn upon to finance settlement. Under
this procedure, Cedel Participants or Euroclear Participants purchasing Global
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each Cedel Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective Depositary for the benefit of Cedel Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participant a cross-market transaction will
settle no differently than a trade between two DTC Participants.
Trading between Cedel or Euroclear seller and DTC purchaser. Due to time
zone differences in their favor, Cedel Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through the
respective Depositary, to a DTC Participant. The seller will send instructions
to Cedel or Euroclear through a Cedel Participant or Euroclear Participant at
least one business day prior to settlement. In these cases, Cedel or Euroclear
will instruct the respective Depositary, as appropriate, to deliver the bonds to
the DTC Participant's account against payment. Payment will include interest
accrued on the Global Securities from and including the last coupon payment date
to and excluding the settlement date. The payment will then be reflected in the
account of the Cedel Participant or Euroclear Participant the following day, and
receipt of the cash proceeds in the Cedel Participant's or Euroclear
Participant's account would be back-valued to the value date (which would be the
preceding day, when settlement occurred in New York). Should the Cedel
Participant or Euroclear Participant have a line of credit with its respective
clearing system and elect to be in debit in anticipation of receipt of the sale
proceeds in its account, the back-valuation will extinguish any overdraft
charges incurred over that one-day period. If settlement is not completed on the
intended value date (i.e., the trade fails), receipt of the cash proceeds in the
Cedel Participant's or Euroclear Participant's account would instead be valued
as of the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase Global
Securities from DTC Participants for delivery to Cedel Participants or Euroclear
Participants should note that these trades would
I-2
<PAGE> 192
automatically fail on the sale side unless affirmative action were taken. At
least three techniques should be readily available to eliminate this potential
problem:
(a) borrowing through Cedel or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedel or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Cedel or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the Cedel Participant
or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through Cedel or
Euroclear (or through DTC if the holder has an address outside the U.S.) will be
subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issue discount) on registered debt issued by U.S.
Persons, unless (i) each clearing system, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or business
in the chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of Global
Securities that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
Exemption or reduced rate for non-U.S. Persons resident in treaty countries
(Form 1001). Non-U.S. Persons that are beneficial owners of Global Securities
residing in a country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate (depending on the treaty terms) by filing Form
1001 (Ownership, Exemption or Reduced Rate Certificate). If the treaty provides
only for a reduced rate, withholding tax will be imposed at that rate unless the
filer alternatively files Form W-8. Form 1001 may be filed by the beneficial
owner of Global Securities or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The beneficial owner of a
Global Security or in the case of a Form 1001 or a Form 4224 filer, his agent,
files by submitting the appropriate form to the person through whom it holds
(the clearing agency, in the case of persons holding directly on the books of
the clearing agency). Form W-8 and Form 1001 are effective for three calendar
years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof or (iii) an estate or trust
the income of which is includible in gross income for United States tax
purposes, regardless of its source. This summary does not deal with all aspects
of U.S. federal income tax withholding that may be relevant to foreign holders
of the Global Securities. Investors are advised to consult their own tax
advisers for specific tax advice concerning their holding and disposing of the
Global Securities.
I-3
<PAGE> 193
INDEX OF TERMS
Set forth below is a list of the defined terms used in this Prospectus
Supplement and defined herein and the pages on which the definitions of such
terms may be found herein. Certain defined terms used in this Prospectus
Supplement are defined in the Prospectus. See "Index of Terms" beginning on page
68 of the Prospectus.
<TABLE>
<S> <C>
Additional Yield Supplement Amount............................................... S-9
Additional Reserve Account Deposit............................................... S-26
Advance.......................................................................... S-27
Advance Reserve Withdrawal....................................................... S-28
Agreement.........................................................................Front Cover
Available Interest............................................................... S-30
Available Principal.............................................................. S-30
Available Reserve Amount......................................................... S-28
Average Delinquency Ratio........................................................ S-28
Average Net Loss Ratio........................................................... S-28
Bank............................................................................. S-3
Banks............................................................................ S-3
Business Day..................................................................... S-6
Cede............................................................................. S-2
Cedel............................................................................ S-4
Certificate Owner................................................................ S-4
Certificate Pool Factor.......................................................... S-23
Certificate Prepayment Amount.................................................... S-8
Certificate Prepayment Premium................................................... S-7
Certificateholders............................................................... S-6
Certificates......................................................................Front Cover
Class A Certificate Balance...................................................... S-31
[Class A] Certificate Rate....................................................... S-6
Class A Certificateholders....................................................... S-6
Class A Certificates..............................................................Front Cover
Class A Interest Carryover Shortfall............................................. S-31
Class A Interest Distribution.................................................... S-31
Class A Monthly Interest......................................................... S-31
Class A Monthly Principal........................................................ S-31
Class A Percentage............................................................... S-4
Class A Principal Carryover Shortfall............................................ S-31
Class A Principal Distribution................................................... S-31
Class B Certificate Balance...................................................... S-31
[Class B ]Certificate Rate....................................................... S-6
Class B Certificateholders....................................................... S-6
Class B Certificates..............................................................Front Cover
Class B Interest Carryover Shortfall............................................. S-31
Class B Interest Distribution.................................................... S-32
Class B Monthly Interest......................................................... S-32
Class B Monthly Principal........................................................ S-32
Class B Percentage............................................................... S-4
Class B Principal Carryover Shortfall............................................ S-32
Class B Principal Distribution................................................... S-32
Closing Date..................................................................... S-5
Code............................................................................. S-11
Collateral Agent................................................................. S-3
Collection Account............................................................... S-
Collection Period................................................................ S-6
Collections...................................................................... S-30
Commission....................................................................... S-2
Contract Rate.................................................................... S-18
</TABLE>
i
<PAGE> 194
<TABLE>
<S> <C>
Cut-Off Date......................................................................Front Cover
Dealer Agreements................................................................ S-3
Dealers.......................................................................... S-3
Defaulted Receivable............................................................. S-29
Definitive Certificates.......................................................... S-26
Delinquency Ratio................................................................ S-29
Distribution Account............................................................. S-27
Distribution Date.................................................................Front Cover
DTC.............................................................................. S-2
ERISA............................................................................ S-11
Euroclear........................................................................ S-4
Exchange Act..................................................................... S-2
Final Scheduled Maturity Date.................................................... S-5
Final Scheduled Distribution Date.................................................Front Cover
Financed Vehicles................................................................ S-3
"Forced-placed insurance"........................................................ S-18
Funding Period................................................................... S-8
Global Securities................................................................ I-1
Grantor Trust Certificateholders................................................. S-35
Grantor Trust Certificates....................................................... S-36
Holders.......................................................................... S-26
[Initial] Cut-Off Date........................................................... S-3
[Initial] Receivables............................................................ S-3
Interest Collections............................................................. S-30
IRS.............................................................................. S-35
Issuer........................................................................... S-3
Liquidation Proceeds............................................................. S-29
Mandatory Repurchase............................................................. S-7
market discount.................................................................. S-37
NationsBank South................................................................ S-3
NationsBank Texas................................................................ S-3
NCMI............................................................................. S-40
Net Loss Ratio................................................................... S-29
Obligor.......................................................................... S-3
Offered Grantor Trust Certificates............................................... S-36
Outstanding Advances............................................................. S-10
Pass-Through Rate................................................................ S-6
Plan............................................................................. S-39
Pool Balance..................................................................... S-6
Pool[/Pre-Funding] Balance....................................................... S-5
Pre-Funded Amount................................................................ S-5
Pre-Funding Account...............................................................Front Cover
Prospectus....................................................................... S-2
Purchase Price................................................................... S-36
Purchased Receivable............................................................. S-30
Rating Agencies.................................................................. S-17
Rating Agency Condition.......................................................... S-10
Realized Losses.................................................................. S-32
Receivables.......................................................................Front Cover
</TABLE>
ii
<PAGE> 195
<TABLE>
<S> <C>
Receivables Pool................................................................. S-18
Record Date...................................................................... S-6
Recoveries....................................................................... S-29
Required [Initial] Yield Supplement Amount....................................... S-33
Required Subsequent Yield Supplement Amount...................................... S-33
Required Rate.................................................................... S-9
Required Yield Supplement Amount................................................. S-9
Reserve Account.................................................................. S-9
Reserve Account Initial Deposit.................................................. S-9
Securities Act................................................................... S-2
Seller............................................................................Front Cover
Sellers...........................................................................Front Cover
Servicer..........................................................................Front Cover
Servicer's Certificate........................................................... S-29
Servicing Fee Rate............................................................... S-10
Shortfall Amount................................................................. S-15
Simple Interest Receivable....................................................... S-22
Special Tax Counsel.............................................................. S-11
Specified Reserve Account Balance................................................ S-10
Subsequent Cut-Off Date.......................................................... S-
Subsequent Receivables............................................................Front Cover
Subsequent Transfer Date..........................................................Front Cover
Supplemental Servicing Fee....................................................... S-27
Trust.............................................................................Front Cover
Trust Property................................................................... S-3
Trustee.......................................................................... S-3
U.S. Person...................................................................... I-3
Underwriters..................................................................... S-40
Underwriters' Exemption.......................................................... S-39
Underwriting Agreement........................................................... S-40
United States person............................................................. S-38
Yield Supplement Amount.......................................................... S-9
Yield Supplement Agreement....................................................... S-9
Yield Supplement Account......................................................... S-9
Yield Supplement Initial Deposit................................................. S-33
</TABLE>
iii
<PAGE> 196
- ------------------------------------------------------------
- ------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES
OFFERED HEREBY, NOR AN OFFER OF THE SECURITIES IN ANY STATE OR JURISDICTION IN
WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF
THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT
INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Reports to Certificateholders.................... S-
Summary.......................................... S-
Risk Factors..................................... S-
The Trust........................................ S-
The Receivables Pool............................. S-
Pool Factors..................................... S-
Maturity and Prepayment Considerations........... S-
Yield Considerations............................. S-
Use of Proceeds.................................. S-
Description of the Certificates.................. S-
Federal Income Tax Consequences.................. S-
ERISA Considerations............................. S-
Underwriting..................................... S-
Legal Opinions................................... S-
Annex I -- Global Clearance, Settlement and Tax
Documentation Procedures....................... S-
Index of Terms...................................
PROSPECTUS
Reports to Securityholders....................... 1
Available Information............................ 1
Incorporation of Certain Documents by
Reference...................................... 1
Summary.......................................... 3
Risk Factors..................................... 14
The Trusts....................................... 21
The Receivables Pools............................ 23
Maturity and Prepayment Considerations........... 26
Pool Factors and Trading Information............. 27
Use of Proceeds.................................. 27
The Banks, NationsBank Corporation and NAFC...... 28
The Servicer..................................... 28
Description of the Notes......................... 29
Description of the Certificates.................. 34
Description of Fixed and Floating Rate Options... 35
Book-Entry and Definitive Securities; Reports to
Securityholders................................ 39
Description of the Transfer and Servicing
Agreements..................................... 44
Certain Legal Aspects of the Receivables......... 57
Federal Income Tax Consequences.................. 61
ERISA Considerations............................. 62
Plan of Distribution............................. 66
Legal Opinions................................... 67
Index of Terms................................... 68
</TABLE>
UNTIL , 199 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS
SUPPLEMENT), ALL DEALERS EFFECTING TRANSACTIONS IN THE CERTIFICATES, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS
SUPPLEMENT AND A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS SUPPLEMENT AND A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
$
NATIONSBANK
AUTO GRANTOR TRUST 199 -
$ % ASSET
BACKED CERTIFICATES, CLASS A
[$ % ASSET
BACKED CERTIFICATES, CLASS B]
NATIONSBANK, N.A.
NATIONSBANK, N.A. (SOUTH)
NATIONSBANK OF TEXAS, N.A.
SELLERS
---------------------
NATIONSBANK, N.A.
SERVICER
---------------------
---------------------
PROSPECTUS
SUPPLEMENT
---------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 197
THE INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE
IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY 19, 1996
OWNER TRUST PROSPECTUS SUPPLEMENT
(To Prospectus dated July , 1996)
$2,136,187,667.91
NATIONSBANK AUTO OWNER TRUST 1996-A
$588,952,000.00 % CLASS A-1 ASSET BACKED NOTES
$744,000,000.00 % CLASS A-2 ASSET BACKED NOTES
$457,323,000.00 % CLASS A-3 ASSET BACKED NOTES
$175,000,000.00 % CLASS A-4 ASSET BACKED NOTES
$96,129,000.00 % CLASS B-1 ASSET BACKED CERTIFICATES
$74,783,667.91 % CLASS B-2 ASSET BACKED CERTIFICATES
NATIONSBANK, N.A.
NATIONSBANK, N.A. (SOUTH)
NATIONSBANK OF TEXAS, N.A.
SELLERS
---------------------
NATIONSBANK, N.A.
SERVICER
---------------------
The NationsBank Auto Owner Trust 1996-A (the "Trust") will be governed by a
Trust Agreement, dated as of July , 1996, among NationsBank, N.A.,
NationsBank, N.A. (South), NationsBank of Texas, N.A. (each, a "Seller" and a
"Bank" and collectively, the "Sellers" and the "Banks") and Bankers Trust
(Delaware), as Owner Trustee. The Trust will issue $588,952,000 aggregate
initial principal amount of % Class A-1 Asset Backed Notes (the "Class
A-1 Notes"), $744,000,000 aggregate initial principal amount of % Class A-2
Asset Backed Notes (the "Class A-2 Notes"),
(Continued on the following page)
PROSPECTIVE INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION SET
FORTH IN
"RISK FACTORS" BEGINNING ON PAGE S-15 HEREIN AND ON PAGE 14 OF THE ACCOMPANYING
PROSPECTUS.
---------------------
THE NOTES REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES REPRESENT BENEFICIAL
INTERESTS IN, THE TRUST ONLY AND DO NOT REPRESENT OBLIGATIONS OF OR
INTERESTS IN, AND ARE NOT GUARANTEED OR INSURED BY, THE FEDERAL
DEPOSIT INSURANCE CORPORATION, ANY GOVERNMENTAL AGENCY, ANY
OF THE SELLERS, THE SERVICER OR NATIONSBANK CORPORATION
OR ANY OF THEIR RESPECTIVE AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT THE SELLER(1)(2)
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Class A-1 Note.................................... % % %
- ------------------------------------------------------------------------------------------------------------------------------
Per Class A-2 Note.................................... % % %
- ------------------------------------------------------------------------------------------------------------------------------
Per Class A-3 Note.................................... % % %
- ------------------------------------------------------------------------------------------------------------------------------
Per Class A-4 Note.................................... % % %
- ------------------------------------------------------------------------------------------------------------------------------
Per Class B-1 Certificate............................. % % %
- ------------------------------------------------------------------------------------------------------------------------------
Per Class B-2 Certificate............................. % % %
- ------------------------------------------------------------------------------------------------------------------------------
Total................................................. $ $ $
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from the Closing Date.
(2) Before deducting expenses, estimated to be $ .
The Notes and the Certificates are offered by the Underwriters when, as and
if issued and accepted by the Underwriters and subject to their right to reject
orders in whole or in part. It is expected that delivery of the Notes will be
made in book-entry form only through the Same Day Funds Settlement System of The
Depository Trust Company, or through Cedel Bank, societe anonyme or the
Euroclear System, and that delivery of the Certificates will be made in fully
registered, certificated form in New York, New York, in each case on or about
July , 1996 against payment therefor in immediately available funds.
UNDERWRITERS OF THE NOTES
NATIONSBANC CAPITAL MARKETS, INC.
BEAR, STEARNS & CO. INC.
FIRST CHICAGO CAPITAL MARKETS, INC.
MERRILL LYNCH & CO.
SALOMON BROTHERS INC
UBS SECURITIES
UNDERWRITER OF THE CERTIFICATES
NATIONSBANC CAPITAL MARKETS, INC.
The date of this Prospectus Supplement is July , 1996.
<PAGE> 198
(Continued from the cover page)
$457,323,000 aggregate initial principal amount of % Class A-3 Asset Backed
Notes (the "Class A-3 Notes") and $175,000,000 aggregate initial principal
amount of % Class A-4 Asset Backed Notes (the "Class A-4 Notes" and,
together with the Class A-1 Notes, the Class A-2 Notes and the Class A-3 Notes,
the "Notes") pursuant to an Indenture to be dated as of July , 1996, between
the Trust and The Chase Manhattan Bank, as Indenture Trustee. The Trust will
also issue $96,129,000 aggregate initial Certificate Balance of % Class
B-1 Asset Backed Certificates (the "Class B-1 Certificates") and $74,783,667.91
aggregate initial Certificate Balance of % Class B-2 Asset Backed
Certificates (the "Class B-2 Certificates" and, together with the Class B-1
Certificates, the "Certificates" and, together with the Notes, as the
"Securities"). The assets of the Trust will include a pool of retail motor
vehicle installment sales contracts (the "Receivables") secured by security
interests in the motor vehicles financed thereby including certain monies
received thereunder after the related Cut-Off Date, which will be purchased by
the Trust from the Sellers on or prior to the Closing Date, and certain other
property, as more fully described herein. See "Summary -- The Trust Property"
herein. The Notes will be secured by the assets of the Trust pursuant to the
Indenture. (Certain capitalized terms used in this Prospectus Supplement are
defined elsewhere in this Prospectus Supplement on the pages indicated in the
"Index of Terms" beginning on page S-51.)
Interest on the Notes will accrue at the fixed per annum interest rates
specified above. Interest on the Notes will be payable on the 15th day of each
month or if such day is not a Business Day, the next succeeding Business Day
(each, a "Distribution Date"), commencing on the August 1996 Distribution Date.
Interest will accrue from and including the Closing Date (in the case of the
first Distribution Date), or from and including the 15th day of the most recent
month in which interest has been paid, to but excluding the 15th day of the
current month (each an "Interest Period"). Interest on the Notes will be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
Principal on the Notes will be payable on each Distribution Date to the extent
described herein; however, no principal will be paid on the Class A-2 Notes
until the Class A-1 Notes have been paid in full, and no principal will be paid
on the Class A-3 Notes until the Class A-2 Notes have been paid in full, and no
principal will be paid on the Class A-4 Notes until the Class A-3 Notes have
been paid in full.
The Certificates will represent fractional undivided interests in the
Trust. Interest, to the extent of the Certificate Rates specified above, will be
distributed to the Certificateholders on each Distribution Date. Interest on the
Certificates will accrue for each Interest Period and will be calculated on the
basis of a 360-day year consisting of twelve 30-day months. Principal, to the
extent described herein, will be distributed to the Certificateholders on each
Distribution Date commencing with the Distribution Date on which the Notes are
paid in full. Distributions of principal and interest on the Certificates will
be subordinated in priority to payments due on the Notes as described herein.
Distributions on the Class B-2 Certificates will be subordinated to
distributions on the Class B-1 Certificates as described herein. In addition, no
principal will be paid on the Class B-2 Certificates until the Class B-1
Certificates have been paid in full. In addition, upon the occurrence and during
the continuation of an Event of Default which has resulted in an acceleration of
the Notes or following an Insolvency Event or a dissolution with respect to
NationsBanc Auto Funding Corporation ("NAFC"), distributions of any amounts on
the Certificates will be subordinated in priority of payment to payment in full
of principal of and accrued interest on the Notes.
The Class A-1 Notes will be payable in full on the August 1997 Distribution
Date, the Class A-2 Notes will be payable in full on the July 1999 Distribution
Date, the Class A-3 Notes will be payable in full on the July 2000 Distribution
Date and the Class A-4 Notes will be payable in full on the December 2000
Distribution Date. The Final Scheduled Distribution Date with respect to the
Class B-1 Certificates will be the June 2001 Distribution Date and with respect
to the Class B-2 Certificates will be the May 2003 Distribution Date. However,
payment in full of a class of Notes or a class of Certificates could occur
earlier or later than such dates as described herein. In addition, the
Certificates will be subject to prepayment in whole, but not in part, on any
Distribution Date on which the Servicer exercises its option to purchase the
Receivables. The Servicer may purchase the Receivables when the aggregate
principal balance of the Receivables shall have declined to 5% or less of the
initial aggregate principal balance of the Receivables purchased by the Trust.
Application will be made to list the Notes on the Luxembourg Stock
Exchange.
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE NOTES AND THE CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED
IN THE PROSPECTUS, AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE NOTES OR THE
CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE NOTES AND THE
CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
S-2
<PAGE> 199
REPORTS TO SECURITYHOLDERS
Unless and until Definitive Notes are issued, monthly and annual unaudited
reports containing information concerning the Receivables will be prepared by
the Servicer and sent on behalf of the Trust to Cede & Co. ("Cede"), as nominee
of The Depository Trust Company ("DTC") as the registered holder of the Notes.
See "Book-Entry and Definitive Securities; Reports to
Securityholders -- Book-Entry Registration" and "-- Reports to Securityholders"
in the accompanying Prospectus (the "Prospectus"). Monthly and annual unaudited
reports concerning the Receivables will be distributed to Certificateholders.
See "Description of the Certificates -- Statements to Certificateholders"
herein. None of such reports will constitute financial statements prepared in
accordance with generally accepted accounting principles. The Servicer, on
behalf of the Trust, will file with the Securities and Exchange Commission (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. The Servicer intends to continue to
file with respect to the Trust such periodic reports pursuant to the
requirements of the Exchange Act for the period after such filings could be
discontinued in reliance on Section 15(d) thereof until the Notes and the
Certificates issued by the Trust are no longer outstanding.
The Sellers have filed with the Commission, on behalf of the Trust, 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 Supplement and the Prospectus. For further
information, reference is made to such Registration Statement, and the exhibits
thereto, which are available for inspection without charge at the public
reference facilities of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, as well as the Midwest Regional Offices of the Commission at the
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511, and at the Northeast Regional Office of the Commission at 7 World
Trade Center, Suite 1300, New York, New York 10048. Copies of such information
can be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, the
Commission maintains a public access site on the Internet through the World Wide
Web at which site reports, information statements and other information,
including all electronic filings, regarding the Sellers and NationsBank
Corporation, the parent corporation of each of the Sellers, may be viewed. The
Internet address of such World Wide Web site is http://www.sec.gov. See
"Available Information" in the Prospectus.
S-3
<PAGE> 200
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus. Certain
capitalized terms used herein are defined elsewhere in this Prospectus
Supplement on the pages indicated in the "Index of Terms" or, to the extent not
defined herein, have the meanings assigned to such terms in the Prospectus.
ISSUER..................... NationsBank Auto Owner Trust 1996-A (the "Trust" or
the "Issuer"), a Delaware business trust formed
by the Sellers and the Owner Trustee pursuant to
the Trust Agreement (as amended, modified and
supplemented from time to time, the "Trust
Agreement"), dated as of July , 1996, among the
Sellers and the Owner Trustee.
SELLER..................... NationsBank, N.A., NationsBank, N.A. (South)
("NationsBank South") and NationsBank of Texas,
N.A. ("NationsBank Texas") (each a "Seller" and a
"Bank" and, collectively, the "Sellers" and the
"Banks").
SERVICER................... NationsBank, N.A., in its capacity as servicer (the
"Servicer").
INDENTURE TRUSTEE.......... The Chase Manhattan Bank, a New York corporation,
as trustee under the Indenture (the "Indenture
Trustee").
OWNER TRUSTEE.............. Bankers Trust (Delaware), a Delaware banking
corporation, as trustee under the Trust Agreement
(the "Owner Trustee").
THE NOTES.................. The Trust will issue four classes of Asset Backed
Notes (the "Notes") pursuant to the Indenture (as
amended, modified and supplemented from time to
time, the "Indenture"), to be dated as of the
Closing Date, between the Trust and the Indenture
Trustee, as follows: (1) % Class A-1 Asset
Backed Notes (the "Class A-1 Notes") in the
aggregate initial principal amount of
$588,952,000; (2) % Class A-2 Asset Backed
Notes (the "Class A-2 Notes") in the aggregate
initial principal amount of $744,000,000; (3)
% Class A-3 Asset Backed Notes (the "Class
A-3 Notes") in the aggregate initial principal
amount of $457,323,000; and (4) % Class A-4
Asset Backed Notes (the "Class A-4 Notes") in the
aggregate initial principal amount of
$175,000,000.
The Notes will be secured by the assets of the
Trust pursuant to the Indenture.
The Notes will be available for purchase in
book-entry form only in minimum denominations of
$1,000 and integral multiples thereof. The
Noteholders will not be entitled to receive
Definitive Notes except in the limited
circumstances described herein. See "Book-Entry
and Definitive Securities; Reports to
Securityholders -- Definitive Securities" in the
Prospectus.
THE CERTIFICATES........... The Trust will issue two classes of Asset Backed
Certificates (the "Certificates" and, together
with the Notes, the "Securities") as follows: (1)
% Class B-1 Asset Backed Certificates (the
"Class B-1 Certificates") with an aggregate
initial Certificate Balance of $96,129,000; and
(2) % Class B-2 Asset Backed Certificates
(the "Class B-2 Certificates") with an aggregate
initial Certificate Balance of $74,783,667.91.
The Certificates will represent fractional
undivided interests in the Trust and will be
issued pursuant to the
S-4
<PAGE> 201
Trust Agreement. $1,923,000 aggregate initial
Certificate Balance of Class B-1 Certificates and
$1,496,667.91 aggregate initial Certificate
Balance of Class B-2 Certificates will initially
be held by NationsBanc Auto Funding Corporation,
a Delaware corporation ("NAFC"), a limited
purpose wholly owned subsidiary of NationsBank,
N.A., and are not offered hereby. The rights of
the Certificateholders to receive distributions
with respect to the Certificates will be
subordinated to the rights of the Noteholders to
receive principal and interest on the Notes as
described herein. In addition, the rights of the
holders of the Class B-2 Certificates to receive
distributions on the Class B-2 Certificates will
be subordinated to the rights of the holders of
the Class B-1 Certificates to receive
distributions on the Class B-1 Certificates as
described herein.
The Certificates will be available for purchase in
fully registered definitive form in minimum
denominations of $1,000 and integral multiples
thereof.
NATIONSBANC AUTO FUNDING
CORPORATION.............. NAFC has been formed for the limited purpose of
purchasing a portion of the Certificates issued
by the Trust, acting as the general partner of
the Trust for federal income tax purposes and
engaging in incidental activities. As described
above, NAFC will purchase slightly more than 2%
of each class of the Certificates issued by the
Trust. Any Certificates purchased by NAFC have
not been, and will not be, registered with the
Commission and may not be offered pursuant to the
Registration Statement.
THE TRUST PROPERTY......... The property of the Trust (the "Trust Property")
includes a pool of fixed rate simple interest
retail motor vehicle installment sales contracts
purchased by the Sellers from motor vehicle
dealers (the "Dealers") that provide for the
allocation of payments between principal and
interest according to the simple interest method
(collectively, the "Receivables"), all monies
received under the Receivables after the close of
business of the Servicer on June 30, 1996 (the
"Cut-Off Date") and will also include: (i) such
amounts as from time to time are on deposit in
one or more accounts maintained pursuant to the
Sale and Servicing Agreement (as amended,
modified and supplemented from time to time, the
"Sale and Servicing Agreement") to be dated as of
July , 1996, among the Trust, the Sellers and
the Servicer, as described herein, including the
Reserve Account; (ii) security interests in the
new and used automobiles, vans and light-duty
trucks financed thereby (collectively, the
"Financed Vehicles") and any accessions thereto;
(iii) the Sellers' rights (if any) to receive
proceeds from claims under certain insurance
policies covering the Financed Vehicles or the
obligors under the Receivables (each, an
"Obligor"), as the case may be; (iv) any property
that shall have secured a Receivable and shall
have been acquired by the Trust; (v) each
Seller's rights relating to the repurchase of
Receivables under agreements between each Seller
and the Dealers that sold the Financed Vehicles
to the Obligors and any assignments and other
documents related thereto (collectively, the
"Dealer Agreements") and under the documents and
instruments contained in the Receivable Files;
(vi) certain rebates of premiums and other
amounts relating to
S-5
<PAGE> 202
certain insurance policies and other items
financed under the Receivables; (vii) the rights
of the Trust under the Sale and Servicing
Agreement; and (viii) any and all proceeds of the
foregoing.
THE RECEIVABLES............ On July , 1996 (the "Closing Date"), the Trust
will purchase the Receivables which will have an
aggregate principal balance (the "Pool Balance")
of $2,136,187,667.91 as of the Cut-Off Date from
the Sellers pursuant to the Sale and Servicing
Agreement. As of the Cut-Off Date, the weighted
average annual percentage rate of the Receivables
was 10.38%, the weighted average remaining
maturity of the Receivables was 49.0 months and
the weighted average original maturity of the
Receivables was 59.7 months.
The Receivables arise from loans originated by
Dealers and purchased by the Sellers pursuant to
Dealer Agreements. The Receivables have been
selected from the Motor Vehicle Loans owned by
the Sellers based on the criteria specified in
the Sale and Servicing Agreement and described
herein and in the Prospectus. No Receivable has a
scheduled maturity later than June 30, 2002 (the
"Final Scheduled Maturity Date").
Unless otherwise provided, the "Pool Balance" at
any time will represent the aggregate principal
balance of the Receivables at the end of the
preceding Collection Period, after giving effect
to all payments received from Obligors,
Liquidation Proceeds, and Purchase Amounts to be
remitted by the Servicer or the Sellers, as the
case may be, all for such Collection Period and
all Realized Losses during such Collection
Period.
TERMS OF THE NOTES......... The principal terms of the Notes will be as
described below:
A. Distribution Dates...... Payments of interest and principal on the Notes
will be made on the 15th day of each month or, if
any such day is not a Business Day, on the next
succeeding Business Day (each, a "Distribution
Date"), commencing with the August 1996
Distribution Date. Payments will be made to
holders of record of the Notes (the
"Noteholders") as of the day immediately
preceding such Distribution Date or, if
Definitive Notes are issued, as of the last day
of the preceding month (a "Record Date"). A
"Business Day" is a day other than a Saturday, a
Sunday or a day on which banking institutions or
trust companies in The City of New York are
authorized or required by law, regulation or
executive order to be closed.
B. Note Interest Rates..... The Class A-1 Notes will bear interest at the rate
of % per annum (the "Class A-1 Rate"), the
Class A-2 Notes will bear interest at the rate of
% per annum (the "Class A-2 Rate"), the
Class A-3 Notes will bear interest at the rate of
% per annum (the "Class A-3 Rate") and the
Class A-4 Notes will bear interest at the rate of
% per annum (the "Class A-4 Rate" and, together
with the Class A-1 Rate, the Class A-2 Rate and
the Class A-3 Rate, the "Note Interest Rates").
C. Interest................ On each Distribution Date, the Indenture Trustee
will distribute pro rata to Noteholders of each
class of Notes accrued interest at the applicable
Note Interest Rate on the outstanding principal
amount of the Notes of each class generally to
the extent of funds available following
reimbursement of Outstanding Advances made on
Receivables which
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became Defaulted Receivables during the related
Collection Period and payment of the Servicing
Fee from the Available Funds and the Reserve
Account. Interest on the outstanding principal
amount of the Notes of each class will accrue at
the applicable Note Interest Rate from and
including the Closing Date (in the case of the
first Distribution Date) or from and including
the 15th day of the most recent month in which
interest has been paid to but excluding the 15th
day of the current month (each an "Interest
Period"). Interest on the Notes will be
calculated on the basis of a 360-day year
consisting of twelve 30-day months. See
"Description of the Notes -- Payments of
Interest" herein.
D. Principal............... Principal of the Notes will be payable on each
Distribution Date in an amount equal to the
Noteholders' Principal Payment Amount for such
Distribution Date, generally to the extent of
funds available following reimbursement of
Outstanding Advances made on Receivables which
became Defaulted Receivables during the related
Collection Period, payment of the Servicing Fee
and payments of interest in respect of the Notes
from the Available Funds and the Reserve Account.
The "Noteholders' Principal Payment Amount" with
respect to a Distribution Date will generally be
equal to the Noteholders' Percentage of the sum
of (i) that portion of all Collections on the
Receivables allocable to principal received
during the calendar month (each, a "Collection
Period") preceding such Distribution Date, plus
(ii) that portion of all Collections on the
Receivables allocable to principal received up to
and including the second Business Day immediately
preceding the most recent Determination Date,
plus (iii) the principal portion of Purchase
Amounts where the obligation of the applicable
Seller or the Servicer arose during the preceding
Collection Period, plus (iv) the principal
balance of all Receivables which became Defaulted
Receivables during the preceding Collection
Period minus (v) with respect to all Distribution
Dates other than the August 1996 Distribution
Date, that portion of all Collections on the
Receivables allocable to principal received
during the preceding Collection Period up to and
including the second Business Day prior to the
Determination Date occurring in such Collection
Period. See "Description of the Transfer and
Servicing Agreements -- Distributions and
Payments -- Monthly Withdrawals from Collection
Account" herein.
Payments of principal on the Notes will be made on
each Distribution Date in the amounts and subject
to the priorities described in "Description of
the Notes -- Payments of Principal" herein.
The outstanding principal amount of the Class A-1
Notes, to the extent not previously paid, will be
payable in full on the August 1997 Distribution
Date (the "Class A-1 Final Scheduled Distribution
Date"), the outstanding principal amount of the
Class A-2 Notes, to the extent not previously
paid, will be payable in full on the July 1999
Distribution Date (the "Class A-2 Final Scheduled
Distribution Date"), the outstanding principal
amount of the Class A-3 Notes, to the extent not
previously paid, will be payable in full on the
July 2000 Distribution Date (the "Class A-3 Final
Scheduled Distribution Date") and the outstanding
principal amount of the Class A-4 Notes, to the
extent not previously paid, will be payable in
full on the
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December 2000 Distribution Date (the "Class A-4
Final Scheduled Distribution Date").
TERMS OF THE
CERTIFICATES............... The principal terms of the Certificates will be as
described below:
A. Distribution Dates...... Distributions with respect to the Certificates will
be made on each Distribution Date commencing with
the August 1996 Distribution Date. Distributions
will be made to holders of record of the
Certificates (the "Certificateholders," and,
together with the Noteholders, the
"Securityholders") as of the related Record Date
(which will be the last day of the month in the
case of the Certificates).
B. Certificate Rates....... Interest will be distributed on the Class B-1
Certificates at the rate of % per annum (the
"Class B-1 Rate"), and interest will be
distributed on the Class B-2 Certificates at the
rate of % per annum (the "Class B-2 Rate"
and, together with the Class B-1 Rate, the
"Certificate Rates").
C. Interest................ On each Distribution Date, the Owner Trustee will
distribute pro rata to Certificateholders of each
class of Certificates accrued interest at the
applicable Certificate Rates on the outstanding
Class B-1 Certificate Balance and the outstanding
Class B-2 Certificate Balance generally to the
extent of funds available following reimbursement
of Outstanding Advances made on Receivables which
became Defaulted Receivables during the related
Collection Period, payment of the Servicing Fee
and payments of interest and principal in respect
of the Notes from the Available Funds and the
Reserve Account; provided, however, that upon the
occurrence and during the continuation of an
Event of Default which has resulted in an
acceleration of the Notes or following an
Insolvency Event or a dissolution with respect to
NAFC, distributions of any amounts on the
Certificates will be subordinated in priority of
payment to payment in full of principal of and
accrued interest on the Notes. Distributions of
interest on the Class B-2 Certificates will be
subordinated to distributions of interest on the
Class B-1 Certificates as described herein.
Interest in respect of a Distribution Date will
be deemed to accrue at the applicable Certificate
Rate from and including the Closing Date (in the
case of the first Distribution Date) or from and
including the 15th day of the most recent month
in which interest has been paid to but excluding
the 15th day of the current month. Interest on
the Certificates will be calculated on the basis
of a 360-day year consisting of twelve 30-day
months. See "Description of the
Certificates -- Distributions of Interest Income"
herein.
D. Principal............... On each Distribution Date commencing on the
Distribution Date on which the Notes are paid in
full, principal of the Certificates will be
distributable in an amount equal to the
Certificateholders' Principal Distribution Amount
for such Distribution Date, generally to the
extent of funds available therefor following
reimbursement of Outstanding Advances made on
Receivables which became Defaulted Receivables
during such Collection Period, payment of the
Servicing Fee, payments of interest and principal
in respect of the Notes and the distribution of
interest in respect of the Certificates from the
Available Funds and the Reserve Account. The
"Certificateholders' Principal Distribution
Amount" with respect to a Distribution Date will
gener-
S-8
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ally be equal to the Certificateholders'
Percentage of the sum of (i) that portion of all
Collections on the Receivables allocable to
principal received during the Collection Period
preceding such Distribution Date, plus (ii) that
portion of all Collections on the Receivables
allocable to principal received up to and
including the second Business Day immediately
preceding the most recent Determination Date,
plus (iii) the principal portion of Purchase
Amounts where the obligation of the applicable
Seller or the Servicer arose during the preceding
Collection Period, plus (iv) the principal
balance of all Receivables which became Defaulted
Receivables during the preceding Collection
Period minus (v) with respect to all Distribution
Dates other than the August 1996 Distribution
Date, that portion of all Collections on the
Receivables allocable to principal received
during the preceding Collection Period up to and
including the second Business Day prior to the
Determination Date occurring in that Collection
Period. No principal will be distributed to
holders of Class B-2 Certificates unless and
until the Certificate Balance of the Class B-1
Certificates has been reduced to zero. The
outstanding Certificate Balance, if any, of the
Class B-1 Certificates will be payable in full on
the June 2001 Distribution Date (the "Class B-1
Final Scheduled Distribution Date"), and the
outstanding Certificate Balance, if any, of the
Class B-2 Certificates will be payable in full on
the May 2003 Distribution Date (the "Class B-2
Final Scheduled Distribution Date" and, together
with the Class A-1 Final Scheduled Distribution
Date, the Class A-2 Final Scheduled Distribution
Date, the Class A-3 Final Scheduled Distribution
Date, the Class A-4 Final Scheduled Distribution
Date and the Class B-1 Final Scheduled
Distribution Date, the "Final Scheduled
Distribution Dates").
E. Restrictions on
Ownership.................. No beneficial interest in a Certificate may be held
either directly or indirectly by a non-U.S.
person.
F. Optional Prepayment..... If the Servicer exercises its option to purchase
the Receivables, which can occur after the Pool
Balance declines to 5% or less of the initial
Pool Balance, the Certificateholders will receive
an amount in respect of each class of the
Certificates equal to the Certificate Balance
together with accrued interest at the applicable
Certificate Rate, and the Certificates will be
retired. See "Description of the Certificates --
Optional Prepayment" herein.
RESERVE ACCOUNT............ An account (the "Reserve Account") will be created
with an initial deposit by the Sellers on the
Closing Date of cash or Permitted Investments
having a value at least equal to 2.5% of the Pool
Balance as of the Cut-Off Date. The amount
initially deposited in the Reserve Account by the
Sellers is referred to as the "Reserve Account
Initial Deposit." The Reserve Account will be
maintained as an account in the name of the
Indenture Trustee for the benefit of
Securityholders.
Funds will be withdrawn from the Reserve Account up
to the Available Reserve Amount to the extent
that the Available Funds with respect to any
Collection Period remaining after reimbursement
of Outstanding Advances made on Receivables which
became Defaulted Receivables during such
Collection Period and after the Servicing Fee is
paid is less than the Noteholders' Payment Amount
and will be deposited in the Note Payment Account
for distribution to the Noteholders on
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the related Distribution Date. If funds applied
in accordance with the preceding sentence are
insufficient to pay interest on the Notes,
subject to certain limitations, additional funds
will be withdrawn from the Reserve Account to pay
interest due on the Notes to the extent of the
Interest Reserve Amount. In addition, funds will
be withdrawn from the Reserve Account up to the
Available Reserve Amount (as reduced by any
withdrawal pursuant to the second preceding
sentence) to the extent that the Available Funds
remaining after reimbursement of Outstanding
Advances made on Receivables which became
Defaulted Receivables during the related
Collection Period and after payment of the
Servicing Fee and the deposit of the Noteholders'
Payment Amount in the Note Payment Account is
less than the Certificateholders' Distribution
Amount and will be deposited in the Certificate
Distribution Account for distribution to the
Certificateholders. If funds applied in
accordance with the preceding sentence are
insufficient to distribute interest on the
Certificates, subject to certain limitations,
additional funds will be withdrawn from the
Reserve Account to distribute interest due on the
Certificates to the extent of the Interest
Reserve Amount (as reduced by any withdrawal to
pay interest due on the Notes).
Amounts in the Reserve Account on any Distribution
Date (after giving effect to all distributions to
be made on such Distribution Date) in excess of
the Specified Reserve Account Balance for such
Distribution Date will be released to the holder
of the Contingent Payment Right (except to the
extent described under "Description of the
Transfer and Servicing Agreements -- Reserve
Account" herein). The "Specified Reserve Account
Balance" with respect to any Distribution Date
will be equal to the greater of (i) the sum of
(x) 4.00% (or 7.00% in certain circumstances) of
the Pool Balance as of the last day of the
preceding Collection Period (such Pool Balance as
reduced by that portion of all Collections of
Receivables allocable to principal and received
during the period up to and including the second
Business Day immediately preceding the most
recent Determination Date) plus (y) if any Notes
are outstanding, an amount equal to three months
interest on the Certificate Balances as
determined by using the weighted average coupon
of the Certificates before giving effect to
reductions of the Certificate Balances on such
date or, if no Notes are outstanding, zero (the
"Specified Interest Reserve Amount") and (ii) the
lesser of (x) $26,702,346 and (y) the aggregate
outstanding principal balance of the Notes and
the aggregate of the Certificate Balances. The
Specified Reserve Account Balance may be reduced
to a lesser amount as determined by the Sellers,
provided that each Rating Agency shall have
confirmed in writing that such action will not
result in a withdrawal or reduction in its
ratings of the Notes and Certificates (the
"Rating Agency Condition").
On each Distribution Date, the Reserve Account will
be reinstated first to the Interest Reserve
Amount up to the Specified Interest Reserve
Amount and then up to the Specified Reserve
Account Balance to the extent, if any, of the
Available Funds remaining after reimbursement of
Outstanding Advances made on Receivables which
became Defaulted Receivables during the related
Collection Period, the payment of the Servicing
Fee, the deposit of the Noteholders' Payment
Amount
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into the Note Payment Account and the deposit of
the Certificateholders' Distribution Amount into
the Certificate Distribution Account.
The Interest Reserve Amount on any Distribution
Date shall equal the lesser of (i) the Specified
Interest Reserve Amount and (ii) the amounts
remaining on deposit in the Reserve Account;
provided however, that on each Distribution Date
following the occurrence of an Event of Default
which has resulted in an acceleration of the
Notes or a dissolution with respect to NAFC, the
Interest Reserve Amount shall equal zero; and
provided, further, that on each Distribution Date
on which the Equity Percentage as of such
Distribution Date (after giving effect to payment
of the Noteholders' Principal Payment Amount on
such Distribution Date) is less than 8.00%, the
Interest Reserve Amount shall equal zero.
The "Equity Percentage" with respect to any
Distribution Date means the percentage equivalent
of a fraction, the numerator of which is equal to
the excess, if any, of the sum of (a) the Pool
Balance as of the end of the preceding Collection
Period (such Pool Balance as reduced by that
portion of Collections of Receivables allocable
to principal and received during the period up to
and including the second Business Day immediately
preceding the most recent Determination Date)
plus (b) the amount on deposit in the Reserve
Account over the aggregate outstanding principal
amount of the Notes on such Distribution Date
(after giving effect to payment of the
Noteholders' Principal Payment Amount on such
Distribution Date) and the denominator of which
is equal to the Pool Balance as of the end of the
preceding Collection Period (such Pool Balance as
reduced by that portion of Collections of
Receivables allocable to principal and received
during the period up to and including the second
Business Day immediately preceding the most
recent Determination Date).
COLLECTION ACCOUNT......... Except under certain conditions described herein,
the Servicer will be required to remit
collections received with respect to the
Receivables not later than the second Business
Day after receipt to one or more accounts in the
name of the Indenture Trustee (the "Collection
Account"). Pursuant to the Sale and Servicing
Agreement, the Servicer will have the power,
revocable at the discretion of the Indenture
Trustee or at the discretion of the Owner Trustee
with the consent of the Indenture Trustee, to
instruct the Indenture Trustee to withdraw funds
on deposit in the Collection Account and to apply
such funds on each Distribution Date to the
following (in the priority indicated): (i) the
reimbursement of Outstanding Advances made with
respect to Receivables which became Defaulted
Receivables during the related Collection Period,
(ii) the Servicing Fee for the preceding
Collection Period and any overdue Servicing Fees
to the Servicer, (iii) the Accrued Note Interest
and the Noteholders' Principal Payment Amount
into the Note Payment Account, and (iv) the
Accrued Certificate Interest and, commencing on
the Distribution Date on which the Notes are paid
in full, the Certificateholders' Principal
Distribution Amount into the Certificate
Distribution Account and (v) the remaining
balance, if any, to the Reserve Account;
provided, however, that on each Distribution Date
following the
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occurrence of an Event of Default which has
resulted in acceleration of the Notes or
following an Insolvency Event or a dissolution
with respect to NAFC, the principal of and
accrued interest on the Notes must be paid in
full prior to the distribution of any amounts on
the Certificates.
SERVICER FEE............... The Servicer will receive each month a fee for
servicing the Receivables equal to (a) the
product of one-twelfth of 1.00% (the "Servicing
Fee Rate") and the Pool Balance outstanding at
the beginning of the preceding Collection Period,
plus (b) any late, prepayment, and other
administrative fees and expenses collected during
such month, plus (c) reinvestment proceeds on any
payments received in respect of the Receivables,
plus (d) Investment Earnings, if any, on the
Collection Account, the Note Payment Account and
the Certificate Distribution Account.
MATURITY AND PREPAYMENT
CONSIDERATIONS........... The Class A-2 Notes will not receive any principal
payments until the Class A-1 Notes have been paid
in full, and the Class A-3 Notes will not receive
any principal payments until the Class A-2 Notes
have been paid in full and the Class A-4 Notes
will not receive any principal payments until the
Class A-3 Notes have been paid in full. No
principal distributions on the Certificates will
be made until the Distribution Date on which the
Notes are paid in full. In addition, no principal
distributions on the Class B-2 Certificates will
be made until the Certificate Balance of the
Class B-1 Certificates has been reduced to zero.
As the rate of payment of principal of each class
of Notes and Certificates depends on the rate of
payment (including prepayments) of the principal
balance of the Receivables, final payment of any
class of Notes and the final distribution in
respect of any class of Certificates could occur
significantly earlier than the respective Final
Scheduled Distribution Dates. Reinvestment risk
associated with the early payment of the Notes
and Certificates will be borne exclusively by the
Noteholders and the Certificateholders,
respectively.
Amounts on deposit in the Reserve Account,
including the Interest Reserve Amount, on any
Final Scheduled Distribution Date with respect to
each class of Notes and Certificates shall be
available for distribution of the unpaid
principal amount of the respective class of Notes
and the remaining Certificate Balance of the
respective class of Certificates.
It is expected that the final payment of each class
of Notes and the final distribution in respect of
each class of Certificates will occur on or prior
to the respective Final Scheduled Distribution
Dates. However, if sufficient funds are not
available to pay any class of Notes or any class
of the Certificates in full on or prior to the
respective Final Scheduled Distribution Dates,
the final payment of such class of Notes and the
final distribution in respect of such class of
Certificates could occur later than such dates.
All of the Receivables are prepayable at any time.
Prepayments will shorten the weighted average
remaining term of the Receivables and the
weighted average life of the Securities. Such
prepayments, to the extent allocable to
principal, will be included in the Noteholders'
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Principal Payment Amount or the
Certificateholders' Principal Distribution Amount
and will be payable to the Securityholders as set
forth in the priority of payments and
distributions herein. See "Description of the
Transfer and Servicing
Agreements -- Distributions and Payments" herein.
CLEARANCE AND SETTLEMENT... Noteholders may elect to hold their Notes through
any of DTC (in the United States) or Cedel or
Euroclear (in Europe). Transfers within DTC,
Cedel or Euroclear, as the case may be, will be
in accordance with the usual rules and operation
procedures of the relevant system. Cross-market
transfers between persons holding directly or
indirectly through DTC, on the one hand, and
counterparties holding directly or indirectly
through Cedel or Euroclear, on the other, will be
effected in DTC through the relevant Depositaries
of Cedel or Euroclear. See "Book-Entry and
Definitive Securities; Reports to
Securityholders -- Book-Entry Registration" in
the Prospectus and Annex I to this Prospectus
Supplement, "Global Clearance, Settlement and Tax
Documentation Procedures" herein.
TAX STATUS................. In the opinion of Skadden, Arps, Slate, Meagher &
Flom ("Special Tax Counsel"), for federal income
tax purposes, the Notes will be characterized as
debt, and the Trust will not be characterized as
an association (or publicly traded partnership)
taxable as a corporation. Each Noteholder, by the
acceptance of a Note, will agree to treat the
Notes as indebtedness, and each
Certificateholder, by the acceptance of a
Certificate, will agree to treat the Trust as a
partnership in which the Certificateholders are
partners for federal income tax purposes.
Alternative characterizations of the Trust and
the Certificates are possible but would not
result in materially adverse tax consequences to
Certificateholders. Certificateholders may be
allocated income equal to the amount of interest
accruing on each class of Certificates at the
applicable Certificate Rates even though the
Trust may not have sufficient cash to make
current cash distributions of such amount. Only
income allocated to a tax exempt organization in
respect of the Certificates will be unrelated
business taxable income. See "Federal Income Tax
Consequences" herein and in the Prospectus for
additional information concerning the application
of federal income tax laws to the Trust and the
Securities.
ERISA CONSIDERATIONS....... Subject to the considerations discussed under
"ERISA Considerations" herein and in the
Prospectus, the Notes may, in general, be
purchased by or on behalf of employee benefit
plans subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). Any
employee benefit plan fiduciary considering a
purchase of Notes should, among other things,
consult with legal counsel regarding the
availability of a statutory or administrative
exemption from the prohibited transaction rules
of ERISA and the Internal Revenue Code of 1986,
as amended (the "Code").
The Certificates may not be acquired by an employee
benefit plan subject to the fiduciary
responsibility provision of ERISA or Section 4975
of the Code, or by an individual retirement
account. Any investor considering the purchase of
Certificates should be aware that such purchase
and subsequent holding could, under certain
circumstances, be deemed to involve an indirect
prohibited transaction if a
S-13
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plan with respect to which the investor is a
"party in interest" or a "disqualified person"
purchases the Certificates without the benefit of
an exemption from the prohibited transaction
rules. See "ERISA Considerations" herein and in
the Prospectus.
LEGAL INVESTMENT........... The Class A-1 Notes will be eligible securities for
purchase by money market funds under paragraph
(a)(9) of Rule 2a-7 under the Investment Company
Act of 1940, as amended.
RATINGS OF THE NOTES....... It is a condition to the issuance of the Notes that
they be rated in the highest rating category by
at least two of the nationally recognized
statistical rating organizations (the "Rating
Agencies"). Any such rating assigned to the Notes
will address the likelihood of the timely payment
of interest on and the ultimate payment of
principal of the Notes pursuant to the Sale and
Servicing Agreement and the Indenture. There can
be no assurance that a rating will not be lowered
or withdrawn by a Rating Agency if in its
judgement circumstances in the future so warrant.
RATINGS OF THE
CERTIFICATES............... It is a condition of the issuance of the Class B-1
Certificates that they be rated in the highest
rating category by at least two of the Rating
Agencies, and it is a condition to the issuance
of the Class B-2 Certificates that they be rated
in one of the three highest rating categories by
at least two of the Rating Agencies. Any such
rating assigned to the Certificates will address
the likelihood of the timely payment of interest
on and the ultimate distribution of principal of
the Certificates pursuant to the Sale and
Servicing Agreement and the Trust Agreement.
There can be no assurance that a rating will not
be lowered or withdrawn by a Rating Agency if in
its judgement circumstances in the future so
warrant.
RISK FACTORS............... Prospective investors should consider the factors
set forth under "Risk Factors" on pages S-15
through S-17.
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<PAGE> 211
RISK FACTORS
Prospective purchasers of the Securities should consider carefully the
following discussion of certain risks associated with an investment in the
Securities, as well as the other information set forth herein and in the
Prospectus, including the discussion set forth under the caption "Risk Factors"
in the Prospectus.
LIMITED LIQUIDITY
There is currently no secondary market for any of the Securities. Each
Underwriter currently intends to make a market in any of the Securities for
which it is an Underwriter, but it is under no obligation to do so. There can be
no assurance that a secondary market will develop for any of the Securities or
that it will provide liquidity of investment or will continue for the life of
the respective Securities. The lack of a secondary market for the Securities may
result in an investor being unable to liquidate its interest in the Securities
in a time period and manner satisfactory to the investor or at a price
comparable to that which would be available in a more liquid market.
LIMITED ASSETS
The Trust will not have, nor is it permitted or expected to have, any
significant assets or sources of funds other than the Receivables and the
Reserve Account. Holders of the Notes and the Certificates must rely for
repayment upon payments on the Receivables and, if and to the extent available,
amounts on deposit in the Reserve Account. Funds in the Reserve Account will be
available on each Distribution Date to cover shortfalls in payments of interest
and principal on the Notes and distributions of principal and interest on the
Certificates. However, amounts to be deposited in the Reserve Account are
limited in amount. If the Reserve Account is exhausted, the Trust will depend
solely on current collections on the Receivables to make payments on the Notes
and the Certificates.
SUBORDINATION
Certificates. Distributions of interest and principal on the Certificates
will be subordinated in priority of payment to interest and principal due on the
Notes. Consequently, the Certificateholders will not receive any distributions
on a Distribution Date until the full amount of interest on and principal of the
Notes payable on such Distribution Date has been deposited in the Note Payment
Account. In addition, distributions of interest on the Class B-2 Certificates
will be subordinated in priority of payment to interest due on the Class B-1
Certificates. The Certificateholders will not receive any distributions of
principal until the Distribution Date on which the Notes are paid in full. In
addition, distributions of principal on the Class B-2 Certificates will be
subordinated in priority of payment to distributions of principal on the Class
B-1 Certificates. No principal will be distributed in respect of the Class B-2
Certificates unless and until the Certificate Balance of the Class B-1
Certificates has been reduced to zero. However, upon the occurrence and during
the continuation of an Event of Default which has resulted in an acceleration of
the Notes or following an Insolvency Event or a dissolution with respect to
NAFC, distributions of any amounts on the Certificates will be subordinated in
priority of payment to payment in full of the principal of and accrued interest
on the Notes.
Notes. Distributions of principal on the Class A-2 Notes are subordinated
in priority of payment to principal due on the Class A-1 Notes. Payments of
principal on the Class A-3 Notes are subordinated in priority of payment to
principal due on the Class A-1 Notes and the Class A-2 Notes. Payments of
principal on the Class A-4 Notes are subordinated in priority of payment to
principal due on the Class A-1 Notes, the Class A-2 Notes and the Class A-3
Notes.
Rights of Noteholders. If an Event of Default occurs, the Indenture
Trustee or the holders of a majority of the aggregate principal amount of all
the Notes may declare the principal of the Notes to be immediately due and
payable, and the Indenture Trustee may institute or be required to institute
proceedings to collect amounts due or exercise its remedies as a secured party
(including foreclosure or sale of the Receivables). In the event of a sale of
Receivables by the Indenture Trustee following an Event of Default or following
an Insolvency Event or a dissolution with respect to NAFC (which would generally
result in the sale of the Receivables and the dissolution of the Trust), there
is no assurance that the proceeds of such sale will be equal
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to or greater than the aggregate outstanding principal amount of the Notes and
the Certificates plus accrued interest on each. Because neither interest nor
principal is distributed to Certificateholders upon sale of the Receivables
following an Event of Default and acceleration of the Notes under the Indenture
or following an Insolvency Event or a dissolution with respect to NAFC until all
the Notes have been paid in full, the interests of Noteholders and the
Certificateholders may conflict, and the exercise by the Indenture Trustee of
its right to sell the Receivables or exercise other remedies under the Indenture
and applicable law may cause the Certificateholders to suffer a loss of all or
part of their investment. See "Description of the Notes -- The
Indenture -- Events of Default; Rights upon Event of Default" and "Description
of the Transfer and Servicing Agreements -- Insolvency Event or Dissolution" in
the Prospectus.
Effects of Event of Default. In general, NationsBank, N.A., as
Administrator, may, and in certain circumstances the Certificateholders may,
direct the Owner Trustee in the administration of the Trust. However, because
the Trust has pledged the Trust Property to the Indenture Trustee to secure the
payment of the Notes, including in such pledge certain rights of the Trust under
the Sale and Servicing Agreement, the Indenture Trustee and not the Sellers,
NAFC, the Administrator, or the Certificateholders has the power to direct the
Trust to take certain actions in connection with the administration of the Trust
Property until the Notes have been paid in full and the lien of the Indenture
has been released. In addition, the Sellers, NAFC, the Administrator, and
Certificateholders are not allowed to direct the Owner Trustee to take any
action which conflicts with the provisions of any of the Basic Documents. The
Indenture specifically prohibits the Owner Trustee from taking any action which
would impair the Indenture Trustee's security interest in the Trust Property and
requires the Owner Trustee to obtain the consent of the Indenture Trustee or the
holders of a majority of the aggregate outstanding principal amount of the Notes
before modifying, amending, supplementing, waiving or terminating any Basic
Document or any provision of any Basic Document. Therefore, until the Notes have
been paid in full, the ability to direct the Trust with respect to certain
actions permitted to be taken by it under the Basic Documents rests with the
Indenture Trustee and the Noteholders instead of the Sellers or the
Certificateholders.
If an Event of Servicing Termination were to occur, the holders of a
majority of the outstanding principal amount of the Notes, or the Indenture
Trustee acting on behalf of the Noteholders, and not the Sellers, NAFC, the
Administrator, or the Certificateholders, would have the right to terminate the
Servicer as the servicer of the Receivables without consideration of the effect
such termination would have on Certificateholders. In addition, the holders of
not less than a majority of the aggregate outstanding principal amount of the
Notes would have the right to waive certain Events of Servicing Termination,
without consideration of the effect such waiver would have on
Certificateholders. After all the Notes have been paid in full and the lien of
the Indenture has been released, upon the occurrence of an Event of Servicing
Termination, the holders of a majority of the outstanding Certificate Balance,
or the Owner Trustee acting on behalf of the Certificateholders, may terminate
the Servicer. See "Description of the Transfer and Servicing
Agreements -- Rights Upon Event of Servicing Termination" and "-- Waiver of Past
Events of Servicing Termination" in the Prospectus.
MATURITY AND PREPAYMENT CONSIDERATIONS
The Class A-2 Notes, will not receive any principal payments until the
Class A-1 Notes have been paid in full, the Class A-3 Notes will not receive any
principal payments until the Class A-2 Notes have been paid in full, and the
Class A-4 Notes will not receive any principal payments until the Class A-3
Notes have been paid in full. In addition, no distributions of principal on the
Certificates will be made until the Distribution Date on which the Notes are
paid in full. Further, no principal will be distributed with respect to the
Class B-2 Certificates unless and until the Certificate Balance of the Class B-1
Certificates has been reduced to zero. As the rate of payment of principal of
each class of Notes and the rate of distribution of principal of each class of
Certificates depends on the rate of payment (including prepayments) of the
principal balance of the Receivables, final payment of any class of Notes and
the final distribution in respect of any class of Certificates could occur
significantly earlier than the respective Final Scheduled Distribution Dates. It
is expected that final payment of each class of Notes and the final distribution
in respect of each class of Certificates will occur on or prior to the
respective Final Scheduled Distribution Dates. However, if sufficient funds are
not available
S-16
<PAGE> 213
to pay any class of Notes or Certificates in full or prior to the respective
Final Scheduled Distribution Dates, final payment of such class of Notes and the
final distribution in respect of such class of Certificates could occur later
than such dates. See "Maturity and Prepayment Considerations" herein and in the
Prospectus.
GEOGRAPHIC CONCENTRATIONS AND RISKS OF SUPERIOR INTERESTS IN CERTAIN RECEIVABLES
Economic conditions in states where Obligors reside may affect the
delinquency, loan loss and repossession experience of the Trust with respect to
the Receivables. As of the Cut-Off Date, the Sellers' records indicate that the
mailing addresses of Obligors with respect to approximately 32%, 18%, 12%, 12%
and 8% by principal balance of the Receivables were in Texas, North Carolina,
Georgia, South Carolina and Florida, respectively. As a result, economic
conditions in such states may have a disproportionate impact on the Trust. In
particular, an economic downturn in one or more of such states could adversely
affect the performance of the Trust (even if national economic conditions remain
unchanged or improve) as Obligors in such state or states experience the effects
of such a downturn and face greater difficulty in making payments on their
Financed Vehicles. See "The Receivables Pool" herein.
The aggregate principal balance as of the Cut-Off Date of the Receivables
sold to the Trust by NationsBank, N.A. which were originated prior to January 4,
1996 and with respect to which the mailing address of the related Obligor was,
according to the records of NationsBank, N.A., located in either North Carolina
or South Carolina was approximately 21% of the initial Pool Balance. See "Risk
Factors -- Risk of Superior Interests in Receivables and Financed
Vehicles -- Certain Original Loan Documents Not Retained; Risk of Prepayment"
and "Certain Legal Aspects of the Receivables -- Rights in the Receivables" in
the Prospectus for a discussion of certain record-keeping practices previously
applied by NationsBank, N.A. in connection with the lack of retention of certain
original loan documents and possible effects on Securityholders as a result
thereof.
RATINGS OF THE SECURITIES
It is a condition to the issuance of each class of the Notes and
Certificates that each class of Notes be rated in the highest rating category by
at least two of the nationally recognized statistical rating organizations (the
"Rating Agencies"), that the Class B-1 Certificates be rated in the highest
rating category by the Rating Agencies and that the Class B-2 Certificates be
rated in one of the three highest rating categories by the Rating Agencies. A
rating is not a recommendation to purchase, hold or sell Securities, inasmuch as
such rating does not comment as to market price or suitability for a particular
investor. Any such ratings assigned to the Securities will address the
likelihood of the timely payment or distribution, as applicable, of interest on
and the ultimate payment or distribution, as applicable, of principal of the
Securities pursuant to the Sale and Servicing Agreement and, as applicable, the
Indenture or the Trust Agreement. There can be no assurance that a rating will
remain for any given period of time or that a rating will not be lowered or
withdrawn entirely by a Rating Agency if in its judgment circumstances in the
future so warrant.
THE TRUST
GENERAL
The Issuer, NationsBank Auto Owner Trust 1996-A, is a business trust formed
under the laws of the State of Delaware pursuant to the Trust Agreement for the
transactions described in this Prospectus Supplement. After its formation, the
Trust will not engage in any activity other than (i) acquiring, holding and
managing the Receivables and the other assets of the Trust and proceeds
therefrom, (ii) issuing the Notes and the Certificates, (iii) making payments on
the Notes and the Certificates and (iv) engaging in other activities that are
necessary, suitable or convenient to accomplish the foregoing or are incidental
thereto or connected therewith.
The Trust will initially be capitalized with the Notes and the
Certificates. Class B-1 Certificates with an original Certificate Balance of
$1,923,000 and Class B-2 Certificates with an original Certificate Balance of
$1,496,667.91 will be issued to NAFC, and the remaining Certificates will be
sold to third party investors that
S-17
<PAGE> 214
are expected to be unaffiliated with the Sellers, the Servicer or their
affiliates or the Trust. The proceeds from the issuance of the Notes and the
Certificates will be used by the Trust to purchase the Receivables from the
Sellers pursuant to the Sale and Servicing Agreement and to fund the initial
deposit in the Reserve Account.
If the protection provided to the investment of the Noteholders and
Certificateholders by the Reserve Account is insufficient, the Trust would have
to look principally to the Obligors on the Receivables and the proceeds from the
repossession and sale of Financed Vehicles which secure Defaulted Receivables.
In such event, certain factors, such as the Trust's not having perfected
security interests in the Financed Vehicles in all states, may affect the
Servicer's ability to repossess and sell the collateral securing the
Receivables, and thus may reduce the proceeds to be distributed to the
Noteholders and Certificateholders. See "Description of the Transfer and
Servicing Agreements -- Distributions and Payments" and "-- Reserve Account"
herein and "Certain Legal Aspects of the Receivables" in the Prospectus.
CAPITALIZATION OF THE TRUST
The following table illustrates the capitalization of the Trust as of the
Closing Date, assuming the issuance and sale of the Notes and the Certificates
occur on such date:
<TABLE>
<S> <C>
Class A-1 Notes.................................................... $ 588,952,000.00
Class A-2 Notes.................................................... $ 744,000,000.00
Class A-3 Notes.................................................... $ 457,323,000.00
Class A-4 Notes.................................................... $ 175,000,000.00
Class B-1 Certificates............................................. $ 96,129,000.00
Class B-2 Certificates............................................. $ 74,783,667.91
-----------------
Total.................................................... $2,136,187,667.91
===============
</TABLE>
THE OWNER TRUSTEE
Bankers Trust (Delaware) is the Owner Trustee under the Trust Agreement.
Bankers Trust (Delaware) is a Delaware banking corporation, and its principal
offices are located at 1001 Jefferson Street, Suite 500, Wilmington, Delaware
19801. Each of the Sellers and their affiliates may maintain normal commercial
banking relations with the Owner Trustee and its affiliates.
THE RECEIVABLES POOL
The pool of Receivables (the "Receivables Pool") will include the
Receivables purchased as of the Cut-Off Date and arise from loans originated by
Dealers and purchased by the Sellers pursuant to Dealer Agreements. The
Receivables were selected from the Motor Vehicle Loans owned by the Sellers
based on the criteria set forth in the Sale and Servicing Agreement and
described in the Prospectus. The Sellers will warrant in the Sale and Servicing
Agreement that all the Receivables have the following individual
characteristics, among others: (i) the obligation of the related Obligor under
each Receivable is secured by a security interest in either a new or used
automobile, van or light duty truck; (ii) each Receivable has a contractual
interest rate ("Contract Rate") of at least 7.880% and not more than 21.000%;
(iii) each Receivable has a remaining maturity, as of the Cut-Off Date, of not
less than 12 months and not more than 72 months; (iv) no Receivable was more
than 30 days past due as of the Cut-Off Date; (v) each Receivable is a Simple
Interest Receivable that at origination, provided for level monthly payments
that fully amortize the amount financed over the original term; (vi) as of the
Cut-Off Date, each Receivable has a remaining principal balance of not less than
$2,000 and not more than $50,000; (vii) each Receivable is not a Defaulted
Receivable; and (viii) each Receivable is not related to a motor vehicle that is
the subject of forced-placed insurance. "Forced-Placed Insurance" is insurance
placed on a motor vehicle by the lienholder to protect the motor vehicle as
collateral for a loan when there is evidence that the borrower has neglected to
do so as required by the applicable loan agreement. See " -- Certain
Characteristics of the Receivables" below. No selection procedures believed by
the Sellers to be adverse to the Noteholders or Certificateholders were used in
selecting the Receivables.
S-18
<PAGE> 215
NationsBank, N.A., through DFSG and units in predecessor banks of
NationsBank, N.A., has been servicing indirect motor vehicle loan portfolios
since 1970. The indirect motor vehicle loan portfolio serviced either directly
by NationsBank, N.A. or through its affiliates was approximately $6.1 billion as
of June 30, 1996. DFSG also services other indirect and direct consumer loan
portfolios totalling over $27.4 billion (including the indirect motor vehicle
loan portfolio) as of June 30, 1996.
CERTAIN CHARACTERISTICS OF THE RECEIVABLES
As of the Cut-Off Date, the Receivables had, in the aggregate, the
following characteristics: (i) 59.32% of the Pool Balance was attributable to
loans for the purchase of new Financed Vehicles and 40.68% of the Pool Balance
was attributable to loans for the purchase of used Financed Vehicles; (ii) the
weighted average Contract Rate of the Receivables was 10.38%; (iii) there were
171,416 Receivables being conveyed by the Sellers to the Trust; (iv) the average
principal balance of the Receivables, as of the Cut-Off Date, was $12,462.01;
and (v) the weighted average original term and weighted average remaining term
of the Receivables were 59.7 months and 49.0 months, respectively.
The Composition of the Receivables, Distribution of the Receivables by
New/Used Motor Vehicles, Distribution of the Receivables by Contract Rate,
Distribution of the Receivables by Remaining Term, Distribution of the
Receivables by Cut-Off Date Principal Balance and Geographic Distribution of the
Receivables, each as of the Cut-Off Date, are set forth in the following tables.
(Percentages in the following tables may not add to 100% due to rounding.)
COMPOSITION OF THE RECEIVABLES
<TABLE>
<S> <C>
Weighted Average Contract Rate........................................ 10.38%
Range of Contract Rates............................................... 7.880% to 21.000%
Aggregate Principal Balance........................................... $2,136,187,667.91
Number of Receivables................................................. 171,416
Weighted Average Remaining Term....................................... 49.0 months
Range of Remaining Terms.............................................. 12 to 72 months
Weighted Average Original Term........................................ 59.7 months
Range of Original Terms............................................... 18 to 72 months
Average Principal Balance............................................. $12,462.01
Average Original Amount Financed...................................... $15,263.16
Range of Original Amounts Financed.................................... $2,193.69 to $50,000.00
</TABLE>
DISTRIBUTION OF THE RECEIVABLES BY NEW/USED MOTOR VEHICLES
<TABLE>
<CAPTION>
WEIGHTED
AGGREGATE ORIGINAL AVERAGE
NUMBER OF PRINCIPAL PRINCIPAL CONTRACT
RECEIVABLES BALANCE BALANCE RATE(%)
----------- ----------------- ----------------- --------
<S> <C> <C> <C> <C>
New Motor Vehicles..................... 90,165 $1,267,278,820.56 $1,555,329,429.15 10.01
Used Motor Vehicles.................... 81,251 868,908,847.35 1,061,019,969.44 10.91
----------- ----------------- -----------------
All Receivables........................ 171,416 $2,136,187,667.91 $2,616,349,398.59 10.38
======== =============== ===============
</TABLE>
S-19
<PAGE> 216
DISTRIBUTION OF THE RECEIVABLES BY CONTRACT RATE
<TABLE>
<CAPTION>
% OF
AGGREGATE AGGREGATE
NUMBER OF % OF PRINCIPAL PRINCIPAL
RECEIVABLES RECEIVABLES BALANCE BALANCE
----------- ----------- ----------------- ---------
<S> <C> <C> <C> <C>
7.880 to 7.999%.............................. 5,054 2.95 $ 59,692,968.66 2.79
8.000 to 8.999%.............................. 36,219 21.13 467,123,813.50 21.87
9.000 to 9.999%.............................. 43,663 25.47 566,410,947.03 26.52
10.000 to 10.999%............................. 32,141 18.75 407,542,907.06 19.08
11.000 to 11.999%............................. 21,754 12.69 275,644,942.78 12.90
12.000 to 12.999%............................. 15,808 9.22 188,367,935.22 8.82
13.000 to 13.999%............................. 8,114 4.73 89,659,959.34 4.20
14.000 to 14.999%............................. 4,390 2.56 44,920,053.13 2.10
15.000 to 15.999%............................. 1,983 1.16 17,905,754.70 0.84
16.000 to 16.999%............................. 877 0.51 7,564,937.33 0.35
17.000 to 17.999%............................. 816 0.48 7,019,433.41 0.33
18.000 to 18.999%............................. 416 0.24 3,092,157.89 0.14
19.000 to 19.999%............................. 115 0.07 781,589.14 0.04
20.000 to 21.000%............................. 66 0.04 460,268.72 0.02
----------- ----------- ----------------- ---------
Total............................... 171,416 100.00 $2,136,187,667.91 100.00
======== ======== =============== =======
</TABLE>
DISTRIBUTION OF THE RECEIVABLES BY REMAINING TERM
<TABLE>
<CAPTION>
% OF
AGGREGATE AGGREGATE
NUMBER OF % OF PRINCIPAL PRINCIPAL
RECEIVABLES RECEIVABLES BALANCE BALANCE
----------- ----------- ----------------- ---------
<S> <C> <C> <C> <C>
12 to 18 months............................... 12,257 7.15 $ 49,876,882.59 2.33
19 to 24 months............................... 8,086 4.72 46,284,563.74 2.17
25 to 30 months............................... 8,085 4.72 60,218,800.73 2.82
31 to 36 months............................... 13,005 7.59 119,419,081.25 5.59
37 to 42 months............................... 23,211 13.54 252,270,941.61 11.81
43 to 48 months............................... 29,744 17.35 377,298,468.16 17.66
49 to 54 months............................... 36,095 21.06 519,103,545.56 24.30
55 to 60 months............................... 27,503 16.04 442,000,005.30 20.69
61 to 66 months............................... 9,291 5.42 178,711,493.72 8.37
67 to 72 months............................... 4,139 2.41 91,003,885.25 4.26
----------- ----------- ----------------- ---------
Total............................... 171,416 100.00 $2,136,187,667.91 100.00
======== ======== =============== =======
</TABLE>
DISTRIBUTION OF THE RECEIVABLES BY CUT-OFF DATE PRINCIPAL BALANCE
<TABLE>
<CAPTION>
% OF
AGGREGATE AGGREGATE
NUMBER OF % OF PRINCIPAL PRINCIPAL
RECEIVABLES RECEIVABLES BALANCE BALANCE
----------- ---------- ----------------- ---------
<S> <C> <C> <C> <C>
$ 2,000.00 to $9,999.99........................ 59,893 34.94 $ 403,169,732.12 18.87
$10,000.00 to $19,999.99....................... 94,343 55.04 1,324,411,853.81 62.00
$20,000.00 to $29,999.99....................... 16,114 9.40 373,163,244.32 17.47
$30,000.00 to $39,999.99....................... 1,021 0.60 33,530,896.94 1.57
$40,000.00 to $49,999.99....................... 45 0.03 1,911,940.72 0.09
----------- ---------- ----------------- ---------
Total................................ 171,416 100.00 $2,136,187,667.91 100.00
======== ======== =============== =======
</TABLE>
S-20
<PAGE> 217
GEOGRAPHIC DISTRIBUTION OF THE RECEIVABLES
<TABLE>
<CAPTION>
% OF
AGGREGATE AGGREGATE
NUMBER OF % OF PRINCIPAL PRINCIPAL
STATE(1) RECEIVABLES RECEIVABLES BALANCE BALANCE
- ---------------------------------------------- ----------- ----------- ----------------- ---------
<S> <C> <C> <C> <C>
Florida....................................... 16,225 9.47 $ 167,354,180.25 7.83
Georgia....................................... 20,896 12.19 261,316,157.08 12.23
North Carolina................................ 30,513 17.80 376,248,903.94 17.61
South Carolina................................ 21,162 12.35 254,099,923.31 11.90
Texas......................................... 51,497 30.04 681,886,957.77 31.92
Other(2)...................................... 31,123 18.16 395,281,545.56 18.50
----------- ----------- ----------------- ---------
Total............................... 171,416 100.00 $2,136,187,667.91 100.00
======== ======== =============== =======
</TABLE>
- ---------------
(1) Receivables are categorized by the Sellers' records of the mailing addresses
of the Obligors as of the Cut-Off Date.
(2) Each other state represents less than 5% of the aggregate principal balance
of the Receivables.
DELINQUENCY AND LOSS EXPERIENCE
The tables set forth immediately below indicate the delinquency and credit
loss experience for each of the last four calendar years and for the five month
periods ending May 31, 1996 and May 31, 1995 of the Banks' portfolio of Motor
Vehicle Loans from which the Receivables have been selected (which portfolio
includes certain Motor Vehicle Loans previously securitized and excludes certain
Motor Vehicle Loans acquired by the Banks in acquisitions). No assurance can be
made, however, that the delinquency and loss experience for the Motor Vehicle
Loans or the Receivables in the future will be similar to the historical
experience set forth in the following tables.
DELINQUENCY EXPERIENCE (DOLLARS IN THOUSANDS)(1)
<TABLE>
<CAPTION>
AS OF MAY 31, AS OF DECEMBER 31,
--------------------------------------------- --------------------------------------------------------------
1996 1995 1995 1994 1993
------------------- ----------------------- ----------------------- ----------------------- ----------
NUMBER NUMBER NUMBER NUMBER NUMBER
OF OF OF OF OF
LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio at the
Period
End................ 540,395 $5,298,328 533,105 $4,990,526 555,072 $5,436,206 517,604 $4,813,583 525,823
Delinquency(2)
30-59 Days......... 8,591 $ 87,984 6,830 $ 61,744 9,633 $ 96,130 6,614 $ 56,457 6,448
60-89 Days......... 1,253 13,222 958 8,694 1,865 18,605 986 8,182 805
90 Days or More.... 918 10,015 589 5,599 1,095 11,677 549 4,431 341
Delinquencies....... 10,762 $ 111,221 8,377 $ 76,037 12,593 $ 126,412 8,149 $ 69,070 7,594
Total Delinquencies
as a Percentage of
the Portfolio...... 1.99 % 2.10% 1.57 % 1.52% 2.27 % 2.33% 1.57 % 1.43% 1.44%
<CAPTION>
1992
-----------------------
NUMBER
OF
AMOUNT LOANS AMOUNT
---------- ---------- ----------
<S> <<C> <C> <C>
Portfolio at the
Period
End................ $5,169,651 432,197 $4,012,995
Delinquency(2)
30-59 Days......... $ 51,198 6,352 $ 46,816
60-89 Days......... 5,927 1,089 7,387
90 Days or More.... 2,575 651 5,161
Delinquencies....... $ 59,700 8,092 $ 59,364
Total Delinquencies
as a Percentage of
the Portfolio...... 1.15% 1.87 % 1.48%
</TABLE>
- ---------------
(1) Delinquencies shown in dollars include principal amounts only.
(2) The period of delinquencies is based on the number of days payments are
contractually past due until the applicable Motor Vehicle Loan is
charged-off.
S-21
<PAGE> 218
CREDIT LOSS EXPERIENCE (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FIVE MONTHS ENDED YEAR ENDED
MAY 31, DECEMBER 31,
----------------------- -------------------------------------------------
1996 1995 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Period End
Outstandings(1)......... $5,298,328 $4,990,526 $5,436,206 $4,813,583 $5,169,651 $4,012,995
Average Amount Outstanding
During the Period(2).... $5,440,720 $4,896,810 $5,169,299 $5,023,452 $4,589,400 $3,275,300
Average Number of Loans
Outstanding During the
Period(3)............... 553,483 527,863 542,767 537,431 480,287 353,113
Gross Charge-offs(4)...... $ 36,940 $ 18,356 $ 55,383 $ 32,840 $ 27,165 $ 38,010
Recoveries on Losses(5)... $ 9,396 $ 5,931 $ 14,861 $ 10,103 $ 9,672 $ 9,765
Net Charge-offs........... $ 27,544 $ 12,425 $ 40,522 $ 22,737 $ 17,493 $ 28,245
Net Charge-offs as a
Percentage of the Period
End Outstandings(6)..... 1.25% 0.60% 0.75% 0.47% 0.34% 0.70%
Net Charge-offs as a
Percentage of the
Average Amount
Outstanding(6).......... 1.22% 0.61% 0.78% 0.45% 0.38% 0.86%
</TABLE>
- ---------------
(1) Amounts represent principal amounts only.
(2) Amounts represent principal amounts only and reflect a daily weighted
average of such amounts during the periods shown.
(3) Numbers based on the average amount outstanding during the period divided by
the average loan amount. The average loan amount was derived from the month
end outstanding balances divided by month end number of loans.
(4) Amounts of charge-offs are the remaining principal balances less the net
proceeds from sales of loan collateral.
(5) Recoveries include post-disposition monies and are net of any related
expenses.
(6) Figures for the five months ended May 31, 1996 and May 31, 1995 are
annualized.
S-22
<PAGE> 219
RECENT PORTFOLIO PERFORMANCE
As shown in the tables immediately above, net charge-offs have trended
upward during the periods shown. DFSG management attributes this increase in net
charge-offs to a combination of factors which occurred from early 1994 to
mid-1995.
In early 1994, DFSG management made a conscious decision to maximize
profits on the overall portfolio by buying more aggressively within the "prime"
credit spectrum based on a risk-based tiered pricing program. At approximately
the same time, the competitive environment in the auto lending industry began to
change as new entrants in the auto lending industry greatly increased
competition. The heightened competitive environment necessitated that indirect
auto lenders purchase higher risk "prime" quality credits in order to retain
market share and profitability. DFSG management believes that this trend was
widely experienced by the entire auto lending industry, including banks,
independent auto finance companies, and captive finance subsidiaries of major
automobile manufacturers.
DFSG management believes that the combination of market conditions and its
concerted effort to purchase a wider array of credits within the "prime" credit
spectrum was primarily responsible for the increase in net charge-offs
throughout 1995. In general, Motor Vehicle Loans originated during 1994 and
early- to mid-1995 have exhibited higher levels of net charge-offs than
expected, especially in the higher risk segments.
DFSG identified this trend at the end of the first quarter of 1995 and
subsequently began reducing its purchases of lower credit quality "prime"
automobile loans. Additionally, DFSG focused on collections as a key component
in reducing net charge-offs. In particular, DFSG increased the number of
full-time collectors it utilized on the portfolio of Motor Vehicle Loans hiring
over one hundred collectors from June 1995 to September 1995. Additionally, new
collection initiatives and strategies were implemented to enhance the overall
collection effort.
The table set forth below indicates the monthly net charge-off experience
for the period from May 1995 through May 1996 of the Banks' total indirect
serviced portfolio of Motor Vehicle Loans (which portfolio includes certain
Motor Vehicle Loans previously securitized and loans acquired by the Banks in
acquisitions (such loans having a remaining aggregate principal balance of
approximately $65 million as of May 31, 1996) and therefore represents a
slightly larger portfolio than that from which the Receivables Pool was
selected).
As the table immediately below shows, net charge-offs for the total
indirect serviced portfolio gradually increased from May 1995 to February 1996
and have, since February 1996, generally declined from the February 1996 levels.
DFSG management believes that the general decline in monthly net charge-offs
from February 1996 to May 1996 is attributable to the management initiatives of
reducing its purchases of lower credit quality "prime" automobile loans
beginning at the end of the first quarter of 1995 and enhancing collection
efforts beginning June 1995. While DFSG management expects that the improvement
in monthly net charge-offs will continue throughout 1996, there can be no
assurance that net charge-offs will continue to decline from the February 1996
levels or that any particular level of net charge-offs will be achieved for the
Receivables Pool.
MONTHLY DELINQUENCY AND NET CREDIT LOSS EXPERIENCE
<TABLE>
<CAPTION>
MONTHLY NET
CHARGE-OFFS AS A
PERCENTAGE OF THE
PERIOD END
MONTHLY PERIOD OUTSTANDINGS(1)
- ---------------------------------------------------------------------------- -------------------
<S> <C>
May 1995.................................................................... 0.41%
June 1995................................................................... 0.56
July 1995................................................................... 0.58
August 1995................................................................. 0.63
September 1995.............................................................. 0.80
October 1995................................................................ 0.83
November 1995............................................................... 1.08
December 1995............................................................... 1.21
January 1996................................................................ 1.26
</TABLE>
S-23
<PAGE> 220
<TABLE>
<CAPTION>
MONTHLY NET
CHARGE-OFFS AS A
PERCENTAGE OF THE
PERIOD END
MONTHLY PERIOD OUTSTANDINGS(1)
- ---------------------------------------------------------------------------- -------------------
<S> <C>
February 1996............................................................... 1.27
March 1996.................................................................. 1.08
April 1996.................................................................. 1.14
May 1996.................................................................... 1.03
</TABLE>
- ---------------
(1) The monthly net charge-off percentages are calculated by dividing the
principal amount of net charge-offs (equal to the principal balance of a
charged-off loan less net proceeds from sales of the loan collateral less
post-disposition monies net of related expenses) occurring during the month
by the principal balance of the portfolio at the end of such given month.
PAYMENTS ON THE RECEIVABLES
The entire Pool Balance is attributable to Receivables that provide for the
allocation of payments according to the "simple interest" method (each a "Simple
Interest Receivable"). See "The Receivables Pools -- General" in the Prospectus
for a description of the application of payments received on Simple Interest
Receivables.
The Receivables are prepayable at any time. Prepayments may also result
from liquidations due to default, the receipt of monthly installments earlier
than the scheduled due dates for such installments, the receipt of proceeds from
credit life, disability, theft or physical damage insurance, repurchases by the
Sellers as a result of certain uncured breaches of the warranties made by them
in the Sale and Servicing Agreement, purchases by the Servicer as a result of
certain uncured breaches of the covenants made by it in the Sale and Servicing
Agreement, or the Servicer exercising its option to purchase all of the
remaining Receivables. See "Description of the Certificates -- Optional
Prepayment." The rate of prepayments on the Receivables may be influenced by a
variety of economic, social and other factors, including Obligor refinancings
resulting from decreases in interest rates and the fact that the Obligor is
generally not permitted to sell or transfer the Financed Vehicle securing a
Receivable without the consent of the relevant Seller.
Neither DFSG, the Servicer, the Sellers nor any of their respective
affiliates maintains records adequate to provide quantitative data regarding
prepayment experience on the Sellers' portfolio of Motor Vehicle Loans. However,
the Sellers (i) believe that the actual rate of prepayments will result in a
substantially shorter weighted average life than the scheduled weighted average
life and (ii) estimate that the actual weighted average life of its portfolio of
Motor Vehicle Loans ranges between 60% and 70% of their scheduled weighted
average life. See "Maturity and Prepayment Considerations" herein and in the
Prospectus.
WEIGHTED AVERAGE LIFE OF THE SECURITIES
Prepayments on automotive receivables can be measured relative to a
prepayment standard or model. The model used herein, the Absolute Prepayment
Model ("ABS"), represents an assumed rate of prepayment each month relative to
the original number of receivables in a pool of receivables. ABS further assumes
that all the receivables are the same size and amortize at the same rate and
that each receivable in each month of its life will either be paid as scheduled
or be prepaid in full. For example, in a pool of receivables originally
containing 10,000 receivables, a 1% ABS rate means that 100 receivables prepay
each month. ABS does not purport to be an historical description of prepayment
experience or a prediction of the anticipated rate of prepayment of any pool of
receivables, including the Receivables.
S-24
<PAGE> 221
As the rate of payment of principal of each class of Notes and the
distribution of principal of each class of Certificates will depend on the rate
of payment (including prepayments) of the principal balance of the Receivables,
final payment of any class of Notes and the final distribution in respect of
each class of Certificates could occur significantly earlier than the respective
Final Scheduled Distribution Dates. Reinvestment risk associated with early
payment of the Notes and the Certificates will be borne exclusively by the
Noteholders and the Certificateholders, respectively.
The tables captioned "Percent of Initial Note Principal Amount at Various
ABS Percentages" and "Percent of Initial Certificate Balance at Various ABS
Percentages" (the "ABS Tables") have been prepared on the basis of the
characteristics of the Receivables. The ABS Tables assume that (i) the
Receivables prepay in full at the specified constant percentage of ABS monthly,
with no defaults, losses or repurchases; (ii) scheduled monthly payments on the
Receivables are made evenly throughout each month and each month has 30 days;
(iii) payments on the Notes and distributions on the Certificates are made on
each Distribution Date (and each such date is assumed to be the 15th day of each
applicable month); (iv) with respect to the determination of Collections
allocable to principal, the second Business Day prior to each Determination Date
is the 6th calendar day; (v) the Securities are issued on July 30, 1996; and
(vi) the Servicer exercises its option to purchase the Receivables on the first
Distribution Date on which it is permitted to do so, as described herein. The
pools have an assumed cut-off date of June 30, 1996. The ABS Tables indicate the
projected weighted average life of each class of Notes and Certificates and sets
forth the percent of the initial principal amount of each class of Notes and the
percent of the initial Certificate Balance of each class of Certificates that is
projected to be outstanding after each of the Distribution Dates shown at
various constant ABS percentages.
The ABS Tables also assume that the Receivables have been aggregated into
hypothetical pools with all of the Receivables within each such pool having the
following characteristics and that the level scheduled monthly payment for each
of the pools (which is based on its aggregate principal balance, Contract Rate,
original term to maturity and remaining term to maturity as of the Cut-Off Date)
will be such that each pool will be fully amortized by the end of its remaining
term to maturity.
<TABLE>
<CAPTION>
ORIGINAL TERM REMAINING TERM
AGGREGATE CONTRACT TO MATURITY TO MATURITY
POOL PRINCIPAL BALANCE RATE (IN MONTHS) (IN MONTHS)
- ------------------------------------- ----------------- -------- ------------- --------------
<S> <C> <C> <C> <C>
1.................................... $ 24,023,556.60 11.303% 37 34
2.................................... 48,006,968.36 11.263 37 27
3.................................... 11,542,511.69 11.884 39 18
4.................................... 373,571,019.69 10.144 58 55
5.................................... 871,480,081.03 10.391 58 48
6.................................... 287,398,025.25 10.328 58 34
7.................................... 169,197,455.49 10.020 69 66
8.................................... 269,315,293.56 10.684 68 59
9.................................... 81,652,756.24 10.170 64 34
</TABLE>
The actual characteristics and performance of the Receivables will differ
from the assumptions used in constructing the ABS Tables. The assumptions used
are hypothetical and have been provided only to give a general sense of how the
principal cash flows might behave under varying prepayment scenarios. For
example, it is very unlikely that the Receivables will prepay at a constant
level of ABS until maturity or that all of the Receivables will prepay at the
same level of ABS. Moreover, the diverse terms of Receivables within each of the
hypothetical pools could produce slower or faster principal distributions than
indicated in the ABS Tables at the various constant percentages of ABS
specified, even if the original and remaining terms to maturity of the
Receivables are as assumed. Any difference between such assumptions and the
actual characteristics and performance of the Receivables, or actual prepayment
experience, will affect the percentages of initial balances outstanding over
time and the weighted average lives of each class of Notes and Certificates.
S-25
<PAGE> 222
PERCENT OF INITIAL NOTE PRINCIPAL AMOUNT AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
CLASS A-1 NOTES CLASS A-2 NOTES
-------------------------------------- --------------------------------------
DISTRIBUTION DATE 0.5% 1.0% 1.5% 2.0% 0.5% 1.0% 1.5% 2.0%
- ------------------------------------------ -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Closing................................... 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
08/15/96.................................. 90.1 87.5 84.6 81.0 100.0 100.0 100.0 100.0
09/15/96.................................. 81.8 77.2 71.9 65.4 100.0 100.0 100.0 100.0
10/15/96.................................. 73.6 67.0 59.4 50.2 100.0 100.0 100.0 100.0
11/15/96.................................. 65.3 56.9 47.1 35.3 100.0 100.0 100.0 100.0
12/15/96.................................. 57.1 46.9 35.0 20.7 100.0 100.0 100.0 100.0
01/15/97.................................. 48.9 37.0 23.2 6.4 100.0 100.0 100.0 100.0
02/15/97.................................. 40.7 27.2 11.5 0.0 100.0 100.0 100.0 94.1
03/15/97.................................. 32.5 17.4 0.0 0.0 100.0 100.0 100.0 83.3
04/15/97.................................. 24.4 7.8 0.0 0.0 100.0 100.0 91.1 72.8
05/15/97.................................. 16.2 0.0 0.0 0.0 100.0 98.7 82.3 62.6
06/15/97.................................. 8.1 0.0 0.0 0.0 100.0 91.2 73.7 52.7
07/15/97.................................. 0.0 0.0 0.0 0.0 100.0 83.9 65.3 43.0
08/15/97.................................. 0.0 0.0 0.0 0.0 93.6 76.6 57.1 33.6
09/15/97.................................. 0.0 0.0 0.0 0.0 87.2 69.5 49.0 24.6
10/15/97.................................. 0.0 0.0 0.0 0.0 80.8 62.4 41.2 15.8
11/15/97.................................. 0.0 0.0 0.0 0.0 74.5 55.4 33.5 7.3
12/15/97.................................. 0.0 0.0 0.0 0.0 68.1 48.5 26.0 0.0
01/15/98.................................. 0.0 0.0 0.0 0.0 61.8 41.7 18.6 0.0
02/15/98.................................. 0.0 0.0 0.0 0.0 55.6 35.1 11.6 0.0
03/15/98.................................. 0.0 0.0 0.0 0.0 49.4 28.5 4.7 0.0
04/15/98.................................. 0.0 0.0 0.0 0.0 43.2 22.1 0.0 0.0
05/15/98.................................. 0.0 0.0 0.0 0.0 37.1 15.7 0.0 0.0
06/15/98.................................. 0.0 0.0 0.0 0.0 30.9 9.5 0.0 0.0
07/15/98.................................. 0.0 0.0 0.0 0.0 24.8 3.3 0.0 0.0
08/15/98.................................. 0.0 0.0 0.0 0.0 18.7 0.0 0.0 0.0
09/15/98.................................. 0.0 0.0 0.0 0.0 12.6 0.0 0.0 0.0
10/15/98.................................. 0.0 0.0 0.0 0.0 6.6 0.0 0.0 0.0
11/15/98.................................. 0.0 0.0 0.0 0.0 0.7 0.0 0.0 0.0
12/15/98.................................. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
01/15/99.................................. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
02/15/99.................................. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
03/15/99.................................. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
04/15/99.................................. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
05/15/99.................................. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
06/15/99.................................. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
07/15/99.................................. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
08/15/99.................................. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
09/15/99.................................. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
10/15/99.................................. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
11/15/99.................................. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
12/15/99.................................. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
01/15/00.................................. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
02/15/00.................................. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
03/15/00.................................. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
04/15/00.................................. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
05/15/00.................................. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
06/15/00.................................. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
07/15/00.................................. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
08/15/00.................................. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
09/15/00.................................. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Weighted Average Life (years)(1).......... 0.49 0.40 0.32 0.26 1.66 1.41 1.17 0.95
Estimated First Principal................. 08/15/96 08/15/96 08/15/96 08/15/96 07/15/97 05/15/97 03/15/97 02/15/97
Estimated Last Principal.................. 07/15/97 05/15/97 03/15/97 02/15/97 12/15/98 08/15/98 04/15/98 12/15/97
</TABLE>
- ---------------
(1) The weighted average life of a Class A-1 Note or Class A-2 Note is
determined by (i) multiplying the amount of each principal payment on a
Note by the number of years from the date of the issuance of the Note to
the related Distribution Date, (ii) adding the results and (iii) dividing
the sum by the related initial principal amount of the Note.
THE ABS TABLES HAVE BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED ABOVE
(INCLUDING THE ASSUMPTIONS REGARDING THE CHARACTERISTICS AND PERFORMANCE OF THE
RECEIVABLES WHICH WILL DIFFER FROM THE ACTUAL CHARACTERISTICS AND PERFORMANCE
THEREOF) AND SHOULD BE READ IN CONJUNCTION THEREWITH.
S-26
<PAGE> 223
PERCENT OF INITIAL NOTE PRINCIPAL AMOUNT AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
CLASS A-3 NOTES CLASS A-4 NOTES
-------------------------------------- --------------------------------------
DISTRIBUTION DATE 0.5% 1.0% 1.5% 2.0% 0.5% 1.0% 1.5% 2.0%
- ------------------------------------------ -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Closing................................... 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
08/15/96.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
09/15/96.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
10/15/96.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
11/15/96.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
12/15/96.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
01/15/97.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
02/15/97.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
03/15/97.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
04/15/97.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
05/15/97.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
06/15/97.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
07/15/97.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
08/15/97.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
09/15/97.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
10/15/97.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
11/15/97.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
12/15/97.................................. 100.0 100.0 100.0 98.5 100.0 100.0 100.0 100.0
01/15/98.................................. 100.0 100.0 100.0 85.7 100.0 100.0 100.0 100.0
02/15/98.................................. 100.0 100.0 100.0 73.5 100.0 100.0 100.0 100.0
03/15/98.................................. 100.0 100.0 100.0 61.8 100.0 100.0 100.0 100.0
04/15/98.................................. 100.0 100.0 96.7 50.9 100.0 100.0 100.0 100.0
05/15/98.................................. 100.0 100.0 86.1 40.4 100.0 100.0 100.0 100.0
06/15/98.................................. 100.0 100.0 75.9 30.4 100.0 100.0 100.0 100.0
07/15/98.................................. 100.0 100.0 65.9 20.9 100.0 100.0 100.0 100.0
08/15/98.................................. 100.0 95.6 56.3 11.9 100.0 100.0 100.0 100.0
09/15/98.................................. 100.0 85.9 47.0 3.4 100.0 100.0 100.0 100.0
10/15/98.................................. 100.0 76.5 38.1 0.0 100.0 100.0 100.0 89.4
11/15/98.................................. 100.0 67.5 29.8 0.0 100.0 100.0 100.0 70.9
12/15/98.................................. 91.8 58.6 21.7 0.0 100.0 100.0 100.0 53.3
01/15/99.................................. 82.4 50.0 14.0 0.0 100.0 100.0 100.0 36.5
02/15/99.................................. 73.0 41.5 6.7 0.0 100.0 100.0 100.0 20.7
03/15/99.................................. 63.7 33.2 0.0 0.0 100.0 100.0 99.1 5.7
04/15/99.................................. 54.4 25.0 0.0 0.0 100.0 100.0 81.7 0.0
05/15/99.................................. 45.6 17.4 0.0 0.0 100.0 100.0 65.5 0.0
06/15/99.................................. 38.7 11.2 0.0 0.0 100.0 100.0 51.2 0.0
07/15/99.................................. 31.9 5.1 0.0 0.0 100.0 100.0 37.5 0.0
08/15/99.................................. 25.0 0.0 0.0 0.0 100.0 97.7 24.4 0.0
09/15/99.................................. 18.2 0.0 0.0 0.0 100.0 82.5 11.9 0.0
10/15/99.................................. 11.5 0.0 0.0 0.0 100.0 67.6 0.1 0.0
11/15/99.................................. 4.7 0.0 0.0 0.0 100.0 53.0 0.0 0.0
12/15/99.................................. 0.0 0.0 0.0 0.0 94.8 38.8 0.0 0.0
01/15/00.................................. 0.0 0.0 0.0 0.0 77.4 24.9 0.0 0.0
02/15/00.................................. 0.0 0.0 0.0 0.0 60.0 11.4 0.0 0.0
03/15/00.................................. 0.0 0.0 0.0 0.0 42.7 0.0 0.0 0.0
04/15/00.................................. 0.0 0.0 0.0 0.0 25.4 0.0 0.0 0.0
05/15/00.................................. 0.0 0.0 0.0 0.0 8.3 0.0 0.0 0.0
06/15/00.................................. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
07/15/00.................................. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
08/15/00.................................. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
09/15/00.................................. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Weighted Average Life (years)(1).......... 2.83 2.51 2.16 1.77 3.63 3.35 2.93 2.44
Estimated First Principal................. 12/15/98 08/15/98 04/15/98 12/15/97 12/15/99 08/15/99 03/15/99 10/15/98
Estimated Last Principal.................. 12/15/99 08/15/99 03/15/99 10/15/98 06/15/00 03/15/00 11/15/99 04/15/99
</TABLE>
- ---------------
(1) The weighted average life of a Class A-3 Note or Class A-4 Note is
determined by (i) multiplying the amount of each principal payment on a
Note by the number of years from the date of the issuance of the Note to
the related Distribution Date, (ii) adding the results and (iii) dividing
the sum by the related initial principal amount of the Note.
THE ABS TABLES HAVE BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED ABOVE
(INCLUDING THE ASSUMPTIONS REGARDING THE CHARACTERISTICS AND PERFORMANCE OF THE
RECEIVABLES WHICH WILL DIFFER FROM THE ACTUAL CHARACTERISTICS AND PERFORMANCE
THEREOF) AND SHOULD BE READ IN CONJUNCTION THEREWITH.
S-27
<PAGE> 224
PERCENT OF INITIAL CERTIFICATE BALANCE AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
CLASS B-1 CERTIFICATES CLASS B-2 CERTIFICATES
-------------------------------------- --------------------------------------
DISTRIBUTION DATE 0.5% 1.0% 1.5% 2.0% 0.5% 1.0% 1.5% 2.0%
- ------------------------------------------ -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Closing................................... 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
08/15/96.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
09/15/96.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
10/15/96.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
11/15/96.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
12/15/96.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
01/15/97.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
02/15/97.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
03/15/97.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
04/15/97.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
05/15/97.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
06/15/97.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
07/15/97.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
08/15/97.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
09/15/97.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
10/15/97.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
11/15/97.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
12/15/97.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
01/15/98.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
02/15/98.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
03/15/98.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
04/15/98.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
05/15/98.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
06/15/98.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
07/15/98.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
08/15/98.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
09/15/98.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
10/15/98.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
11/15/98.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
12/15/98.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
01/15/99.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
02/15/99.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
03/15/99.................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
04/15/99.................................. 100.0 100.0 100.0 84.6 100.0 100.0 100.0 100.0
05/15/99.................................. 100.0 100.0 100.0 60.6 100.0 100.0 100.0 100.0
06/15/99.................................. 100.0 100.0 100.0 38.4 100.0 100.0 100.0 100.0
07/15/99.................................. 100.0 100.0 100.0 0.0 100.0 100.0 100.0 0.0
08/15/99.................................. 100.0 100.0 100.0 0.0 100.0 100.0 100.0 0.0
09/15/99.................................. 100.0 100.0 100.0 0.0 100.0 100.0 100.0 0.0
10/15/99.................................. 100.0 100.0 100.0 0.0 100.0 100.0 100.0 0.0
11/15/99.................................. 100.0 100.0 79.8 0.0 100.0 100.0 100.0 0.0
12/15/99.................................. 100.0 100.0 60.5 0.0 100.0 100.0 100.0 0.0
01/15/00.................................. 100.0 100.0 42.5 0.0 100.0 100.0 100.0 0.0
02/15/00.................................. 100.0 100.0 0.0 0.0 100.0 100.0 0.0 0.0
03/15/00.................................. 100.0 96.8 0.0 0.0 100.0 100.0 0.0 0.0
04/15/00.................................. 100.0 73.6 0.0 0.0 100.0 100.0 0.0 0.0
05/15/00.................................. 100.0 51.0 0.0 0.0 100.0 100.0 0.0 0.0
06/15/00.................................. 84.0 29.1 0.0 0.0 100.0 100.0 0.0 0.0
07/15/00.................................. 56.5 0.0 0.0 0.0 100.0 0.0 0.0 0.0
08/15/00.................................. 43.0 0.0 0.0 0.0 100.0 0.0 0.0 0.0
09/15/00.................................. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Weighted Average Life (years)(1).......... 4.03 3.83 3.44 2.86 4.13 3.96 3.54 2.96
Estimated First Principal................. 06/15/00 03/15/00 11/15/99 04/15/99 09/15/00 07/15/00 02/15/00 07/15/99
Estimated Last Principal.................. 09/15/00 07/15/00 02/15/00 07/15/99 09/15/00 07/15/00 02/15/00 07/15/99
</TABLE>
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(1) The weighted average life of a Class B-1 or Class B-2 Certificate is
determined by (i) multiplying the amount of each distribution in respect of
the Certificate Balance of a Certificate by the number of years from the
date of the issuance of the Certificate to the related Distribution Date,
(ii) adding the results and (iii) dividing the sum by the initial
Certificate Balance of the Certificate.
THE ABS TABLES HAVE BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED ABOVE
(INCLUDING THE ASSUMPTIONS REGARDING THE CHARACTERISTICS AND PERFORMANCE OF THE
RECEIVABLES WHICH WILL DIFFER FROM THE ACTUAL CHARACTERISTICS AND PERFORMANCE
THEREOF) AND SHOULD BE READ IN CONJUNCTION THEREWITH.
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POOL FACTORS
The "Note Pool Factor" for each class of Notes will be a seven-digit
decimal which the Servicer will compute prior to each payment with respect to
such class of Notes indicating the remaining outstanding principal amount of
such class of Notes, as of the applicable Distribution Date (after giving effect
to payments to be made on such Distribution Date), as a fraction of the initial
outstanding principal amount of such class of Notes. The "Certificate Pool
Factor" for each class of Certificates will be a seven-digit decimal which the
Servicer will compute prior to each distribution with respect to such class of
Certificates indicating the remaining Certificate Balance of such class of
Certificates, as of the applicable Distribution Date (after giving effect to
distributions to be made on such Distribution Date), as a fraction of the
initial Certificate Balance of such class of Certificates. Each Note Pool Factor
and each Certificate Pool Factor will initially be 1.0000000 and thereafter will
decline to reflect reductions in the outstanding principal amount of the
applicable class of Notes, or the reduction of the Certificate Balance of the
applicable class of Certificates, as the case may be, as a result of scheduled
payments, prepayments and liquidations of the Receivables. A Noteholder's
portion of the aggregate outstanding principal amount of the related class of
Notes is the product of (i) the original denomination of such Noteholder's Note
and (ii) the applicable Note Pool Factor. A Certificateholder's portion of the
aggregate outstanding Certificate Balance for the related class of Certificates
is the product of (i) the original denomination of such Certificateholder's
Certificate and (ii) the applicable Certificate Pool Factor.
MATURITY AND PREPAYMENT CONSIDERATIONS
Information regarding certain maturity and prepayment considerations with
respect to the Securities is set forth under "Maturity and Prepayment
Considerations" in the Prospectus. In addition, the Class A-2 Notes, the Class
A-3 Notes, the Class A-4 Notes and each class of the Certificates will not
receive any principal payments until the Class A-1 Notes have been paid in full,
the Class A-3 Notes will not receive any principal payments until the Class A-2
Notes have been paid in full and the Class A-4 Notes will not receive any
principal payments until the Class A-3 Notes have been paid in full. In
addition, no principal distributions on any class of the Certificates will be
made until the Distribution Date on which the Notes are paid in full. Finally,
the Class B-2 Certificates will not receive any distributions of principal until
the Certificate Balance of the Class B-1 Certificates has been reduced to zero.
See "Description of the Notes -- Payments of Principal" and "Description of the
Certificates -- Distributions of Principal Payments" herein. As the rate of
payment of principal of each class of Notes and distribution of principal of
each class of Certificates depend on the rate of payment (including prepayments)
of the principal balance of the Receivables, final payment of any class of Notes
and the final distribution in respect of any class of Certificates could occur
significantly earlier than the respective Final Scheduled Distribution Dates.
It is expected that final payment of each class of Notes and the final
distribution in respect of each class of Certificates will occur on or prior to
the respective Final Scheduled Distribution Dates. Failure to make final payment
of any class of Notes on or prior to the respective Final Scheduled Distribution
Dates would constitute an Event of Default under the Indenture. See "Description
of the Notes -- The Indenture -- Events of Default; Rights upon Event of
Default" in the Prospectus. In addition, the Sale and Servicing Agreement
requires that any remaining Certificate Balance of a class of Certificates be
paid in full on the respective Final Scheduled Distribution Date. However, no
assurance can be given that sufficient funds will be available to pay any class
of Notes or Certificates in full on or prior to the respective Final Scheduled
Distribution Dates. If sufficient funds are not available, final payment of any
class of Notes and the final distribution in respect of any class of
Certificates could occur later than such dates.
The rate of prepayments of the Receivables may be influenced by a variety
of economic, social and other factors, and under certain circumstances relating
to breaches of representations, warranties or covenants, the Sellers and/or the
Servicer will be obligated to repurchase or purchase Receivables from the Trust.
See "Maturity and Prepayment Considerations" in the Prospectus. A higher than
anticipated rate of prepayments will reduce the aggregate principal balance of
the Receivables more quickly than expected and thereby reduce the anticipated
aggregate interest payments on the Securities. Any reinvestment risks resulting
from a faster or
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slower incidence of prepayment of Receivables will be borne entirely by the
Noteholders and the Certificateholders as set forth in the priority of
distributions herein. Such reinvestment risks include the risk that interest
rates may be lower at the time such holders receive payments from the Trust than
interest rates would otherwise have been had such prepayments not been made or
had such prepayments been made at a different time.
Holders of Securities should consider, in the case of Securities purchased
at a discount, the risk that a slower than anticipated rate of principal
payments on the Receivables could result in an actual yield that is less than
the anticipated yield and, in the case of Securities purchased at a premium, the
risk that a faster than anticipated rate of principal payments on the
Receivables could result in an actual yield that is less than the anticipated
yield.
DESCRIPTION OF THE NOTES
GENERAL
The Notes will be issued pursuant to the terms of the Indenture, a form of
which has been filed as an exhibit to the Registration Statement. A copy of the
Indenture will be filed with the Commission following the issuance of the
Securities. The following summary describes certain terms of the Notes and the
Indenture. The summary does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the Notes and
the Indenture, which are hereby incorporated by reference. The following summary
supplements the description of the general terms and provisions of the Notes of
any given series and the related Indenture set forth under the headings
"Description of the Notes" and "Description of Fixed and Floating Rate Options"
in the Prospectus, to which descriptions reference is hereby made.
PAYMENTS OF INTEREST
Each class of Notes will constitute Fixed Rate Securities, as such term is
defined under "Description of Fixed and Floating Rate Options -- Fixed Rate
Securities" in the Prospectus. Interest on the principal amounts of each class
of Notes will accrue at the respective per annum Note Interest Rates and will be
payable to the Noteholders monthly on each Distribution Date commencing with the
August 1996 Distribution Date. Interest will accrue from and including the
Closing Date (in the case of the first Distribution Date), or from and including
the 15th day of the most recent month in which interest has been paid, to but
excluding the 15th day of the current month (each an "Interest Period").
Interest on the Notes will be calculated on the basis of a 360-day year
consisting of twelve 30-day months. Interest accrued as of any Distribution Date
but not paid on such Distribution Date (which failure, if not timely cured, will
be an Event of Default) will be due on the next Distribution Date, together with
interest on such amount at the applicable Note Interest Rate plus 2.00% per
annum (to the extent lawful). Interest payments on the Notes will generally be
derived from the Available Funds remaining after reimbursement of Outstanding
Advances made with respect to Receivables which became Defaulted Receivables
during the related Collection Period and the payment of the Servicing Fee and
from the Reserve Account. See "Description of the Transfer and Servicing
Agreements -- Distributions and Payments" and "-- Reserve Account" herein.
Interest payments to all classes of Noteholders will have the same priority.
Under certain circumstances, the amount available for interest payments could be
less than the amount of interest payable on the Notes on any Distribution Date,
in which case each class of Noteholders will receive their pro rata 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.
PAYMENTS OF PRINCIPAL
Principal payments will be made monthly to the Noteholders on each
Distribution Date in an amount generally equal to the Noteholders' Percentage of
the Regular Principal. Principal payments on the Notes generally will be derived
from the Available Funds and the amount, if any, in the Reserve Account up to
the Available Reserve Amount remaining after reimbursement of Outstanding
Advances made with respect to
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Receivables which became Defaulted Receivables during the related Collection
Period, the payment of the Servicing Fee and the Accrued Note Interest. See
"Description of the Transfer and Servicing Agreements -- Distributions and
Payments" and "-- Reserve Account" herein.
Principal payments on the Notes will be applied on each Distribution Date,
first, to the principal amount of the Class A-1 Notes until such principal
amount is reduced to zero, then second, to the principal amount of the Class A-2
Notes until such principal amount is reduced to zero, then third, to the
principal amount of the Class A-3 Notes until such principal amount is reduced
to zero and then fourth, to the principal amount of the Class A-4 Notes until
such principal amount is reduced to zero. The principal amount of the Class A-1
Notes, to the extent not previously paid, will be due on the Class A-1 Final
Scheduled Distribution Date, the principal amount of the Class A-2 Notes, to the
extent not previously paid, will be due on the Class A-2 Final Scheduled
Distribution Date, the principal amount of the Class A-3 Notes, to the extent
not previously paid, will be due on the Class A-3 Final Scheduled Distribution
Date and the principal amount of the Class A-4 Notes, to the extent not
previously paid, will be due on the Class A-4 Final Scheduled Distribution Date.
The actual date on which the aggregate outstanding principal amount of any class
of Notes is paid may be earlier or later than the respective Final Scheduled
Distribution Dates based on a variety of factors, including those described
under "Maturity and Prepayment Considerations" herein and in the Prospectus.
STATEMENTS TO NOTEHOLDERS AND NOTE OWNERS
Unless and until Definitive Notes are issued, unaudited monthly and annual
reports concerning the Receivables and each Trust, prepared by the Servicer and
delivered by the Indenture Trustee, on behalf of the Trust, will be sent to each
Noteholder pursuant to the Indenture. Such reports will not contain audited
financial statements with respect to the Trust. Note Owners may obtain the
monthly statements and annual tax statement and tax information provided to the
Noteholders and the Indenture Trustee by the Servicer free of charge (except for
copying and postage costs) by request in writing to the Indenture Trustee at 4
Chase MetroTech Center, Brooklyn, New York 11245, Attention: Global Trust
Services. See "Book-Entry and Definitive Securities; Reports to
Securityholders -- Reports to Securityholders" in the Prospectus for a
description of such statements.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued in fully registered definitive form
pursuant to the terms of the Trust Agreement, a form of which has been filed as
an exhibit to the Registration Statement. A copy of the Trust Agreement will be
filed with the Commission following the issuance of the Securities. The
following summary describes certain terms of the Certificates and the Trust
Agreement. The summary does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all the provisions of the
Certificates and the Trust Agreement. The following summary supplements the
description of the general terms and provisions of the Certificates of any given
series and the related Trust Agreement set forth under the headings "Description
of the Certificates," "Description of Fixed and Floating Rate Options,"
"Book-Entry and Definitive Securities; Reports to Securityholders" and
"Description of the Transfer and Servicing Agreements" in the Prospectus, to
which descriptions reference is hereby made.
DISTRIBUTIONS OF INTEREST INCOME
Interest distributions with respect to the Certificates will generally be
funded from the portion of the Available Funds and the funds in the Reserve
Account remaining after reimbursement of Outstanding Advances on Receivables
which became Defaulted Receivables during the related Collection Period, the
distribution of the Servicing Fee and the Noteholders' Payment Amount and, in
the case of the Class B-2 Certificates, interest due on the Class B-1
Certificates. On each Distribution Date, commencing August, 1996, the
Certificateholders of each class of Certificates will, to the extent of the
amount available after giving effect to the Noteholders' Payment Amount, be
entitled to distributions in an amount equal to the amount of interest
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that will be deemed to accrue on the Certificate Balance of each class of
Certificates at the applicable Certificate Rate. The Certificates will
constitute Fixed Rate Securities, as such term is defined under "Description of
Fixed and Floating Rate Options -- Fixed Rate Securities" in the Prospectus.
Interest in respect of a Distribution Date will be deemed to accrue from and
including the Closing Date (in the case of the first Distribution Date) or from
and including the 15th day of the most recent month in which interest has been
paid but excluding the 15th day of the current month, and will be calculated on
the basis of a 360-day year consisting of twelve 30-day months. Interest
distributions due for any Distribution Date but not distributed on such
Distribution Date will be due on the next Distribution Date increased by an
amount equal to interest on such amount at the applicable Certificate Rate (to
the extent lawful). Following the occurrence of an Event of Default resulting in
an acceleration of the Notes or following an Insolvency Event or a dissolution
with respect to NAFC, the Noteholders will be entitled to be paid in full before
any distributions may be made on the Certificates. See "Description of the
Transfer and Servicing Agreements -- Distributions and Payments" and "-- Reserve
Account" herein.
DISTRIBUTIONS OF PRINCIPAL PAYMENTS
Certificateholders will be entitled to distributions on each Distribution
Date, commencing with the Distribution Date on which the Notes are paid in full,
in an amount generally equal to the Certificateholders' Percentage of the
Regular Principal. Distributions with respect to principal payments will
generally be funded from the portion of the Available Funds and funds in the
Reserve Account remaining after reimbursement of Outstanding Advances on
Receivables which became Defaulted Receivables during the related Collection
Period, the distribution of the Servicing Fee, the Noteholders' Payment Amount
and the Accrued Certificate Interest. Distributions of principal on the Class
B-2 Certificates will be subordinated to distributions of principal and interest
on the Class B-1 Certificates and distributions of interest on the Class B-2
Certificates as described herein. See "Description of the Transfer and Servicing
Agreements -- Distributions and Payments" and "-- Reserve Account" herein.
However, following the occurrence of an Event of Default resulting in an
acceleration of the Notes or following an Insolvency Event or a dissolution with
respect to NAFC, the Noteholders will be entitled to be paid in full before any
distributions may be made on the Certificates.
OPTIONAL PREPAYMENT
If the Servicer exercises its option to purchase the Receivables when the
Pool Balance declines to 5% or less of the Initial Pool Balance,
Certificateholders of each class will receive an amount in respect of the
Certificates equal to the outstanding Certificate Balance together with accrued
interest at the applicable Certificate Rate, which distribution shall effect the
early retirement of the Certificates. See "Description of the Transfer and
Servicing Agreements -- Termination" in the Prospectus. No prepayment premium
will be payable to Certificateholders in connection with any such prepayment.
STATEMENTS TO CERTIFICATEHOLDERS
Unaudited monthly and annual reports concerning the Receivables and the
Trust, prepared by the Servicer and delivered by the Indenture Trustee, on
behalf of the Trust, will be sent to each Certificateholder pursuant to the
Trust Agreement. Such reports will not contain audited financial statements with
respect to the Trust.
RESTRICTIONS ON OWNERSHIP
No beneficial interest in a Certificate may be held either directly or
indirectly by a non-U.S. person.
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes certain terms of the Sale and Servicing
Agreement, the Administration Agreement and the Trust Agreement (collectively,
the "Transfer and Servicing Agreements"). Forms of the Transfer and Servicing
Agreements have been filed as exhibits to the Registration Statement. A copy of
the Transfer and Servicing Agreements will be filed with the Commission
following the issuance of the Securities.
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The summary does not purport to be complete and is subject to, and qualified in
its entirety by reference to, all the provisions of the Transfer and Servicing
Agreements. The following summary supplements the description of the general
terms and provisions of the Transfer and Servicing Agreements set forth under
the headings "Description of the Transfer and Servicing Agreements" in the
Prospectus, to which descriptions reference is hereby made.
ACCOUNTS
In addition to the Accounts referred to under "Description of the Transfer
and Servicing Agreements -- Accounts" in the Prospectus, the Servicer will also
establish and will maintain with the Indenture Trustee the Reserve Account, in
the name of the Indenture Trustee on behalf of the Noteholders and the
Certificateholders.
SERVICING COMPENSATION AND EXPENSES; CERTAIN PROCEDURES
The Servicing Fee Rate with respect to the Servicing Fee for the Servicer
will be 1.00% per annum of the Pool Balance as of the first day of the preceding
Collection Period. The Servicing Fee (together with any portion of the Servicing
Fee that remains unpaid from prior Distribution Dates) will be paid on each
Distribution Date from Available Funds after the reimbursement of Outstanding
Advances on Receivables which became Defaulted Receivables during the related
Collection Period. The Servicer is also entitled to receive any late,
prepayment, and other administrative fees and expenses collected during the
Collection Period plus any interest earned during the Collection Period on
payments received with respect to the Receivables plus Investment Earnings, if
any, on the Collection Account, the Note Payment Account and the Certificate
Distribution Account. See "Description of the Transfer and Servicing
Agreements -- Servicing Compensation and Expenses" in the Prospectus.
The Servicer will not extend the term of any Receivable beyond the last day
of the December 2002 Collection Period. See "Description of the Transfer and
Servicing Agreements -- Servicing Procedures" in the Prospectus.
ADVANCES
Servicer Advances. As of the last day of each Collection Period, the
Servicer will, subject to the limitations described in the following sentence,
make a payment (an "Advance") with respect to each Receivable (other than a
Defaulted Receivable) in an amount equal to the excess, if any, of (x) the
amount of interest due on such Receivable as of its scheduled due date at its
applicable Contract Rate, over (y) the interest actually received by the
Servicer with respect to such Receivable (whether from the Obligor or payments
of the Purchase Amount) during or with respect to such Collection Period. The
Servicer may elect not to make an Advance of due and unpaid interest with
respect to a Receivable to the extent that the Servicer, in its sole discretion,
determines that such Advance is not recoverable from subsequent payments on such
Receivable or from funds in the Reserve Account.
To the extent that the amount set forth in clause (y) above with respect to
a Receivable is greater than the amount set forth in clause (x) above with
respect thereto, such amount shall be distributed to the Servicer on the related
Distribution Date. Any such payment will only be from accrued interest due from
the Obligor under such Receivable.
The Servicer will deposit Advances, if any, into the Collection Account on
the applicable Deposit Date.
DISTRIBUTIONS AND PAYMENTS
Deposits to Collection Account. On or before the fifth Business Day
preceding each Distribution Date (each, a "Determination Date"), the Servicer
will provide the Trustee with a certificate (the "Servicer's Certificate")
containing certain information with respect to the preceding Collection Period,
including the amount of aggregate collections on the Receivables during such
Collection Period, the aggregate amount of Receivables which became Defaulted
Receivables during such Collection Period, the aggregate Purchase
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Amounts of Receivables to be repurchased by the Sellers or to be purchased by
the Servicer on the related Deposit Date, the aggregate amount to be withdrawn
from the Reserve Account and the amount of Collections allocable to principal
received during the current Collection Period to and including the second
Business Day prior to the Determination Date.
On or before each Deposit Date (a) the Servicer will cause all Collections
and Liquidation Proceeds and Recoveries to be deposited into the Collection
Account and will deposit into the Collection Account all Purchase Amounts of
Receivables to be purchased by the Servicer on such Deposit Date, (b) the
Sellers will deposit into the Collection Account all Purchase Amounts of
Receivables to be repurchased by the Sellers on such Deposit Date and (c) the
Servicer will deposit all Advances for the related Distribution Date into the
Collection Account.
"Available Funds" means, with respect to a Distribution Date, the sum of
the Available Interest and the Available Principal.
"Available Interest" means, with respect to any Distribution Date, the
excess of (a) the sum of (i) Interest Collections for such Distribution Date and
(ii) all Advances made by the Servicer with respect to such Distribution Date
over (b) amounts received in respect of interest on Simple Interest Receivables
during the preceding Collection Period in excess of the amount of interest that
would have been due during the Collection Period on Simple Interest Receivables
at their respective Contract Rates (assuming that a payment is received on each
Simple Interest Receivable on the due date thereof) (which amounts will be
applied to reimburse Advances previously made but not reimbursed (each, an
"Outstanding Advance") to be reimbursed on or with respect to such Distribution
Date).
"Available Principal" means, with respect to any Distribution Date, the
excess of (a) the sum of (i) the sum of the following amounts with respect to
the preceding Collection Period: (x) that portion of all Collections on the
Receivables allocable to principal in accordance with the terms of the
Receivables and the Servicer's customary servicing procedures; (y) to the extent
attributable to principal, the Purchase Amount received with respect to each
Receivable repurchased by the Sellers or purchased by the Servicer under an
obligation which arose during the related Collection Period; and (z) all
Liquidation Proceeds, to the extent allocable to principal, received during such
Collection Period plus (ii) that portion of all Collections on the Receivables
allocable to principal in accordance with the terms of the Receivables and the
Servicer's customary servicing procedures and received in the current Collection
Period to and including the second Business Day prior to the related
Determination Date over (b) that portion of all Collections on the Receivables
allocable to principal in accordance with the terms of the Receivables and the
Servicer's customary servicing procedures and received in the prior Collection
Period to and including the second Business Day prior to the Determination Date
occurring in that Collection Period. "Available Principal" on any Distribution
Date shall exclude all payments and proceeds of any Receivables the Purchase
Amount of which has been distributed on a prior Distribution Date.
"Collections" means, with respect to any Distribution Date, all collections
on the Receivables.
"Defaulted Receivable" means, with respect to any Collection Period, a
Receivable (other than a Purchased Receivable) which the Servicer, on behalf of
the Trust, has determined to charge-off during such Collection Period in
accordance with its customary servicing procedures.
"Interest Collections" means, with respect to any Distribution Date, the
sum of the following amounts with respect to the preceding Collection Period:
(i) that portion of all Collections allocable to interest in accordance with the
terms of the Receivables and the Servicer's customary servicing procedures; (ii)
all Liquidation Proceeds, to the extent allocable to interest, received during
such Collection Period; (iii) all Recoveries; and (iv) to the extent
attributable to accrued interest, the Purchase Amount with respect to each
Receivable repurchased by the Sellers or purchased by the Servicer under an
obligation which arose during such Collection Period. "Interest Collections" for
any Distribution Date shall exclude all payments and proceeds of any Receivables
the Purchase Amount of which has been distributed on a prior Distribution Date.
"Liquidation Proceeds" means, with respect to any Distribution Date and a
Receivable that has become a Defaulted Receivable during the related Collection
Period, (i) insurance proceeds received during such
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Collection Period by the Servicer, with respect to insurance policies relating
to the Financed Vehicle or the Obligor; (ii) amounts received by the Servicer
during such Collection Period from a Dealer in connection with such Defaulted
Receivable pursuant to the exercise of rights under a Dealer Agreement; and
(iii) the monies collected by the Servicer (from whatever source, including, but
not limited to proceeds of a sale of a Financed Vehicle or deficiency balance
recovered after the charge-off of the related Receivable) during such Collection
Period on such Defaulted Receivable net of any fees, costs and expenses incurred
by the Servicer in connection therewith and any payments required by law to be
remitted to the Obligor. Liquidation Proceeds shall be applied first to accrued
and unpaid interest on the Receivable and then to the principal balance thereof.
"Purchased Receivable" means, at any time, a Receivable as to which payment
of the Purchase Amount has previously been made by the Sellers or the Servicer
pursuant to the Sale and Servicing Agreement.
"Recoveries" means, with respect to any Collection Period, all monies
received by the Servicer with respect to any Defaulted Receivable during any
Collection Period following the Collection Period in which such Receivable
became a Defaulted Receivable, net of any fees, costs and expenses incurred by
the Servicer in connection with the collection of such Receivable and any
payments required by law to be remitted to the Obligor.
Monthly Withdrawals from Collection Account. On each Distribution Date, the
Servicer will instruct the Indenture Trustee to make the following deposits and
distributions, to the extent of the amount then on deposit in the Collection
Account and amounts withdrawn from the Reserve Account, in the following order
of priority:
(i) to the Servicer, the Outstanding Advances on Receivables which
became Defaulted Receivables during the related Collection Period;
(ii) to the Servicer, from the Available Funds remaining after the
application of clause (i), the Servicing Fee and all unpaid Servicing Fees
from prior Collection Periods;
(iii) to the Note Payment Account, from the Available Funds remaining
after the application of clauses (i) and (ii), the Accrued Note Interest;
(iv) to the Note Payment Account, from the Available Funds remaining
after the application of clauses (i) through (iii), the Noteholders'
Principal Payment Amount;
(v) to the Certificate Distribution Account, from the Available Funds
remaining after the application of clauses (i) through (iv), the Accrued
Certificate Interest;
(vi) to the Certificate Distribution Account, from the Available Funds
remaining after the application of clauses (i) through (v), the
Certificateholders' Principal Distribution Amount, if any; and
(vii) to the Reserve Account, the Available Funds remaining after the
application of clauses (i) through (vi).
Notwithstanding the foregoing, following the occurrence and during the
continuation of an Event of Default which has resulted in an acceleration of the
Notes or following an Insolvency Event or dissolution with respect to NAFC, the
Available Funds remaining after the application of clauses (i), (ii) and (iii)
above will be deposited in the Note Payment Account to the extent necessary to
reduce the principal amount of all the Notes to zero, and the Certificateholders
will not receive any distributions until the principal amount and accrued
interest on the Notes have been paid in full.
For purposes hereof, the following terms shall have the following meanings:
"Accrued Note Interest" means, with respect to any Distribution Date, the
sum of the Noteholders' Monthly Accrued Interest for such Distribution Date and
the Noteholders' Interest Carryover Shortfall for such Distribution Date.
"Noteholders' Interest Carryover Shortfall" means, with respect to any
Distribution Date, the excess of the Noteholders' Monthly Accrued Interest for
the preceding Distribution Date and any outstanding Noteholders' Interest
Carryover Shortfall on such preceding Distribution Date, over the amount in
respect of
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interest that is actually deposited in the Note Payment Account on such
preceding Distribution Date, plus interest on the amount of interest due but not
paid to Noteholders on the preceding Distribution Date, to the extent permitted
by law, at the respective Note Interest Rate borne by each class of the Notes
for the related Interest Period plus 2.00% per annum.
"Noteholders' Monthly Accrued Interest" means, with respect to any
Distribution Date, interest accrued for the related Interest Period on each
class of Notes at the respective Note Interest Rate for such class on the
outstanding principal amount of the Notes of such class on the immediately
preceding Distribution Date after giving effect to all payments of principal to
the Noteholders of such class on or prior to such Distribution Date (or, in the
case of the first Distribution Date, on the Closing Date).
"Noteholders' Monthly Principal" means, with respect to any Distribution
Date, the Noteholders' Percentage of the Regular Principal.
"Noteholders' Payment Amount" means, with respect to any Distribution Date,
the sum of the Noteholders' Principal Payment Amount and the Accrued Note
Interest.
"Noteholders' Percentage" means (i) 100% for each Distribution Date to and
including the Distribution Date on which the principal amount of the Notes is
reduced to zero, and (ii) zero for each Distribution Date thereafter; provided,
that with respect to the Distribution Date on which the last outstanding Notes
are paid in full, the Noteholders' Percentage shall, for the purposes of the
definition of "Certificateholders' Percentage," not be 100%, but instead shall
be deemed to be such lesser percentage as would be not greater than the
percentage necessary to cause all such outstanding Notes to be paid in full.
"Noteholders' Principal Carryover Shortfall" means, as of the close of any
Distribution Date, the excess of the Noteholders' Monthly Principal and any
outstanding Noteholders' Principal Carryover Shortfall from the preceding
Distribution Date over the amount in respect of principal that is actually
deposited in the Note Payment Account.
"Noteholders' Principal Payment Amount" means, with respect to any
Distribution Date, the sum of the Noteholders' Monthly Principal for such
Distribution Date and the Noteholders' Principal Carryover Shortfall as of the
close of the preceding Distribution Date; provided, however, that the
Noteholders' Principal Payment Amount shall not exceed the outstanding principal
amount of the Notes; and provided, further, that (i) the Noteholders' Principal
Payment Amount on the Class A-1 Final Scheduled Distribution Date shall not be
less than the amount that is necessary (after giving effect to other amounts to
be deposited in the Note Payment Account on such Distribution Date and allocable
to principal) to reduce the outstanding principal amount of the Class A-1 Notes
to zero; (ii) the Noteholders' Principal Payment Amount on the Class A-2 Final
Scheduled Distribution Date shall not be less than the amount that is necessary
(after giving effect to other amounts to be deposited in the Note Payment
Account on such Distribution Date and allocable to principal) to reduce the
outstanding principal amount of the Class A-2 Notes to zero; (iii) the
Noteholders' Principal Payment Amount on the Class A-3 Final Scheduled
Distribution Date shall not be less than the amount that is necessary (after
giving effect to other amounts to be deposited in the Note Payment Account on
such Distribution Date and allocable to principal) to reduce the outstanding
principal amount of the Class A-3 Notes to zero; and (iv) the Noteholders'
Principal Payment Amount on the Class A-4 Final Scheduled Distribution Date
shall not be less than the amount that is necessary (after giving effect to
other amounts to be deposited in the Note Payment Account on such Distribution
Date and allocable to principal) to reduce the outstanding principal amount of
the Class A-4 Notes to zero.
"Realized Losses" means, for any Collection Period and for each Receivable
that became a Defaulted Receivable during such Collection Period, the excess of
(i) the aggregate principal balance of such Receivable over (ii) Liquidation
Proceeds received with respect to such Receivable during such Collection Period,
to the extent allocable to principal.
"Regular Principal" means, with respect to any Distribution Date, an amount
equal to the sum of (i) that portion of all Collections on the Receivables
allocable to principal received during the Collection Period preceding such
Distribution Date, plus (ii) all Collections on the Receivables allocable to
principal received up to and including the second Business Day immediately
preceding the most recent Determination
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Date, plus (iii) the principal portion of Purchase Amounts where the obligation
of the applicable Seller or the Servicer arose during the preceding Collection
Period, plus (iv) the principal balance of all Receivables which became
Defaulted Receivables during the preceding Collection Period minus (v) with
respect to all Distribution Dates other than the August 1996 Distribution Date,
that portion of all Collections on the Receivables allocable to principal
received during the preceding Collection Period up to and including the second
Business Day prior to the Determination Date occurring in that Collection
Period.
"Accrued Certificate Interest" means, with respect to any Distribution
Date, the sum of the Certificateholders' Monthly Accrued Interest for such
Distribution Date and the Certificateholders' Interest Carryover Shortfall for
such Distribution Date.
"Certificate Balance" means, with respect to the Class B-1 Certificates,
initially, $96,129,000 and, thereafter, equals the initial Certificate Balance
of such class of Certificates, reduced by all amounts allocable to principal
previously distributed to Certificateholders of such class and, with respect to
the Class B-2 Certificates, initially, $74,783,667.91 and, thereafter, equals
the initial Certificate Balance of such class of Certificates, reduced by all
amounts allocable to principal previously distributed to Certificateholders of
such class.
"Certificateholders' Distribution Amount" means, with respect to any
Distribution Date, the sum of the Certificateholders' Principal Distribution
Amount and the Accrued Certificate Interest.
"Certificateholders' Interest Carryover Shortfall" means, with respect to
any Distribution Date, the excess of the Certificateholders' Monthly Accrued
Interest for the preceding Distribution Date and any outstanding
Certificateholders' Interest Carryover Shortfall on such preceding Distribution
Date, over the amount in respect of interest that is actually deposited in the
Certificate Distribution Account on such preceding Distribution Date, plus
interest on such excess, to the extent permitted by law, at the respective
Certificate Rates borne by each class of Certificates for the related Interest
Period.
"Certificateholders' Monthly Accrued Interest" means, with respect to any
Distribution Date, interest accrued for the related Interest Period on each
class of Certificates at the respective Certificate Rate for such class of
Certificates on the applicable Certificate Balance on the immediately preceding
Distribution Date, after giving effect to all payments allocable to the
reduction of the applicable Certificate Balance made on or prior to such
Distribution Date (or, in the case of the first Distribution Date, on the
Closing Date).
"Certificateholders' Monthly Principal" means, with respect to any
Distribution Date, the Certificateholders' Percentage of the Regular Principal.
"Certificateholders' Percentage" means, for any Distribution Date, 100%
minus the Noteholders' Percentage for such Distribution Date.
"Certificateholders' Principal Carryover Shortfall" means, as of the close
of any Distribution Date, the excess of the Certificateholders' Monthly
Principal and any outstanding Certificateholders' Principal Carryover Shortfall
from the preceding Distribution Date, over the amount in respect of principal
that is actually deposited in the Certificate Distribution Account.
"Certificateholders' Principal Distribution Amount" means, with respect to
any Distribution Date, the sum of the Certificateholders' Monthly Principal for
such Distribution Date and the Certificateholders' Principal Carryover Shortfall
as of the close of the preceding Distribution Date; provided, however, that (i)
the principal required to be distributed to Certificateholders on the Class B-1
Final Scheduled Distribution Date shall not be less than the amount necessary
(after giving effect to other amounts to be deposited in the Certificate
Distribution Account on such Distribution Date and allocable to principal) to
reduce the Class B-1 Certificate Balance to zero and remaining after any
required distribution in respect of the Notes and (ii) the principal required to
be distributed to Certificateholders on the Class B-2 Final Scheduled
Distribution Date shall include the lesser of (a) any principal due and
remaining unpaid on each Simple Interest Receivable, in each case, in the Trust
as of the Class B-2 Final Scheduled Distribution Date or (b) the portion of the
amount required to be advanced under clause (a) above that is necessary (after
giving effect to the other amounts to
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be deposited in the Certificate Distribution Account on such Distribution Date
and allocable to principal) to reduce the Class B-2 Certificate Balance to zero.
On each Distribution Date, all amounts on deposit in the Note Payment
Account (other than any Investment Earnings) will be paid in the following order
of priority:
(i) to the Noteholders, accrued and unpaid interest on the outstanding
principal amount of the applicable class of Notes at the applicable Note
Interest Rate;
(ii) to the Class A-1 Noteholders in reduction of principal until the
principal amount of the Class A-1 Notes has been reduced to zero;
(iii) to the Class A-2 Noteholders in reduction of principal until the
principal amount of the Class A-2 Notes has been reduced to zero;
(iv) to the Class A-3 Noteholders in reduction of principal until the
principal amount of the Class A-3 Notes has been reduced to zero; and
(v) to the Class A-4 Noteholders in reduction of principal until the
principal amount of the Class A-4 Notes has been reduced to zero.
On each Distribution Date, all amounts on deposit in the Certificate
Distribution Account (other than Investment Earnings thereon) will be
distributed in the following order of priority:
(i) to the Class B-1 Certificateholders, accrued and unpaid interest
on the outstanding Certificate Balance of the Class B-1 Certificates at the
Class B-1 Certificate Rate;
(ii) to the Class B-2 Certificateholders, accrued and unpaid interest
on the outstanding Certificate Balance of the Class B-2 Certificates at the
Class B-2 Certificate Rate;
(iii) to the Class B-1 Certificateholders in reduction of the
Certificate Balance of the Class B-1 Certificates until the Certificate
Balance thereof has been reduced to zero; and
(iv) to the Class B-2 Certificateholders in reduction of the
Certificate Balance of the Class B-2 Certificates until the Certificate
Balance thereof has been reduced to zero.
RESERVE ACCOUNT
The rights of the Certificateholders to receive distributions with respect
to the Receivables generally will be subordinated to the rights of the
Noteholders in the event of defaults and delinquencies on the Receivables as
provided in the Sale and Servicing Agreement. The protection afforded to the
Noteholders through subordination will be effected both by the preferential
right of the Noteholders to receive current distributions with respect to the
Receivables and by the establishment of the Reserve Account. The Reserve Account
will be created with a deposit initially by the Sellers on the Closing Date in
the amount of $53,404,692 (such deposit, the "Reserve Account Initial Deposit").
Subject to reduction as hereafter described, the "Specified Reserve Account
Balance" with respect to any Distribution Date means the greater of (i) the sum
of (x) 4.00% of the Pool Balance as of the last day of the preceding Collection
Period (such Pool Balance as reduced by that portion of all Collections of
Receivables allocable to principal and received during the period up to and
including the second Business Day immediately preceding the most recent
Determination Date) plus (y) so long as the Notes are outstanding, an amount
equal to three months interest on the Certificate Balances as determined by
using the weighted average coupon of the Certificates before giving effect to
reductions of the Certificate Balances on such date or, if no Notes are
outstanding, zero (the "Specified Interest Reserve Amount") and (ii) the lesser
of (x) $26,702,346 and (y) the aggregate outstanding principal balance of the
Notes and the aggregate sum of the Certificate Balances; provided, however, that
the Specified Reserve Account Balance will be calculated using a percentage of
7.00% (instead of 4.00% in (x) above) for any Distribution Date (beginning with
the August 1996 Distribution Date) on which the Average Net Loss Ratio exceeds
1.5% or the Average Delinquency
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Ratio exceeds 1.25%. The Specified Reserve Account Balance may be reduced to a
lesser amount as determined by the Sellers subject to satisfaction of the Rating
Agency Condition.
If the amount on deposit in the Reserve Account on any Distribution Date
(after giving effect to all deposits or withdrawals therefrom on such
Distribution Date) is greater than the Specified Reserve Account Balance for
such Distribution Date, except as described below and subject to certain
limitations, the Servicer will instruct the Indenture Trustee to distribute such
excess to the holder of the right to receive such amount (the "Contingent
Payment Right"). Upon any distribution to the holder of the Contingent Payment
Right of amounts from the Reserve Account, neither the Noteholders nor the
Certificateholders will have any rights in, or claims to, such amounts.
Amounts held from time to time in the Reserve Account will be held for the
benefit of Noteholders and Certificateholders. On each Distribution Date, funds
will be withdrawn from the Reserve Account up to the Available Reserve Amount to
the extent that the Available Funds (after reimbursement of Outstanding Advances
on Receivables which became Defaulted Receivables during the related Collection
Period and the payment of the Servicing Fee) with respect to any Collection
Period are less than the Noteholders' Payment Amount and will be deposited in
the Note Payment Account. If funds applied in accordance with the preceding
sentence are insufficient to distribute interest due on the Notes, subject to
certain limitations, additional funds will be withdrawn from the Reserve Account
and applied to distribute interest due on the Notes to the extent of the
Interest Reserve Amount. In addition, funds will be withdrawn from the Reserve
Account up to the Available Reserve Amount (as reduced by any withdrawal
pursuant to the second preceding sentence) to the extent that the Available
Funds remaining after reimbursement of Outstanding Advances on Receivables which
became Defaulted Receivables during the related Collection Period, the payment
of the Servicing Fee and the deposit of the Noteholders' Payment Amount in the
Note Payment Account is less than the Certificateholders' Distribution Amount
and will be deposited in the Certificate Distribution Account. If funds applied
in accordance with the preceding sentence are insufficient to distribute
interest due on the Certificates, subject to certain limitations, additional
funds will be withdrawn from the Reserve Account and applied to distribute
interest due on the Certificates to the extent of the Interest Reserve Amount
(as reduced by any withdrawal to pay interest on the Notes). On each
Distribution Date, the Reserve Account will be reinstated first to the Interest
Reserve Amount up to the Specified Interest Reserve Amount and then up to the
Specified Reserve Account Balance to the extent, if any, of the Available Funds
remaining after reimbursement of Outstanding Advances on Receivables which
became Defaulted Receivables during the related Collection Period and payment of
the Servicing Fee, the deposit of the Noteholders' Payment Amount into the Note
Payment Account and the deposit of the Certificateholders' Distribution Amount
into the Certificate Distribution Account.
Notwithstanding the foregoing, no interest will be distributed on the
Certificates on any Distribution Date on which Accrued Note Interest is not paid
in full.
"Average Delinquency Ratio" means, as of any Distribution Date, the average
of the Delinquency Ratios for the preceding three Collection Periods.
"Average Net Loss Ratio" means, as of any Distribution Date, the average of
the Net Loss Ratios for the preceding three Collection Periods.
"Available Reserve Amount" means, with respect to any Distribution Date,
the amount of funds on deposit in the Reserve Account on such Distribution Date
less the Interest Reserve Amount with respect to such Distribution Date, in each
case, before giving effect to any reduction thereto on such Distribution Date.
"Delinquency Ratio" means, for any Collection Period, the ratio, expressed
as a percentage, of (i) the principal amount of all outstanding Receivables
(other than Purchased Receivables and Defaulted Receivables) which are sixty
(60) or more days delinquent as of the end of such Collection Period, determined
in accordance with the Servicer's customary practices, plus the outstanding
balance of Receivables with respect to which the related Financed Vehicle has
been repossessed by the Servicer (without double counting) and not yet sold,
divided by (ii) the Pool Balance as of the last day of such Collection Period.
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The "Equity Percentage" with respect to any Distribution Date means the
percentage equivalent of a fraction, the numerator of which is equal to the
excess, if any, of the sum of (a) the Pool Balance as of the end of the
preceding Collection Period (such Pool Balance as reduced by that portion of
Collections of Receivables allocable to principal and received during the period
up to and including the second Business Day immediately preceding the most
recent Determination Date) plus (b) the amount on deposit in the Reserve Account
over the aggregate outstanding principal amount of the Notes on such
Distribution Date (after giving effect to payment of the Noteholders' Principal
Payment Amount on such Distribution Date) and the denominator of which is equal
to the Pool Balance as of the end of the preceding Collection Period (such Pool
Balance as reduced by that portion of Collections of Receivables allocable to
principal and received during the period up to and including the second Business
Day immediately preceding the most recent Determination Date).
"Interest Reserve Amount" means on any Distribution Date the lesser of (i)
the Specified Interest Reserve Amount and (ii) the amounts remaining on deposit
in the Reserve Account; provided, however that on each Distribution Date
following the occurrence of an Event of Default which has resulted in an
acceleration of the Notes or a dissolution with respect to NAFC, the Interest
Reserve Amount shall equal zero; and provided, further, that on each
Distribution Date on which the Equity Percentage as of such Distribution Date
(after giving effect to payment of the Noteholders' Principal Payment Amount on
such Distribution Date) is less than 8.00%, the Interest Reserve Amount shall
equal zero.
"Net Loss Ratio" means, for any Collection Period, an amount, expressed as
an annualized percentage, equal to (i) the Realized Losses minus Recoveries for
such Collection Period, divided by (ii) the average of the Pool Balances as
calculated on the first day of such Collection Period and the last day of such
Collection Period.
If on any Distribution Date the entire Noteholders' Payment Amount for such
Distribution Date (after giving effect to any amounts withdrawn from the Reserve
Account) is not deposited in the Note Payment Account, the Certificateholders
generally will not receive any distributions.
After the payment in full, or the provision for such payment, of (i) all
accrued and unpaid interest on the Securities and (ii) the outstanding principal
amount of the Securities, any funds remaining on deposit in the Reserve Account,
subject to certain limitations, will be paid to the holder of the Contingent
Payment Right.
The Reserve Account is intended to enhance the likelihood of receipt by the
Noteholders and the Certificateholders of the full amount of principal and
interest due them and to decrease the likelihood that the Noteholders and the
Certificateholders will experience losses. In addition, the subordination of the
Certificates to the Notes is intended to enhance further the likelihood of
receipt by Noteholders of the full amount of principal and interest due them and
to decrease the likelihood that the Noteholders will experience losses. However,
in certain circumstances, the Reserve Account could be depleted. If the amount
required to be withdrawn from the Reserve Account to cover shortfalls in
collections on the Receivables exceeds the amount of available cash in the
Reserve Account, Noteholders or Certificateholders could incur losses or a
shortfall in the amounts distributed to the Noteholders or the
Certificateholders could result, which could, in turn, increase the average life
of the Notes or the Certificates.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of material anticipated federal income
tax consequences of the purchase, ownership and disposition of the Notes and the
Certificates. The summary does not purport to deal with federal income tax
consequences applicable to all beneficial owners of Notes and Certificates, some
of which may be subject to special rules. For example, it does not discuss the
tax treatment of Note Owners or Certificateholders that are insurance companies,
regulated investment companies ("RIC's") or dealers in securities. Moreover,
there are no cases or Internal Revenue Service ("IRS") rulings on similar
transactions involving both debt instruments and equity interests issued by a
trust with terms similar to those of the Notes and the Certificates. As a
result, the IRS may disagree with all or a part of the discussion below.
Prospective
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investors are urged to consult their own tax advisors in determining the
federal, state, local, foreign and any other tax consequences to them of the
purchase, ownership and disposition of the Notes and the Certificates.
The following summary is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated thereunder and judicial or ruling authority, all of which are
subject to change, which change may be retroactive. The Trust will be provided
with an opinion of Special Tax Counsel regarding certain federal income tax
matters discussed below. An opinion of Special Tax Counsel, however, is not
binding on the IRS or the courts. No ruling on any of the issues discussed below
will be sought from the IRS.
SCOPE OF THE TAX OPINIONS; TAX CHARACTERIZATION OF THE TRUST
In the opinion of Special Tax Counsel, based on the assumptions and
analysis contained in such opinion, upon issuance of the Notes and Certificates
the Trust will not be classified as an association (or publicly traded
partnership) taxable as a corporation for federal income tax purposes. Such
opinion will be filed as an exhibit to a Form 8-K filed in connection with the
establishment of the Trust and the issuance of the Securities. This opinion is
based on the assumption that the terms of the Trust Agreement and related
documents will be complied with, and on counsel's conclusions that (1) the Trust
does not have certain characteristics necessary for a business trust to be
classified as an association taxable as a corporation and (2) either the nature
of the income of the Trust will exempt it from the provisions of the Code
requiring certain publicly traded partnerships to be taxed as corporations or
the Trust will otherwise qualify for an exemption from the rules governing
publicly traded partnerships. Further, with respect to the Notes, Special Tax
Counsel is of the opinion that, subject to the assumptions and analysis
contained in such opinion, the Notes will be classified as debt for federal
income tax purposes.
In addition, Special Tax Counsel has prepared or reviewed the statements
under the heading "Summary -- Tax Status" relating to federal income tax matters
and under the heading "Federal Income Tax Consequences" herein and "Federal
Income Tax Consequences" in the Prospectus and is of the opinion that such
statements are correct in all material respects. Such statements are intended as
an explanatory discussion of the possible effects of the classification of the
Trust as a partnership for federal income tax purposes on investors generally
and of related tax matters affecting investors generally, but do not purport to
furnish information in the level of detail or with the attention to the
investor's specific tax circumstances that would be provided by an investor's
own tax adviser. Accordingly, each investor is advised to consult its own tax
advisers with regard to the tax consequences to it of investing in the
Securities.
If the Trust were taxable as a corporation for federal income tax purposes,
the Trust would be subject to corporate income tax on its taxable income. The
Trust's taxable income would include all of its income on the Receivables,
possibly reduced by its interest expense on one or more classes of the Notes.
Any such corporate income tax could materially reduce the amount of cash
available to make payments on the Notes and distributions on the Certificates,
and Certificateholders could be liable for any such tax that is unpaid by the
Trust.
TAX CONSEQUENCES TO NOTE OWNERS
Treatment of the Notes as Indebtedness. The Note Owners will be deemed to
have agreed by their purchase of the Notes, to treat the Notes as debt for
federal income tax purposes. The discussion below assumes that this
characterization of the Notes is correct.
Original Issue Discount. A Note will be treated as issued with original
issue discount ("OID") if the excess of the Note's "stated redemption price at
maturity" over the issue price equals or exceeds a de minimis amount equal to
1/4 of 1 percent of the Note's stated redemption price at maturity multiplied
by the number of complete years (based on the anticipated weighted average life
of a Note and assuming the prepayment assumption set forth below) to its
maturity.
In general, OID, if any, will equal the difference between the stated
redemption price at maturity of a Note and its issue price. A Note Owner must
include such OID in gross income as ordinary interest income as
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it accrues under a method taking into account an economic accrual of the
discount. In general, OID must be included in income in advance of the receipt
of the cash representing that income. The amount of OID on a Note will be
considered to be zero if it is less than a de minimis amount determined as
described above.
However, the amount of any de minimis OID must be included in income as
principal payments are received on a Note, in the proportion that each such
payment bears to the original principal amount of the Note. The issue price of a
Note will generally be the initial offering price at which a substantial amount
of the Notes are sold. The Trust intends to treat the issue price as including,
in addition, the amount paid by the Note Owner for accrued interest that relates
to a period prior to the Closing Date of such Note. Under applicable Treasury
regulations governing the accrual of OID (the "OID Regulations"), the stated
redemption price at maturity is the sum of all payments on the Note other than
any "qualified stated interest" payments. Qualified stated interest is defined
as any one of a series of payments equal to the product of the outstanding
principal balance of the Note and a single fixed rate, or certain variable rates
of interest that is unconditionally payable at least annually.
The Note Owner issued with OID must include in gross income, for all days
during its taxable year on which it holds such Note, the sum of the "daily
portions" of such OID. Such daily portions are computed by allocating to each
day during a taxable year a pro rata portion of the OID that accrued during the
relevant accrual period. In the case of an obligation the principal of which is
subject to prepayment as a result of prepayments on the underlying collateral,
(a "Prepayable Obligation"), such as the Notes, OID is computed by taking into
account the anticipated rate of prepayments assumed in pricing the debt
instrument (the "Prepayment Assumption"). A Prepayment Assumption will be used
in determining the rate of accrual of OID, premium and market discount. The
amount of OID that will accrue during an accrual period (generally the period
between interest payments or compounding dates) is the excess (if any) of the
sum of (a) the present value of all payments remaining to be made on the Note as
of the close of the accrual period and (b) the payments during the accrual
period of amounts included in the stated redemption price of the Note, over the
"adjusted issue price" of the Note at the beginning of the accrual period. An
"accrual period" is the period over which OID accrues, and may be of any length,
provided that each accrual period is no longer than one year and each scheduled
payment of interest or principal occurs on either the last day or the first day
of an accrual period. The Issuer intends to report OID on the basis of an
accrual period that corresponds to the interval between payment dates. The
adjusted issue price of a Note is the sum of its issue price plus prior accruals
of OID, reduced by the total payments made with respect to such Note in all
prior periods, other than qualified stated interest payments. The present value
of the remaining payments is determined on the basis of three factors: (i) the
original yield to maturity of the Note (determined on the basis of compounding
at the end of each accrual period and properly adjusted for the length of the
accrual period), (ii) events which have occurred before the end of the accrual
period and (iii) the assumption that the remaining payments will be made in
accordance with the original Prepayment Assumption.
The effect of this method is to increase the portions of OID required to be
included in income by a Note Owner to take into account prepayments on the
Receivables at a rate that exceeds the Prepayment Assumption, and to decrease
(but not below zero for any period) the portions of OID required to be included
in income by a Note Owner to take into account prepayments with respect to the
Receivables at a rate that is slower than the Prepayment Assumption. Although
OID will be reported to Note Owners based on the Prepayment Assumption, no
representation is made to Note Owners that Receivables will be prepaid at that
rate or at any other rate.
A Note Owner that acquires the Note for an amount that exceeds its stated
redemption price will not include any OID in gross income. A subsequent Note
Owner which acquires the Note for an amount that is less than its stated
redemption price will be required to include OID in gross income, but such a
holder who purchases such Note for an amount that exceeds its adjusted issue
price will be entitled (as will an initial holder who pays more than a Note's
issue price) to reduce the amount of OID included in income in each period by
the amount of OID multiplied by a fraction, the numerator of which is the excess
of (w) the purchaser's adjusted basis in the Note immediately after purchase
thereof over (x) the adjusted issue price of the Note, and the denominator of
which is the excess of (y) all amounts remaining to be paid on the Note after
the purchase date, other than qualified stated interest, over (z) the adjusted
issue price of the Note.
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Total Accrual Election. As an alternative to separately accruing stated
interest, OID, de minimis OID, market discount, de minimis market discount,
unstated interest, premium, and acquisition premium, a Note Owner may elect to
include all income that accrues on the Note using the constant yield method. If
a Note Owner makes this election, income on a Note will be calculated as though
(i) the issue price of the Note were equal to the Note Owner's adjusted basis in
the Note immediately after its acquisition by the Note Owner; (ii) the Note were
issued on the Note Owner's acquisition date; and (iii) none of the interest
payments on the Note were qualified stated interest. A Note Owner may make such
an election for a Note that has premium or market discount, respectively, only
if the Note Owner makes, or has previously made, an election to amortize bond
premium or to include market discount in income currently. See "-- Market
Discount" and "-- Amortizable Bond Premium."
Market Discount. The Notes, whether or not issued with OID, will be
subject to the "market discount rules" of Section 1276 of the Code. In general,
these rules provide that if the Note Owner purchases a Note at a market discount
(that is, a discount from its stated redemption price at maturity or, if the
Notes were issued with OID, its original issue price plus any accrued OID that
exceeds a de minimis amount specified in the Code) and thereafter (a) recognizes
gain upon a disposition, or (b) receives payments of principal, the lesser of
(i) such gain or principal payment or (ii) the accrued market discount will be
taxed as ordinary interest income. Generally, the accrued market discount will
be the total market discount on the Note multiplied by a fraction, the numerator
of which is the number of days the Note Owner held the Note and the denominator
of which is the number of days from the date the Note Owner acquired the Note
until its maturity date. The Note Owner may elect, however, to determine accrued
market discount under the constant-yield method.
Limitations imposed by the Code which are intended to match deductions with
the taxation of income may defer deductions for interest on indebtedness
incurred or continued, or short-sale expenses incurred, to purchase or carry a
Note with accrued market discount. A Note Owner may elect to include market
discount in gross income as it accrues and, if the Note Owner makes such an
election, is exempt from this rule. Any such election will apply to all debt
instruments acquired by the taxpayer on or after the first day of the first
taxable year to which such election applies. The adjusted basis of a Note
subject to such election will be increased to reflect market discount included
in gross income, thereby reducing any gain or increasing any loss on a sale or
taxable disposition.
Amortizable Bond Premium. In general, if a Note Owner purchases a Note at
a premium (that is, an amount in excess of the amount payable upon the maturity
thereof), such Note Owner will be considered to have purchased such Note with
"amortizable bond premium" equal to the amount of such excess. Such Note Owner
may elect to amortize such bond premium as an offset to interest income and not
as a separate deduction item as it accrues under a constant-yield method over
the remaining term of the Note. Such Note Owner's tax basis in the Note will be
reduced by the amount of the amortized bond premium. Any such election shall
apply to all debt instruments (other than instruments the interest on which is
excludible from gross income) held by the Note Owner at the beginning of the
first taxable year for which the election applies or thereafter acquired and is
irrevocable without the consent of the IRS. Bond premium on a Note held by a
Note Owner who does not elect to amortize the premium will decrease the gain or
increase the loss otherwise recognized on the disposition of the Note.
Short-Term Obligations. Under the Code, special rules apply to Notes that
have a maturity of one year or less from their date of original issuance
("Short-Term Notes"). Such Notes are treated as issued with "acquisition
discount" which is calculated and included in income under principles similar to
those governing OID except that "acquisition discount" is equal to the excess of
all payments of principal and interest on the Short-Term Notes over their issue
price. In general, an individual or other cash basis holder of a short-term
obligation is not required to accrue acquisition discount for federal income tax
purposes unless it elects to do so. Accrual basis Note Owners and certain other
Note Owners, including banks, regulated investment companies, dealers in
securities and cash basis Note Owners which so elect, are required to accrue
acquisition discount on Short-Term Notes on either a straight-line basis or
under a constant yield method (based on daily compounding), at the election of
the Note Owner. In the case of a Note Owner not required and not electing to
include acquisition discount in income currently, any gain realized on the sale
or retirement of the Short-Term Notes will be ordinary income to the extent of
the acquisition discount accrued on a straight-line basis
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<PAGE> 240
(unless an election is made to accrue the acquisition discount under the
constant yield method) through the date of sale or retirement. Note Owners which
are not required and do not elect to accrue acquisition discount on Short-Term
Notes will be required to defer deductions for interest on borrowings allocable
to short-term obligations in an amount not exceeding the deferred income until
the deferred income is realized.
Sale or Other Disposition. If a Note Owner sells a Note, the holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the holder's adjusted tax basis in the Note. The
adjusted tax basis of a Note to a particular Note Owner generally will equal the
holder's cost for the Note, increased by any market discount, acquisition
discount, OID and gain previously included by such Note Owner in income with
respect to the Note and decreased by any bond premium previously amortized and
principal payments previously received by such Note Owner with respect to such
Note. Any such gain or loss will be capital gain or loss if the Note was held as
a capital asset, except for gain representing accrued interest, accrued market
discount or, in the case of a prepayment, OID that has not previously accrued,
in each case to the extent not previously included in income. Capital losses
incurred on sale or disposition of a Note generally may be used only to offset
capital gains.
Non-U.S. Note Owners. In general, a non-U.S. Note Owner will not be
subject to U.S. federal income tax on interest (including OID) on a beneficial
interest in a Note unless (i) the non-U.S. Note Owner actually or constructively
owns 10 percent or more of the total combined voting power of all classes of
stock of the Sellers (or affiliates of the Seller) entitled to vote (or of a
profits or capital interest of the Trust), (ii) the non-U.S. Note Owner is a
controlled foreign corporation that is related to the Sellers (or the Trust)
through stock ownership, (iii) the non-U.S. Note Owner is a bank receiving
interest described in Code Section 881(c)(3)(A), (iv) such interest is a
contingent interest described in Code Section 871(h)(4), or (v) the non-U.S.
Note Owner bears certain relationships to any Certificate Owner. To qualify for
the exemption from taxation, the Note Owner must comply with applicable
certification requirements.
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 tax and withholding tax, provided that (i) such gain is
not effectively connected with the conduct of a trade or business in the United
States by the foreign person and (ii) in the case of an individual foreign
person, the foreign person is not present in the United States for 183 days or
more in the taxable year.
Backup Withholding. Each Noteholder (other than an exempt holder such as a
corporation, tax-exempt organization, qualified pension and profit-sharing
trust, individual retirement account or nonresident alien who provides
certification as to status as a nonresident) will be required to provide, under
penalties of perjury, a certificate containing the holder's name, address,
correct taxpayer identification number and a statement that the holder is not
subject to backup withholding. Should a nonexempt Noteholder fail to provide the
required certification, the Trust will be required to withhold 31 percent of the
amount otherwise payable to the holder, and remit the withheld amount to the IRS
as a credit against the holder's federal income tax liability.
Possible Alternative Treatments of the Notes. If, contrary to the opinion
of Special Tax Counsel, the IRS successfully asserted that one or more of the
Notes did not represent debt for federal income tax purposes, the Notes might be
treated as equity interests in the Trust. If so treated, the Trust might be
taxable as a corporation with the adverse consequences described above (and the
taxable corporation would not be able to reduce its taxable income by deductions
for interest expense on Notes recharacterized as equity). Alternatively, the
Trust might be treated as a publicly traded partnership that would not be
taxable as a corporation because it would meet certain qualifying income tests.
Nonetheless, treatment of the Notes as equity interests in such a publicly
traded partnership could have adverse tax consequences to certain holders. For
example, income to certain tax-exempt entities (including pension funds) would
be "unrelated business taxable income," income to foreign holders generally
would be subject to U.S. federal tax and U.S. federal tax return filing and
withholding requirements, and individual holders might be subject to certain
limitations on their ability to deduct their share of Trust expenses.
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TAX CONSEQUENCES TO HOLDERS OF OFFERED CERTIFICATES
Treatment of the Trust as a Partnership. NAFC and the Servicer will agree,
and the Certificateholders of the Trust will agree by their purchase of
Certificates, to treat the Trust as a partnership for purposes of federal and
state income tax, franchise tax and any other tax measured in whole or in part
by income, with the assets of the partnership being the assets held by the
Trust, the partners of the partnership being the Certificateholders of the Trust
(including, potentially, NAFC), and the Notes being debt of the partnership.
However, the proper characterization of the arrangement involving the Trust, the
Certificates evidencing interests in the Trust, the Notes, NAFC and the Servicer
is not clear because there is no authority on transactions closely comparable to
those contemplated herein.
A variety of alternative characterizations of the Certificates is possible.
For example, because the Certificates of beneficial interest in the Trust
generally will have certain features characteristic of debt, either or both
classes of the Certificates issued by the Trust might be considered debt of NAFC
or the Trust. Any such characterization would not result in materially adverse
tax consequences to Certificateholders as compared to the consequences from
treatment of the Certificates as equity in a partnership, described below. The
following discussion assumes that the Certificates represent equity interests in
a partnership.
Partnership Taxation. Assuming that the Trust is classified as a
partnership and that both classes of Certificates are partnership interests, the
Trust 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 the Trust. The Trust's income
will consist primarily of interest accrued on the Receivables (including
appropriate adjustments for market discount (as discussed below), and any OID
and bond premium), investment income from investments of collections held
between Distribution Dates, any gain upon, or with respect to, collection or
disposition of the Receivables and any income earned on any notional principal
contracts. The Trust's deductions will consist primarily of interest accruing on
the Notes, servicing and other fees and losses or deductions upon, or with
respect to, collection or the disposition of the Receivables.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement. In the Trust
Agreement, the Certificateholders of the Trust will agree that the yield on a
Certificate is intended to qualify as a "guaranteed payment" and not as a
distributive share of partnership income. A guaranteed payment would be treated
by a Certificateholder as ordinary income, but will likely not be treated as
interest income. The Trust Agreement will provide that, to the extent that such
treatment is not respected, Certificateholders will be allocated ordinary gross
income of the Trust for each interest period equal to the sum of (i) the amount
of interest that accrues on the Certificates for such interest period based on
the Certificate Rate applicable to each class of Certificates; (ii) an amount
equivalent to interest that accrues during such interest period on amounts
previously due on the Certificates but not yet distributed; and (iii) any Trust
income attributable to discount on the Receivables that corresponds to any
excess of the principal amount of the Certificates over their initial issue
price. All remaining taxable income of the Trust generally will be allocated to
NAFC, as the "general partner" of the Trust and the holder of the Contingent
Payment Right.
It is likely that if, on a given Distribution Date, interest were
distributed to Certificateholders from the Reserve Account, there would be
insufficient gross income to allocate a corresponding amount of income to
Certificateholders on such Distribution Date. If there were insufficient gross
income to make such an allocation in subsequent periods, Certificateholders
would realize a gain upon payment in full of the Certificates.
Except as set forth below, losses and deductions generally will not be
allocated to the Certificateholders of the Trust except to the extent the
Certificateholders of the Trust are reasonably expected to bear the economic
burden of such losses or deductions. Further, losses and deductions will not be
allocated to Certificateholders of a particular class of Certificates except to
the extent the Certificateholders of such class of Certificates are expected to
bear the economic burden of such losses or deductions. Any such losses could be
characterized as capital losses deductible by the Certificateholder only against
capital gain income, while any such deductions
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would be subject to the limitations set forth below. Accordingly, a
Certificateholder's taxable income from the Trust could exceed the cash it is
entitled to receive from the Trust.
Although the allocation of gross income to Certificateholders provided
above as an alternative to the characterization of the yield on the Certificates
as guaranteed payments is intended to comply with applicable Treasury
regulations and other authorities, no assurance can be given that the IRS would
not instead require that Certificateholders be allocated a distributive share of
partnership net income or loss. Moreover, if losses or deductions were allocated
to Certificateholders, such losses or deductions would, to the extent that funds
were later available therefor, later be reimbursed through allocations of
ordinary income.
It is believed that allocating partnership income on the foregoing basis
should comport with the partners' economic interests in the partnership,
although no assurance can be given that the IRS would not require a greater
amount of income to be allocated to Certificateholders of the Trust. Moreover,
under this alternative method of allocation, Certificateholders may be allocated
income equal to the amount of interest accruing on the Certificates based on the
applicable Certificate Rate even though the Trust might not have sufficient cash
to make current cash distributions of such amount or Certificateholders may have
no right to cash equal to such amount. Thus, cash basis Certificateholders will
in effect be required to report income from the Certificates on the accrual
basis and Certificateholders may become liable for taxes on Trust income even if
they have not received cash from the Trust to pay such taxes. In addition,
because tax allocation and tax reporting will be done on a uniform basis for all
Certificateholders of the Trust but Certificateholders of the Trust may be
purchasing Certificates at different times and at different prices,
Certificateholders may be required to report on their tax returns taxable income
that is greater or less than the amount reported to them by the Trust.
Certificateholders will be required to report items of income, loss and
deduction allocated to them by the Trust in the Certificateholder's taxable year
in which or with which the taxable year of the Trust to which such allocations
relate or in which such payments are deducted ends. The Code prescribes certain
rules for determining the taxable year of the Trust. It is likely that, under
these rules, the taxable year of the Trust will be the calendar year. However,
in the event that all of the Certificateholders possessing a 5 percent or
greater interest in the equity or the profits of the Trust share a taxable year
that is other than the calendar year, the Trust would be required to use that
year as its taxable year.
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. The
characterization under the Trust Agreement of yield on the Certificates as a
guaranteed payment could adversely affect taxpayers, such as RICs and real
estate investment trusts ("REITs"), that expect to earn "interest" income.
Limitations on Losses. Under the "passive activity" rules of the Code, any
loss allocated to a Certificateholder who is a natural person, estate, trust,
closely held "C" corporation or personal service corporation would be a passive
activity loss while, for purposes of those rules, income allocated to such a
Certificateholder would be "portfolio income."
In addition a taxpayer that is an individual, trust or estate may generally
deduct miscellaneous itemized deductions (which do not include interest expense)
only to the extent they exceed two percent of the individual's adjusted gross
income. Those limitations would apply to an individual Certificateholder's share
of expenses of the Trust (including fees paid to the Servicer) and might result
in such holder having net taxable income that exceeds the amount of cash
actually distributed to such holder over the life of the Trust.
The Trust intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Receivable, the Trust
might be required to incur additional expense but it is believed that there
would not be a material adverse effect on Certificateholders.
Discount and Premium. It is believed that the Receivables were not issued
with OID or imputed interest, and, therefore, the Trust should not have OID or
imputed interest income. However, the purchase price paid by the Trust for the
Receivables may be greater or less than the remaining principal balance of the
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Receivables at the time of purchase. If so, the Receivables will have been
acquired at a premium or discount, as the case may be. (As indicated above, the
Trust will make this calculation on an aggregate basis, but might be required to
recompute it on a Receivable-by-Receivable basis.)
If the Trust acquires the Receivables at a market discount or premium, the
Trust will elect to include any such discount in income currently as it accrues
over the life of the Receivables or to offset any such premium against interest
income on the Receivables. As indicated above, a portion of such market discount
income or premium deduction may be allocated to Certificateholders.
Section 708 Termination. Under Section 708 of the Code, the Trust will be
deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust are sold or exchanged within a
12-month period. If such a termination occurs, the Trust will be considered to
have distributed its assets to the partners, who would then be treated as
recontributing those assets to the Trust, as a new partnership. The Trust will
not comply with certain technical requirements that might apply when such a
constructive termination occurs. As a result, the Trust may be subject to
certain tax penalties and may incur additional expenses if it is required to
comply with those requirements. Furthermore, the Trust might not be able to
comply due to lack of data.
Distributions to Certificateholders. Certificateholders generally will not
recognize gain or loss with respect to distributions from the Trust. A
Certificateholder will, however, recognize gain to the extent any money
distributed exceeds the Certificateholder's adjusted basis in the Certificates
(as described below under "-- Disposition of Certificates") immediately before
distribution, and a Certificateholder will recognize loss upon termination of
the Trust or termination of the Certificateholder's interest in the Trust if the
Trust only distributes money to the Certificateholder and the amount distributed
is less than the Certificateholder's adjusted basis in the Certificates. Any
such gain or loss would be long-term capital gain or loss if the holding period
of the Certificates were more than one year, assuming that the Certificates are
held as capital assets.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
A Certificateholder's tax basis in a Certificate will generally equal the
holder's cost increased by the holder's share of Trust income (includible in
income) and decreased by any distributions received with respect to such
Certificate. In addition, both the tax basis in the Certificates and the amount
realized on a sale of a Certificate would include the holder's share of the
Notes and other liabilities of the Trust. A holder acquiring Certificates at
different prices may be required to maintain a single aggregate adjusted tax
basis in such Certificates, and, upon sale or other disposition of some of the
Certificates, allocate a portion of such aggregate tax basis to the Certificates
sold (rather than maintaining a separate tax basis in each Certificate for
purposes of computing gain or loss on a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the holder's share of
unrecognized accrued market discount on the Receivables would generally be
treated as ordinary income to the holder and would give rise to special federal
income tax reporting requirements. The Trust does not expect to have any other
assets that would give rise to such special reporting requirements. Thus, to
avoid those special reporting requirements, the Trust will elect to include
market discount in income as it accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed miscellaneous itemized
deductions described above) over the life of the Certificates that exceeds the
aggregate cash distributions with respect thereto, such excess will generally
give rise to a capital loss upon the retirement of the Certificates.
Allocations Between Transferors and Transferees. In general, the Trust's
taxable income and losses will be determined monthly and the tax items for a
particular calendar month will be apportioned among the Certificateholders in
proportion to the principal amount of Certificates owned by them as of the close
of the last day of such month. As a result, a holder purchasing Certificates may
be allocated tax items (which will affect its tax liability and tax basis)
attributable to periods before the actual transaction.
The use of such a monthly convention may not be permitted by existing
Treasury regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest),
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<PAGE> 244
taxable income or losses of the Trust might be reallocated among the
Certificateholders. NAFC is authorized to revise the Trust's method of
allocation between transferors and transferees to conform to a method permitted
by future Treasury regulations.
Section 754 Election. In the event that a Certificateholder sells its
Certificates at a profit (loss), the purchasing Certificateholder will have a
higher (lower) basis in the Certificates than the selling Certificateholder had.
The tax basis of the Trust's assets will not be adjusted to reflect that higher
(or lower) basis unless the Trust were to file an election under Section 754 of
the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the Trust will not make such election. As a
result, Certificateholders might be allocated a greater or lesser amount of
Trust income than would be appropriate based on their own purchase price for
Certificates.
Administrative Matters. The Owner Trustee is required to keep or have kept
complete and accurate books of the Trust. Such books will be maintained for
financial reporting and federal income tax purposes on an accrual basis and the
fiscal year of the Trust will be the calendar year. The Trustee will file a
partnership information return (Form 1065) with the IRS for each taxable year of
the Trust and will report each Certificateholder's allocable share of items of
Trust income and expense to holders and the IRS on Schedule K-1. The Trust will
provide the Schedule K-1 information to nominees that fail to provide the Trust
with the information statement described below, and such nominees will be
required to forward such information to the beneficial owners of the
Certificates. Generally, holders must file federal income tax returns that are
consistent with the information return filed by the Trust or be subject to
penalties unless the holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust with
a statement containing certain information on the nominee, the beneficial owners
and the Certificates so held. Such information includes (i) the name, address
and federal taxpayer identification number of the nominee and (ii) as to each
beneficial owner (x) the name, address and federal 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 either of the foregoing, and (z)
certain information on Certificates that were held, bought or sold on behalf of
such person throughout the year. In addition, brokers and financial institutions
that hold Certificates through a nominee are required to furnish directly to the
Trust information as to themselves and their ownership of Certificates. A
clearing agency registered under Section 17A of the Exchange Act is not required
to furnish any such information statement to the Trust. The information referred
to above for any calendar year must be furnished to the Trust on or before the
following January 31. Nominees, brokers and financial institutions that fail to
provide the Trust with the information described above may be subject to
penalties.
The Code provides for administrative examination of a partnership as if the
partnership were a separate taxpayer. Under these audit procedures, the tax
treatment of items of Trust income, gain, loss, deduction and credit would be
determined at the Trust level in a unified proceeding, rather than in separate
proceedings with each Certificateholder. Generally, the statute of limitations
for Trust items does not expire before three years after the date on which the
partnership information return is filed. NAFC will be designated the "tax
matters partner" for the Trust and, as such, is designated to receive notice on
behalf of, and to provide notice to those Certificateholders not receiving
notice from, the IRS, and to represent the Certificateholders in any dispute
with the IRS. Any adverse determination following an audit of the return of the
Trust by the appropriate taxing authorities could result in an adjustment of the
returns of the Certificateholders, and while the Certificateholders may
participate in any adjudicative process that is undergone at the Trust level in
arriving at such a determination, such Certificateholders will be precluded from
separately litigating a proposed adjustment to the items of the Trust. As the
tax matters partner, NAFC may enter into a binding settlement on behalf of all
Certificateholders with less than a 1 percent interest in the Partnership
(except for any group of such Certificateholders with an aggregate interest of 5
percent or more in Trust profits that elects to form a notice group or
Certificateholders who otherwise notify the IRS that NAFC is not authorized to
settle on their behalf). In the absence of a proceeding at the Trust level, a
Certificateholder under certain circumstances may
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pursue a claim for credit or refund on its own behalf by filing a request for
administrative adjustment of a Trust item. Each Certificateholder is advised to
consult its own tax advisor with respect to the impact of these procedures on
its particular case.
Backup Withholding. Distributions made on the Certificates and proceeds
from the sale of the Certificates will not be subject to a "backup" withholding
tax of 31% unless, in general, the Certificateholder fails to comply with
certain identification procedures and is not an exempt recipient under
applicable provisions of the Code.
NO NON-U.S. CERTIFICATEHOLDERS
No beneficial interest in a Certificate may be held either directly or
indirectly by persons other than U.S. persons.
THE FEDERAL TAX DISCUSSIONS SET FORTH ABOVE ARE INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A NOTEHOLDER'S OR
CERTIFICATEHOLDER'S PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS SHOULD
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF NOTES AND CERTIFICATES, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE
EFFECTS OF CHANGES IN FEDERAL AND/OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
THE NOTES
The Notes may, in general, be purchased by or on behalf of (i) "employee
benefit plans" (as defined in Section 3(3) of ERISA), (ii) "plans" described in
Section 4975(e)(1) of the Code, including individual retirement accounts and
Keogh Plans, or (iii) entities whose underlying assets include plan assets by
reason of a plan's investment in such entity (each, a "Plan"). However, the
acquisition and holding of Notes by or on behalf of a Plan could be considered
to give rise to a prohibited transaction under ERISA and the Code if the Trust,
the Owner Trustee, the Indenture Trustee, any holder of the Certificates or any
of their respective affiliates, is or becomes a "party in interest" or a
"disqualified person" (as defined in ERISA and the Code, respectively) with
respect to such Plan. In such case, certain exemptions from the prohibited
transaction rules could be applicable to such acquisition and holding by a Plan
depending on the type and circumstances of the Plan fiduciary making the
decision to acquire a Note. For additional information regarding treatment of
the Notes under ERISA, see "ERISA Considerations" in the Prospectus.
THE CERTIFICATES
The Certificates may not be acquired by a Plan or a person investing "plan
assets" of a Plan (including without limitation, for this purpose, any insurance
company general account, but excluding any entity registered under the
Investment Company Act of 1940, as amended) (each, a "Plan Investor"). In
addition, investors other than Plan Investors should be aware that a prohibited
transaction under ERISA and the Code could be deemed to occur if any holder of
the Certificates or any of their respective affiliates is or becomes a party in
interest or a disqualified person with respect to any Plan that acquires and
holds the Notes without such Plan being covered by one or more exemptions from
the prohibited transaction rules. For additional information regarding treatment
of the Certificates under ERISA, see "ERISA Considerations" in the Prospectus.
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UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting Agreement
(the "Underwriting Agreement"), the Sellers have agreed to cause the Trust to
sell to each of the Note Underwriters named below (collectively, the "Note
Underwriters"), and each of the Note Underwriters has severally agreed to
purchase, the initial principal amount of Notes set forth opposite its name
below:
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4
NOTE UNDERWRITERS NOTES NOTES NOTES NOTES
- ---------------------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NationsBanc Capital
Markets, Inc. ..................... $ 98,952,000 $124,000,000 $ 77,323,000 $ 30,000,000
Bear, Stearns & Co. Inc. ............. 98,000,000 124,000,000 76,000,000 29,000,000
First Chicago Capital
Markets, Inc. ..................... 98,000,000 124,000,000 76,000,000 29,000,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.............. 98,000,000 124,000,000 76,000,000 29,000,000
Salomon Brothers Inc.................. 98,000,000 124,000,000 76,000,000 29,000,000
UBS Securities LLC.................... 98,000,000 124,000,000 76,000,000 29,000,000
------------ ------------ ------------ ------------
Total......................... $588,952,000 $744,000,000 $457,323,000 $175,000,000
============ ============ ============ ============
</TABLE>
The Sellers have been advised by the Note Underwriters that they propose
initially to offer the Notes to the public at the prices set forth herein, and
to certain dealers at such prices less the initial concession not in excess of
% per Class A-1 Note, % per Class A-2 Note, % per Class A-3 Note and
% per Class A-4 Note. The Note Underwriters may allow, and such dealers may
reallow, a concession not in excess of % per Class A-1 Note, % per
Class A-2 Note, % per Class A-3 Note and % per Class A-4 Note to
certain other dealers. After the initial public offering of the Notes, the
public offering price and such concessions may be changed.
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Sellers have agreed to cause the Trust to sell to NationsBanc
Capital Markets, Inc. ("NCMI") (the "Certificate Underwriter" and, together with
the Note Underwriters, the "Underwriters"), and NCMI has agreed to purchase, the
aggregate initial Certificate Balance of the offered Certificates.
The Sellers have been advised by the Certificate Underwriter that it
proposes initially to offer the Class B-1 Certificates and Class B-2
Certificates (other than those held by NAFC) to the public at the prices set
forth herein, and to certain dealers at such price less the initial concession
not in excess of % per Class B-1 Certificate and % per Class B-2
Certificate. The Certificate Underwriter may allow, and such dealers may
reallow, a concession not in excess of % per Class B-1 Certificate and %
per Class B-2 Certificate to certain other dealers. After the initial public
offering of the Certificates, the public offering price and such concessions may
be changed.
NCMI is a separate subsidiary of NationsBank Corporation. NCMI is a
registered broker-dealer and not a bank. Any obligations of NCMI are the sole
responsibility of NCMI and do not create any obligation or guarantee on the part
of any affiliate of NCMI.
LEGAL OPINIONS
In addition to the legal opinions described in the Prospectus, certain
legal matters relating to the Notes and the Certificates will be passed upon for
the Underwriters and certain federal income tax and other matters will be passed
upon for the Trust by Skadden, Arps, Slate, Meagher & Flom.
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<PAGE> 247
INDEX OF TERMS
Set forth below is a list of the defined terms used in this Prospectus
Supplement and defined herein and the pages on which the definitions of such
terms may be found herein. Certain defined terms used in this Prospectus
Supplement are defined in the Prospectus. See "Index of Terms" beginning on page
68 of the Prospectus.
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
ABS.............................................................................. S-24
ABS Table........................................................................ S-25
Accrued Certificate Interest..................................................... S-37
Accrued Note Interest............................................................ S-35
Advance.......................................................................... S-33
Available Funds.................................................................. S-34
Available Interest............................................................... S-34
Available Principal.............................................................. S-34
Available Reserve Amount......................................................... S-39
Average Delinquency Ratio........................................................ S-39
Average Net Loss Ratio........................................................... S-39
Bank............................................................................. S-1,4
Business Day..................................................................... S-6
Cede............................................................................. S-3
Cedel............................................................................ I-1
Certificate Balance.............................................................. S-37
Certificate Pool Factor.......................................................... S-29
Certificate Rate................................................................. S-8
Certificate Underwriter.......................................................... S-50
Certificateholders............................................................... S-8
Certificateholders' Distribution Amount.......................................... S-37
Certificateholders' Interest Carryover Shortfall................................. S-37
Certificateholders' Monthly Accrued Interest..................................... S-37
Certificateholders' Monthly Principal............................................ S-37
Certificateholders' Percentage................................................... S-36,37
Certificateholders' Principal Carryover Shortfall................................ S-37
Certificateholders' Principal Distribution Amount................................ S-8,37
Certificates..................................................................... S-2,4
Class A-1 Final Scheduled Distribution Date...................................... S-7
Class A-1 Notes.................................................................. S-1,4
Class A-1 Rate................................................................... S-6
Class A-2 Final Scheduled Distribution Date...................................... S-7
Class A-2 Notes.................................................................. S-2,4
Class A-2 Rate................................................................... S-6
Class A-3 Final Scheduled Distribution Date...................................... S-7
Class A-3 Notes.................................................................. S-2,4
Class A-3 Rate................................................................... S-6
Class A-4 Final Schedule Distribution Date....................................... S-8
Class A-4 Notes.................................................................. S-2,4
Class A-4 Rate................................................................... S-6
Class B-1 Certificates........................................................... S-2,4
Class B-1 Final Scheduled Distribution Date...................................... S-9
Class B-1 Rate................................................................... S-8
Class B-2 Certificates........................................................... S-2,4
Class B-2 Rate................................................................... S-8
</TABLE>
S-51
<PAGE> 248
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
Class B-2 Final Scheduled Distribution Date...................................... S-9
Closing Date..................................................................... S-6
Code............................................................................. S-13,41
Collection Account............................................................... S-11
Collection Period................................................................ S-7
Collections...................................................................... S-34
Commission....................................................................... S-3
Contingent Payment Right......................................................... S-39
Contract Rate.................................................................... S-18
Cut-Off Date..................................................................... S-4
Dealer Agreements................................................................ S-4
Dealers.......................................................................... S-4
Defaulted Receivable............................................................. S-34
Delinquency Ratio................................................................ S-39
Determination Date............................................................... S-33
Distribution Date................................................................ S-2,6
DTC.............................................................................. S-3,I-1
Equity Percentage................................................................ S-11,40
ERISA............................................................................ S-13
Euroclear........................................................................ I-1
Exchange Act..................................................................... S-3
Final Scheduled Distribution Date................................................ S-9
Final Scheduled Maturity Date.................................................... S-6
Financed Vehicles................................................................ S-4
Forced-Placed Insurance.......................................................... S-18
Global Securities................................................................ I-1
Indenture........................................................................ S-4
Indenture Trustee................................................................ S-4
Interest Collections............................................................. S-34
Interest Period.................................................................. S-2,7,30
Interest Reserve Amount.......................................................... S-40
IRS.............................................................................. S-41
Issuer........................................................................... S-4
Liquidation Proceeds............................................................. S-34
NAFC............................................................................. S-2,4
NationsBank South................................................................ S-4
NationsBank Texas................................................................ S-4
NCMI............................................................................. S-50
Net Loss Ratio................................................................... S-40
Note Interest Rates.............................................................. S-6
Note Pool Factor................................................................. S-29
Note Underwriters................................................................ S-50
Noteholders...................................................................... S-6
Noteholders' Interest Carryover Shortfall........................................ S-35
Noteholders' Monthly Accrued Interest............................................ S-36
Noteholders' Monthly Principal................................................... S-36
Noteholders' Payment Amount...................................................... S-36
Noteholders' Percentage.......................................................... S-36
Noteholders' Principal Carryover Shortfall....................................... S-36
Noteholders' Principal Payment Amount............................................ S-7, 36
</TABLE>
S-52
<PAGE> 249
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
Notes............................................................................ S-1, 2, 4
Obligor.......................................................................... S-4
OID.............................................................................. S-41
OID Regulations.................................................................. S-42
Outstanding Advances............................................................. S-34
Owner Trustee.................................................................... S-4
Plan............................................................................. S-49
Plan Investor.................................................................... S-49
Pool Balance..................................................................... S-6
Prepayable Obligation............................................................ S-42
Prepayment Assumption............................................................ S-42
Prospectus....................................................................... S-3
Purchased Receivable............................................................. S-35
Rating Agencies.................................................................. S-14, 17
Rating Agency Condition.......................................................... S-40
Realized Losses.................................................................. S-36
Receivables...................................................................... S-2, 4
Receivables Pool................................................................. S-18
Record Date...................................................................... S-6
Recoveries....................................................................... S-35
Registration Statement........................................................... S-3
Regular Principal................................................................ S-36
REITs............................................................................ S-46
Reserve Account.................................................................. S-9
Reserve Account Initial Deposit.................................................. S-9, 38
RICs............................................................................. S-40
Sale and Servicing Agreement..................................................... S-4
Securities....................................................................... S-2, 4
Securities Act................................................................... S-3
Securityholders.................................................................. S-8
Seller........................................................................... S-1, 4
Servicer......................................................................... S-4
Servicer's Certificate........................................................... S-33
Servicing Fee Rate............................................................... S-12
Short-Term Notes................................................................. S-43
Simple Interest Receivable....................................................... S-24
Special Tax Counsel.............................................................. S-13
Specified Interest Reserve Amount................................................ S-10, 38
Specified Reserve Account Balance................................................ S-10, 38
Transfer and Servicing Agreements................................................ S-32
Trust............................................................................ S-1, 4
Trust Agreement.................................................................. S-4
Trust Property................................................................... S-4
Underwriters..................................................................... S-50
Underwriting Agreement........................................................... S-50
</TABLE>
S-53
<PAGE> 250
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered NationsBank
Auto Owner Trust 1996-A % Class A-1 Asset Backed Notes, % Class A-2
Asset Backed Notes, % Class A-3 Asset Backed Notes and % Class A-4
Asset Backed Notes (collectively, the "Global Securities") will be available
only in book-entry form. Investors in the Global Securities may hold such Global
Securities through any of The Depository Trust Company ("DTC"), Cedel Bank,
societe anonyme ("Cedel") or the Euroclear System ("Euroclear"). The Global
Securities will be tradeable as home market instruments in both the European and
U.S. domestic markets. Initial settlement and all secondary trades will settle
in same-day funds.
Secondary market trading between investors holding Global Securities
through Cedel and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Global Securities will be effected on a
delivery-against-payment basis through the respective Depositaries of Cedel and
Euroclear (in such capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities will
be represented through financial institutions acting on their behalf as direct
and indirect Participants in DTC. As a result, Cedel and Euroclear will hold
positions on behalf of their participants through their respective Depositaries,
which in turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to U.S. corporate debt obligations. Investor
securities custody accounts will be credited with their holdings against payment
in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to U.S. corporate
debt obligations in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
I-1
<PAGE> 251
Trading between DTC seller and Cedel or Euroclear purchaser. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a Cedel Participant or a Euroclear Participant, the purchaser will
send instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. Cedel or Euroclear
will instruct the respective Depositary, as the case may be, to receive the
Global Securities against payment. Payment will include interest accrued on the
Global Securities from and including the last coupon payment date to and
excluding the settlement date. Payment will then be made by the respective
Depositary to the DTC Participant's account against delivery of the Global
Securities. After settlement has been completed, the Global Securities will be
credited to the respective clearing system and by the clearing system, in
accordance with its usual procedures, to the Cedel Participant's or Euroclear
Participant's account. The securities credit will appear the next day (European
time) and the cash debit will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the Cedel or Euroclear cash debit
will be valued instead as of the actual settlement date.
Cedel Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Cedel or Euroclear. Under this approach,
they may take on credit exposure to Cedel or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, Cedel Participants or Euroclear Participants can elect not to pre-position
funds and allow that credit line to be drawn upon to finance settlement. Under
this procedure, Cedel Participants or Euroclear Participants purchasing Global
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each Cedel Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective Depositary for the benefit of Cedel Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participant a cross-market transaction will
settle no differently than a trade between two DTC Participants.
Trading between Cedel or Euroclear seller and DTC purchaser. Due to time
zone differences in their favor, Cedel Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through the
respective Depositary, to a DTC Participant. The seller will send instructions
to Cedel or Euroclear through a Cedel Participant or Euroclear Participant at
least one business day prior to settlement. In these cases, Cedel or Euroclear
will instruct the respective Depositary, as appropriate, to deliver the bonds to
the DTC Participant's account against payment. Payment will include interest
accrued on the Global Securities from and including the last coupon payment date
to and excluding the settlement date. The payment will then be reflected in the
account of the Cedel Participant or Euroclear Participant the following day, and
receipt of the cash proceeds in the Cedel Participant's or Euroclear
Participant's account would be back-valued to the value date (which would be the
preceding day, when settlement occurred in New York). Should the Cedel
Participant or Euroclear Participant have a line of credit with its respective
clearing system and elect to be in debit in anticipation of receipt of the sale
proceeds in its account, the back-valuation will extinguish any overdraft
charges incurred over that one-day period. If settlement is not completed on the
intended value date (i.e., the trade fails), receipt of the cash proceeds in the
Cedel Participant's or Euroclear Participant's account would instead be valued
as of the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase Global
Securities from DTC Participants for delivery to Cedel Participants or Euroclear
Participants should note that these trades would
I-2
<PAGE> 252
automatically fail on the sale side unless affirmative action were taken. At
least three techniques should be readily available to eliminate this potential
problem:
(a) borrowing through Cedel or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedel or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Cedel or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the Cedel Participant
or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through Cedel or
Euroclear (or through DTC if the holder has an address outside the U.S.) will be
subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issue discount) on registered debt issued by U.S.
Persons, unless (i) each clearing system, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or business
in the chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of
Global Securities that are non-U.S. Persons can obtain a complete exemption
from the withholding tax by filing a signed Form W-8 (Certificate of
Foreign Status). If the information shown on Form W-8 changes, a new Form
W-8 must be filed within 30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a
U.S. branch, for which the interest income is effectively connected with
its conduct of a trade or business in the United States, can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a
Trade or Business in the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are beneficial owners of
Global Securities residing in a country that has a tax treaty with the
United States can obtain an exemption or reduced tax rate (depending on the
treaty terms) by filing Form 1001 (Ownership, Exemption or Reduced Rate
Certificate). If the treaty provides only for a reduced rate, withholding
tax will be imposed at that rate unless the filer alternatively files Form
W-8. Form 1001 may be filed by the beneficial owner of Global Securities or
his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's
Request for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The beneficial owner of
a Global Security or in the case of a Form 1001 or a Form 4224 filer, his
agent, files by submitting the appropriate form to the person through whom
it holds (the clearing agency, in the case of persons holding directly on
the books of the clearing agency). Form W-8 and Form 1001 are effective for
three calendar years and Form 4224 is effective for one calendar year.
I-3
<PAGE> 253
- ------------------------------------------------------------
- ------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES
OFFERED HEREBY, NOR AN OFFER OF THE SECURITIES IN ANY STATE OR JURISDICTION IN
WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF
THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT
INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Reports to Securityholders...................... S-3
Summary......................................... S-4
Risk Factors.................................... S-14
The Trust....................................... S-16
The Receivables Pool............................ S-17
Pool Factors.................................... S-26
Maturity and Prepayment Considerations.......... S-26
Description of the Notes........................ S-27
Description of the Certificates................. S-28
Description of the Transfer and Servicing
Agreements.................................... S-29
Federal Income Tax Consequences................. S-37
ERISA Considerations............................ S-45
Underwriting.................................... S-46
Legal Opinions.................................. S-46
Index of Terms.................................. S-47
Annex I -- Global Clearance, Settlement and Tax
Documentation Procedures...................... I-1
PROSPECTUS
Reports to Securityholders...................... 1
Available Information........................... 1
Incorporation of Certain Documents by
Reference..................................... 1
Summary......................................... 3
Risk Factors.................................... 14
The Trusts...................................... 21
The Receivables Pools........................... 23
Maturity and Prepayment Considerations.......... 26
Pool Factors and Trading Information............ 27
Use of Proceeds................................. 27
The Banks, NationsBank Corporation and NAFC..... 28
The Servicer.................................... 28
Description of the Notes........................ 29
Description of the Certificates................. 34
Description of Fixed and Floating Rate
Options....................................... 35
Book-Entry and Definitive Securities; Reports to
Securityholders............................... 39
Description of the Transfer and Servicing
Agreements.................................... 44
Certain Legal Aspects of the Receivables........ 57
Federal Income Tax Consequences................. 61
ERISA Considerations............................ 62
Plan of Distribution............................ 66
Legal Opinions.................................. 67
Index of Terms.................................. 68
</TABLE>
UNTIL , 1996 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS
SUPPLEMENT), ALL DEALERS EFFECTING TRANSACTIONS IN THE NOTES OR THE
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS SUPPLEMENT AND A PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
$2,136,187,667.91
NATIONSBANK
AUTO OWNER TRUST 1996-A
$588,952,000 % CLASS A-1
ASSET BACKED NOTES
$744,000,000 % CLASS A-2
ASSET BACKED NOTES
$457,323,000 % CLASS A-3
ASSET BACKED NOTES
$175,000,000 % CLASS A-4
ASSET BACKED NOTES
$96,129,000 % CLASS B-1
ASSET BACKED CERTIFICATES
$74,783,667.91 % CLASS B-2
ASSET BACKED CERTIFICATES
NATIONSBANK, N.A.
NATIONSBANK, N.A. (SOUTH)
NATIONSBANK OF TEXAS, N.A.
SELLERS
---------------------
NATIONSBANK, N.A.
SERVICER
---------------------
---------------------
PROSPECTUS
SUPPLEMENT
---------------------
NATIONSBANC CAPITAL MARKETS, INC.
BEAR, STEARNS & CO. INC.
FIRST CHICAGO CAPITAL MARKETS, INC.
MERRILL LYNCH & CO.
SALOMON BROTHERS INC
UBS SECURITIES
UNDERWRITERS OF THE NOTES
NATIONSBANC CAPITAL MARKETS, INC.
UNDERWRITER OF THE CERTIFICATES
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 254
THE INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE
IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
[ALTERNATE COVER]
SUBJECT TO COMPLETION, DATED JULY , 1996
OWNER TRUST PROSPECTUS SUPPLEMENT
(To Prospectus dated July , 1996)
$2,136,187,667.91
NATIONSBANK AUTO OWNER TRUST 1996-A
$588,952,000.00 % CLASS A-1 ASSET BACKED NOTES
$744,000,000.00 % CLASS A-2 ASSET BACKED NOTES
$457,323,000.00 % CLASS A-3 ASSET BACKED NOTES
$175,000,000.00 % CLASS A-4 ASSET BACKED NOTES
$96,129,000.00 % CLASS B-1 ASSET BACKED CERTIFICATES
$74,783,667.91 % CLASS B-2 ASSET BACKED CERTIFICATES
NATIONSBANK, N.A.
NATIONSBANK, N.A. (SOUTH)
NATIONSBANK OF TEXAS, N.A.
SELLERS
---------------------
NATIONSBANK, N.A.
SERVICER
---------------------
The NationsBank Auto Owner Trust 1996-A (the "Trust") will be governed by a
Trust Agreement, dated as of July , 1996, among NationsBank, N.A.,
NationsBank, N.A. (South), NationsBank of Texas, N.A. (each, a "Seller" and a
"Bank" and collectively, the "Sellers" and the "Banks") and Bankers Trust
(Delaware), as Owner Trustee. The Trust will issue $588,952,000.00 aggregate
initial principal amount of % Class A-1 Asset Backed Notes (the "Class
A-1 Notes"), $744,000,000.00 aggregate initial principal amount of %
Class A-2 Asset Backed Notes
(continued on the following page)
PROSPECTIVE INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION SET
FORTH IN
"RISK FACTORS" BEGINNING ON PAGE S-15 HEREIN AND ON PAGE 14 OF THE ACCOMPANYING
PROSPECTUS.
---------------------
THE NOTES REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES REPRESENT BENEFICIAL
INTERESTS IN, THE TRUST ONLY AND DO NOT REPRESENT OBLIGATIONS OF OR
INTERESTS IN, AND ARE NOT GUARANTEED OR INSURED BY, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, ANY GOVERNMENTAL AGENCY, ANY OF THE SELLERS,
THE SERVICER OR NATIONSBANK CORPORATION OR ANY OF THEIR RESPECTIVE
AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR
THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
---------------------
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT THE SELLER(1)(2)
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Class A-1 Note.................................... % % %
- ------------------------------------------------------------------------------------------------------------------------------
Per Class A-2 Note.................................... % % %
- ------------------------------------------------------------------------------------------------------------------------------
Per Class A-3 Note.................................... % % %
- ------------------------------------------------------------------------------------------------------------------------------
Per Class A-4 Note.................................... % % %
- ------------------------------------------------------------------------------------------------------------------------------
Per Class B-1 Certificate............................. % % %
- ------------------------------------------------------------------------------------------------------------------------------
Per Class B-2 Certificate............................. % % %
- ------------------------------------------------------------------------------------------------------------------------------
Total................................................. $ $ $
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from the Closing Date.
(2) Before deducting expenses, estimated to be $ .
This Prospectus Supplement and the related Prospectus may be used by
NationsBanc Capital Markets, Inc., an affiliate of the Sellers and the Servicer,
in connection with offers and sales related to market-making transactions in the
Notes and the Certificates. NationsBanc Capital Markets, Inc. may act as
principal or agent in such transactions. Such sales will be made at prices
related to prevailing market prices at the time of sale or otherwise. Certain
information in this Prospectus Supplement and the Prospectus will be updated
from time to time as described in "Incorporation of Certain Documents by
Reference" in the Prospectus.
UNDERWRITER OF THE NOTES AND THE CERTIFICATES
NATIONSBANC CAPITAL MARKETS, INC.
The date of this Prospectus Supplement is July , 1996.
<PAGE> 255
[ALTERNATE PAGE]
UNDERWRITING
This Prospectus Supplement and the related Prospectus may be used by
NationsBanc Capital Markets, Inc. ("NCMI") in connection with offers and sales
related to market-making transactions in the Notes and the Certificates. NCMI
may act as principal or agent in such transactions. Such sales will be made at
prices related to prevailing markets prices at the time of sale or otherwise.
NCMI does not have any obligation to make a market in the Notes or the
Certificates, and it may discontinue any such market-making activities at any
time without notice, in its sole discretion. NCMI is among the underwriters
participating in the initial distribution of the Notes and the Certificates.
NCMI is a separate subsidiary of NationsBank Corporation. NCMI is a
registered broker-dealer and not a bank. Any obligations of NCMI are the sole
responsibility of NCMI and do not create any obligation or guarantee on the part
of any affiliate of NCMI.
LEGAL OPINIONS
In addition to the legal opinions described in the Prospectus, certain
legal matters relating to the Notes and the Certificates will be passed upon for
the Underwriters and certain federal income tax and other matters will be passed
upon for the Trust by Skadden, Arps, Slate, Meagher & Flom.
S-50
<PAGE> 256
- ------------------------------------------------------------
- ------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES
OFFERED HEREBY, NOR AN OFFER OF THE SECURITIES IN ANY STATE OR JURISDICTION IN
WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF
THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT
INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Reports to Securityholders...................... S-3
Summary......................................... S-4
Risk Factors.................................... S-15
The Trust....................................... S-17
The Receivables Pool............................ S-18
Pool Factors.................................... S-29
Maturity and Prepayment Considerations.......... S-29
Description of the Notes........................ S-30
Description of the Certificates................. S-31
Description of the Transfer and Servicing
Agreements.................................... S-32
Federal Income Tax Consequences................. S-40
ERISA Considerations............................ S-49
Underwriting.................................... S-50
Legal Opinions.................................. S-50
Index of Terms.................................. S-51
Annex I -- Global Clearance, Settlement and Tax
Documentation Procedures...................... I-1
PROSPECTUS
Reports to Securityholders....................... 1
Available Information............................ 1
Incorporation of Certain Documents by
Reference...................................... 1
Summary.......................................... 3
Risk Factors..................................... 14
The Trusts....................................... 21
The Receivables Pools............................ 23
Maturity and Prepayment Considerations........... 26
Pool Factors and Trading Information............. 27
Use of Proceeds.................................. 27
The Banks, NationsBank Corporation and NAFC...... 28
The Servicer..................................... 28
Description of the Notes......................... 29
Description of the Certificates.................. 34
Description of Fixed and Floating Rate Options... 35
Book-Entry and Definitive Securities; Reports to
Securityholders................................ 39
Description of the Transfer and Servicing
Agreements..................................... 44
Certain Legal Aspects of the Receivables......... 57
Federal Income Tax Consequences.................. 61
ERISA Considerations............................. 62
Plan of Distribution............................. 66
Legal Opinions................................... 67
Index of Terms................................... 68
</TABLE>
- ------------------------------------------------------------
- ------------------------------------------------------------
[ALTERNATE BACK COVER]
- ------------------------------------------------------------
- ------------------------------------------------------------
$2,136,187,667.91
NATIONSBANK
AUTO OWNER TRUST 1996-A
$588,952,000 % CLASS A-1
ASSET BACKED NOTES
$744,000,000 % CLASS A-2
ASSET BACKED NOTES
$457,323,000 % CLASS A-3
ASSET BACKED NOTES
$175,000,000 % CLASS A-4
ASSET BACKED NOTES
$96,129,000 % CLASS B-1
ASSET BACKED CERTIFICATES
$74,783,667.91 % CLASS B-2
ASSET BACKED CERTIFICATES
NATIONSBANK, N.A.
NATIONSBANK, N.A. (SOUTH)
NATIONSBANK OF TEXAS, N.A.
SELLERS
---------------------
NATIONSBANK, N.A.
SERVICER
---------------------
---------------------
PROSPECTUS
SUPPLEMENT
---------------------
NATIONSBANC CAPITAL MARKETS, INC.
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 257
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the actual and estimated expenses in
connection with the offering described in this Registration Statement.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................... $1,379,310.35
Rating agency fees (estimated)........................................ 690,000
Printing (estimated).................................................. 250,000
Legal fees and expenses (estimated)................................... 450,000
Accountants' fees (estimated)......................................... 75,000
Fees and expenses of Indenture Trustee (estimated).................... 45,000
Fees and expenses of applicable Trustee (estimated)................... 45,000
Miscellaneous expenses (estimated).................................... 70,000
-------------
Total....................................................... $3,004,310.35
============
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Articles of Association of NationsBank, N.A. provide as follows:
TENTH. To the fullest extent permitted by the laws of the state in
which the bank's holding company is incorporated, subject only to the
limits of the corporate powers of a national association, a director of the
association shall not be personally liable to the association, its
shareholders or otherwise for monetary damage for breach of duty as a
director. Any repeal or modification of this article shall be prospective
only and shall not adversely affect any limitation on the personal
liability of a director of the association existing at the time of such
repeal or modification.
The association shall indemnify and hold harmless any director,
officer, employee, or agent of the association and its subsidiaries against
all liability and expenses to the fullest extent permitted by the laws of
the state in which the association's holding company is incorporated, and
in addition to the indemnification otherwise provided by law, the
association shall indemnify and hold harmless such directors, officers,
employees, or agents against all liability and expenses, including
reasonable attorney's fees, in any proceeding (including without limitation
a proceeding brought by or on behalf of the association itself) arising out
of their status as directors, officers, employees, or agents, or their
service at the association's request as a director, officer, partner,
trustee, employee or agent of another foreign or domestic corporation,
association, partnership, joint venture, trust, employee benefit plan or
other enterprise, or their activities in any such capacity.
The extent of indemnification provided for in this section and the
procedures for implementation of that indemnification shall be in
accordance with the provisions of the bylaws of NationsBank Corporation.
The association may also provide insurance for such indemnification
relating to the directors, officers, employees or agent's service to the
association in accordance with the provisions of the bylaws of NationsBank
Corporation. To the extent that indemnification or insurance coverage is
prohibited or limited by lawful and binding regulations of the Office of
the Comptroller of the Currency, such regulations shall govern this
indemnification provision.
The Articles of Association of NationsBank, N.A. (South) provide as
follows:
TENTH. To the fullest extent permitted by the laws of the state in
which the bank's holding company is incorporated, subject only to the
limits of the corporate powers of a national association, a director of the
association shall not be personally liable to the association, its
shareholders or otherwise for monetary damage for breach of duty as a
director. Any repeal or modification of this article shall be
II-1
<PAGE> 258
prospective only and shall not adversely affect any limitation of the
personal liability of a director of the association existing at the time of
such repeal or modification.
The association shall indemnify and hold harmless any director,
officer, employee, or agent of the association and its subsidiaries against
all liability and expenses to the fullest extent permitted by the laws of
the state in which the association's holding company is incorporated, and
in addition to the indemnification otherwise provided by law, the
association shall indemnify and hold harmless such directors, officers,
employees, or agents against all liability and expenses, including
reasonable attorney's fees, in any proceeding (including without limitation
a proceeding brought by or on behalf of the association itself) arising out
of their status as directors, officers, employees, or agents, or their
service at the associations's request as a director, officer, partner,
trustee, employee or agent of another foreign or domestic corporation,
association, partnership, joint venture, trust, employee benefit plan or
other enterprise, or their activities in any such capacity.
The extent of indemnification provided for in this section and the
procedures for implementation of that indemnification shall be in
accordance with the provisions of the bylaws of NationsBank Corporation.
The association may also provide insurance for such indemnification
relating to the directors, officers, employees or agent's service to the
association in accordance with the provisions of the bylaws of NationsBank
Corporation. To the extent that indemnification or insurance coverage is
prohibited or limited by lawful and binding regulations of the Office of
the Comptroller of the Currency, such regulations shall govern this
indemnification provision.
The Articles of Association of NationsBank of Texas, N.A. provide as
follows:
ELEVENTH. (a) The Association shall indemnify and hold harmless each
person who was or is a Director of the Association who was or is made a
party or is threatened to be made a party to or is otherwise involved in
any action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), other than a proceeding by or
in the right of the Association, whether the basis of such proceeding is
alleged action by such person (i) in an official capacity as a Director of
the Association or (ii) while such person is also serving as a Director of
the Association, in the capacity of an officer, employee or agent of the
Association, including service with respect to an employee benefit plan,
against all expense, liability and loss (including, without limitation,
Attorneys' Fees [as defined in the last sentence of this Section 11(a)],
judgments, fines or penalties and amounts paid in settlement) actually and
reasonably incurred or suffered by such person in connection therewith;
provided that such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Association and, with respect to any criminal proceeding, had no reasonable
cause to believe such person's conduct was unlawful. Reasonable expenses
incurred by such person in defending a proceeding shall be paid or
reimbursed by the Association in advance of the final disposition of such
proceeding and without any determination that such person has met the
standard of conduct referred to in this Section 11(a); provided that the
Association receives a written undertaking by such person that such person
has a good faith belief that he has met the standard of conduct necessary
for indemnification under this section [sic] 11(a) and receives a written
undertaking by or on behalf of such person to repay the amount paid or
reimbursed if it is ultimately determined that such person has not met such
standard of conduct. Such written undertaking with respect to repayment
need not be secured and shall be acceptable without reference to financial
ability to make repayment. Indemnification and payment or reimbursement of
expenses shall continue as to any person who has ceased to be a Director
and shall inure to the benefit of, and be binding upon, such person's
heirs, executors and administrators. As used in this Article Eleventh, the
term "Attorneys' Fees" shall mean, in the context of a particular
proceeding, the reasonable attorneys' fees incurred by an individual in
connection with the defense of such individual in such proceeding, the
reasonable expenses of such attorneys in such defense and court costs
incurred in connection therewith.
(b) The Association shall indemnify and hold harmless each person who
was or is an officer, employee or agent (each of the foregoing being
referred to as an "Officer") of the Association who was or is made a party
or is threatened to be made a party to or is otherwise involved in any
proceeding, other
II-2
<PAGE> 259
than a proceeding by or in the right of the Association, whether the basis
of such proceeding is alleged action by such person (i) in an official
capacity as an Officer of the Association, including service with respect
to an employee benefit plan, or (ii) as a Designated Representative (as
defined in the following sentence), against all expense, liability and loss
(including, without limitation, Attorneys' Fees, judgments, fines or
penalties and amounts paid in settlement) actually and reasonably incurred
or suffered by such person in connection therewith; provided that such
person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the Association and, with
respect to any criminal proceeding, had no reasonable cause to believe such
person's conduct was unlawful; and provided further, that the Association
shall not indemnify and hold harmless such person against any expense
(other than Attorneys' Fees), liability or loss (including, without
limitation, judgments, fines or penalties and amounts paid in settlement)
to the extent that such expense (other than Attorneys' Fees), liability or
loss (including, without limitation, judgments, fines or penalties and
amounts paid in settlement) arose from such person's acts or failures to
act prior to July 30, 1988 ("Prior Acts"). A person shall be acting as a
Designated Representative for purposes of this Article Eleventh if such
person is serving at the written request of the Association made pursuant
to specific authority of the Board of Directors, in the capacity of a
director, officer, employee or agent of any corporation, partnership, joint
venture, trust or other enterprise other than the Association. Reasonable
expenses incurred by a person who was or is an Officer of the Association
in defending a proceeding shall be paid or reimbursed by the Association in
advance of the final disposition of a proceeding and without any
determination that such person has met the standard of conduct referred to
in this Section 11(b); provided that the Association receives a written
undertaking by such person that such person has a good faith belief that he
has met the standard of conduct necessary for indemnification under this
section [sic] 11(b) and receives a written undertaking by or on behalf of
such person to repay the amount paid or reimbursed if it is ultimately
determined that such person has not met such standard of conduct. Such
written undertaking with respect to repayment need not be secured and shall
be acceptable without reference to financial ability to make repayment.
Indemnification and payment or reimbursement of expenses shall continue as
to any person who has ceased to be an Officer of the Association and shall
inure to the benefit of, and be binding upon, such person's heirs,
executors and administrators.
(c) The Association may indemnify and hold harmless any person who was
or is a Director or Officer who was or is made a party or is threatened to
be made a party to or is otherwise involved in any proceeding by or in the
right of the Association to procure a judgment in its favor by reason of
the fact that he is or was a Director, Officer or Designated Representative
against expenses (including, without limitation, Attorneys' Fees) actually
and reasonably incurred by him in connection with the defense or settlement
of such proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Association,
and except that no indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be
liable to the Association unless and only to the extent that a court of
competent jurisdiction shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the
proceeding, such person is fairly and reasonably entitled to indemnity for
such expenses which the court shall deem proper. Reasonable expenses
incurred by such person in defending a proceeding may be paid or reimbursed
by the Association in advance of the final disposition of such proceeding
and without any determination that such person has met the standard of
conduct referred to in this Section 11(c); provided that the Association
receives a written undertaking by such person that such person has a good
faith belief that he has met the standard of conduct necessary for
indemnification under this Section 11(c) and receives a written undertaking
by or on behalf of such person to repay the amount paid or reimbursed if it
is ultimately determined that such person has not met such standard of
conduct (but subject to the determination, by a court of competent
jurisdiction, as to indemnity for expenses described in the immediately
preceding sentence). Such written undertaking with respect to repayment
need not be secured and shall be acceptable without reference to financial
ability to make repayment. Indemnification for, and payment or
reimbursement of, expenses shall continue as to any person who has ceased
to be a Director or Officer and shall inure to the benefit of, and be
binding upon, such person's heirs, executors and administrators.
II-3
<PAGE> 260
(d) Notwithstanding the provisions of Section 11(a), Section 11(b) or
Section 11(c), the Association shall not indemnify any Director or Officer
(each of the foregoing being referred to as an "indemnitee") against
expenses, penalties or any other payments incurred in an administrative
proceeding or action instituted by an appropriate bank regulatory agency,
which proceeding or action results in a final order assessing civil money
penalties or requiring affirmative action by the indemnitee in the form of
payments to the Association.
(e) To the extent that an indemnitee has been wholly successful on the
merits or otherwise in defense of any proceeding referred to in Section
11(a), Section 11(b) or Section 11(c), the Association shall indemnify, and
pay or reimburse, such indemnitee for expenses (including, without
limitation, Attorneys' Fees) actually and reasonably incurred by such
indemnitee in connection therewith.
(f) Any indemnification under Section 11(a), Section 11(b) or Section
11(c) (unless ordered by a court of competent jurisdiction) shall be made
by the Association only as authorized in the specific case upon a
determination that indemnification of the indemnitee is proper in the
circumstances because the indemnitee has met the applicable standard of
conduct referred to in Section 11(a), Section 11(b) or Section 11(c), as
the case may be. Such determination shall be made in any of the following
manners: (1) by the Board of Directors by a majority vote of a quorum
consisting of Directors who were not named defendants or respondents in
such proceeding (a "Disinterested Board Majority"), or if such a quorum is
not obtainable, by a majority vote of a committee of the Board of
Directors, designated to act in the matter by a majority vote of all
Directors, consisting solely of two or more Directors who at the time are
not named defendants or respondents in the proceeding (a "Disinterested
Committee Majority"); (2) by special legal counsel selected by a
Disinterested Board Majority or a Disinterested Committee Majority, as the
case may be, or, if neither a Disinterested Board Majority nor a
Disinterested Committee Majority can be obtained, by a majority vote of all
Directors; or (3) by shareholders by a majority vote that excludes the
shares held by Directors who are named defendants or respondents in such
proceeding, in the event that the issue is submitted to the shareholders of
the Association for determination by a Disinterested Board Majority or a
Disinterested Committee Majority, as the case may be, or if neither a
Disinterested Board Majority nor a Disinterested Committee Majority can be
obtained, by a majority vote of all Directors.
(g) The rights to indemnification and to the payment or reimbursement
of expenses conferred in this Article Eleventh shall not be exclusive of
any other right which any indemnitee may have or hereafter acquire under
any statute, bylaw, agreement, vote of shareholders or disinterested
Directors or otherwise, including, without limitation, rights granted by
the Federal Deposit Insurance Corporation in connection with the formation
of the Association.
(h) The Association may maintain insurance, at its expense, to protect
itself and any indemnitee against any expense, liability or loss, whether
or not the Association would have the power to indemnify such person
against such expense, liability or loss under this Article Eleventh;
provided, however, the Association shall not maintain insurance coverage
for a formal order assessing civil money penalties against an indemnitee.
Each of NationsBank, N.A., NationsBank, N.A. (South) and NationsBank of
Texas, N.A. provides liability insurance coverage for its respective directors
and officers.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- -----------------------------------------------------------------------------------
<C> <S> <C>
1.1 -- Form of Underwriting Agreement for the Notes.*
1.2 -- Form of Underwriting Agreement for the Certificates.*
4.1 -- Form of Indenture between the Trust and the Indenture Trustee (including forms of
Notes).*
</TABLE>
II-4
<PAGE> 261
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- -----------------------------------------------------------------------------------
<C> <S> <C>
4.2 -- Form of Trust Agreement among the Sellers and the Owner Trustee (including forms of
Certificates).*
4.3 -- Form of Pooling and Servicing Agreement among the Sellers, the Servicer and the
Trustee (including forms of Certificates).*
5.1 -- Opinion of Skadden, Arps, Slate, Meagher & Flom with respect to legality.*
8.1 -- Opinion of Skadden, Arps, Slate, Meagher & Flom with respect to tax matters.
23.1 -- Consent of Skadden, Arps, Slate, Meagher & Flom (included as part of Exhibit 5.1).*
23.2 -- Consent of Skadden, Arps, Slate, Meagher & Flom (included as part of Exhibit 8.1).
24.1 -- Powers of Attorney.*
25.1 -- Form of T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of The
Chase Manhattan Bank.
99.1 -- Form of Sale and Servicing Agreement among the Sellers, the Servicer and the
Trust.*
99.2 -- Form of Administration Agreement among the Trust, the Administrator and the
Indenture Trustee.*
99.3 -- Form of Dealer Agreement between a Dealer and a Seller.**
</TABLE>
- ---------------
* Previously filed.
** Incorporated herein by reference to Exhibit 4(b) filed under Registration
Statement No. 33-97436.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(a) 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; provided, however, that (a)(i) and (a)(ii) will not
apply if the information required to be included in a post-effective
amendment thereby is contained in periodic reports filed pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this registration statement.
(b) 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.
(c) 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.
(d) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 262
(e) To provide to the underwriters at the closing specified in the
underwriting agreements certificates in such denominations and registered
in such names as required by the underwriters to permit prompt delivery to
each purchaser.
(f) That 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 provisions described
under Item 15 above, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the 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.
(g) That, for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed
to be part of this Registration Statement as of the time it was declared
effective.
(h) That, 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.
(i) To file an application for the purpose of determining the
eligibility of the Indenture Trustee to act as trustee under subsection (a)
of Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of the
Act.
II-6
<PAGE> 263
SIGNATURES
Pursuant to the Securities Act of 1933, as amended, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment Number 4
to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Charlotte, State of North Carolina, on
July 19, 1996.
NATIONSBANK, N.A.
By: *
------------------------------------
Name: James H. Hance, Jr.
Title: Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment Number 4 to the Registration Statement has been signed on July
19, 1996 by the following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
* Principal Executive Officer, Director
- ---------------------------------------------
F. William Vandiver, Jr.
* Principal Financial Officer, Director
- ---------------------------------------------
James H. Hance, Jr.
* Principal Accounting Officer, Director
- ---------------------------------------------
Marc D. Oken
* Director
- ---------------------------------------------
H.W. McKay Belk
* Director
- ---------------------------------------------
Joseph R. Hendrick, III
* Director
- ---------------------------------------------
William L. Jews
* Director
- ---------------------------------------------
Thomas G. Johnson, Jr.
* Director
- ---------------------------------------------
Edgar H. Lawton, Jr.
* Director
- ---------------------------------------------
Kenneth D. Lewis
* Director
- ---------------------------------------------
George V. McGowan
* Director
- ---------------------------------------------
Anna Spangler Nelson
</TABLE>
II-7
<PAGE> 264
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
* Director
- ---------------------------------------------
John S. Rainey
* Director
- ---------------------------------------------
George P. Ramsey, Jr.
* Director
- ---------------------------------------------
Dr. Morton I. Rapoport
* Director
- ---------------------------------------------
James T. Rhodes
* Director
- ---------------------------------------------
A. Pope Shuford
* Director
- ---------------------------------------------
William E. Simms
* Director
- ---------------------------------------------
Joel A. Smith, III
* Director
- ---------------------------------------------
Hugh R. Stallard
* Director
- ---------------------------------------------
R. Eugene Taylor
* Director
- ---------------------------------------------
Stephen J. Trachtenberg
* Director
- ---------------------------------------------
James S. Watkinson
</TABLE>
- ---------------
* The undersigned, by signing his name hereto, does hereby sign this Amendment
Number 4 to the Registration Statement on behalf of each of the
above-indicated directors and officers of the Registrant pursuant to a power
of attorney signed by such directors and officers and included herein as
Exhibit 24.1.
/s/ ROBERT W. LONG, JR.
--------------------------------------
Robert W. Long, Jr.
Attorney-in-Fact
II-8
<PAGE> 265
Pursuant to the Securities Act of 1933, as amended, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment Number 4
to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Charlotte, State of North Carolina, on
July 19, 1996.
NATIONSBANK, N.A. (SOUTH)
By: *
------------------------------------
Name: James H. Hance, Jr.
Title: Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment Number 4 to the Registration Statement has been signed on July
19, 1996 by the following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
* Principal Executive Officer, Director
- ---------------------------------------------
Kenneth D. Lewis
* Principal Financial Officer, Director
- ---------------------------------------------
James H. Hance, Jr.
* Principal Accounting Officer, Director
- ---------------------------------------------
Marc D. Oken
* Director
- ---------------------------------------------
William H. Allen, Jr.
* Director
- ---------------------------------------------
R. Mark Bostick
* Director
- ---------------------------------------------
Betty Castor
* Director
- ---------------------------------------------
Hugh M. Chapman
* Director
- ---------------------------------------------
Dr. Johnetta B. Cole
* Director
- ---------------------------------------------
Harold A. Dawson
</TABLE>
II-9
<PAGE> 266
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
* Director
- ---------------------------------------------
H. Michael Dye
* Director
- ---------------------------------------------
W. Douglas Ellis, Jr.
* Director
- ---------------------------------------------
Earl L. Frye
* Director
- ---------------------------------------------
Jeffrey D. Gargiulo
* Director
- ---------------------------------------------
L.L. Gellerstedt III
* Director
- ---------------------------------------------
Cecil S. Harrell
* Director
- ---------------------------------------------
Neil H. Hightower
* Director
- ---------------------------------------------
James R. Jolly
* Director
- ---------------------------------------------
James R. Lientz, Jr.
* Director
- ---------------------------------------------
Carol Ellis Martin
* Director
- ---------------------------------------------
Douglas B. Mitchell
* Director
- ---------------------------------------------
Jorge M.Perez
* Director
- ---------------------------------------------
Joe W. Rogers, Jr.
</TABLE>
II-10
<PAGE> 267
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
* Director
- ---------------------------------------------
Jerry R. Satrum
* Director
- ---------------------------------------------
Adelaide A. Sink
* Director
- ---------------------------------------------
Hugh M. Tarbutton
* Director
- ---------------------------------------------
Dr. Israel Tribble, Jr.
* Director
- ---------------------------------------------
Karen L. Wrenn
</TABLE>
- ---------------
* The undersigned, by signing his name hereto, does hereby sign this Amendment
Number 4 to the Registration Statement on behalf of each of the
above-indicated directors and officers of the Registrant pursuant to a power
of attorney signed by such directors and officers and included herein as
Exhibit 24.1.
/s/ ROBERT W. LONG, JR.
--------------------------------------
Robert W. Long, Jr.
Attorney-in-Fact
II-11
<PAGE> 268
SIGNATURES
Pursuant to the Securities Act of 1933, as amended, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment Number 4
to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Charlotte, State of North Carolina, on
July 19, 1996.
NATIONSBANK OF TEXAS, N.A.
By: *
------------------------------------
Name: James H. Hance, Jr.
Title: Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment Number 4 to Registration Statement has been signed on July 19,
1996 by the following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
* Principal Executive Officer, Director
- ---------------------------------------------
Robert B. Lane
* Principal Financial Officer, Director
- ---------------------------------------------
James H. Hance, Jr.
* Principal Accounting Officer, Director
- ---------------------------------------------
Marc D. Oken
* Director
- ---------------------------------------------
Samuel J. Atkins, III
* Director
- ---------------------------------------------
James M. Berry
* Director
- ---------------------------------------------
Guy S. Bodine, III
* Director
- ---------------------------------------------
Lee Drain
* Director
- ---------------------------------------------
James R. Erwin
* Director
- ---------------------------------------------
Robert L. Kirby
</TABLE>
II-12
<PAGE> 269
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
* Director
- ---------------------------------------------
Kenneth D. Lewis
* Director
- ---------------------------------------------
Joseph R. Musolino
</TABLE>
- ---------------
* The undersigned, by signing his name hereto, does hereby sign this Amendment
Number 4 to the Registration Statement on behalf of each of the
above-indicated directors and officers of the Registrant pursuant to a power
of attorney signed by such directors and officers and included herein as
Exhibit 24.1.
/s/ ROBERT W. LONG, JR.
--------------------------------------
Robert W. Long, Jr.
Attorney-in-Fact
II-13
<PAGE> 270
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ ----------------------------------------------------------------------- -------------
<C> <C> <S> <C>
1.1 -- Form of Underwriting Agreement for the Notes.*
1.2 -- Form of Underwriting Agreement for the Certificates.*
4.1 -- Form of Indenture between the Trust and the Indenture Trustee
(including forms of Notes).*
4.2 -- Form of Trust Agreement among the Sellers and the Owner Trustee
(including forms of Certificates).*
4.3 -- Form of Pooling and Servicing Agreement among the Sellers, the Servicer
and the Trustee (including forms of Certificates).*
5.1 -- Opinion of Skadden, Arps, Slate, Meagher & Flom with respect to
legality.*
8.1 -- Opinion of Skadden, Arps, Slate, Meagher & Flom with respect to tax
matters.
23.1 -- Consent of Skadden, Arps, Slate, Meagher & Flom (included as part of
Exhibit 5.1).*
23.2 -- Consent of Skadden, Arps, Slate, Meagher & Flom (included as part of
Exhibit 8.1).
24.1 -- Powers of Attorney.*
25.1 -- Form of T-1 Statement of Eligibility under the Trust Indenture Act of
1939 of The Chase Manhattan Bank.
99.1 -- Form of Sale and Servicing Agreement among the Sellers, the Servicer
and the Trust.*
99.2 -- Form of Administration Agreement among the Trust, the Administrator and
the Indenture Trustee.*
99.3 -- Form of Dealer Purchase Agreement between a Dealer and a Seller.**
</TABLE>
- ---------------
* Previously filed.
** Incorporated herein by reference to Exhibit 4(b) filed under Registration
Statement No. 33-97436.
<PAGE> 1
EXHIBIT 8.1
July 19, 1996
NationsBank, N.A.
NationsBank Corporate Center
100 North Tryon Street
Charlotte, North Carolina 28255
NationsBank, N.A. (South)
600 Peachtree Street, N.E.
Atlanta, GA 30308
NationsBank of Texas, N.A.
901 Main Street
Dallas, Texas 75202
Re: NationsBank, N.A., NationsBank, N.A. (South),
and NationsBank of Texas, N.A.
Registration Statement on Form S-3 No. 333-3557
-----------------------------------------------
Ladies and Gentlemen:
We have acted as special counsel to NationsBank, N.A.,
NationsBank, N.A. (South), and NationsBank of Texas, N.A. (together, the
"Sellers"), in connection with Registration Statement on Form S-3 No. 333-3557,
as amended (the "Registration Statement"), filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, respecting
the issuance by various trusts (each, a "Trust") to be formed pursuant to
either an Amended and Restated Trust Agreement (the "Trust Agreement") to be
entered into by the Sellers and the Owner Trustee (the "Owner Trustee")
designated therein or a Pooling and Servicing Agreement (the "Pooling and
Servicing Agreement") to be entered into by the Sellers, NationsBank, N.A. (the
"Servicer") and the Trustee designated therein (the "Trustee") of Asset Backed
Securities consisting of either Notes and/or Certificates. Any Asset Backed
Securities consisting of Notes are to be issued pursuant to an Indenture (the
<PAGE> 2
NationsBank, N.A.
NationsBank, N.A. (South)
NationsBank of Texas, N.A.
July 19, 1996
Page 2
"Indenture") to be entered into by the Trust and the Indenture Trustee
designated therein (the "Indenture Trustee") and any Asset Backed Securities
consisting of Certificates are to be issued pursuant to either the Trust
Agreement or the Pooling and Servicing Agreement. Capitalized terms used
herein have the meaning assigned to them in the Registration Statement.
In this connection, we have examined and relied upon the Registration
Statement filed with the Securities and Exchange Commission (the "SEC") on May
13, 1996 as amended by Amendment No. 1 thereto, Amendment No. 2 thereto,
Amendment No. 3 thereto and Amendment No. 4 thereto, the form of prospectus
included therein (the "Prospectus"); (ii) the forms of Owner Trust Prospectus
Supplement and Grantor Trust Prospectus Supplement (the "Prospectus
Supplements") and a prospectus supplement relating to Notes and Certificates
to be issued by NationsBank Auto Owner Trust 1996-A (the "1996-A Prospectus
Supplement"); (iii) the form of Indenture; (iv) the form of Trust Agreement;
(v) the form of Sale and Servicing Agreement; (vi) the form of Administrative
Agreement; (vii) the form of Pooling and Servicing Agreement; and (viii) such
other documents as we have deemed necessary or appropriate as a basis for the
opinion set forth below, and we have assumed (i) that such documents will not
be amended and (ii) that the parties to such documents will comply with the
terms thereof.
In our examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, the conformity
to original documents of all documents submitted to us as certified or
photostatic copies and the authenticity of the originals of such latter
documents. As to any facts material to the opinions expressed herein which
were not independently established or verified, we have relied upon statements,
representations, and certifications of officers and other representatives of
the Sellers, the Servicer, the Underwriters.
In rendering our opinion, we have also considered and relied upon the
Internal Revenue Code of 1986, as amended, and administrative rulings, judicial
<PAGE> 3
NationsBank, N.A.
NationsBank, N.A. (South)
NationsBank, of Texas, N.A.
July 19, 1996
Page 3
decisions, regulations, and such other authorities as we have deemed
appropriate, all as in effect as of the date hereof. The statutory provisions,
regulations, interpretations, and other authorities upon which our opinion is
based are subject to change, and such changes could apply retroactively. In
addition, there can be no assurance that positions contrary to those stated in
our opinion will not be taken by the Internal Revenue Service.
We express no opinion as to the laws of any jurisdiction other than
the federal laws of the United States of America to the extent specifically
referred to herein.
Based upon and subject to the foregoing, we are of the opinion that the
statements in the Prospectus and the Prospectus Supplements and the 1996-A
Prospectus Supplement under the heading "Summary--Tax Status" to the extent
they relate to federal income tax matters and under the heading "Federal Income
Tax Consequences," subject to the qualifications set forth therein, accurately
describe the material federal income tax consequences to holders of Notes
and/or Certificates, under existing law and the assumptions stated therein.
We also note that the Prospectus and the Basic Documents do not relate
to a specific transaction. Accordingly, the above-referenced description of
federal income tax consequences (other than with respect to the 1996-A
Prospectus Supplement) may require modification in the context of an actual
transaction.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to Skadden, Arps, Slate, Meagher &
Flom under the caption "Legal Matters" in the Prospectus and the forms of
prospectus supplements included in the Registration Statement (including the
1996-A Prospectus Supplement).
Very truly yours,
/s/ Skadden, Arps, Slate,
Meagher & Flom
<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
---------------------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF
A TRUSTEE PURSUANT TO SECTION 305(B)(2)
---------------------
THE CHASE MANHATTAN BANK
(Exact name of trustee as specified in its charter)
<TABLE>
<S> <C>
NEW YORK 13-4994650
(State of incorporation (I.R.S. employer
if not a national bank) identification No.)
270 PARK AVENUE 10017
NEW YORK, NEW YORK (Zip Code)
(Address of principal executive offices)
</TABLE>
WILLIAM H. MCDAVID
GENERAL COUNSEL
270 PARK AVENUE
NEW YORK, NEW YORK 10017
TEL: (212) 270-2611
(Name, address and telephone number of agent for service)
---------------------
NATIONSBANK, N.A.
NATIONSBANK, N.A. (SOUTH)
NATIONSBANK OF TEXAS, N.A.
(Exact name of obligor as specified in its charter)
<TABLE>
<S> <C>
UNITED STATES OF AMERICA 57-0236115, 58-0193243, 75-2238693
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
NATIONSBANK, N.A. NATIONSBANK, N.A. (SOUTH) NATIONSBANK OF TEXAS, N.A.
NATIONSBANK CORPORATE CENTER 600 PEACHTREE STREET, N.E. 901 MAIN STREET
100 NORTH TRYON STREET ATLANTA, GEORGIA 30308 DALLAS, TEXAS 75202
CHARLOTTE, NORTH CAROLINA 28255
</TABLE>
(Address of principal executive offices)
---------------------
ASSET BACKED NOTES
(Title of the indenture securities)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
GENERAL
ITEM 1. GENERAL INFORMATION
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
New York State Banking Department, State House, Albany, New York
12110.
Board of Governors of the Federal Reserve System, Washington, D.C.,
20551.
Federal Reserve Bank of New York, District No. 2, 33 Liberty Street,
New York, N.Y.
Federal Deposit Insurance Corporation, Washington, D.C., 20429.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
ITEM 16. LIST OF EXHIBITS
List below all exhibits filed as a part of this Statement of Eligibility.
1. A copy of the Articles of Association of the Trustee as now in
effect, including the Organization Certificate and the Certificates of
Amendment dated February 17, 1969, August 31, 1977, December 31, 1980,
September 9, 1982, February 28, 1985 and December 2, 1991 (see Exhibit 1 to
Form T-1 filed in connection with Registration Statement No. 33-50010,
which is incorporated by reference).
2. A copy of the Certificate of Authority of the Trustee to Commence
Business (see Exhibit 2 to Form T-1 filed in connection with Registration
Statement No. 33-50010, which is incorporated by reference).
3. None, authorization to exercise corporate trust powers being
contained in the documents identified above as Exhibits 1 and 2.
4. A copy of the existing By-Laws of the Trustee.
5. Not applicable.
6. The consent of the Trustee required by Section 321(b) of the Act
(see Exhibit 6 to Form T-1 filed in connection with Registration Statement
No. 33-50010, which is incorporated by reference).
7. A copy of the latest report of condition of the Trustee, published
pursuant to law or the requirements of its supervising or examining
authority.
8. Not applicable.
9. Not applicable.
2
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
Trustee, The Chase Manhattan Bank, a corporation organized and existing under
the laws of the State of New York, has duly caused this statement of eligibility
to be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of New York and State of New York, on the 16th day of July, 1996.
THE CHASE MANHATTAN BANK
By /s/ KIMBERLY K. COSTA
-----------------------------------
Kimberly K. Costa
Second Vice President
3
<PAGE> 4
EXHIBIT 7 TO FORM T-1
BANK CALL NOTICE
RESERVE DISTRICT NO. 2
CONSOLIDATED REPORT OF CONDITION OF
CHEMICAL BANK
OF 270 PARK AVENUE, NEW YORK, NEW YORK 10017
AND FOREIGN AND DOMESTIC SUBSIDIARIES,
A MEMBER OF THE FEDERAL RESERVE SYSTEM,
AT THE CLOSE OF BUSINESS MARCH 31, 1996, IN
ACCORDANCE WITH A CALL MADE BY THE FEDERAL RESERVE BANK OF THIS
DISTRICT PURSUANT TO THE PROVISIONS OF THE FEDERAL RESERVE ACT.
<TABLE>
<CAPTION>
DOLLAR AMOUNTS
IN MILLIONS
<S> <C>
ASSETS
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin........................... $ 3,391
Interest-bearing balances.................................................... 2,075
Securities:....................................................................
Held to maturity securities.................................................... 3,607
Available for sale securities.................................................. 29,029
Federal Funds sold and securities purchases under agreements to resell in
domestic offices of the bank and of its Edge and Agreement subsidiaries, and
in IBF's:
Federal funds sold........................................................... 1,264
Securities purchased under agreements to resell.............................. 354
Loans and lease financing receivables:
Loans and leases, net of unearned income..............................$73,216
Less: Allowance for loan and lease losses............................. 1,854
Less: Allocated transfer risk reserve................................ 104
--------
Loans and leases, net of unearned income, allowance, and reserve............. 71,258
Trading Assets................................................................. 25,919
Premises and fixed assets (including capitalized leases)....................... 1,337
Other real estate owned........................................................ 30
Investments in unconsolidated subsidiaries and associated companies............ 187
Customer's liability to this bank on acceptances outstanding................... 1,082
Intangible assets.............................................................. 419
Other assets................................................................... 7,406
--------------
TOTAL ASSETS................................................................... $147,358
===========
</TABLE>
4
<PAGE> 5
<TABLE>
<CAPTION>
DOLLAR AMOUNTS
IN MILLIONS
<S> <C>
LIABILITIES
Deposits
In domestic offices.......................................................... $ 45,786
Noninterest-bearing...................................................$14,972
Interest-bearing...................................................... 30,814
In foreign offices, Edge and Agreement subsidiaries, and IBF's............... 36,550
Noninterest-bearing...................................................$ 202
Interest-bearing...................................................... 36,348
Federal funds purchased and securities sold under agreements to repurchase in
domestic offices of the bank and of its Edge and Agreement subsidiaries, and
in IBF's Federal funds purchased............................................. 11,412
Securities sold under agreements to repurchase............................... 2,444
Demand notes issued to the U.S. Treasury....................................... 699
Trading liabilities............................................................ 19,998
Other Borrowed money:
With a remaining maturity of one year or less................................ 11,305
With a remaining maturity of more than one year.............................. 130
Mortgage indebtedness and obligations under capitalized leases................. 13
Bank's liability on acceptances executed and outstanding....................... 1,089
Subordinated notes and debentures.............................................. 3,411
Other liabilities.............................................................. 6,778
TOTAL LIABILITIES.................................................... 139,615
--------------
EQUITY CAPITAL
Common stock................................................................... 620
Surplus........................................................................ 4,664
Undivided profits and capital reserves......................................... 3,058
Net unrealized holdings gains (Losses) on available-for-sale securities........ (607)
Cumulative foreign currency translation adjustments............................ 8
TOTAL EQUITY CAPITAL................................................. 7,743
--------------
TOTAL LIABILITIES, LIMITED-LIFE PREFERRED STOCK AND EQUITY CAPITAL... $147,358
===========
</TABLE>
I, Joseph L. Sclafani, S.V.P. & Controller of the above-named bank, do
hereby declare that this Report of Condition has been prepared in conformance
with the instructions issued by the appropriate Federal regulatory authority and
is true to the best of my knowledge and belief.
JOSEPH L. SCLAFANI
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us, and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the appropriate Federal regulatory authority and is true and correct.
WALTER V. SHIPLEY ]
EDWARD D. MILLER ] DIRECTORS
THOMAS G. LABRECQUE ]
5
<PAGE> 6
BY-LAWS
THE CHASE MANHATTAN BANK
(FORMERLY KNOWN AS CHEMICAL BANK)
AS AMENDED THROUGH
JULY 16, 1996
<PAGE> 7
CONTENTS
<TABLE>
<CAPTION>
ARTICLE SUBJECT
- ------- ---------------------------------------------------------------------------------------
<C> <S> <C>
I Meetings of Stockholders
Section 1.01 Annual Meeting
Section 1.02 Special Meetings
Section 1.03 Quorum
II Board of Directors
Section 2.01 Number
Section 2.02 Vacancies
Section 2.03 Annual Meeting
Section 2.04 Regular Meetings
Section 2.05 Special Meetings
Section 2.06 Quorum
Section 2.07 Rules and Regulations
Section 2.08 Compensation
III Committees
Section 3.01 Executive Committee
Section 3.02 Examining Committee
Section 3.03 Other Committees
IV Officers and Agents
Section 4.01 Officers
Section 4.02 Clerks and Agents
Section 4.03 Term of Office
Section 4.04 Chairman of the Board
Section 4.05 President
Section 4.06 Vice Chairman of the Board
Section 4.07 Chief Financial Officer
Section 4.08 Controller
Section 4.09 Secretary
Section 4.10 General Auditor
Section 4.11 Powers and Duties of Other Officers
Section 4.12 Fidelity Bonds
V Corporate Seal
VI Fiscal Year
VII Indemnification
Section 7.01 Right to Indemnification
Section 7.02 Contracts and Funding
Section 7.03 Employee Benefit Plans
Section 7.04 Indemnification Not Exclusive Right
Section 7.05 Advancement of Expenses, Procedures
VIII By-laws
Section 8.01 Inspection
Section 8.02 Amendments
Section 8.03 Construction
</TABLE>
<PAGE> 8
BY-LAWS
OF
THE CHASE MANHATTAN BANK
ARTICLE I
MEETINGS OF STOCKHOLDERS
SECTION 1.01. Annual Meeting. The annual meeting of stockholders of The
Chase Manhattan Bank (herein called the Bank), shall be held in the Borough of
Manhattan, City of New York, State of New York, within the first four months of
each calendar year, on such date and as such time and place as the Board of
Directors (herein called the Board), may determine, for the election of
directors and the transaction of such other business as may properly come before
the meeting. Notice of such meeting, stating the purpose or purposes thereof and
the time when and the place where it is to be held and signed by the Chairman of
the Board (herein called the Chairman), the President, a Vice Chairman of the
Board or the Secretary or an Assistant Corporate Secretary of the Bank, shall be
served by personal delivery upon each stockholder of record entitled to vote at
such meeting not less than 10 nor more than 50 days before said meeting.
SECTION 1.02. Special Meetings. A special meeting of the stockholders may
be called at any time by the Board, the Chairman, the President, or a Vice
Chairman of the Board, or upon the request in writing of the holders of record
of not less than 40% of the outstanding capital stock. Notice of any special
meeting, stating the time, place and purpose or purposes thereof, shall be given
by personal delivery to the stockholders in the manner provided in Section 1.01
for the giving of notice of annual meetings of stockholders. In the case of any
meeting of stockholders, annual or special, called for a purpose requiring other
or further notice, such notice shall be given as required by law.
SECTION 1.03. Quorum. A majority of the outstanding common stock,
represented in person or by proxy, shall constitute a quorum at any meeting of
stockholders, unless otherwise provided by law; but less than a quorum may
adjourn any meeting, from time to time, and the meeting may be held as
adjourned, without further notice.
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.01. Number. The business and affairs of the Bank shall be
managed by or under the direction of a Board of Directors, of such number as may
be fixed from time to time by resolution adopted by the Board, but in no event
less than 7 or more than 25, selected, organized and continued in accordance
with the provisions of the New York Banking Law. Each director hereafter elected
shall hold office until the next annual meeting of the stockholders and until
his successor is elected and has qualified, or until his death or until he shall
resign or shall have been removed.
SECTION 2.02. Vacancies. In case of any increase in the number of
directors, the additional director or directors, and in case of any vacancy in
the board due to death, resignation, removal, disqualification or any other
cause, the successors to fill the vacancies, not exceeding one-third of the
entire Board, shall be elected by a majority of the directors then in office.
SECTION 2.03. Annual Meeting. An annual meeting of the directors shall be
held each year, without notice, immediately following the annual meeting of
stockholders. The time and place of such meeting shall be designated by the
Board. At such meeting, the directors shall, after qualifying, elect from their
own number a Chairman of the Board, a President and one or more Vice Chairmen of
the Board, and shall elect or appoint such other officers authorized by these
By-laws as they may deem desirable, and appoint the Committees specified in
Article III hereof. The directors may also elect to serve at the pleasure of the
Board, one or more Honorary Directors, not members of the Board. Honorary
Directors of the Board shall be paid such
<PAGE> 9
compensation or such fees for attendance at meetings of the Board, and meetings
of other committees of the Board, as the Board shall determine from time to
time.
SECTION 2.04. Regular Meetings. The Board shall hold a regular meeting
without notice at the principal office of the Bank on the third Tuesday in each
month, with the exception of the month of August, at such time as shall be
determined by the Board, unless another time or place, within or without the
state, shall be fixed by resolution of the Board. Should the day appointed for a
regular meeting fall on a legal holiday, the meeting shall be held at the same
time on the preceding day or on such other day as the Board may order.
SECTION 2.05. Special Meetings. Special meetings of the Board shall be
held whenever called by the Chairman, the President, a Vice Chairman of the
Board, the Secretary or a majority of the directors at the time in office. A
notice shall be given as hereinafter in this Section provided of each such
special meeting, in which shall be stated the time and place of such meeting,
but, except as otherwise expressly provided by law or by these By-laws, the
purposes thereof need not be stated in such notice. Except as otherwise provided
by law, notice of each such meeting shall be mailed to each director, addressed
to him at his residence or usual place of business, at least two (2) days before
the day on which such meeting is to be held, or shall be sent addressed to him
at such place by telegraph, cable, wireless or other form of recorded
communication or be delivered personally or by telephone not later than noon of
the calendar day before the day on which such meeting is to be held. At any
regular or special meeting of the Board, or any committee thereof, one or more
Board of committee members may participate in such meeting by means of a
conference telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time. This type of
participation shall constitute presence in person at the meeting. Notice of any
meeting of the Board shall not, however, be required to be given to any director
who submits a signed waiver of notice whether before or after the meeting, or if
he shall be present at such meeting; and any meeting of the Board shall be a
legal meeting without any notice thereof having been given if all the directors
of the Bank then in office shall be present thereat.
SECTION 2.06. Quorum. One-third of the members of the entire Board, or the
next highest integer in the event of a fraction, shall constitute a quorum, but
if less than a quorum be present, a majority of those present may adjourn any
meeting from time to time and the meeting may be held as adjourned without
further notice.
SECTION 2.07. Rules and Regulations. The Board may adopt such rules and
regulations for the conduct of its meetings and the management of the affairs of
the Bank as it may deem proper, not inconsistent with the laws of the State of
New York or these By-laws.
SECTION 2.08 Compensation. Directors shall be entitled to receive from
the Bank such fees for attendance at meetings of the Board or of any committee,
or both, as the Board from time to time shall determine. The Board may also
likewise provide that the Bank shall reimburse each such director or member of
such committee for any expenses paid by him on account of his attendance at any
such meeting. Nothing in this Section contained shall be construed to preclude
any director from serving the Bank in any other capacity and receiving
compensation therefor.
ARTICLE III
COMMITTEES
SECTION 3.01. Executive Committee. The Board, by resolution adopted by a
majority of the entire Board, shall appoint an Executive Committee which, when
the Board is not in session, shall have and may exercise all the powers of the
Board that lawfully may be delegated including, without limitation, the power
and authority to declare dividends. The Executive Committee shall consist of
such number of directors as the Board shall from time to time determine, but not
less than five and one of whom shall be designated by the Board as Chairman
thereof, as follows: (a) the Chairman of the Board, the President, the Vice
Chairman of the Board; and (b) such other directors, none of whom shall be an
officer of the Bank, as shall be appointed to serve at the pleasure of the
Board. The Board, by resolution adopted by a majority of the entire Board, may
designate one or more directors as alternate members of the Executive Committee
and the manner and circumstances in which such alternate members shall replace
or act in the place of absent or disqualified
2
<PAGE> 10
members of the Executive Committee. The attendance of one-third of the members
of the Committee or their substitutes, or the next highest integer in the event
of a fraction, at any meeting shall constitute a quorum, and the act of a
majority of those present at a meeting thereof at which a quorum is present
shall be the act of the Committee. All acts done and powers conferred by the
Committee from time to time shall be deemed to be, and may be certified as being
done or conferred under authority of the Board. The Committee shall fix its own
rules and procedures, and the minutes of the meetings of the Committee shall be
submitted at the next regular meeting of the Board at which a quorum is present,
or if impracticable at the next such subsequent meeting. The Committee shall
hold meetings "On Call" and such meetings may be called by the Chairman of the
Executive Committee, the Chairman of the Board, the President, a Vice Chairman
of the Board, or the Secretary. Notice of each such meeting of the Committee
shall be given by mail, telegraph, cable, wireless or other form of recorded
communication or be delivered personally or by telephone to each member of the
Committee not later than the day before the day on which such meeting is to be
held. Notice of any such meeting need not be given to any member of the
Committee who submits a signed waiver of notice whether before or after the
meeting, or if he shall be present at such meeting; and any meeting of the
Committee shall be a legal meeting without any notice thereof having been given,
if all the members of the Committee shall be present thereat. In the case of any
meeting, in the absence of the Chairman of the Executive Committee, such member
as shall be designated by the Chairman of the Executive Committee or the
Executive Committee shall act as Chairman of the meeting.
SECTION 3.02. Examining Committee. The Board, by resolution adopted by a
majority of the entire Board, shall appoint an Examining Committee composed of
not less than three of its members, none of whom shall be an officer of the
Bank, to hold office at its pleasure and one of whom shall be designated by the
Board as chairman thereof. The Committee shall make such examination into the
affairs of the Bank and its loans and discounts and make such reports in writing
thereof as may be directed by the Board or required by the Banking Law. The
attendance of one-third of the members of the Committee, or the next highest
integer in the event of a fraction, at any meeting shall constitute a quorum,
and the act of a majority of those present at a meeting thereof at which a
quorum is present shall be the act of the Committee.
SECTION 3.03. Other Committees. The Board, by resolution adopted by a
majority of the entire Board, may appoint, from time to time, such other
committees composed of not less than three of its members for such purposes and
with such duties and powers as the Board may determine. The attendance of
one-third of the members of such other committees, or the next highest integer
in the event of a fraction, at any meeting shall constitute a quorum, and the
act of a majority of those present at a meeting thereof at which a quorum is
present shall be the act of such other committees.
ARTICLE IV
OFFICERS AND AGENTS
SECTION 4.01. Officers. The officers of the Bank shall be (a) a Chairman
of the Board, a President and one or more Vice Chairman of the Board, each of
whom must be a director and shall be elected by the Board; (b) a Chief Financial
Officer, a Controller, a Secretary and a General Auditor, each of whom shall be
elected by the Board; and (c) may includes a Chief Credit Officer, a Chief
Administrative Officer, a Chief Technology Officer, one or more Group Executives
and such other officers as may from time to time be elected by the Board or
under its authority, or appointed by the Chairman or the President or a Vice
Chairman of the Board.
SECTION 4.02. Clerks and Agents. The Board may elect and dismiss, or the
Chairman or the President or a Vice Chairman of the Board may appoint and
dismiss, or delegate to any other officers authority to appoint and dismiss,
such clerks, agents and employees as may be deemed advisable for the prompt and
orderly transaction of the Bank's business, and may prescribe, or authorize the
appointing officers to prescribe, their respective duties, subject to the
provisions of these By-laws.
SECTION 4.03. Term of Office. The officers designated in Section 4.01(a)
shall be elected by the Board at its annual meeting. The officers designated in
Section 4.01(b) may be elected at the annual or any other
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meeting of the Board. The officers designated in Section 4.01(c) may be elected
at the annual or any other meeting of the Board or appointed at any time by the
designated proper officers. Any vacancy occurring in any office designated in
Section 4.01(a) may be filed at any regular or special meeting of the Board. The
officers elected pursuant to Section 4.01(a) shall each hold office for the term
of one year and until their successors are elected, unless sooner disqualified
or removed by a vote of two-thirds of the whole Board. The officers elected by
the Board pursuant to Section 4.01(b) of these By-laws shall hold office at the
pleasure of the Board. All other officers, clerks, agent and employees elected
by the Board, or appointed by the Chairman, the President or a Vice Chairman of
the Board, or under their authority, shall hold their respective offices at the
pleasure of the Board or officers elected pursuant to Section 4.01(a).
SECTION 4.04. Chairman of the Board. The Chairman shall be the chief
executive officer of the Bank and shall have, subject to the control of the
Board, general supervision and direction of the policies and operations of the
Bank. He shall provide at all meetings of the stockholders and at all meetings
of the Board. He shall have the right to execute any document or perform any act
which could be or is required to be executed or performed by the President of
the Bank. He shall have the power to sign checks, orders, contracts, leases,
notes, drafts and other documents and instruments in connection with the
business of the Bank, and together with the Secretary or an Assistant Corporate
Secretary to execute conveyances of real estate and other documents and
instruments to which the seal of the Bank is affixed. He shall perform such
other duties as from time to time may be prescribed by the Board.
SECTION 4.05. President. The President shall, subject to the direction
and control of the Board and the Chairman, participate in the supervision of the
policies and operations of the Bank. In general, the President shall perform all
duties incident to the office of President, and such other duties as from time
to time may be prescribed by the Board or the Chairman. In the absence of the
Chairman, the President shall preside at meetings of stockholders and of the
Board. The President shall have the same power to sign for the Bank as is
prescribed in these By-laws for the Chairman.
SECTION 4.06. Vice Chairman of the Board. The Vice Chairman of the Board,
or if there be more than one, then each of them, shall, subject to the direction
and control of the Board and the Chairman, participate in the supervision of the
policies and operations of the Bank, and shall have such other duties as may be
prescribed from time to time by the Board or the Chairman. In the absence of the
Chairman and the President, a Vice Chairman, as designated by the Chairman or
the Board, shall preside at meetings of the stockholders and of the Board. Each
Vice Chairman shall have the same power to sign for the Bank as is prescribed in
these By-laws for the Chairman.
SECTION 4.07. Chief Financial Officer. The Chief Financial Officer shall
have such powers and perform such duties as the Board, the Chairman, the
President, or a Vice Chairman of the Board may from time to time prescribe,
which duties may include, without limitation, responsibility for strategic
planning, corporate finance, control tax and auditing activities, and shall
perform such other duties as may be prescribed by these By-laws.
SECTION 4.08. Controller. The Controller shall exercise general
supervision of the accounting departments of the Bank. He shall be responsible
to the Chief Financial Officer and shall render reports from time to time
relating to the general financial condition of the Bank. He shall render such
other reports and perform such other duties as from time to time may be
prescribed by the Chief Financial Officer, a Vice Chairman of the Board, the
President or the Chairman.
SECTION 4.09. Secretary. The Secretary shall:
(a) record all the proceedings of the meetings of the stockholders,
the Board and the Executive Committee in one or more books kept for that
purpose;
(b) see that all notices are duly given in accordance with the
provisions of these By-laws or as required by law;
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(c) be custodian of the seal of the Bank; and he may see that such
seal or a facsimile thereof is affixed to any documents the execution of
which on behalf of the Bank is duly authorized and may attest such seal
when so affixed; and
(d) in general, perform all duties incident to the office of Secretary
and such other duties as from time to time may be prescribed by the Board
and the Chairman.
SECTION 4.10. General Auditor. The General Auditor shall exercise general
supervision of the Auditing Division. He shall audit the affairs of the Bank and
its subsidiaries, including appraisal of the soundness and adequacy of internal
controls and operating procedures and shall ascertain the extent of compliance
with policies and procedures of the Bank. He shall be responsible to the Board
and shall make such audits and prepare such regular reports as the Board, its
Examining Committee or the Chairman may, from time to time, require or as in his
judgment are necessary in the performance of his duties.
SECTION 4.11. Powers and Duties of Other Officers. The powers and duties
of all other officers of the Bank shall be those usually pertaining to their
respective offices, subject to the direction and control of the Board and as
otherwise provided in these By-laws.
SECTION 4.12. Fidelity Bonds. The Board, in its discretion, may require
any or all officers, agents, clerks and employees of the Bank to give bonds
covering the faithful performance of their duties or may obtain insurance
covering the same, in either case in form and amount approved by the Board, the
premiums thereon to be paid by the Bank.
ARTICLE V
CORPORATE SEAL
The corporate seal of the Bank shall be in the form of a circle and shall
bear the full name of the Bank and the words "Corporate Seal New York" together
with the logo of The Chase Manhattan Corporation.
ARTICLE VI
FISCAL YEAR
The fiscal year of the Bank shall be the calendar year.
ARTICLE VII
INDEMNIFICATION
SECTION 7.01. Right to Indemnification. The Bank shall to the fullest
extent permitted by applicable law as then in effect indemnify any person (the
"Indemnitee") who was or is involved in any manner (including, without
limitation, as a party or a witness), or is threatened to be made so involved,
in any threatened, pending or completed investigation, claim, action, suit or
proceeding, whether civil, administrative or investigative (including, without
limitation, any action, suit or proceeding by or in the right of the Bank to
procure a judgment in its favor) (a "Proceeding") by reason of the fact that he
is or was a director, officer, employee or agent of the Bank, or is or was
serving at the request of the Bank as a director, officer or employee or agent
of another corporation, partnership, joint venture, trust or other enterprise
against all expenses (including attorney's fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
such Proceeding. Such indemnification shall be a contract right and shall
include the right to receive payment in advance of any expenses incurred by the
Indemnitee in connection with such Proceeding, consistent with the provisions of
applicable law as then in effect.
SECTION 7.02. Contracts and Funding. The Bank may enter into contracts
with any director, officer, employee or agent of the Bank in furtherance of the
provisions of this Article VII and may create a trust fund, grant a security
interest or use other means (including, without limitation, a letter of credit)
to ensure the payment of such amounts as may be necessary to effect
indemnification as provided in this Article VII.
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SECTION 7.03. Employee Benefit Plans. For purposes of this Article VII,
references to "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on a person with
respect to any employee benefit plan; and references to "serving at the request
of the Bank" shall include any service as a director, officer, employee, or
agent of the Bank which imposes duties on, or involves services by, such
director, officer, employee, or agent with respect to an employee benefit plan,
its participants, or beneficiaries; and a person who acted in good faith and in
a manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner not opposed to the best interests of a corporation.
SECTION 7.04. Indemnification Not Exclusive Right. The right of
indemnification and advancement of expenses provided in this Article VII shall
not be exclusive of any other rights to which a person seeking indemnification
may otherwise be entitled, under any statute, by-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office. The provisions of this Article VII shall inure to the benefit of the
heirs and legal representatives of any person entitled to indemnity under this
Article VII and shall be applicable to Proceedings commenced or continuing after
the adoption of this Article VII whether arising from acts or omissions
occurring before or after such adoption.
SECTION 7.05. Advancement of Expenses; Procedures. In furtherance, but
not in limitation, of the foregoing provisions, the following procedures and
remedies shall apply with respect to advancement of expenses and the right to
indemnification under this Article VII;
(a) Advancements of Expenses. All reasonable expenses incurred by or
on behalf of the Indemnities in connection with any Proceeding shall be
advanced to the Indemnitee by the Bank within twenty (20) days after the
receipt by the Bank of a statement or statements from the Indemnitee
requesting such advance or advances from time to time, whether prior to or
after final disposition of such Proceeding. Such statement or statements
shall reasonably evidence the expenses incurred by the Indemnitee and, if
required by law at the time of such advance, shall include or be
accompanied by an undertaking by or on behalf of the Indemnitee to repay
the amounts advanced if, and to the extent, it should ultimately be
determined that the Indemnitee is not entitled to be indemnified against
such expenses.
(b) Written Request for Indemnification. To obtain indemnification
under this Article VII, an Indemnitee shall submit to the Secretary of the
Bank a written request, including such documentation and information as is
reasonably available to the Indemnitee and reasonably necessary to
determine whether and to what extent the Indemnitee is entitled to
indemnification (the "Supporting Documentation"). The determination of the
Indemnitee's entitlement to indemnification shall be made within a
reasonable time after receipt by the Bank of the written request for
indemnification together with the Supporting Documentation. The Secretary
of the Bank shall, promptly upon receipt of such a request for
indemnification, advise the Board in writing that the Indemnitee has
required indemnification.
(c) Procedure for Determination. The Indemnitee's entitlement to
indemnification under this Article VII shall be determined (i) by the Board
by a majority vote of a quorum (as defined in Article II of these By-laws)
consisting of directors who were not parties to such action, suit or
proceeding, or (ii) if such quorum is not obtainable, or, even if
obtainable, a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (iii) by the stockholders, but only
if a majority of the disinterested directors, if they constitute a quorum
of the Board, presents the issue of entitlement to indemnification to the
stockholders for their determination.
ARTICLE VIII
BY-LAWS
SECTION 8.01. Inspection. A copy of the By-laws shall at all times be
kept in a convenient place at the principal office of the Bank, and shall be
open for inspection by stockholders during banking hours.
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SECTION 8.02. Amendments. Except as otherwise specifically provided by
statute, these By-laws may be added to, amended, altered or repealed at any
meeting of the Board by vote of a majority of the entire Board, provided that
written notice of any such proposed action shall be given to each director prior
to such meeting, or that notice of such addition, amendment, alteration or
repeal shall have been given at the preceeding meeting of the Board.
SECTION 8.03. Construction. The masculine gender, where appearing in
these By-laws, shall be deemed to include the feminine gender.
I, ANTHONY J. HORAN, Secretary of THE CHASE MANHATTAN BANK, New York, New
York, hereby certify that the foregoing is a true and correct copy of the
By-laws of said Bank and that said By-laws are in full force and effect on the
date hereof.
Dated:
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Secretary
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