1
Filed Pursuant to Rule 424(b)(2)
Registration Statement No.'s
333-03557; 333-03557-01; 333-03557-02.
OWNER TRUST PROSPECTUS SUPPLEMENT
(To Prospectus dated July 24, 1996)
$2,136,187,667.91
NATIONSBANK AUTO OWNER TRUST 1996-A
$588,952,000.00 5.776% CLASS A-1 ASSET BACKED NOTES
$744,000,000.00 6.125% CLASS A-2 ASSET BACKED NOTES
$457,323,000.00 6.375% CLASS A-3 ASSET BACKED NOTES
$175,000,000.00 6.625% CLASS A-4 ASSET BACKED NOTES
$96,129,000.00 6.750% CLASS B-1 ASSET BACKED CERTIFICATES
$74,783,667.91 6.875% CLASS B-2 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 NationsBank Auto Owner Trust 1996-A (the "Trust") will be governed by a
Trust Agreement, dated as of July 18, 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 5.776% Class A-1 Asset Backed Notes (the "Class A-1
Notes"), $744,000,000 aggregate initial principal amount of 6.125% 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.
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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.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT THE SELLERS(1)(2)
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Per Class A-1 Note.................................... 100.0000% 0.125% 99.8750%
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Per Class A-2 Note.................................... 99.8894% 0.175% 99.7144%
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Per Class A-3 Note.................................... 99.8348% 0.220% 99.6148%
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Per Class A-4 Note.................................... 99.9411% 0.250% 99.6911%
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Per Class B-1 Certificate............................. 99.7374% 0.300% 99.4374%
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Per Class B-2 Certificate............................. 99.7728% 0.350% 99.4228%
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Total(3).............................................. $2,130,672,670.38 $4,020,923.10 $2,126,651,747.28
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(1) Plus accrued interest, if any, from the Closing Date.
(2) Before deducting expenses, estimated to be $1,377,000.
(3) Excludes certain Certificates not offered hereby. See "Summary -- The
Certificates" herein.
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 31, 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 24, 1996.
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(Continued from the cover page)
$457,323,000 aggregate initial principal amount of 6.375% Class A-3 Asset Backed
Notes (the "Class A-3 Notes") and $175,000,000 aggregate initial principal
amount of 6.625% 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 31, 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 6.750% Class B-1
Asset Backed Certificates (the "Class B-1 Certificates") and $74,783,667.91
aggregate initial Certificate Balance of 6.875% 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, 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 and payable solely from 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.
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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.
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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 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 18, 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) 5.776% Class A-1 Asset
Backed Notes (the "Class A-1 Notes") in the
aggregate initial principal amount of
$588,952,000; (2) 6.125% Class A-2 Asset Backed
Notes (the "Class A-2 Notes") in the aggregate
initial principal amount of $744,000,000; (3)
6.375% Class A-3 Asset Backed Notes (the "Class
A-3 Notes") in the aggregate initial principal
amount of $457,323,000; and (4) 6.625% 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, and payable solely
from, 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)
6.750% Class B-1 Asset Backed Certificates (the
"Class B-1 Certificates") with an aggregate
initial Certificate Balance of $96,129,000; and
(2) 6.875% 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 Trust Agreement.
$1,923,000 aggregate initial Certificate Balance
of
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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 1, 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 any 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 certain
insurance policies and other items financed under
the Receivables;
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(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 31, 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 5.776% per annum (the "Class A-1 Rate"), the
Class A-2 Notes will bear interest at the rate of
6.125% per annum (the "Class A-2 Rate"), the
Class A-3 Notes will bear interest at the rate of
6.375% per annum (the "Class A-3 Rate") and the
Class A-4 Notes will bear interest at the rate of
6.625% 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 deposited in the Collection Account 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,
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to the extent not previously paid, will be
payable in full on the 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 6.750% per annum (the
"Class B-1 Rate"), and interest will be
distributed on the Class B-2 Certificates at the
rate of 6.875% 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
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Distribution Amount" with respect to a
Distribution Date will generally 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
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in the Note Payment Account for distribution to
the Noteholders on 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
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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.
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 an Insolvency Event 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 (after giving effect to funds withdrawn
or to be withdrawn therefrom on such Distribution
Date) 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 Ac-
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count and (v) 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 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
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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 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. Any
income earned by 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
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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 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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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. The Notes will only be payable from the assets of the Trust.
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. Payments 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
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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
$1,923,000.00 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
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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:
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
===============
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 550, 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.
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19
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
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
DISTRIBUTION OF THE RECEIVABLES BY NEW/USED MOTOR VEHICLES
WEIGHTED
AGGREGATE ORIGINAL AVERAGE
NUMBER OF PRINCIPAL PRINCIPAL CONTRACT
RECEIVABLES BALANCE BALANCE RATE(%)
----------- ----------------- ----------------- --------
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
======== =============== ===============
S-19
20
DISTRIBUTION OF THE RECEIVABLES BY CONTRACT RATE
% OF
AGGREGATE AGGREGATE
NUMBER OF % OF PRINCIPAL PRINCIPAL
RECEIVABLES RECEIVABLES BALANCE BALANCE
----------- ----------- ----------------- ---------
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
======== ======== =============== =======
DISTRIBUTION OF THE RECEIVABLES BY REMAINING TERM
% OF
AGGREGATE AGGREGATE
NUMBER OF % OF PRINCIPAL PRINCIPAL
RECEIVABLES RECEIVABLES BALANCE BALANCE
----------- ----------- ----------------- ---------
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
======== ======== =============== =======
DISTRIBUTION OF THE RECEIVABLES BY CUT-OFF DATE PRINCIPAL BALANCE
% OF
AGGREGATE AGGREGATE
NUMBER OF % OF PRINCIPAL PRINCIPAL
RECEIVABLES RECEIVABLES BALANCE BALANCE
----------- ---------- ----------------- ---------
$ 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
======== ======== =============== =======
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21
GEOGRAPHIC DISTRIBUTION OF THE RECEIVABLES
% OF
AGGREGATE AGGREGATE
NUMBER OF % OF PRINCIPAL PRINCIPAL
STATE(1) RECEIVABLES RECEIVABLES BALANCE BALANCE
- ---------------------------------------------- ----------- ----------- ----------------- ---------
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
======== ======== =============== =======
- ---------------
(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)
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
------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
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%
1992
-----------------------
NUMBER
OF
AMOUNT LOANS AMOUNT
---------- ---------- ----------
<
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%
- ---------------
(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.
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CREDIT LOSS EXPERIENCE (DOLLARS IN THOUSANDS)
FIVE MONTHS ENDED YEAR ENDED
MAY 31, DECEMBER 31,
----------------------- -------------------------------------------------
1996 1995 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ----------
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%
- ---------------
(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.
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
S-22
23
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, monthly 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 NET CREDIT LOSS EXPERIENCE (ANNUALIZED)
ANNUALIZED MONTHLY NET
CHARGE-OFFS AS A
PERCENTAGE OF THE
PERIOD END
MONTHLY PERIOD OUTSTANDINGS(1)
- ------------------------------------------------------------------------- ----------------------
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
February 1996............................................................ 1.27
March 1996............................................................... 1.08
April 1996............................................................... 1.14
May 1996................................................................. 1.03
- ---------------
(1) The annualized 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 and
multiplying the result by twelve.
S-23
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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.
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.
S-24
25
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.
ORIGINAL TERM REMAINING TERM
AGGREGATE CONTRACT TO MATURITY TO MATURITY
POOL PRINCIPAL BALANCE RATE (IN MONTHS) (IN MONTHS)
- ------------------------------------- ----------------- -------- ------------- --------------
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
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
26
PERCENT OF INITIAL NOTE PRINCIPAL AMOUNT AT VARIOUS ABS PERCENTAGES
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%
- ------------------------------------------ -------- -------- -------- -------- -------- -------- -------- --------
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
- ---------------
(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.
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PERCENT OF INITIAL NOTE PRINCIPAL AMOUNT AT VARIOUS ABS PERCENTAGES
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%
- ------------------------------------------ -------- -------- -------- -------- -------- -------- -------- --------
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
- ---------------
(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.
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PERCENT OF INITIAL CERTIFICATE BALANCE AT VARIOUS ABS PERCENTAGES
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%
- ------------------------------------------ -------- -------- -------- -------- -------- -------- -------- --------
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
- ---------------
(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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29
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
S-29
30
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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31
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 450
West 33rd Street, 15th Floor, New York, New York 10001, Attention: Advanced
Structured Products Group. 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 Date, plus
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Date, plus (iii) the principal portion of Purchase Amounts deposited in the
Collection Account 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 under clause (a) above that is necessary (after giving effect to the
other amounts to be deposited in the
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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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"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
(after giving effect to funds withdrawn or to be withdrawn therefrom on such
Distribution Date) 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 an Insolvency Event 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. 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 it accrues under
a method taking into account an economic accrual of the discount. In general,
OID must be
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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, which in the case of the Notes was 1.5% ABS (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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(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
S-46
47
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),
S-47
48
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
S-48
49
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.
S-49
50
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:
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
- ---------------------------------------- ------------ ------------ ------------ ------------
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
============ ============ ============ ============
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
0.075% per Class A-1 Note, 0.125% per Class A-2 Note, 0.130% per Class A-3 Note
and 0.150% per Class A-4 Note. The Note Underwriters may allow, and such dealers
may reallow, a concession not in excess of 0.075 % per Class A-1 Note, 0.125%
per Class A-2 Note, 0.130% per Class A-3 Note and 0.150% 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 0.200% per Class B-1 Certificate and 0.250% per Class B-2
Certificate. The Certificate Underwriter may allow, and such dealers may
reallow, a concession not in excess of 0.200% per Class B-1 Certificate and
0.250% 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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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.
PAGE
----------
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-1,4
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
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PAGE
----------
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-5
Dealer Agreements................................................................ S-5
Dealers.......................................................................... S-5
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-5
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-40
Issuer........................................................................... S-4
Liquidation Proceeds............................................................. S-34
NAFC............................................................................. S-2,5
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
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PAGE
----------
Notes............................................................................ S-2, 4
Obligor.......................................................................... S-5
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-10
Realized Losses.................................................................. S-36
Receivables...................................................................... S-2, 5
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-5
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-5
Underwriters..................................................................... S-50
Underwriting Agreement........................................................... S-50
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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 1996-A 5.776% Class A-1 Asset Backed Notes, 6.125% Class A-2
Asset Backed Notes, 6.375% Class A-3 Asset Backed Notes and 6.625% 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
55
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
56
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.
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57
PROSPECTUS
NATIONSBANK AUTO TRUSTS
ASSET BACKED NOTES
ASSET BACKED CERTIFICATES
NATIONSBANK, N.A.
NATIONSBANK, N.A. (SOUTH)
NATIONSBANK OF TEXAS, N.A.
SELLERS
---------------------
NATIONSBANK, N.A.
SERVICER
---------------------
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.
---------------------
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.
---------------------
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.
---------------------
The date of this Prospectus is July 24, 1996.
58
(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.
59
TABLE OF CONTENTS
PAGE
----
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," and together with the Certificateholders, the "Securityholders")
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 450 West 33rd Street, 15th Floor, New York, New York 10001
Attention: Advanced Structured Products Group. 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 (the "Exchange Act"), 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 any
61
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, 101 South Tryon Street, Charlotte, North Carolina 28255;
Telephone: (704)388-6203.
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62
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")
3
63
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
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64
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
5
65
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
6
66
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
reimbursement of Advances from subsequent
payments on or with respect to the
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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 will have a prior claim over subsequent
purchasers of such Financed
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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.
If the Prospectus Supplement specifies that the
related Trust will be treated as a grantor trust,
upon the issuance of the related series of
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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
Premium will be paid, and in the case of the
Certificates, the Certificate Prepayment Premium
will be paid. In addition, there can
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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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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 any 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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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 after payment of amounts due the Trustee and the Servicer 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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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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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:
Money Market Yield = D x 360 x 100
------------
360 - (D x M)
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days in the 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.
EVENTS 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:
PAGE
-----------
Additional Yield Supplement Amount................................................ 9
Administration Agreement.......................................................... 56
Administrator..................................................................... 56
Advance........................................................................... 9, 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, 39
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.................................................. 46
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
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PAGE
-----------
Depositaries...................................................................... 40
Depository........................................................................ 29
Determination Date................................................................ 50
DFSG.............................................................................. 23
Disqualified Persons.............................................................. 62
Distribution Date................................................................. 35
DOL............................................................................... 62
DTC............................................................................... 1
DTC's Nominee..................................................................... 7
Eligible Deposit Account.......................................................... 47
Eligible Institution.............................................................. 47
Equity Interest................................................................... 62
ERISA............................................................................. 12
Euroclear......................................................................... 41
Euroclear Operator................................................................ 41
Euroclear Participants............................................................ 41
Euroclear System.................................................................. 41
Events of Default................................................................. 31
Events of Servicing Termination................................................... 53
Exchange Act...................................................................... 1
Excluded Plan..................................................................... 64
FASIT............................................................................. 11
Federal Funds Rate................................................................ 27, 38
Federal Funds Rate Determination Date............................................. 37
Federal Funds Rate Security....................................................... 36
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
Motor Vehicle Loans............................................................... 23
NAFC.............................................................................. 4, 28
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PAGE
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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
Parties in Interest............................................................ 62
Permitted Investments.......................................................... 47
Plan........................................................................... 62
Plan Assets Regulation......................................................... 62
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................................................................ 12, 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................................................................ 1, 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
Special Tax Counsel............................................................ 61
Spread......................................................................... 35
70
130
PAGE
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Spread Multiplier.............................................................. 36
Strip Certificates............................................................. 7
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................................................................ 3
Trustee........................................................................ Front Cover
UCC............................................................................ 58
Underwriters' Exemption........................................................ 63
Underwriting Agreements........................................................ 66
Yield Supplement Account....................................................... 8, 51
Yield Supplement Agreement..................................................... 8
Yield Supplement Amount........................................................ 9, 52
Yield Supplement Initial Deposit............................................... 9
71
131
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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
PAGE
----
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
UNTIL OCTOBER 22, 1996, 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.
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$2,136,187,667.91
NATIONSBANK
AUTO OWNER TRUST 1996-A
$588,952,000 5.776% CLASS A-1
ASSET BACKED NOTES
$744,000,000 6.125% CLASS A-2
ASSET BACKED NOTES
$457,323,000 6.375% CLASS A-3
ASSET BACKED NOTES
$175,000,000 6.625% CLASS A-4
ASSET BACKED NOTES
$96,129,000 6.750% CLASS B-1
ASSET BACKED CERTIFICATES
$74,783,667.91 6.875% 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
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