<PAGE>   1

                                                                  EXHIBIT 10.109






================================================================================
                               SALE AND SERVICING

                                    AGREEMENT

                                      among

                       NATIONAL AUTO FINANCE 1999-1 TRUST,

                                   as Issuer,

                     NATIONAL FINANCIAL AUTO FUNDING TRUST,

                                   as Seller,

                      NATIONAL AUTO FINANCE COMPANY, INC.,

                   in its individual capacity and as Servicer

                                       and

                          HARRIS TRUST AND SAVINGS BANK

                  as Trust Collateral Agent and Backup Servicer

                          Dated as of September 1, 1999





================================================================================



<PAGE>   2

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                     ARTICLE I

                                                    Definitions

<S>                      <C>                                                                                    <C>
SECTION 1.1.             Definitions..............................................................................1
SECTION 1.2.             Other Definitional Provisions...........................................................22
SECTION 1.3.             Usage of Terms..........................................................................22
SECTION 1.4.             Certain References......................................................................23
SECTION 1.5.             No Recourse.............................................................................23
SECTION 1.6.             Action by or Consent of Noteholders.....................................................23
SECTION 1.7.             Material Adverse Effect.................................................................23
SECTION 1.8.             Calculations as to Principal and Interest in Respect of Receivables.....................23

                                                    ARTICLE II

                                             Conveyance of Receivables

SECTION 2.1.             Conveyance of Receivables...............................................................24
SECTION 2.2.             [Reserved]..............................................................................25
SECTION 2.3.             Further Encumbrance of Trust Property...................................................25
SECTION 2.4.             Books and Records; Payments on Receivables..............................................30
SECTION 2.5.             Seller Repurchase of Receivables........................................................31

                                                    ARTICLE III

                                                  The Receivables

SECTION 3.1.             Representations and Warranties of NAFI and the Seller...................................28
SECTION 3.2.             Repurchase upon Breach..................................................................28
SECTION 3.3.             Custody of Receivables Files............................................................29

                                                    ARTICLE IV

                                    Administration and Servicing of Receivables

SECTION 4.1.             Duties of the Servicer..................................................................29
SECTION 4.2.             Sub-Servicing Agreements between Servicer and the Sub-Servicers.........................32
SECTION 4.3.             Obligations of the Servicer.............................................................33
SECTION 4.4.             No Contractual Relationship between a Sub-Servicer and Trust Collateral Agent or
                         Noteholders.............................................................................33
</TABLE>



                                       i
<PAGE>   3

<TABLE>
<S>                      <C>                                                                                    <C>
SECTION 4.5.             Assumption or Termination of Sub-Servicing Agreement by Trust Collateral Agent..........33
SECTION 4.6.             Collection of Receivable Payments.......................................................34
SECTION 4.7.             Maintenance of Insurance................................................................36
SECTION 4.8.             Realization upon Defaulted Receivables..................................................36
SECTION 4.9.             Total Servicing Fee; Payment of Certain Expenses by Servicer............................37
SECTION 4.10.            [Reserved]..............................................................................37
SECTION 4.11.            Reports.................................................................................37
SECTION 4.12.            Annual Statement as to Compliance, Notice of Servicer Termination Event.................38
SECTION 4.13.            Annual Independent Accountants' Report..................................................39
SECTION 4.14.            Access to Certain Documentation and Information Regarding Receivables...................39
SECTION 4.15.            Monthly Tape............................................................................40
SECTION 4.16.            Retention and Termination of Servicer...................................................40
SECTION 4.17.            Custodial Arrangement...................................................................40

                                                     ARTICLE V

                             Trust Accounts; Distributions; Statements to Noteholders

SECTION 5.1.             Establishment of Trust Accounts.........................................................41
SECTION 5.2.             [Reserved]..............................................................................45
SECTION 5.3.             Certain Reimbursements to the Servicer..................................................45
SECTION 5.4.             Application of Collections..............................................................45
SECTION 5.5.             Withdrawals from Series 1999-1 Spread Account...........................................45
SECTION 5.6.             Additional Deposits.....................................................................46
SECTION 5.7.             Distributions...........................................................................46
SECTION 5.8.             Note Distribution Account...............................................................49
SECTION 5.9.             [Reserved]..............................................................................50
SECTION 5.10.            Statements to Noteholders...............................................................50
SECTION 5.11.            Optional Deposits by the Insurer........................................................50

                                                    ARTICLE VI

                                              The Class A Note Policy

SECTION 6.1.             Claims Under Class A Note Policy........................................................50
SECTION 6.2.             Preference Claims.......................................................................51
SECTION 6.3.             Surrender of Policy.....................................................................52
SECTION 6.4.             Spread Account..........................................................................52
</TABLE>



                                       ii
<PAGE>   4

<TABLE>
<CAPTION>
                                                    ARTICLE VII

                                                     RESERVED


                                                   ARTICLE VIII

                                                    The Seller

<S>                      <C>                                                                                    <C>
SECTION 8.1.             Representations, Warranties and Covenants of the Seller.................................53
SECTION 8.2.             Corporate Existence.....................................................................55
SECTION 8.3.             Liability of Seller; Indemnities........................................................56
SECTION 8.4.             Merger or Consolidation of, or Assumption of the Obligations of, Seller.................57
SECTION 8.5.             Limitation on Liability of Seller and Others............................................57
SECTION 8.6.             Seller May Own Notes....................................................................57

                                                    ARTICLE IX

                                                   The Servicer

SECTION 9.1.             Representations, Warranties and Covenants of the Servicer...............................58
SECTION 9.2.             Liability of Servicer; Indemnities......................................................60
SECTION 9.3.             Merger or Consolidation of, or Assumption of the Obligations of the Servicer or
                         the Trust Collateral Agent..............................................................61
SECTION 9.4.             Limitation on Liability of Servicer, Trust Collateral Agent and Others..................62
SECTION 9.5.             Delegation of Duties....................................................................64
SECTION 9.6.             Servicer and Trust Collateral Agent Not to Resign.......................................65

                                                     ARTICLE X

                                                      Default

SECTION 10.1.            Servicer Termination Event..............................................................65
SECTION 10.2.            Consequences of a Servicer Termination Event............................................67
SECTION 10.3.            Additional Consequences of a Servicer Termination Event.................................68
SECTION 10.4.            Appointment of Successor................................................................68
SECTION 10.5.            [RESERVED]..............................................................................72
SECTION 10.6.            Notification to Noteholders and Rating Agencies.........................................70
SECTION 10.7.            Waiver of Past Defaults.................................................................70
SECTION 10.8.            Termination of Trust Collateral Agent...................................................70
SECTION 10.9.            Successor to Servicer...................................................................71
</TABLE>



                                      iii
<PAGE>   5

<TABLE>
<CAPTION>
                                                    ARTICLE XI

                                                   Termination

<S>                      <C>                                                                                    <C>
SECTION 11.1.            Optional Purchase of All Receivables....................................................72

                                                    ARTICLE XII

                                       Administrative Duties of the Servicer

SECTION 12.1.            Administrative Duties...................................................................73
SECTION 12.2.            Records.................................................................................75
SECTION 12.3.            Additional Information to be Furnished to the Issuer....................................75

                                                   ARTICLE XIII

                                             Miscellaneous Provisions

SECTION 13.1.            Amendment...............................................................................75
SECTION 13.2.            Protection of Title to Trust............................................................77
SECTION 13.3.            Notices.................................................................................79
SECTION 13.4.            Assignment..............................................................................80
SECTION 13.5.            Limitations on Rights of Others.........................................................80
SECTION 13.6.            Severability............................................................................80
SECTION 13.7.            Separate Counterparts...................................................................81
SECTION 13.8.            Headings................................................................................81
SECTION 13.9.            Governing Law...........................................................................81
SECTION 13.10.           Assignment to Trustee...................................................................81
SECTION 13.11.           Nonpetition Covenants...................................................................81
SECTION 13.12.           Limitation of Liability of Owner Trustee and Trustee....................................82
SECTION 13.13.           Independence of the Servicer............................................................82
SECTION 13.14.           No Joint Venture........................................................................82
SECTION 13.14.           Insurer as Controlling Party............................................................84
</TABLE>



                                       iv
<PAGE>   6

                  SALE AND SERVICING AGREEMENT dated as of September 1, 1999,
among NATIONAL AUTO FINANCE 1999-1 TRUST, a Delaware business trust, as issuer
(the "Issuer" or the "Trust"), NATIONAL FINANCIAL AUTO FUNDING TRUST, a Delaware
business trust, as seller (the "Seller"), NATIONAL AUTO FINANCE COMPANY, INC., a
Delaware corporation, in its individual capacity ("NAFI") and as servicer (the
"Servicer"), and HARRIS TRUST AND SAVINGS BANK, an Illinois banking association,
in its capacity as trust collateral agent (the "Trust Collateral Agent") and
backup servicer (the "Backup Servicer").

                  WHEREAS the Issuer desires to purchase a portfolio of
receivables arising in connection with motor vehicle retail installment sale
contracts acquired by NAFI directly or indirectly through motor vehicle dealers
and motor vehicle finance companies;

                  WHEREAS the Seller has acquired such receivables from National
Financial Auto Funding Trust II and is willing to sell such receivables to the
Issuer;

                  WHEREAS the Servicer is willing to service such receivables;

                  NOW, THEREFORE, in consideration of the promises and the
mutual covenants herein contained, the parties hereto agree as follows:

                                   ARTICLE I

                                  DEFINITIONS

         SECTION 1.1. Definitions. Whenever used in this Agreement, the
following words and phrases shall have the following meanings:

                  "Accountants' Report" means the report of a firm of nationally
recognized independent accountants described in Section 4.13.

                  "Actuarial Method" means the method of allocating a fixed
level payment on an obligation between principal and interest, pursuant to which
the portion of such payment that is allocated to interest is equal to the
product of (a) 1/12, (b) the fixed annual rate of interest on such obligation
and (c) the outstanding principal balance of such obligation.

                  "Affiliate" means, with respect to any specified Person, any
other Person controlling or controlled by or under common control with such
specified Person. For the purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.

                  "Aggregate Note Balance" means, the sum of the Class A Note
Balance and the Class B Note Balance.

                  "Aggregate Principal Balance" means, with respect to any date
of determination, the sum of the Principal Balances for all Receivables (other
than (i) any Receivable that became a



<PAGE>   7

Liquidated Receivable during the related Due Period and (ii) any Receivable that
became a Purchased Receivable during the related Due Period) as of the date of
determination.

                  "Agreement" means this Sale and Servicing Agreement, as the
same may be amended and supplemented from time to time in accordance with the
terms hereof.

                  "Amount Financed" means, with respect to a Receivable, the
aggregate amount advanced under such Receivable toward the purchase price of the
Financed Vehicles and any related costs, including amounts advanced in respect
of accessories, insurance premiums, service, car club and warranty contracts,
other items customarily financed as part of motor vehicle retail installment
sale contracts or promissory notes, and related costs.

                  "Annual Percentage Rate" or "APR" of a Receivable means the
annual percentage rate of finance charges or service charges, as stated in the
related Contract.

                  "Assignment Agreement" means the agreement, dated as of
September 1, 1999, between Bankers Trust Company, not in its individual capacity
but solely as Trustee of the National Financial Auto Receivables Master Trust,
and National Financial Auto Funding Trust II, as the same may be amended,
supplemented or otherwise modified from time to time in accordance with the
terms thereof.

                  "Available Amount" means, with respect to any Distribution
Date, an amount equal to the sum of (i) the amount on deposit in the
Distribution Account on the preceding Distribution Date after giving effect to
all withdrawals therefrom on such preceding Distribution Date, (ii) the amount
to be transferred by the Trust Collateral Agent to the Distribution Account from
the Collection Account on such Distribution Date pursuant to Section 5.1(c), and
(iii) any amounts paid by the Insurer to the Trust Collateral Agent pursuant to
Section 5.11 hereof for distribution on such Distribution Date.

                  "Average Default Rate" means, with respect to any Reporting
Date, the arithmetic average of the Default Rates for each of the three Due
Periods immediately preceding the Due Period in which such Reporting Date
occurs.

                  "Average Delinquency Ratio" means, with respect to any
Reporting Date, the arithmetic average of the Delinquency Ratios for each of the
three Due Periods immediately preceding the Due Period in which such Reporting
Date occurs.

                  "Average Extension Ratio" has the meaning specified in Section
4.6(a).

                  "Average Net Loss Rate" means, with respect to any Reporting
Date, the arithmetic average of the Net Loss Rates for each of the three Due
Periods immediately preceding the Due Period in which such Reporting Date
occurs.

                  "Backup Servicer" means, Harris Trust and Savings Bank, as the
Backup Servicer hereunder, including in its capacity as Servicer, in the event
NAFI resigns or is removed as Servicer.



                                       2
<PAGE>   8

                  "Backup Servicing Agreement" means the Agreement for
Monitoring and Backup Servicing, dated as of September 1, 1999, among the
Servicer, the Insurer and CSC Logic/MSA LLP d/b/a Loan Servicing Enterprise, as
the same may be amended, supplemented or otherwise modified from time to time in
accordance with the terms thereof.

                  "Bankruptcy Loss" means, with respect to a Receivable, if a
court of appropriate jurisdiction in an insolvency proceeding shall have issued
an order reducing the amount owed on a Receivable or otherwise modifying or
restructuring the scheduled payments to be made on a Receivable, an amount equal
to the excess of the principal balance of such Receivable immediately prior to
such order over the principal balance of such Receivable as so reduced or the
net present value (using as the discount rate the higher of the APR on such
Receivable or the rate of interest, if any, specified by the court in such
order) of the scheduled payments as so modified or restructured. A "Bankruptcy
Loss" shall be deemed to have occurred on the date of issuance of such order.

                  "Base Servicing Fee" means, with respect to any Due Period,
the fee payable to the Servicer for services rendered during such Due Period,
which shall be equal to one-twelfth of the Servicing Fee Rate multiplied by the
Pool Balance as of the close of business on the last day of the preceding Due
Period.

                  "Business Day" means a day other than a Saturday, a Sunday or
other day on which commercial banks located in New York, Illinois, Delaware or
Florida are authorized or obligated to be closed.

                  "Certificateholder" or "Certificateholders" means the Person
in whose name the Trust Certificate is registered in the Certificate Register
maintained pursuant to the Trust Agreement.

                  "Class" means either the Class A Notes or the Class B Notes.

                  "Class A Interest Rate" means 7.26% per annum (computed on the
basis of a 360-day year of twelve 30-day months).

                  "Class A Note Balance" means initially, the aggregate
principal amount of Class A Notes issued on the Closing Date and, thereafter,
such principal amount reduced by all amounts paid to the Class A Noteholders in
respect of the Class A Percentage of the Noteholders' Principal Distributable
Amount.

                  "Class A Note Distribution Account" means an account
designated as such, established and maintained pursuant to Section 5.1(a)(ii).

                  "Class A Note Policy" means the financial guaranty insurance
policy number _______ issued by the Insurer to the Trust Collateral Agent, as
agent for the Trustee, for the benefit of the Class A Noteholders, including any
endorsements thereto.

                  "Class A Note Policy Claim Amount" for any Distribution Date,
shall equal the excess, if any, of (x) the amount required to be distributed
pursuant to Section 5.7(a)(iii) and, if



                                       3
<PAGE>   9

such Distribution Date is the Final Scheduled Distribution Date, Section
5.7(a)(v), over (y) the portion of (i) the Available Amount and (ii)] the
Deficiency Claim Amount available to make payments under such sections on such
Distribution Date.

                  "Class A Note Preference Claim" has the meaning set forth in
Section 6.2 hereof.

                  "Class A Noteholders" has the meaning assigned to such term in
the Indenture.

                  "Class A Notes" has the meaning assigned to such term in the
Indenture.

                  "Class A Percentage" means 80%.

                  "Class A Principal Carryover Shortfall" means, as of the close
of business on any Distribution Date, the excess of the Noteholders' Principal
Distributable Amount for the Class A Notes and any outstanding Class A Principal
Carryover Shortfall from the preceding Distribution Date over the amount in
respect of principal that was actually deposited in the Class A Note
Distribution Account and distributed on the Class A Notes on such Distribution
Date.

                  "Class B Interest Rate" means 11.13% per annum (computed on
the basis of a 360-day year of twelve 30-day months).

                  "Class B Note Balance" means initially, the aggregate
principal amount of Class B Notes issued on the Closing Date and, thereafter,
such principal amount reduced by all amounts paid to the Class B Noteholders (i)
in respect of the Class B Percentage of the Noteholders' Principal Distributable
Amount and (ii) pursuant to the provisions contained in Section 5.7(a)(ix).

                  "Class B Note Distribution Account" means an account
designated as such, established and maintained pursuant to Section 5.1(a)(ii).

                  "Class B Noteholders" has the meaning assigned to such term in
the Indenture.

                  "Class B Notes" has the meaning assigned to such term in the
Indenture.

                  "Class B Percentage" means 5%.

                  "Class B Principal Carryover Shortfall" means, as of the close
of business on any Distribution Date, the excess of the Noteholders' Principal
Distributable Amount for the Class B Notes and any outstanding Class B Principal
Carryover Shortfall from the preceding Distribution Date over the amount in
respect of principal that was actually deposited in the Class B Note
Distribution Account and distributed on the Class B Notes on such Distribution
Date.

                  "Closing Date" means September 24, 1999.

                  "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and Treasury Regulations promulgated thereunder.

                  "Collateral Agent" means Harris Trust and Savings Bank, in its
capacity as Collateral Agent under the Spread Account Agreement.



                                       4
<PAGE>   10

                  "Collection Account" means the account designated as such,
established and maintained pursuant to Section 5.1.

                  "Collection Records" means all manually prepared or computer
generated records relating to collection efforts or payment histories with
respect to the Receivables.

                  "Computer Tape" means the computer tapes or other electronic
media furnished by the Seller to the Issuer and its assigns describing certain
characteristics of the Receivables as of the Cut-off Date.

                  "Contract" means a motor vehicle retail installment sale
contract.

                  "Controlling Class" means holders of not less than 51% of the
outstanding balance of the Class A Notes, or if the Class A Notes are not
outstanding, holders of not less than 51% of the outstanding balance of the
Class B Notes.

                  "Controlling Party" means (x) the Insurer, so long as (i) the
Class A Notes shall be outstanding or amounts owing to the Insurer have not been
paid to it and (ii) no Insurer Default shall have occurred and be continuing,
and (y) the Controlling Class, in the event (i) the Class A Notes shall no
longer be outstanding, all amounts owing to the Insurer have been paid to it and
the term of the Class A Note Policy shall have expired or (ii) an Insurer
Default shall have occurred and be continuing.

                  "Conveyance Agreements" means the Sale Agreement and the
Assignment Agreement.

                  "Corporate Trust Office" means (i) with respect to the Owner
Trustee, the principal corporate trust office of the Owner Trustee, which at the
time of execution of this agreement is Rodney Square North, 1100 North Market
Street, Wilmington, Delaware 19890-0001, Attention: Corporate Trust
Administration, and (ii) with respect to the Trustee and the Trust Collateral
Agent, the principal corporate trust office of the Trustee, which at the time of
execution of this agreement is 311 West Monroe Street, 12th Floor, Chicago, IL
60606, Attention: Indenture Trust Administration.

                  "Custodial Agreement" means any agreement from time to time in
effect between the Custodian named therein and the Trust Collateral Agent, as
the same may be amended, supplemented or otherwise modified from time to time in
accordance with the terms thereof, which Custodial Agreement and any amendments,
supplements or modifications thereto shall be acceptable to the Controlling
Party (the Custodial Agreement which is effective on the Closing Date is
acceptable to the Controlling Party).

                  "Custodian" means any Person named from time to time as
custodian of the Receivable Files in any Custodial Agreement and acting as agent
for the Trust Collateral Agent, which Person must be acceptable to the
Controlling Party (the Custodian as of the Closing Date is acceptable to the
Controlling Party as of the Closing Date). The initial Custodian on the Closing
Date shall be Harris Trust and Savings Bank, as custodian.



                                       5
<PAGE>   11

                  "Cut-off Date" means August 31, 1999.

                  "Dealer" means a dealer who sold a Financed Vehicle and who
originated and assigned the respective Receivable to NAFI or an Originator under
a Dealer Agreement.

                  "Dealer Agreement" means any agreement between NAFI or an
Originator and a Dealer relating to the acquisition of Receivables from a Dealer
by NAFI or an Originator.

                  "Dealer Assignment" means, with respect to a Receivable, the
executed assignment executed by a Dealer conveying such Receivable to an
Originator.

                  "Dealer Underwriting Guide" means either, (i) the underwriting
guidelines used by or on behalf of NAFI in the origination and purchase of
Receivables, as amended from time to time, or (ii) the underwriting guidelines
used in the origination of Receivables as reviewed by NAFI prior to the purchase
of Receivables by NAFI.

                  "Default Rate" means, with respect to any Due Period, the
product of (i) twelve and (ii) the quotient, expressed as a percentage, obtained
by dividing (a) the sum of (x) the aggregate outstanding Principal Balance of
all Defaulted Receivables which became Defaulted Receivables during such Due
Period and (y) the aggregate outstanding Principal Balance of all Receivables
that became Purchased Receivables during such Due Period and were 30 days or
more past due as of the date such Receivables were retransferred hereunder by
(b) the arithmetic average of the Pool Balance as of the end of such Due Period
and the Pool Balance as of the end of the preceding Due Period.

                  "Defaulted Receivable" means, with respect to any Due Period,
a Receivable with respect to which any of the following has occurred during such
Due Period: (i) all or a part of any Scheduled Receivable Payment is 90 days or
more delinquent as of the end of such Due Period, (ii) such Receivable is in
default and the Servicer (or Sub-Servicer) has in good faith determined that
payments thereunder are not likely to be resumed or (iii) the Financed Vehicle
that secures the Receivable has been repossessed without reinstatement of the
Receivable on or before the last day of such Due Period and any applicable
redemption period has expired.

                  "Deficiency Claim Amount" shall have the meaning set forth in
Section 5.5.

                  "Deficiency Claim Date" means, with respect to any
Distribution Date, the fourth Business Day immediately preceding such
Distribution Date.

                  "Deficiency Notice" shall have the meaning set forth in
Section 5.5.

                  "Delinquency Rate" means, with respect to any Due Period, the
quotient, expressed as a percentage, obtained by dividing (a) the aggregate
Principal Balance of all Receivables with respect to which a Scheduled
Receivable Payment is 30 or more days past due as of the end of such Due Period,
by (b) the Pool Balance as of the end of such Due Period.

                  "Delivery" when used with respect to Trust Account Property
shall mean:



                                       6
<PAGE>   12

                  (a) with respect to bankers' acceptances, commercial paper,
negotiable certificates of deposit and other obligations that constitute
"instruments" within the meaning of Section 9-105(1)(i) of the UCC and are
susceptible of physical delivery, transfer thereof to the Trust Collateral Agent
by physical delivery to the Trust Collateral Agent endorsed to, or registered in
the name of, the Trust Collateral Agent or endorsed in blank, and with respect
to a certificated security (as defined in Section 8-102 of the UCC) transfer
thereof (i) by delivery of such certificated security endorsed to, or registered
in the name of the Trust Collateral Agent or (ii) by delivery thereof to a
"clearing corporation" (as defined in Section 8-102 of the UCC) and the making
by such clearing corporation of appropriate entries on its books reducing the
appropriate securities account of the transferor and increasing the appropriate
securities account of the Trust Collateral Agent by the amount of such
certificated security and the identification by the clearing corporation of the
certificated securities for the sole and exclusive account of the Trust
Collateral Agent (all of the foregoing "Physical Property"), and, in any event,
any such Physical Property in registered form shall be in the name of the Trust
Collateral Agent; and such additional or alternative procedures as may hereafter
become appropriate to effect the complete transfer of ownership of any such
Trust Account Property to the Trust Collateral Agent or its nominee or
custodian, consistent with changes in applicable law or regulations or the
interpretation thereof;

                  (b) with respect to any security issued by the U.S. Treasury,
the Federal Home Loan Mortgage Corporation or by the Federal national Mortgage
Association that is a book-entry security held through the Federal Reserve
System pursuant to federal book-entry regulations, the following procedures, all
in accordance with applicable law, including applicable federal regulations and
Articles 8 and 9 of the UCC: book-entry registration of such Trust Account
Property to an appropriate book-entry account maintained with a Federal Reserve
Bank by a securities intermediary that is also a "depository" pursuant to
applicable federal regulations; the making by such securities intermediary of
entries in its books and records crediting such Trust Account Property to the
Trust Collateral Agent's security account at the securities intermediary and
identifying such book-entry security held through the Federal Reserve System
pursuant to federal book-entry regulations as belonging to the Trust Collateral
Agent; and such additional or alternative procedures as may hereafter become
appropriate to effect complete transfer of ownership of any such Trust Account
Property to the Trust Collateral Agent, consistent with changes in applicable
law or regulations or the interpretation thereof; and

                  (c) with respect to any item of Trust Account Property that is
an uncertificated security under Article 8 of the UCC and that is not governed
by clause (b) above, registration on the books and records of the issuer thereof
in the name of the Trust Collateral Agent or its nominee or custodian who either
(i) becomes the registered owner on behalf of the Trust Collateral Agent or (ii)
having previously become the registered owner, acknowledges that it holds for
the Trust Collateral Agent.

                  "Depositor" shall mean the Seller in its capacity as Depositor
under the Trust Agreement.

                  "Determination Date" means, with respect to a Distribution
Date, the last day of the Due Period immediately preceding such Distribution
Date.



                                       7
<PAGE>   13

                  "Distribution Account" means the account established pursuant
to Section 5.1(a)(iii) hereof.

                  "Distribution Date" means, with respect to each Due Period,
the twenty-first day of the following calendar month, or if such day is not a
Business Day, the immediately following Business Day, commencing October 21,
1999.

                  "Draw Date" means, with respect to any Distribution Date, the
fourth Business Day (as defined in the Class A Note Policy) immediately
preceding such Distribution Date.

                  "Due Date" means, with respect to a Receivable, the date in
each Due Period on which a Scheduled Receivable Payment on such Receivable is
due.

                  "Due Period" means, with respect to each Distribution Date,
the period from and including the first day of the calendar month preceding the
month in which such Distribution Date occurs to and including the last day of
the calendar month preceding the month of such Distribution Date.

                  "Electronic Ledger" means the electronic master record of the
retail installment sales contracts or installment loans of the Servicer.

                  "Eligible Bank" means any depository institution (which shall
initially be the Trust Collateral Agent) acceptable to the Controlling Party,
organized under the laws of the United States of America or any one of the
states thereof or the District of Columbia (or any United States branch or
agency of a foreign bank), which is subject to supervision and examination by
federal or state banking authorities and which at all times (a) has a net worth
in excess of $50,000,000 and (b) has either (i) a rating of P-1 from Moody's and
A-1 from S&P with respect to short-term deposit obligations, or (ii) if such
institution has issued long-term unsecured debt obligations, a rating of A2 or
higher from Moody's and AA from S&P with respect to long-term unsecured debt
obligations. Such depository institution (other than the Trust Collateral Agent)
shall have been approved in writing by the Controlling Party, operating in its
discretion, by written notice to the Trust Collateral Agent.

                  "Eligible Deposit Account" means (i) a segregated trust
account that is maintained with the corporate trust department of a depository
institution or trust company acceptable to the Insurer (unless a Insurer Default
has occurred and is continuing, in which case such institution shall be one
subject to regulations regarding fiduciary funds on deposit substantially
similar to 12 CFR Section 9.10(b)), or (ii) a segregated demand deposit account
maintained with a depository institution or trust company organized under the
laws of the United States of America, or any of the States thereof, or the
District of Columbia, having a certificate of deposit, short-term deposit or
commercial paper rating of at least "A-1+" from Standard & Poor's and "P-1" from
Moody's and (unless a Insurer Default has occurred and is continuing) acceptable
to the Insurer.

                  "Eligible Investments" mean book-entry securities, negotiable
instruments or securities represented by instruments in bearer or registered
form which evidence:



                                       8
<PAGE>   14

                  (a) direct interest-bearing obligations of, and
interest-bearing obligations fully guaranteed as to timely payment of principal
and interest by, the United States of America;

                  (b) demand deposits, time deposits or certificates of deposit
of any depository institution or trust company organized under the laws of the
United States of America or any state thereof or the District of Columbia (or
any domestic branch of a foreign bank) and subject to supervision and
examination by Federal or state banking or depository institution authorities
(including depository receipts issued by any such institution or trust company
as custodian with respect to any obligation referred to in clause (a) above or
portion of such obligation for the benefit of the holders of such depository
receipts); provided, however, that at the time of the investment or contractual
commitment to invest therein (which shall be deemed to be made again each time
funds are reinvested following each Distribution Date), the commercial paper or
other short-term senior unsecured debt obligations (other than such obligations
the rating of which is based on the credit of a Person other than such
depository institution or trust company) of such depository institution or trust
company shall have a credit rating from Standard & Poor's of AAA and from
Moody's of Aaa;

                  (c) commercial paper and demand notes investing solely in
commercial paper that (i) is payable in United States dollars and (ii) has, at
the time of the investment or contractual commitment to invest therein, a rating
from Standard & Poor's of A-1+ and from Moody's of P-1;

                  (d) investments in money market funds (including funds for
which the Trust Collateral Agent or the Owner Trustee in each of their
individual capacities or any of their respective Affiliates is investment
manager or advisor) having a rating from Standard & Poor's of AAA-m or AAAm-G
and from Moody's of Aaa and (other than funds for which the Trust Collateral
Agent or the Owner Trustee in each of their individual capacities or any of
their respective Affiliates is investment manager or advisor) having been
approved in writing by the Insurer;

                  (e) bankers' acceptances issued by any depository institution
or trust company referred to in clause (b) above;

                  (f) repurchase obligations pursuant to a written agreement (i)
with respect to any obligation described in clause (a) above, where the Trustee
has taken actual or constructive delivery of such obligation, and (ii) entered
into with the corporate trust department of a depository institution or trust
company organized under the laws of the United States or any State thereof, the
deposits of which are insured by the Federal Deposit Insurance Corporation and
the short-term unsecured debt obligations of which are rated "A-1+" by Standard
& Poor's and "P-1" by Moody's (including, if applicable, the Trustee or any
agent of the Trustee acting in its respective commercial capacities); and

                  (g) any other investment which is rated in the highest
investment category by each of the Rating Agencies and which has been approved
by the Controlling Party.



                                       9
<PAGE>   15

                  Any of the foregoing Eligible Investments may be purchased by
or through the Owner Trustee or the Trust Collateral Agent or any of their
respective Affiliates. All Eligible Investments shall be denominated in United
States dollars. No Eligible Investments shall be invested in securities that are
purchased at a premium.

                  "Eligible Servicer" means the Servicer, the Backup Servicer or
another Person that, at the time of its appointment as Servicer, (i) is
servicing a portfolio of motor vehicle retail installment sales contracts and/or
motor vehicle installment loans, (ii) is legally qualified and has the capacity
to service the Receivables and (iii) has demonstrated the ability professionally
and competently to service a portfolio of motor vehicle retail installment sales
contracts and/or motor vehicle installment loans similar to the Receivables with
reasonable skill and care.

                  "Eligible Sub-Servicer" means any Person which at the time of
its appointment as Sub-Servicer, (i) is servicing a portfolio of motor vehicle
retail installment sales contracts and/or motor vehicle installment loans, (ii)
is legally qualified and has the capacity to service the Receivables, (iii) has
demonstrated the ability professionally and competently to service a portfolio
of motor vehicle retail installment sales contracts and/or motor vehicle
installment loans similar to the Receivables with reasonable skill and care and
(iv) is qualified and entitled to use, pursuant to a license or other written
agreement, and agrees to maintain the confidentiality of, the software which the
Servicer uses in connection with performing its duties and responsibilities
under this Agreement or otherwise has available software which is adequate to
perform its duties and responsibilities under this Agreement.

                  "Extension Ratio" has the meaning specified in Section 4.6(a).

                  "Final Scheduled Distribution Date" means the Distribution
Date occurring in October, 2004.

                  "Financed Vehicle" means an automobile or light-duty truck,
together with all accessions thereto, securing an Obligor's indebtedness under
the respective Receivable.

                  "Funding Trust II" means National Auto Funding Trust II, a
Delaware business trust.

                  "Governmental Authority" means (a) any federal, state, county,
municipal or foreign government or political subdivision thereof, (b) any
governmental or quasi-governmental agency, authority, board, bureau, commission,
department, instrumentality or public body, (c) any court or administrative
tribunal or (d) with respect to any Person, any arbitration tribunal or other
non-governmental authority to the jurisdiction of which such Person has
consented.

                  "Indemnification Agreement" means the Indemnification
Agreement, dated as of September 1, 1999, between the Insurer and the Seller, as
such agreement may be amended, supplemented or otherwise modified from time to
time in accordance with the terms hereof.

                  "Indenture" means the Indenture dated as of September 1, 1999,
among the Issuer and Harris Trust and Savings Bank, as Trust Collateral Agent
and Trustee, as the same may be amended and supplemented from time to time.



                                       10
<PAGE>   16

                  "Initial Spread Account Deposit" has the meaning set forth in
the Series 1999-1 Supplement.

                  "Insurance Agreement" means the Insurance and Indemnity
Agreement, dated as of September 1, 1999, among the Insurer, the Trust, the
Seller and NAFI, as such agreement may be amended, supplemented or otherwise
modified from time to time in accordance with the terms thereof.

                  "Insurance Agreement Event of Default" means an "Event of
Default" as defined in the Insurance Agreement.

                  "Insurance Policy" means, with respect to a Receivable, any
insurance policy (including the insurance policies described in Section 4.4
hereof) benefiting the holder of the Receivable providing loss or physical
damage, credit life, credit disability, theft, mechanical breakdown or similar
coverage with respect to the Financed Vehicle or the Obligor.

                  "Insurer" means Financial Security Assurance Inc., a monoline
insurance company incorporated under the laws of the State of New York, or any
successor thereto, as issuer of the Class A Note Policy.

                  "Insurer Default" means the occurrence and continuance of any
of the following events:

                  (a) the Insurer shall have failed to make a payment required
under the Class A Note Policy in accordance with its terms;

                  (b) the Insurer shall have (i) filed a petition or commenced
any case or proceeding under any provision or chapter of the United States
Bankruptcy Code or any other similar federal or state law relating to
insolvency, bankruptcy, rehabilitation, liquidation or reorganization, (ii) made
a general assignment for the benefit of its creditors or (iii) had an order for
relief entered against it under the United States Bankruptcy Code or any other
similar federal or state law relating to insolvency, bankruptcy, rehabilitation,
liquidation or reorganization which is final and nonappealable; or

                  (c) a court of competent jurisdiction, the New York Department
of Insurance or other competent regulatory authority shall have entered a final
and nonappealable order, judgment or decree (i) appointing a custodian, trustee,
agent or receiver for the Insurer or for all or any material portion of its
property or (ii) authorizing the taking of possession by a custodian, trustee,
agent or receiver of the Insurer (or the taking of possession of all or any
material portion of the property of the Insurer).

                  "Insurer Optional Deposit" means, with respect to any
Distribution Date, an amount delivered by the Insurer pursuant to Section 5.11,
at its sole option, other than amounts in respect of a Class A Note Policy Claim
Amount to the Trust Collateral Agent for deposit into the Collection Account for
any of the following purposes: (i) to provide funds in respect of the payment of
fees or expenses of any provider of services to the Trust with respect to such
Distribution Date; or (ii) to include such amount as part of the Available
Amount for such



                                       11
<PAGE>   17

Distribution Date to the extent that without such amount a draw would be
required to be made on the Class A Note Policy.

                  "Interest Rate" means, as the context may require, either the
Class A Interest Rate or the Class B Interest Rate, as applicable.

                  "Investment Earnings" means, with respect to any Distribution
Date and Trust Account, the investment earnings on amounts on deposit in such
Trust Account on such Distribution Date.

                  "Issuer" or "Trust" means National Auto Finance 1999-1 Trust.

                  "Lien" means a security interest, lien, charge, pledge,
equity, or encumbrance of any kind.

                  "Lien Certificate" means, with respect to a Financed Vehicle,
an original certificate of title, certificate of lien or other notification
issued by the Registrar of Titles of the applicable state to a secured party
which indicates that the lien of the secured party on the Financed Vehicle is
recorded on the original certificate of title. In any jurisdiction in which the
original certificate of title is required to be given to the Obligor, the term
"Lien Certificate" shall mean only a certificate or notification issued to a
secured party.

                  "Liquidated Receivable" means, with respect to any Due Period,
a Receivable with respect to which any of the following events has occurred
during such Due Period (the earliest to occur of the following events): (i) 90
days have elapsed since Repossession of the related Financed Vehicle, (ii) the
Servicer (or Sub-Servicer) has in good faith determined that all amounts that it
expects to recover under such Receivable have been received or (iii) 90% or
greater of any Scheduled Receivable Payment on such Receivable is 120 days or
more (or, if the related Obligor is a debtor under Chapter 13 of the U.S.
Bankruptcy Code, 180 days or more) delinquent as of the end of such Due Period.

                  "Liquidation Expenses" means, reasonable out-of-pocket
expenses which are incurred by the Servicer or any Sub-Servicer in connection
with the liquidation of any Defaulted Receivable. Such expenses shall include,
without limitation, legal fees and expenses, any unreimbursed amount expended by
the Servicer or any Sub-Servicer pursuant to Section 4.8 (to the extent such
amount is reimbursable under the terms of Section 4.8) respecting the related
Receivable, and any related and unreimbursed expenditures for property
restoration or preservation.

                  "Liquidation Proceeds" means, with respect to a Liquidated
Receivable, all amounts realized with respect to such Receivable (other than
amounts withdrawn from the Series 1999-1 Spread Account and drawings under the
Class A Note Policy), including any proceeds from any Insurance Policies, net of
amounts that are required to be refunded to the Obligor on such Receivable;
provided, however, that the Liquidation Proceeds with respect to any Receivable
shall in no event be less than zero.



                                       12
<PAGE>   18

                  "Lockbox Account" means any bank account held in the name of
the Trustee maintained at a Lockbox Bank into which collections under the
Receivables are deposited in accordance with Section 4.6.

                  "Lockbox Agreement" means a letter agreement among a Lockbox
Bank, the Seller, the Trust Collateral Agent, the Servicer and, if applicable,
any Sub-Servicer, relating to one or more Lockbox Accounts, as the same may be
amended, supplemented, amended and restated or otherwise modified from time to
time in accordance with the terms thereof. Any Lockbox Agreement is also
required to be acceptable to the Controlling Party.

                  "Lockbox Bank" means any bank at which a Lockbox Account is
maintained from time to time and whose short-term debt securities are rated A-1
by S&P and P-1 by Moody's. Any Lockbox Bank is also required to be acceptable to
the Controlling Party.

                  "Lockbox Processor" means First Union National Bank and its
successors or any replacement Lockbox Processor under the Lockbox Agreement.

                  "Master Trust" means National Financial Auto Receivables
Master Trust.

                  "Monthly Records" means all records and data maintained by the
Servicer with respect to the Receivables, including the following with respect
to each Receivable: the account number; the originating Dealer; Obligor name;
Obligor address; Obligor home phone number; Obligor business phone number;
original Principal Balance; original term; Annual Percentage Rate; current
Principal Balance; current remaining term; origination date; first payment date;
final scheduled payment date; next payment due date; date of most recent
payment; new/used classification; collateral description; days currently
delinquent; number of contract extensions (months) to date; amount of Scheduled
Receivable Payment; current Insurance Policy expiration date; and past due late
charges.

                  "Moody's" means Moody's Investors Service, Inc., or its
successor.

                  "NAFI" means National Auto Finance Company, Inc and its
permitted successors and assigns hereunder in accordance with the terms hereof.

                  "Net Liquidation Proceeds" means, with respect to a Liquidated
Receivable, all Liquidation Proceeds net of all Liquidation Expenses.

                  "Net Loss Rate" means, with respect to any Due Period, the
product, expressed as a percentage, of (i) twelve and (ii) a fraction, the
numerator of which equals the excess of (A) the sum of (1) the aggregate
Principal Balance of all Receivables that became Liquidated Receivables in such
Due Period and (2) accrued and unpaid interest on such Principal Balance through
the end of such Due Period and (3) the amount of any Bankruptcy Losses, over (B)
the Net Liquidation Proceeds received by the Trust during such Due Period with
respect to all Liquidated Receivables in the Trust (including Liquidated
Receivables that became Liquidated Receivables in a prior Due Period) and the
denominator of which equals the arithmetic average of the Pool Balance as of the
end of such Due Period and the Pool Balance as of the end of the preceding Due
Period.



                                       13
<PAGE>   19

                  "Note" or "Notes" has the meaning assigned to such term in the
Indenture.

                  "Note Balance" means either the Class A Note Balance or the
Class B Note Balance, as applicable.

                  "Note Pool Factor" means, with respect to each Class of Notes
and the close of business on any Distribution Date, a seven-digit decimal figure
equal to the outstanding principal amount of such Class of Notes (after giving
effect to any distributions reducing the related Note Balance on such
Distribution Date) divided by the original outstanding principal amount of such
Class of Notes.

                  "Noteholders" and "Holders" have the meaning assigned to the
term "Noteholders" in the Indenture.

                  "Noteholders' Distributable Amount" means, with respect to any
Distribution Date and each Class of Notes, the sum of the Noteholders' Principal
Distributable Amount and the Noteholders' Interest Distributable Amount.

                  "Noteholders' Interest Carryover Shortfall" means, with
respect to any Distribution Date and each Class of Notes, the excess of the sum
of the Noteholders' Monthly Interest Distributable Amount for such Class for the
preceding Distribution Date and any outstanding Noteholders' Interest Carryover
Shortfall for such Class on such preceding Distribution Date, over the amount in
respect of interest that was actually deposited in the Note Distribution Account
and distributed on such Class on such preceding Distribution Date.

                  "Noteholders' Interest Distributable Amount" means, with
respect to any Distribution Date and each Class of Notes, the sum of (i) the
Noteholders' Monthly Interest Distributable Amount for such Class on such
Distribution Date and (ii) the Noteholders' Interest Carryover Shortfall for
such Class on such Distribution Date.

                  "Noteholders' Monthly Interest Distributable Amount" means,
with respect to any Distribution Date and each Class of Notes, the sum of (i)
thirty (30) days of interest (or, in the case of the initial Distribution Date,
the number of days from and including the Closing Date to but not including such
initial Distribution Date) at the related Interest Rate on the Note Balance of
such Class on such Distribution Date (before reduction of the Note Balance of
such Class by any distributions made on such Distribution Date) and (ii)
interest on the Noteholders' Interest Carryover Shortfall at the greater of (i)
the Prime Rate or (ii) the related Interest Rate plus 2% per annum from the
preceding Distribution Date through the current Distribution Date, to the extent
permitted by law.

                  "Noteholders' Principal Distributable Amount" means for each
Class of Notes, with respect to (i) any Distribution Date prior to the Final
Scheduled Distribution Date, the Principal Distributable Amount and (ii) the
Final Scheduled Distribution Date, the Note Balance for such Class (before
giving effect to any distribution on the related Class on such Final Scheduled
Distribution Date).

                  "Notice of Claim" means the notice required to file a claim
under the Policy.



                                       14
<PAGE>   20

                  "Obligor" on a Receivable means the purchaser or co-purchasers
of the Financed Vehicle and any other Person who owes payments under the
Receivable.

                  "Officers' Certificate" means a certificate signed by (i) a
Co-Trustee of the Seller or Funding Trust II, as the case may be, (ii) the
Chairman of the Board, President, Executive Vice President, Senior Vice
President, Vice President, or Assistant Vice President of the Custodian or NAFI,
as the case may be, or (iii) by a Servicing Official in the case of the
Servicer, and in each case delivered to the Trust Collateral Agent as required
by this Agreement.

                  "Opinion of Counsel" means a written opinion in form
reasonably satisfactory to the Trust Collateral Agent and the Insurer of counsel
reasonably satisfactory to the Trust Collateral Agent and the Controlling Party.
Any such counsel may be counsel to the Seller.

                  "Original Pool Balance" means $61,300,000.00.

                  "Originator" means consumer finance companies, depository
institutions and other financial institutions engaged in the financing of motor
vehicle retail installment sale contracts from whom NAFI acquired Receivables;
provided, however, that "Originators" shall not include Dealers.

                  "Originator Agreement" means an agreement pursuant to which
NAFI acquired Receivables from an Originator, as any of such agreements has been
and may be amended, supplemented or otherwise modified from time to time in
accordance with the terms thereof.

                  "Other Conveyed Property" means all property conveyed by the
Seller to the Trust pursuant to Section 2.1(b) through (h) of this Agreement.

                  "Owner Trust Estate" has the meaning assigned to such term in
the Trust Agreement.

                  "Owner Trustee" means Wilmington Trust Company, not in its
individual capacity but solely as Owner Trustee under the Trust Agreement, its
successors in interest or any successor Owner Trustee under the Trust Agreement.

                  "Person" means any individual, corporation, estate,
partnership, joint venture, association, joint stock company, trust (including
any beneficiary thereof), unincorporated organization or government or any
agency or political subdivision thereof or any other entity.

                  "Physical Property" has the meaning assigned to such term in
clause (a) of the definition of "Delivery" above.

                  "Pool Balance" means, as of any date of determination, the
Original Pool Balance reduced by any principal amounts previously paid
(excluding Purchased Receivables and Liquidated Receivables).

                  "Post-Office Box" means the separate post-office box
established and maintained for the benefit of the Noteholders and the Insurer
pursuant to Section 4.6.



                                       15
<PAGE>   21

                  "Prime Rate" shall mean the rate of interest published in The
Wall Street Journal from time to time as the Prime Rate. If more than one Prime
Rate is published in The Wall Street Journal for a day, the average of the Prime
Rates shall be used.

                  "Principal Balance" means, with respect to any Receivable, as
of any date, the Amount Financed minus (i) the principal portion of each payment
applied to such Receivable in accordance with Section 1.8 hereof and processed
by the Servicer or a Sub-Servicer on or before such date and (ii) any Bankruptcy
Loss in respect of such Receivable; provided, however, that for any date
following the Due Period in which the remaining principal balance of such
Receivable was included in the Principal Distributable Amount as a Liquidated
Receivable or was subject to a principal prepayment in full (including a
repurchase pursuant to Sections 2.5, 3.2 or 4.1), the Principal Balance for such
Receivable shall be zero.

                  "Principal Distributable Amount" means, with respect to any
Distribution Date (other than the Final Scheduled Distribution Date), the sum of
(i) that portion of all collections on the Receivables (other than Liquidated
Receivables and Purchased Receivables and, to the extent included in clause (iv)
below, the Principal Balance of all Purchased Default Receivables) allocable to
principal, including all full and partial principal prepayments, deposited into
the Collection Account during the related Due Period, (ii) the Principal Balance
of all Receivables that became Liquidated Receivables during the related Due
Period (other than Liquidated Receivables that became Purchased Receivables
during such Due Period and, to the extent included in clause (iv) below, the
Principal Balance of all Purchased Default Receivables), (iii) the portion of
the Purchase Amount allocable to principal of all Receivables that became
Purchased Receivables on or prior to the related Reporting Date and subsequent
to the preceding Reporting Date, (iv) in the sole discretion of the Insurer, the
Principal Balance as of the related Reporting Date of all or any part of the
Purchased Default Receivables and (v) the aggregate amount of Bankruptcy Losses
that occurred during the related Due Period.

                  "Purchase Amount" means, with respect to any Receivable
required to be retransferred pursuant to Sections 2.5, 3.2 or 4.1 (or as to
which the Seller has exercised the purchase option in Section 11.1(a)), an
amount equal to the sum of (i) 100% of the Principal Balance thereof on the date
of retransfer and (ii) unpaid accrued interest thereon from the date to which
interest was last paid by the Obligor to the Due Date in the Due Period in which
such retransfer occurs. For purposes of determining the Purchase Amount of any
Receivable, the Principal Balance thereof on the date of retransfer shall not be
reduced to zero as a result of its classification as a Liquidated Receivable.

                  "Purchased Default Receivable" means any Receivable with
respect to which the Seller or the Servicer is required to deposit in the
Collection Account the related Purchase Amount pursuant to Sections 2.5, 3.2 or
4.1 and has not so deposited such amount on the Reporting Date on which it is
required to repurchase such Receivable following receipt of notice from the
Trust Collateral Agent or the Controlling Party that such Receivable is required
to be retransferred.



                                       16
<PAGE>   22

                  "Purchased Receivable" means a Receivable purchased as of the
close of business on the last day of a Due Period by the Servicer pursuant to
Section 4.1(b) or repurchased by NAFI pursuant to Sections 2.5 or 3.2 or by the
Seller pursuant to Sections 2.5, 3.2 or 11.1(a).

                  "Rating Agency" means Moody's and Standard & Poor's. If no
such organization or successor maintains a rating on the Notes, "Rating Agency"
shall be a nationally recognized statistical rating organization or other
comparable Person designated by the Controlling Party.

                  "Rating Agency Condition" means, with respect to any action,
that each Rating Agency shall have been given 10 days' (or such shorter period
as shall be acceptable to each Rating Agency) prior notice thereof and that each
of the Rating Agencies shall have notified the each of the Insurer and the Trust
Collateral Agent that such action will not result in a reduction or withdrawal
of the then current rating of the Notes. Upon receipt of such notice by the
Trust Collateral Agent, the Trust Collateral Agent shall promptly forward such
notice to each of the Seller, the Servicer, the Noteholders and the Owner
Trustee.

                  "Receivable" means each motor vehicle retail installment sale
contract and security agreement (including any and all rights to receive
payments thereunder on and after the Cut-off Date and security interests in the
Financed Vehicle securing such contract or note) assigned and transferred to the
Issuer hereunder as of the Closing Date.

                  "Receivable Documents" means, with respect to a Receivable,
all papers and documents (including those contained in the Receivable File) and
all other papers and records (including computerized data) of whatever kind or
description, whether developed or originated by NAFI, a Dealer, an Originator,
the Servicer or another Person, required to document the Receivable or to
service the Receivable.

                  "Receivable Files" means with respect to a Receivable, the
fully executed original of such Receivable; the assignment of such Receivable by
a Dealer or Originator to NAFI, the original Title Document or UCC financing
statement evidencing that the security interest in a Financed Vehicle granted to
NAFI under such Receivable has been perfected under applicable state law (except
for any Title Documents or UCC financing statements not returned from the
applicable public records office, in which case NAFI will deliver to the Seller,
on the Closing Date an Officer's Certificate of NAFI indicating that the
original of such Title Document has been applied for at, or the original of such
UCC financing statement was delivered to, such public office and shows NAFI as
the lienholder or secured party and that NAFI will deliver the originals thereof
when returned from such office); the original of any assumption agreement or any
modification, extension or refinancing agreement; and the original application
of the related Obligor to obtain the financing extended by such Receivable.

                  "Receivable Rate" means the annual percentage rate (as such
term is used with respect to the federal Truth-in-Lending Act) of interest borne
by, and indicated on, a Contract.

                  "Receivables Schedule" means the schedule of Receivables
attached hereto as Schedule A, such schedule identifying each Receivable being
transferred and assigned to the Trust pursuant to this Agreement by the name of
the Obligor and setting forth as to each such



                                       17
<PAGE>   23

Receivable its Principal Balance as of the Cut-off Date, loan number, Receivable
Rate, scheduled monthly payment of principal and interest, final maturity date
and original principal amount.

                  "Record Date" with respect to each Distribution Date means the
Business Day immediately preceding such Distribution Date, unless otherwise
specified in the Agreement.

                  "Registrar of Titles" means, with respect to any state, the
governmental agency or body responsible for the registration of, and the
issuance of certificates of title relating to, motor vehicles and liens thereon.

                  "Reporting Date" means, with respect to any Distribution Date,
the fourth Business Day preceding such Distribution Date.

                  "Repossession" means any action taken or to be taken pursuant
to the UCC or other applicable laws in connection with recovery on a Defaulted
Receivable (including any Liquidated Receivable), including: (i) repossession of
the related Financed Vehicle with or without judicial proceedings, (ii) sale of
such Financed Vehicle at public or private sale, (iii) retention of such
Financed Vehicle in satisfaction of the Obligor's obligations under such
Defaulted Receivable, or (iv) a levy on and sheriff's sale of the related
Financed Vehicle in enforcement of a judgment on such Defaulted Receivable or by
voluntary surrender or otherwise. The Financed Vehicles referred to in (i)
through (iv) of the preceding sentence, shall be referred to herein as
"Repossessed Financed Vehicles."

                  "Requisite Amount" has the meaning specified in the Series
1999-1 Supplement.

                  "Responsible Officer" means, with respect to the Trust
Collateral Agent, any officer within the Corporate Trust Office of the Trust
Collateral Agent, including any Managing Director, Vice President, Assistant
Vice President, Assistant Treasurer, Assistant Secretary or any other officer of
the Trust Collateral Agent customarily performing functions similar to those
performed by any of the above designated officers, and also, with respect to a
particular matter, any other officer to whom such matter is referred because of
such officer's knowledge of and familiarity with the particular subject.

                  "Revolving Credit Agreement" means the Revolving Credit, Term
Loan and Security Agreement, dated as of March 31, 1999, among the Seller, NAFI
and First Union National Bank.

                  "Rights" has the meaning specified in Section 13.4 of this
Agreement.

                  "Sale Agreement" means the Sale Agreement, dated as of even
date herewith, between Funding Trust II and the Seller, as the same may be
amended, supplemented or otherwise modified from time to time in accordance with
the terms thereof.

                  "Schedule of Representations" means the Schedule of
Representations and Warranties attached hereto as Schedule B.



                                       18
<PAGE>   24

                  "Scheduled Receivable Payment" means, with respect to any Due
Period for any Receivable, the amount set forth in such Receivable as required
to be paid by the Obligor in such Due Period. If after the Closing Date, the
Obligor's obligation under a Receivable with respect to a Due Period has been
modified so as to differ from the amount specified in such Receivable as a
result of (i) the order of a court in an insolvency proceeding involving the
Obligor, (ii) pursuant to the Soldiers' and Sailors' Civil Relief Act of 1940,
as amended, or (iii) modifications or extensions of the Receivable permitted by
Sections 4.1(a) and (b), the Scheduled Receivable Payment with respect to such
Due Period shall refer to the Obligor's payment obligation with respect to such
Due Period as so modified.

                  "Seller" means National Financial Auto Funding Trust, a
Delaware business trust, and its successors in interest to the extent permitted
hereunder.

                  "Series 1999-1 Spread Account" means the account designated as
such, established and maintained pursuant to the Spread Account Agreement.

                  "Series 1999-1 Supplement" means the Series 1999-1 supplement
to the Spread Account Agreement.

                  "Servicer" means National Auto Finance Company, Inc., as the
servicer of the Receivables, and each successor Servicer pursuant to Section
10.4.

                  "Servicer Extension Notice" means the notice specified in
Section 4.16.

                  "Servicer Termination Event" means an event specified in
Section 10.1.

                  "Servicing Fee" has the meaning specified in Section 4.9.

                  "Servicing Fee Rate" means 3.00% per annum.

                  "Servicing Official" means any employee of the Servicer
involved in, or responsible for, the administration and servicing of the
Receivables whose name appears on a list of servicing employees furnished to the
Trust Collateral Agent and the Insurer by the Servicer, as such list may from
time to time be amended.

                  "Servicer's Certificate" means an Officers' Certificate of the
Servicer delivered pursuant to Section 4.11(a), substantially in the form of
Exhibit B.

                  "Simple Interest Method" means the method of allocating a
fixed level payment on an obligation between principal and interest, pursuant to
which the portion of such payment that is allocated to interest is equal to the
product of the fixed annual rate of interest on such obligation multiplied by
the period of time (expressed as a fraction of a year, based on the actual
number of days in the calendar month and 365 days in the calendar year) elapsed
since the preceding payment under the obligation was made.



                                       19
<PAGE>   25

                  "Simple Interest Receivable" means a Receivable under which
the portion of the payment allocable to interest and the portion allocable to
principal is determined in accordance with the Simple Interest Method.

                  "Spread Account Agreement" means the First Amended and
Restated Master Spread Account Agreement, dated as of March 31, 1998, among the
Insurer, the Seller, the Trust Collateral Agent and the Collateral Agent, as the
same has been previously supplemented and may be amended, supplemented or
otherwise modified from time to time in accordance with the terms thereof.

                  "Standard & Poor's" means Standard & Poor's Ratings Services,
a division of The McGraw Hill Companies, Inc., or its successor.

                  "Statistical Cut-off Date" means July 31, 1999.

                  "Sub-Servicer" means any Eligible Sub-Servicer with whom NAFI
has entered into a Sub-Servicing Agreement.

                  "Sub-Servicer Account" means an account maintained by a
Sub-Servicer to which Obligors have been or will be instructed to remit payments
in respect of the Receivables, maintained in accordance with Section 4.6(c).

                  "Sub-Servicing Agreement" means the written contract between
NAFI and any Sub-Servicer relating to servicing and/or administration of the
Receivables as permitted by Section 4.2 hereof.

                  "Supplement to the Backup Servicing Agreement" means the
Supplement to Backup Servicing Agreement, dated as of September 1, 1999, among
the Seller, NAFI and Harris Trust Savings Bank.

                  "Supplemental Servicing Fee" means, with respect to any Due
Period, any payments received from an Obligor or a Dealer in connection with any
application fees, tax processing fees, wire transfer fees, express mail fees,
insurance premiums, late charges, taxes, fees or other charges imposed by any
Governmental Authority (other than any extension fees).

                  "Term Of the Class A Note Policy" has the meaning specified
for "Term Of This Policy" in the Class A Note Policy.

                  "Title Documents" means, with respect to any Financed Vehicle,
the actual motor vehicle title or certificate of title for such Financed Vehicle
issued by the Registrar of Titles or other government agency in the jurisdiction
in which such Financed Vehicle is registered; alternatively, in those certain
jurisdictions whose law requires that the original of the actual motor vehicle
title or certificate of title be possessed by the Obligor, then, in lieu of the
actual title or certificate of title, Title Documents shall mean such duplicate
titles, certificates or other documents as are permitted, required and/or
contemplated to be possessed by the secured party under the laws of such
jurisdiction.



                                       20
<PAGE>   26

                  "Transaction Documents" means this Agreement, the Notes, the
Certificate, the Assignment Agreement, the Sale Agreement, the Trust Agreement,
the Indenture, the Insurance Agreement, the Lockbox Agreement, the Custodian
Agreement, the Note Purchase Agreements (as defined in the Trust Agreement), the
Premium Letter (as defined in the Insurance Agreement), the Indemnification
Agreement, any Sub-Servicing Agreement, the Inducement Letter (as defined in the
Insurance Agreement), the Servicer Termination Side Letter (as defined in the
Insurance Agreement), the Spread Account Agreement, the Series 1999-1
Supplement, the Backup Servicing Agreement and the Supplement to the Backup
Servicing Agreement.

                  "Trigger Event" has the meaning assigned thereto in the Series
1999-1 Supplement.

                  "Trust Account Property" means the Trust Accounts, all amounts
and investments held from time to time in any Trust Account (whether in the form
of deposit accounts, Physical Property, book-entry securities, uncertificated
securities or otherwise), and all proceeds of the foregoing.

                  "Trust Accounts" has the meaning assigned thereto in Section
5.1.

                  "Trust Agreement" means the Trust Agreement dated and
effective as of September 1, 1999, as amended and restated by the Amended and
Restated Trust Agreement, dated as of September 1, 1999, between the Seller and
the Owner Trustee, as the same may be amended and supplemented from time to
time.

                  "Trust Certificate" means the certificate issued pursuant to
the Trust Agreement evidencing the beneficial ownership interest in the Trust.

                  "Trust Collateral Agent" means the Person acting as Trust
Collateral Agent hereunder, its successors in interest and any successor Trust
Collateral Agent hereunder.

                  "Trust Officer" means, (i) in the case of the Trust Collateral
Agent, any officer within the Corporate Trust Office of the Trust Collateral
Agent, including any Managing Director, Vice President, Assistant Vice
President, Assistant Treasurer, Assistant Secretary or any other officer of the
Trust Collateral Agent customarily performing functions similar to those
performed by any of the above designated officers, and also, with respect to a
particular matter, any other officer to whom such matter is referred because of
such officer's knowledge of and familiarity with the particular subject, and
(ii) in the case of the Owner Trustee, any officer in the Corporate Trust Office
of the Owner Trustee or any agent of the Owner Trustee under a power of attorney
with direct responsibility for the administration of this Agreement or any of
the Transaction Documents on behalf of the Owner Trustee.

                  "Trust Property" means the property and proceeds conveyed
pursuant to Section 2.1. Although the Seller has pledged the Series 1999-1
Spread Account to the Collateral Agent (as defined in the Spread Account
Agreement) and the Insurer pursuant to the Spread Account Agreement, the Series
1999-1 Spread Account shall not under any circumstances be deemed to be a part
of or otherwise includible in the Trust or the Trust Property.



                                       21
<PAGE>   27

                  "Trustee" means the Person acting as Indenture Trustee under
the Indenture, its successors in interest and any successor trustee under the
Indenture.

                  "UCC" means the Uniform Commercial Code as in effect in the
relevant jurisdiction on the date of the Agreement.

                  "Unearned Finance Charge" means, with respect to any
Receivable, the amount of the add-on finance charge that, under the term of such
Receivable, would be required to be refunded or credited to the related Obligor
in accordance with such Receivable if such Receivable were then prepaid in full.

         SECTION 1.2. Other Definitional Provisions.

                  (a) Capitalized terms used herein and not otherwise defined
herein have the meanings assigned to them in the Indenture, or, if not defined
therein, in the Trust Agreement.

                  (b) All terms defined in this Agreement shall have the defined
meanings when used in any instrument governed hereby and in any certificate or
other document made or delivered pursuant hereto unless otherwise defined
therein.

                  (c) As used in this Agreement, in any instrument governed
hereby and in any certificate or other document made or delivered pursuant
hereto or thereto, accounting terms not defined in this Agreement or in any such
instrument, certificate or other document, and accounting terms partly defined
in this Agreement or in any such instrument, certificate or other document to
the extent not defined, shall have the respective meanings given to them under
generally accepted accounting principles as in effect on the date of this
Agreement or any such instrument, certificate or other document, as applicable.
To the extent that the definitions of accounting terms in this Agreement or in
any such instrument, certificate or other document are inconsistent with the
meanings of such terms under generally accepted accounting principles, the
definitions contained in this Agreement or in any such instrument, certificate
or other document shall control.

                  (d) Any agreement, instrument or statute defined or referred
to herein or in any instrument or certificate delivered in connection herewith
means such agreement, instrument or statute as from time to time amended,
modified or supplemented and includes (in the case of agreements or instruments)
references to all attachments thereto and instruments incorporated therein;
references to a Person are also to its permitted successors and assigns.

         SECTION 1.3. Usage of Terms. With respect to all terms used in this
Agreement, the singular includes the plural and the plural includes the
singular; words importing any gender include the other gender; references to
"writing" include printing, typing, lithography, and other means of reproducing
words in a visible form; references to agreements and other contractual
instruments include all subsequent amendments thereto or changes therein entered
into in accordance with their respective terms and not prohibited by this
Agreement; references to Persons include their permitted successors and assigns;
the terms "include" or "including" mean "include without limitation" or
"including without limitation"; the words "herein", "hereof" and



                                       22
<PAGE>   28

"hereunder" and other words of similar import refer to this Agreement as a whole
and not to any particular Article, Section or other subdivision, and Article,
Section, Schedule and Exhibit references, unless otherwise specified, refer to
Articles, Sections, Schedules and Exhibits to this Agreement.

         SECTION 1.4. Certain References. All references to the Principal
Balance of a Receivable as of any date of determination shall refer to the close
of business on such day.

         SECTION 1.5. No Recourse. Without limiting the obligations of NAFI
hereunder, no recourse may be taken, directly or indirectly, under this
Agreement or any certificate or other writing delivered in connection herewith
or therewith, against any stockholder, officer, director, employee, agent or
attorney as such, of NAFI, or of any predecessor or successor of NAFI.

         SECTION 1.6. Action by or Consent of Noteholders. Whenever any
provision of this Agreement refers to action to be taken, or consented to, by
Noteholders, such provision shall be deemed to refer to the Noteholders of
record as of the Record Date immediately preceding the date on which such action
is to be taken, or consent given, by Noteholders. Solely for the purposes of any
action to be taken, or consented to, by Noteholders, any Notes registered in the
name of NAFI or any Affiliate thereof shall be deemed not to be outstanding;
provided, however, that, solely for the purpose of determining whether a Trust
Officer of the Trustee or the Trust Collateral Agent is entitled to rely upon
any such action or consent, only Notes which the Owner Trustee, the Trust
Officer of the Trustee or the Trust Collateral Agent, respectively, actually
knows to be so owned shall be so disregarded.

         SECTION 1.7. Material Adverse Effect. Whenever a determination is to be
made under this Agreement as to whether a given event, action, course of conduct
or set of facts or circumstances could or would have a material adverse effect
on the Noteholders (or any similar or analogous determination), such
determination shall be made without taking into account the insurance provided
by the Class A Note Policy.

         SECTION 1.8. Calculations as to Principal and Interest in Respect of
Receivables. For all purposes of this Agreement the allocation of a payment on a
Receivable between principal and interest shall be made based upon the
amortization method provided in such Receivable. For purposes of allocating a
pay-ahead payment on a Receivable between principal and interest, the pay-ahead
shall be deemed to have been received on the date it was actually due. For all
purposes of this Agreement, no amount shall be treated as collected under a
Receivable until such amount has been deposited into the Collection Account.

                                   ARTICLE II

                            CONVEYANCE OF RECEIVABLES

         SECTION 2.1. Conveyance of Receivables. In consideration of the
Issuer's delivery to or upon the order of the Seller on the Closing Date of the
net proceeds from the sale of the Notes and the other amounts to be distributed
from time to time to the Seller in accordance with the terms of this Agreement,
the Seller does hereby sell, transfer, assign, set over and otherwise



                                       23
<PAGE>   29

convey to the Issuer, without recourse (subject to the obligations set forth
herein), all right, title and interest of the Seller in and to the following,
whether now owned or hereafter acquired:

                  (a) the Receivables and all monies received thereon on or
after the Cut-off Date (including amounts due on or before the Cut-off Date but
received by NAFI, the Seller or the Issuer on or after the Cut-off Date);

                  (b) any proceeds and the right to receive proceeds with
respect to the Receivables from claims on any physical damage, credit life,
disability insurance or other policies covering the related Financed Vehicles or
Obligors, including rebates of insurance premiums relating to the Receivables,
and any proceeds from the liquidation of the Receivables;

                  (c) all rights against Dealers pursuant to Dealer Agreements
or against Originators pursuant to Originator Agreements;

                  (d) the related Receivables Files and any and all other
documents that NAFI or the Seller keeps on file in accordance with its customary
procedures relating to the Receivables, the Obligors or the Financed Vehicles;

                  (e) property (including the right to receive future
Liquidation Proceeds) that secures a Receivable and that has been acquired by or
on behalf of the Trust pursuant to liquidation of such Receivable;

                  (f) all funds on deposit from time to time in the Trust
Accounts (less all investments and proceeds thereof), and all rights of the
Issuer therein;

                  (g) its rights and benefits, but none of its obligations or
burdens, under the Conveyance Agreements; and

                  (h) the proceeds of any and all of the foregoing.

                  The foregoing transfer and assignment does not constitute and
is not intended to result in an assumption by the Trust Collateral Agent, any
Noteholder or the Insurer of any obligation of the Seller, the Master Trust,
Funding Trust II or NAFI to the Obligors, Dealers, insurers or any other Person
in connection with the Receivables, the Receivable Files, or the insurance
policies or any agreements or instruments relating to any of them.

                  The Seller intends that the transfer and assignment by the
Seller to the Trust contemplated by this Agreement constitute a sale to the
Trust of all the Seller's right, title, and interest in and to the Receivables
and the remainder of the Trust Property and the beneficial interest in and title
to the Receivables and the other Trust Property shall not be part of the
Seller's estate in the event of the filing of a bankruptcy petition by or
against the Seller under any bankruptcy law; provided that, in the event that,
notwithstanding the intent of the Seller, the transfer is not held to be a sale,
then it is intended that the conveyance shall be deemed to be a grant of a
security interest as set forth below. By the transfer, assignment and set-over
contemplated by this Section 2.1, the Seller further grants and transfers to the
Trust Collateral Agent, for the benefit of all Noteholders and the Insurer, a
first priority, perfected security



                                       24
<PAGE>   30

interest, as their respective interests appear in Section 5.7, in all of the
Seller's right, title and interest in, to and under the Receivables and the
remainder of the Trust Property, whether now existing or hereafter acquired, and
agrees that this Agreement shall also constitute a security agreement under
applicable law. On or prior to the Closing Date, the Seller shall have filed a
UCC financing statement or statements, appropriate under the applicable UCC, to
reflect the assignment of the Receivables and the remainder of the Trust
Property by the Seller to the Trust and by the Trust to the Trust Collateral
Agent and the Insurer and to protect the Noteholders' and the Insurer's interest
in the Receivables, their proceeds and the Financed Vehicles, against all other
Persons and shall thereafter file any appropriate continuation statements in
respect thereof. During the term of this Agreement, the Seller shall not change
its name, identity, structure or location of jurisdiction of organization or
relocate its chief executive office or principal place of business without first
giving at least 30 days' advance written notice to the Trust Collateral Agent,
the Servicer, the Noteholders and the Insurer; provided however, that the Trust
Collateral Agent, the Servicer, the Noteholders and the Insurer shall, subject
to the last sentence of this paragraph, have no right or power to prohibit a
change in the Seller's name, identity, structure or location of jurisdiction of
organization or a relocation of, its chief executive office or principal place
of business. If any change in the Seller's name, identity, structure or location
of jurisdiction of organization or the relocation of its chief executive office
or principal place of business would make any financing or continuation
statement or notice of lien filed in connection with this Agreement misleading
within the meaning of applicable provisions of the UCC or any title statute, the
Seller, promptly but in no event later than the effective date of such change,
shall file such amendments or take such other actions as may be required to
preserve and protect the Trust Collateral Agent's interest in the Receivables
and proceeds thereof and the Financed Vehicles and the remainder of the Trust
Property. Promptly after filing such amendments or taking such other action, the
Seller shall deliver to the Trust Collateral Agent, the Noteholders and the
Insurer an Opinion of Counsel stating that all financing statements,
continuation statements or amendments thereto necessary to continue the
perfection of the interest of the Trust Collateral Agent in the Trust Property
have been filed and reciting the details thereof.

         SECTION 2.2. [Reserved.]

         SECTION 2.3. Further Encumbrance of Trust Property. (a) Immediately
upon the conveyance to the Trust by the Seller of any item of the Trust Property
pursuant to Section 2.1, all right, title and interest of the Seller in and to
such item of Trust Property shall terminate, and all such right, title and
interest shall vest in the Trust, in accordance with the Trust Agreement and
Sections 3802 and 3805 of the Business Trust Statute (as defined in the Trust
Agreement).

                  (b) Immediately upon the vesting of the Trust Property in the
Trust, the Trust shall have the sole right to pledge or otherwise encumber such
Trust Property. Pursuant to the Indenture and contemporaneously with such
property vesting in the Trust pursuant to clause (a) above, the Trust shall
grant a security interest to the Trust Collateral Agent (on behalf of the
Noteholders and the Insurer) in the Trust Property to secure the repayment of
the Notes. The Trust Certificate shall represent the beneficial ownership
interest in the Trust Property, and the Certificateholder shall be entitled to
receive distributions with respect thereto as set forth herein.



                                       25
<PAGE>   31

                  (c) Prior to the payment in full on the Notes, the payment of
all amounts due to the Insurer under the Insurance Agreement, the end of the
Term of the Class A Note Policy and the surrender of the Class A Note Policy by
the Collateral Agent to the Insurer, the Trust Collateral Agent shall hold the
Trust Property for the exclusive benefit of the Trustee on behalf of the
Noteholders and the Insurer. Following the payment in full of the Notes and the
release and discharge of the Indenture, all covenants of the Trust contained in
Article III of the Indenture shall, until payment in full of the Trust
Certificate, remain as covenants of the Trust for the benefit of the
Certificateholder, enforceable by the Certificateholder to the same extent that
such covenants were enforceable by the Noteholders prior to the discharge of the
Indenture. Any rights of the Trust Collateral Agent under Article IV of the
Indenture following discharge of the Indenture and the expiration of the term of
the Class A Note Policy shall thereupon vest in the Certificateholder.

                  (d) The Trust Collateral Agent shall, at such time as there
are no Notes outstanding and all sums due to (i) the Trustee or any agent or
counsel thereof pursuant to the Indenture, (ii) the Insurer under the Insurance
Agreement and (iii) the Trust Collateral Agent pursuant to this Agreement, have
been paid, and the Term of the Class A Note Policy has expired and the Trust
Collateral Agent has surrendered the Class A Note Policy to the Insurer, release
any remaining portion of the Trust Property to the Certificateholder (subject to
the Revolving Credit Agreement).

         SECTION 2.4. Books and Records; Payments on Receivables. (a) The
Servicer shall be responsible for maintaining, and shall maintain and cause the
respective Sub-Servicers, if any, to maintain, a complete set of books and
records (including tapes and disks for computer use) for each Receivable to the
extent that such books and records were delivered to the Servicer or such
Sub-Servicer or were developed by it during the course of servicing such
Receivable. The Servicer shall, and shall cause the respective Sub-Servicers to,
maintain such books of account and other records as will enable the Trust
Collateral Agent to determine the ownership status of each Receivable; provided
however, that neither the Servicer nor any Sub-Servicer shall be required to
physically mark or segregate any Receivables or other Receivable Documents to
indicate such ownership status. On or before the Closing Date, the Seller and
the Servicer shall deliver to the Custodian all Receivable Documents in its
possession or under its control, and shall promptly deliver to the Custodian any
Receivable Documents that subsequently come into its possession or within its
control. The Servicer hereby warrants, represents and covenants to and with the
Noteholders, the Trust Collateral Agent and the Insurer that recordation of the
name of the Servicer as lienholder in the Title Documents respecting any
Financed Vehicle as well as such lien itself is maintained by the Servicer as
agent for the Trust Collateral Agent for the benefit of the Trust, and the
Servicer has no equitable ownership in the Receivables, except as it may have by
virtue of ownership of a Trust Certificate or an equity interest in the Seller
or any Noteholder. The Servicer acknowledges that it is holding the Receivables
coming into its possession and any other property constituting a part of the
Trust Property held by it, in trust for the benefit of the Trust Collateral
Agent (on behalf of the Noteholders and the Insurer).

                  (b) On the Closing Date, the Seller shall deliver to the Trust
Collateral Agent for deposit in the Collection Account, or to the extent
received by the Servicer or any Sub-Servicer, cause the Servicer to deliver or
cause to be delivered to the Trust Collateral Agent for



                                       26
<PAGE>   32
deposit in the Collection Account, all payments received on the Receivables on
or after the Cut-Off Date an don or before the second Business Day preceding the
Closing Date. Within two Business Days after the Closing Date, the Seller shall
deliver to the Trust Collateral Agent for deposit in the Collection Account, to
the extent received by the Servicer or any Sub-Servicer, cause the Servicer to
deliver or cause to be delivered to the Trust Collateral Agent for deposit in
the Collection Account, all other payments received on the Receivables on or
after the Cut-off Date.

         SECTION 2.5. Seller Repurchase of Receivables. The Trust Collateral
Agent, based solely upon the representations of the Custodian, acknowledges
receipt by the Custodian as of the Closing Date of a Receivable File relating to
each Receivable. At or prior to the Closing Date, the Custodian will certify
that with respect to each Receivable listed on the Receivables Schedule that,
except as set forth on a schedule attached thereto, all documents required to be
delivered to it pursuant to the definition of Custodian Documents (as defined in
the Custodial Agreement) are in its possession. If the Servicer or any such
Sub-Servicer subsequently finds any document or documents constituting a part of
a Receivable File to be missing or defective in any material respect, the
Servicer or such Sub-Servicer shall promptly so notify the Trust Collateral
Agent, the Noteholders, the Insurer and the Seller in writing, and the Servicer
shall add such item to the exceptions list. The Seller shall use best efforts to
cure each such omission or defect on the exceptions list. If the Seller does not
correct or cure any such omission or defect within sixty (60) days from the date
the Trust Collateral Agent was notified of such omission or defect, then the
Seller or NAFI shall promptly accept a retransfer of the related Receivable from
the Trust Collateral Agent. The Purchase Amount for the retransferred Receivable
shall be delivered by the Seller or NAFI to the Trust Collateral Agent for
deposit in the Collection Account and upon receipt of the Purchase Amount by the
Trust Collateral Agent and its receipt of written notice thereof, the Trust
Collateral Agent shall cause the Custodian to release to the Seller the related
Receivable File and the Trust Collateral Agent shall execute and deliver such
instruments of transfer or assignment, in each case without recourse, as shall
be reasonably necessary to vest in the Seller or NAFI (as applicable) or its
designee any Receivable released pursuant hereto. It is understood and agreed
that the obligation of the Seller or NAFI to accept a retransfer of any
Receivable as to which a material defect in or omission of a constituent
document exists shall constitute the sole remedy respecting such defect or
omission available to Noteholders or the Trust Collateral Agent on behalf of
Noteholders.

                                  ARTICLE III

                                 THE RECEIVABLES

         SECTION 3.1. Representations and Warranties of NAFI and the Seller.
Each of NAFI and the Seller makes the representations and warranties set forth
on the Schedule of Representations attached hereto as Schedule B as to the
Receivables and the Other Conveyed Property on which the Issuer is deemed to
have relied in acquiring the Receivables and upon which the Insurer shall be
deemed to rely in issuing the Class A Note Policy and on which the Noteholders
have relied in purchasing the Notes. Such representations and warranties speak
as of the execution and delivery of this Agreement and as of the Closing Date in
the case of the



                                       27
<PAGE>   33

Receivables (unless another date or time period is otherwise specified or
indicated in the particular representation or warranty), but shall survive the
sale, transfer and assignment of the Receivables to the Issuer and the pledge
thereof to the Trustee pursuant to the Indenture. Such representations and
warranties shall survive assignment of the Receivables to the Trust Collateral
Agent and shall survive as long as any Note is outstanding or this Agreement has
not been terminated.

         SECTION 3.2. Repurchase upon Breach.

                  (a) NAFI, the Seller, the Servicer, any Sub-Servicer, the
Insurer, any Trust Officer of the Trust Collateral Agent or the Owner Trustee,
as the case may be, shall promptly inform each of the other parties, the
Noteholders and the Insurer, in writing, upon the discovery of any breach of
NAFI's and the Seller's representations and warranties made pursuant to Section
3.1 which materially and adversely affects the interests of the Noteholders or
the Insurer in the related Receivable (any Sub-Servicer being so obligated under
the related Sub-Servicing Agreement); provided, however, that the failure to
give any such notice shall not derogate from any obligations of NAFI or the
Seller under this Section 3.2. In addition, with respect to any Receivables in
respect of which the Title Documents were being applied for on the Closing Date,
if such Title Documents have not been received by the Servicer within 60 days
after the Closing Date, the Servicer shall give the Trust Collateral Agent, the
Noteholders, the Insurer, NAFI and Seller written notice of such fact. If NAFI
or the Seller does not correct or cure such breach (including delivery of such
Title Documents, if applicable) by the Reporting Date occurring during the
second full calendar month following the calendar month in which the Trust
Collateral Agent was notified or NAFI, the Seller, any Sub-Servicer or the
Servicer became aware, if earlier, of such breach (including failure to deliver
such Title Documents), then NAFI or the Seller shall promptly repurchase such
Receivables from the Issuer. Any such repurchase by NAFI or the Seller shall be
in exchange for the delivery by NAFI or the Seller to the Issuer of the Purchase
Amount and shall be accomplished in the manner set forth in Section 5.6 and the
Trust shall execute such assignments and other documents reasonably requested by
such Person in order to effect such repurchase. It is understood and agreed that
the obligation of NAFI and the Seller to repurchase any Receivable as to which
such a breach has occurred and is continuing as described above shall, except as
described in the following paragraph, constitute the sole remedy respecting such
breach available to the Servicer, the Noteholders, the Insurer, the Issuer, the
Trust Collateral Agent, the Trustee and the Owner Trustee under this Agreement.

         In addition to the foregoing and notwithstanding whether the related
Receivable shall have been purchased by NAFI or the Seller or by the Servicer
pursuant to Section 4.1, NAFI and the Seller shall indemnify the Trust, the
Trust Collateral Agent, the Insurer, and the Noteholders and any of their
respective officers, directors, employees or agents against all costs, expenses,
losses, damages, claims and liabilities, including reasonable fees and expenses
of counsel, which may be asserted against or incurred by any of them as a result
of third party claims arising out of the events or facts giving rise to a breach
of the representation.

                  (b) Pursuant to Section 2.1 of this Agreement, the Seller
conveyed to the Trust all of the Seller's right, title and interest in its
rights and benefits, but none of its obligations or burdens, under the Sale
Agreement including the delivery requirements thereunder. The Seller



                                       28
<PAGE>   34

hereby represents and warrants to the Trust that such assignment is valid,
enforceable and effective.

         SECTION 3.3. Custody of Receivables Files. The Custodian shall maintain
custody and possession of the Receivable Files as custodian and bailee for the
Trust Collateral Agent and the Insurer, in accordance with and pursuant to the
Custodial Agreement.

                                   ARTICLE IV

                   ADMINISTRATION AND SERVICING OF RECEIVABLES

         SECTION 4.1. Duties of the Servicer.

                  (a) The Servicer shall service and administer the Receivables
on behalf of the Trust and shall have full power and authority, acting alone
and/or through Sub-Servicers as provided in Section 4.2, to do any and all
things which it may deem necessary or desirable in connection with such
servicing and administration and which are consistent with this Agreement.
Consistent with the terms of this Agreement, the Servicer may waive, modify or
vary any term of any Receivable or consent to the postponement of strict
compliance with any such term or in any manner, grant indulgence to any Obligor
if, such waiver, modification, postponement or indulgence is not materially
adverse to the Noteholders or the Insurer; provided however, that the Servicer
may not permit any modification with respect to any Receivable that would change
its Annual Percentage Rate, defer the payment of any principal or interest
(except to the extent permitted by Section 4.6(a)), reduce the outstanding
principal balance (except for actual payments of principal), or extend (except
to the extent permitted by Section 4.6(a)) the final maturity date on such
Receivable. Without limiting the generality of the foregoing, the Servicer in
its own name or in the name of the Seller is hereby authorized and empowered by
the Trust Collateral Agent when the Servicer believes it appropriate in its best
judgment to execute and deliver, on behalf of the Trust, any and all instruments
of satisfaction or cancellation, or of partial or full release or discharge and
all other comparable instruments, with respect to the Receivables and with
respect to the Financed Vehicles; provided however, that notwithstanding the
foregoing, the Servicer shall not, except pursuant to an order from a court of
competent jurisdiction, release an Obligor from payment of any unpaid amount
under any Receivable or waive the right to collect the unpaid balance of any
Receivable from the Obligor, except that the Servicer may forego collection
efforts if the amount subject to collection is de minimis and if it would forego
collection in accordance with its customary procedures. If any Receivable
contains a "due-on-sale" provision allowing the holder thereof to accelerate the
Receivable upon sale of the Financed Vehicle financed thereunder, the Servicer
shall take reasonable steps under the circumstances to enforce such due on sale
provision if a Financed Vehicle is sold as soon as practicable after determining
that such Financed Vehicle has been sold; provided however, that the Servicer
shall not be obligated to take any legal action to enforce such provision.

                  (b) The Servicer shall service and administer the Receivables
by employing procedures (including collection procedures) and a degree of care
consistent with prudent industry standards and as are customarily employed by
servicers in servicing and administering comparable motor vehicle retail
installment sales contracts and, to the extent more exacting, the



                                       29
<PAGE>   35

degree of skill and attention that the Servicer exercises from time to time with
respect to all comparable motor vehicle receivables that it services for itself
or others. The Servicer shall take all actions (in addition to those required to
be taken by the Seller pursuant to this Agreement) that are necessary or
desirable to maintain continuous perfection and first priority of security
interests of NAFI in the Financed Vehicles and to maintain continuous perfection
of the security interest created by each Receivable in the related Financed
Vehicle on behalf of the Trust Collateral Agent, including, but not limited to,
using reasonable efforts to obtain execution by the Obligors and the recording,
registering, filing, re-recording, re-registering and refiling of all Title
Documents (it being understood that Title Documents have not been and need not
be endorsed or delivered to the Trust Collateral Agent and do not and need not
identify the Trust Collateral Agent as the secured party or lienholder with
respect to the Receivables), security agreements, financing statements,
continuation statements or other instruments as are necessary to maintain the
security interests granted by the Obligors under the respective Receivables on
behalf of the Trust Collateral Agent; provided however, that the Servicer is not
required to expend any of its own funds to remove any security interest, lien or
other encumbrance on any Financed Vehicle (unless such security interest, lien
or other encumbrance is due to the gross negligence of the Servicer). The
Servicer shall not take any action to impair the Trust's rights in any
Receivable, except to the extent allowed pursuant to this Agreement or required
by law. The Financed Vehicle securing each Receivable shall not be released in
whole or in part from the security interest granted by the Receivable, except
upon payment in full of the Receivable or as otherwise contemplated herein. The
Servicer shall not extend or otherwise amend the terms of any Receivable, except
in accordance with Section 4.1(a). Upon discovery by the Servicer, any
Sub-Servicer or by a Trust Officer of the Trust Collateral Agent of a default by
the Servicer in the performance of its obligations under this Section 4.1(b)
which materially and adversely affects the interests of the Noteholders or the
Insurer in the related Receivable, the party discovering such breach shall give
prompt written notice thereof to the other parties, the Noteholders and the
Insurer. If the Servicer does not correct or cure such default by the Reporting
Date occurring during the second full calendar month following the calendar
month in which the Trust Collateral Agent was notified, or the Servicer, the
Trust Collateral Agent or the Sub-Servicer became aware, if earlier, of such
default, then the Servicer shall promptly purchase such Receivable from the
Trust. Any such purchase by the Servicer shall be in exchange for the delivery
by the Servicer to the Trust of the Purchase Amount. Except as expressly
provided in Section 9.2 and subject to Section 10.1, it is understood and agreed
that the obligation of the Servicer to repurchase any Receivable as to which
such a default has occurred and is continuing as described above shall
constitute the sole remedy respecting such default available to the Seller, the
Noteholders, the Insurer or the Trustee on behalf of the Noteholders.

                  (c) Upon the occurrence of an Insurance Agreement Event of
Default pursuant to Section 5.01(b), (c), (d), (e) or (j) of the Insurance
Agreement or the occurrence of a Servicer Termination Event, the Controlling
Party may instruct the Trust Collateral Agent and the Servicer in writing to
take or cause to be taken such action as may, in the Opinion of Counsel to the
Controlling Party, be necessary to perfect or re-perfect the security interests
in the Financed Vehicles securing the Receivables in the name of the Trust by
amending the title documents of such Financed Vehicles or by such other
reasonable means as may, in the Opinion of Counsel to the Controlling Party, be
necessary or prudent. NAFI hereby makes, constitutes, and appoints,



                                       30
<PAGE>   36

the Trust Collateral Agent acting through its duly appointed officers or any of
them, its true and lawful attorney, for it and in its name and on its behalf,
for the sole and exclusive purpose of authorizing said attorney to execute and
deliver as attorney-in-fact or otherwise, any and all documents and other
instruments and to do or accomplish all other acts or things necessary or
appropriate to show the Trust Collateral Agent as lienholder or secured party on
the related Lien Certificates relating to a Financed Vehicle. NAFI hereby agrees
to pay all expenses related to such perfection or reperfection and to take all
action necessary therefor. In addition, the Controlling Party may instruct the
Trust Collateral Agent and the Servicer to take or cause to be taken such action
as may, in the Opinion of Counsel to the Controlling Party, be necessary to
perfect or re-perfect the security interest in the Financed Vehicles underlying
the Receivables in the name of the Trust, including by amending the title
documents of such Financed Vehicles or by such other reasonable means as may, in
the Opinion of Counsel to the Controlling Party, be necessary or prudent;
provided, however, that if the Controlling Party requests that the title
documents be amended prior to the occurrence of an Insurance Agreement Event of
Default, the out-of-pocket expenses of the Servicer in connection with such
action shall be reimbursed to the Servicer by the Controlling Party.

                  (d) Subject to Section 9.5, the Servicer may perform any of
its duties pursuant to this Agreement, including those delegated to it by the
Trust Collateral Agent pursuant to this Agreement, through Persons appointed by
the Servicer. Such Persons may include affiliates of the Servicer and may
include the Seller and its affiliates. Notwithstanding any such delegation of a
duty, the Servicer shall remain obligated and liable for the performance of such
duty as if the Servicer were performing such duty.

                  (e) Upon the execution and delivery of this Agreement, the
Servicer shall deliver to the Trust Collateral Agent and the Insurer a list of
officers and employees of the Servicer (which initial list shall be set forth in
the certificate of secretary of the Servicer to be delivered on the Closing
Date), upon which the Trust Collateral Agent may conclusively rely, involved in,
or responsible for, the administration and servicing of the Receivables, which
list shall from time to time be updated by the Servicer as additional officers
and employees of the Servicer become involved, or responsible for, the
administration and servicing of the Receivables or officers or employees of the
Servicer previously identified on any such list become disassociated with the
administration and servicing of the Receivables. The Trust Collateral Agent
shall provide such list to any Noteholder upon written request thereof.

                  (f) The Servicer may take such actions as are necessary to
discharge its duties as Servicer in accordance with this Agreement, including
the power to execute and deliver on behalf of the Trust such instruments and
documents as may be customary, necessary or desirable in connection with the
performance of the Servicer's duties under this Agreement (including consents,
waivers and discharges relating to the Receivables and the Financed Vehicles and
such instruments or documents as may be necessary to effect foreclosure or other
conversion of the ownership of any Financed Vehicle). In furtherance thereof,
the Trust Collateral Agent hereby appoints the Servicer as its attorney-in-fact,
such appointment being coupled with an interest, to execute on its behalf such
documents or instruments as are necessary to effect the Repossession of Financed
Vehicles, to deliver applicable Receivable Files, Receivable Documents and Title
Documents to the Seller upon the sale of a Receivable to the Seller under this
Agreement and to



                                       31
<PAGE>   37

deliver applicable Receivable Files, Receivable Documents and Title Documents
upon liquidation or final payment of a Receivable. The Trust Collateral Agent,
upon receipt of a certificate of a Servicing Official (and delivery of a copy of
such certificate to the Insurer) requesting the same be accepted by the Trust
Collateral Agent and certifying as to the reasons such documents are required,
shall furnish the Servicer with any other powers of attorney or other documents
reasonably necessary or appropriate which the Trust Collateral Agent may legally
execute to enable the Servicer to carry out its servicing and administrative
duties hereunder. Neither the Servicer nor any of its directors, officers,
employees or agents will be under any liability to the Trust, the Trust
Collateral Agent, the Insurer, any Noteholder, or the Seller for the
consequences of any delay resulting from having to obtain such documents from
the Trust Collateral Agent, provided that the Servicer furnished such
certificate to the Trust Collateral Agent reasonably promptly after determining
the necessity therefor in the particular instance.

         SECTION 4.2. Sub-Servicing Agreements between Servicer and the
Sub-Servicers. Subject to Section 9.5, the Servicer may enter into Sub-Servicing
Agreements with one or more Eligible Sub-Servicers for the servicing and
administration of certain of the Receivables with the prior written consent of
the Controlling Party, which consent shall not be unreasonably withheld. The
Servicer shall notify each Rating Agency, the Trust Collateral Agent, the
Noteholders, the Backup Servicer and the Insurer prior to entering into any
Sub-Servicing Agreement. References in this Agreement to actions taken or to be
taken by the Servicer in servicing the Receivables include actions taken or to
be taken by a Sub-Servicer on behalf of the Servicer. Each Sub-Servicing
Agreement shall be upon such terms and conditions as are not inconsistent with
this Agreement and as the Servicer and the Sub-Servicer have agreed. Each
Sub-Servicing Agreement shall require that the related Sub-Servicer acknowledge
that it is holding the Receivables and the Receivable Documents for the related
Receivables coming into its possession and any other property constituting a
part of the Trust Property held by it, in trust, for the benefit of the Trust
Collateral Agent (on behalf of the Noteholders and the Insurer). The Servicer
and a Sub-Servicer may enter into amendments thereto; provided, however, that
any such amendments or different forms shall be consistent with and not violate
the provisions of this Agreement, and provided further, that the Servicer shall
not amend any Sub-Servicing Agreement without (i) with respect to a material
amendment, the prior written consent of the Controlling Party and (ii) with
respect to all other amendments, providing five (5) days prior written notice to
the Noteholders, the Controlling Party, the Rating Agencies and the Trust
Collateral Agent of such amendment.

         SECTION 4.3. Obligations of the Servicer. Notwithstanding any
Sub-Servicing Agreement, any of the provisions of this Agreement relating to
agreements or arrangements between the Servicer or a Sub-Servicer or reference
to actions taken through a Sub-Servicer or otherwise, the Servicer shall remain
obligated for the servicing and administering of the Receivables in accordance
with the provisions of Section 4.1 of this Agreement without diminution of such
obligation or liability by virtue of such Sub-Servicing Agreements or
arrangements or by virtue of indemnification from a Sub-Servicer and to the same
extent and under the same terms and conditions as if the Servicer alone were
servicing and administering the Receivables. The Servicer shall be entitled to
enter into any agreement with a Sub-Servicer for indemnification of the
Servicer, and nothing contained in this Agreement shall be deemed to limit or
modify such indemnification.



                                       32
<PAGE>   38

         SECTION 4.4. No Contractual Relationship between a Sub-Servicer and
Trust Collateral Agent or Noteholders. Any Sub-Servicing Agreement that may be
entered into and any other transactions or services relating to the Receivables
involving a Sub-Servicer in its capacity as such and not as an originator shall
be deemed to be between a Sub-Servicer and the Servicer, with the Trust
Collateral Agent and the Insurer having rights as third-party beneficiaries to
such Sub-Servicing Agreement, and the Trust, the Trustee, the Backup Servicer
and the Noteholders shall not be deemed parties thereto and shall have no
claims, rights, obligations, duties or liabilities with respect to a
Sub-Servicer except as expressly set forth in Section 4.5 or in the applicable
Sub-Servicing Agreement; provided that, if the Servicer is deemed terminated,
the Sub-Servicer may be terminated. The Servicer shall promptly provide to the
Trust Collateral Agent, the Backup Servicer, the Noteholders and the Insurer any
notice received from a Sub-Servicer.

         SECTION 4.5. Assumption or Termination of Sub-Servicing Agreement by
Backup Servicer. In the event the Servicer shall for any reason no longer be the
servicer of the Receivables (including by reason of a Servicer Termination
Event), the Backup Servicer or other successor Servicer or its designee will
thereupon assume all of the rights and obligations of the Servicer under any
Sub-Servicing Agreements that may have been entered into by the Servicer by
giving notice of such assumption to the relevant Sub-Servicer or Sub-Servicers
within ten (10) Business Days of the termination of the Servicer as servicer of
the Receivables. Upon the giving of such notice, the successor Servicer or its
designee shall be deemed to have assumed all of the Servicer's interest therein
and to have replaced the Servicer as a party to the Sub-Servicing Agreement to
the same extent as if the Sub-Servicing Agreement had been assigned to the
assuming party except that the Servicer and the Sub-Servicer, if any, shall not
thereby be relieved of any accrued liability or obligations under the
Sub-Servicing Agreement and the Sub-Servicer, if any, shall not be relieved of
any liability or obligation to the Servicer that survives the assignment or
termination of the Sub-Servicing Agreement. The Trust Collateral Agent shall
notify each Rating Agency, each Noteholder and the Insurer if any Sub-Servicing
Agreement is assumed by a successor Servicer or its designee.

                  The Servicer shall, upon request of the Trust Collateral Agent
but at the expense of the Servicer, deliver to the assuming party all documents
and records relating to the Sub-Servicing Agreement and the Receivables then
being serviced and an accounting of amounts collected and held by it and
otherwise use its reasonable efforts to effect the orderly and efficient
transfer of the Sub-Servicing Agreement to the assuming party.

         SECTION 4.6. Collection of Receivable Payments.

                  (a) The Servicer shall proceed diligently to collect all
payments called for under the terms and provisions of the Receivables, and shall
service the Receivables in a manner consistent with the servicing standards and
procedures generally accepted in the financial services industry for similar
Receivables, and as otherwise expressly provided by this Agreement, including
Section 4.1(a). Consistent with the foregoing, the Servicer may in its
discretion (i) waive any late payment charge and (ii) extend the then current
maturity date of a Receivable by two months, once during each calendar year at
the request of the related Obligor on account of the Obligor's adverse financial
circumstances that affect the Obligor's ability to make payments under such
Receivable; provided however, that the Servicer may not so extend the then
current maturity date



                                       33
<PAGE>   39

of Receivable more than twice during the life of such Receivable; provided
further, that the Average Extension Ratio for any calendar month, commencing
September 1999, shall not exceed 2.5% for each January, August, September and
December and 2.0% for any other calendar month. The "Average Extension Ratio"
for any calendar month, other than September 1999 and October 1999, shall equal
the arithmetic average of the Extension Ratios for such calendar month and the
two preceding calendar months (for example, the Average Extension Ratio for
January 2000 will equal the arithmetic average of the Extension Ratios for the
months November 1999, December 1999 and January 2000 and will be included in the
report delivered by the Servicer pursuant to Section 4.11 on or before the
February 2000 Reporting Date). The Average Extension Ratio for September 1999
shall equal the Extension Ratio for such calendar month and the Average
Extension Ratio for October 1999 shall equal the arithmetic average of the
Extension Ratio for such calendar month and the preceding calendar month. The
"Extension Ratio" for any calendar month shall equal the percentage equivalent
of a fraction the numerator of which is the aggregate number of Receivables that
have been extended during such calendar month and the denominator of which is
the aggregate number of Receivables outstanding as of the first day of such
calendar month.

                  (b) Except as provided in subsection (c) below, the Servicer
shall provide Obligors with a monthly statement in order to enable such Obligors
to make payments with respect to the Receivables, whether by check mailed
directly to the Post-Office Box or by direct debit of the Obligor's bank
account. On each Business Day, pursuant to the Lockbox Agreement, the Lockbox
Processor shall transfer any payments from Obligors received in the Post-Office
Box to the Lockbox Account. The Servicer shall cause all amounts credited to the
Lockbox Account on account of such payments to be transferred to the Collection
Account no later than the next Business Day after receipt of such payments. The
Lockbox Account shall be a demand deposit account held by the Lockbox Bank, or
at the request of the Controlling Party, an Eligible Bank.

                  The Servicer shall on or before the Closing Date have notified
each Obligor that makes its payments on the Receivables by check to make any
such payments after the Cutoff Date directly to the Post-Office Box (except in
the case of Obligors that have already been making such payments to the
Post-Office Box), and shall have provided each such Obligor with remittance
invoices in order to enable such Obligors to make such payments directly to the
Post-Office Box for deposit into the Lockbox Account, and the Servicer will
continue, not less often than every three months, to so notify those Obligors
who have failed to may payments to the Post-Office Box. The Servicer on behalf
of the Trust Collateral Agent shall establish and maintain the Lockbox Account
and the Post-Office Box in the name of the Trust Collateral Agent at a United
States Post Office branch for the benefit of the Noteholders and the Insurer.

                  (c) In the event that a Sub-Servicer is appointed in
accordance with Section 9.5, the Servicer shall cause the Sub-Servicer to
maintain a Sub-Servicer Account for the benefit of the Noteholders and the
Insurer to which Obligors shall have been directed to remit payments in respect
of the Receivables. The Servicer shall instruct (or shall cause the Sub-Servicer
to instruct) all Obligors to make all payments due in respect of the Receivables
to the Sub-Servicer Account. The Servicer shall cause the Sub-Servicer to use
its best efforts to transfer to the Collection Account all collected funds on
deposit in the Sub-Servicer Account that constitute part of the Trust Property
within one Business Day, and in any event within two



                                       34
<PAGE>   40

Business Days of receipt thereof. If a Sub-Servicer Account is terminated for
any reason prior to the establishment of, and notification to Obligors to remit
payments to, a replacement servicing account comparable to such Sub-Servicer
Account, the Servicer shall promptly, and in any event within 30 days of
termination of such Sub-Servicer Account or comparable account, establish a
Lockbox Account pursuant to a Lockbox Agreement and notify all Obligors to remit
payments in respect of the Receivables in accordance with subsection (b) above.

                  (d) If the Servicer, the Seller, NAFI or any Sub-Servicer
receives collections or other payments in respect of the Receivables, each such
Person shall as soon as practicable, but no later than two Business Days
following receipt of such item by such Person, cause such payment to be remitted
to the Trust Collateral Agent for deposit to the Collection Account. If the
Servicer determines that any amount that is not a part of the Trust Property has
been deposited in any Trust Account, the Servicer shall promptly instruct the
Trust Collateral Agent by facsimile (with prompt telephone confirmation) to
segregate such amount, and shall therein direct the Trust Collateral Agent to
turn over such amounts to the Person entitled thereto within two Business Days.
A copy of any such direction shall be delivered by the Servicer to the Insurer.

                  (e) Notwithstanding any Lockbox Agreement, or any of the
provisions of this Agreement relating to a Lockbox Agreement, a Lockbox Bank or
a Lockbox Account, the Servicer shall remain obligated and liable to the Trust
Collateral Agent and the Noteholders for servicing and administering the
Receivables and the rest of the Trust Property in accordance with the provisions
of this Agreement without diminution of such obligations or liability by virtue
thereof, provided, however, that the foregoing shall not apply to any Backup
Servicer for so long as a Lockbox Bank is performing its obligations pursuant to
the terms of a Lockbox Agreement.

                  In the event of a termination of the Servicer, the Backup
Servicer or other successor Servicer shall assume all of the rights and
obligations of the outgoing Servicer under the Lockbox Agreement subject to the
terms hereof. In such event, the Backup Servicer or the successor Servicer shall
be deemed to have assumed all of the outgoing Servicer's interest therein and to
have replaced the outgoing Servicer as a party to each such Lockbox Agreement to
the same extent as if such Lockbox Agreement had been assigned to the Backup
Servicer or the successor Servicer, except that the outgoing Servicer shall not
thereby be relieved of any liability or obligations on the part of the outgoing
Servicer to the Lockbox Bank under such Lockbox Agreement. The outgoing Servicer
shall, upon request of the Trust Collateral Agent, but at the expense of the
outgoing Servicer, deliver to the Backup Servicer or the successor Servicer all
documents and records relating to each such Lockbox Agreement and an accounting
of amounts collected and held by the Lockbox Bank and otherwise use its best
efforts to effect the orderly and efficient transfer of any Lockbox Agreement to
the Backup Servicer or successor Servicer. In the event that the Controlling
Party elects to change the identity of the Lockbox Bank, the outgoing Servicer,
at its expense, shall cause the Lockbox Bank to deliver, at the direction of the
Controlling Party to the Trust Collateral Agent or a successor Lockbox Bank, all
documents and records relating to the Receivables and all amounts held (or
thereafter received) by the Lockbox Bank (together with an accounting of such
amounts) and shall otherwise use its best efforts to effect the orderly and
efficient transfer of the lockbox arrangements and the Servicer shall notify the
Obligors to make payments to the Lockbox established by the successor.



                                       35
<PAGE>   41

         SECTION 4.7. Maintenance of Insurance. The Servicer shall use its
reasonable efforts to cause each Obligor to maintain on the related Financed
Vehicle a comprehensive and collision policy providing coverage at least equal
to the lesser of (i) the actual cash value of such Financed Vehicle and (ii) the
unpaid balance owing on the related Receivable, less Unearned Finance Charges;
provided however, that the Servicer shall not be obligated to expend its own
funds to pay any insurance premiums or obtain or maintain any such policy.
Pursuant to Section 4.6 any amounts collected by the Servicer under any such
policies (other than amounts to be applied to the restoration or repair of the
related Financed Vehicles or amounts released to the Obligor in accordance with
the Servicer's normal servicing procedures) shall be deposited in the Collection
Account. All policies required by this paragraph shall be endorsed with clauses
providing for loss payable to the Servicer or the relevant Sub-Servicer and its
successors and assigns. Servicer shall maintain and keep in place a vendor's
single interest insurance policy naming the Trustee as beneficiary.

         SECTION 4.8. Realization upon Defaulted Receivables.

                  (a) In the event that a Receivable becomes and continues to be
a Defaulted Receivable, the Servicer shall take all reasonable and lawful steps
necessary for Repossession; provided however, that the Servicer shall not be
obligated to institute any action for Repossession through judicial proceedings
unless it determines in its good faith judgment, which determination will be
conclusive and binding, that Liquidation Proceeds that would be realized in
connection therewith or amounts payable pursuant to the last sentence of this
Section 4.8(a) would be sufficient for the reimbursement in full of its
out-of-pocket expenses pursuant to this Agreement. In connection with such
Repossession, the Servicer shall follow such practices and procedures required
by Section 4.1 and make advances of its own funds for any out-of-pocket expenses
incurred. The Servicer shall be reimbursed for Liquidation Expenses (including
advances) by retention of the required reimbursement from the first Liquidation
Proceeds received with respect to such Defaulted Receivable. The Servicer shall
be entitled to receive the following amounts with respect to any Receivable the
Obligor of which has filed bankruptcy or against whom a petition for involuntary
bankruptcy has been filed: a one time fee of $200 in respect of those
Receivables not referred to outside legal counsel, or, in the case of those
Receivables that are so referred, reimbursement of the reasonable fees and
expenses of outside legal counsel, if their retention was necessary in the
reasonable judgment of the Servicer.

                  (b) In the event the Servicer delivers any Repossessed
Financed Vehicle for sale to a Dealer, it agrees that prior to such delivery, it
shall make such filings and effect such notices as are necessary under Section
9-114(1) of the New York UCC (or comparable section of the UCC of any applicable
state) to preserve its ownership interest (or security interest, as the case may
be) in any such Repossessed Financed Vehicle. The Servicer agrees that at any
time after 45 days from the Closing Date the aggregate number of unliquidated
Repossessed Financed Vehicles delivered for sale to all Dealers with respect to
which the actions referred to in the prior sentence have not been effected shall
not exceed the lesser of (i) 35 Repossessed Financed Vehicles or (ii) 20% of the
aggregate number of unliquidated Repossessed Financed Vehicles. The Servicer
further agrees that the number of unliquidated Repossessed Financed Vehicles
delivered for sale to any individual Dealer shall at no time exceed 35.



                                       36
<PAGE>   42

         SECTION 4.9. Total Servicing Fee; Payment of Certain Expenses by
Servicer. On each Distribution Date, the Servicer shall be entitled to receive
out of the Collection Account the Base Servicing Fee and any Supplemental
Servicing Fee (together, the "Servicing Fee") for the related Due Period
pursuant to Section 5.7. The Servicer shall be required to pay all expenses
incurred by it in connection with its activities under this Agreement (including
taxes imposed on the Servicer, fees and expenses of any Sub-Servicer, expenses
incurred in connection with distributions and reports made by the Servicer to
Noteholders or the Insurer and all other fees and expenses of the Owner Trustee,
the Custodian, the Trust Collateral Agent, the Backup Servicer, the Lockbox Bank
or the Trustee, except taxes levied or assessed against the Trust, and claims
against the Trust in respect of indemnification, which taxes and claims in
respect of indemnification against the Trust are expressly stated to be for the
account of NAFI) and shall not be entitled to reimbursement therefor except as
specifically provided herein. The Servicer shall be liable for the fees, charges
and expenses of the Owner Trustee, the Trust Collateral Agent, the Trustee, the
Custodian, the Collateral Agent, the Lockbox Bank, any Sub-Servicer or Backup
Servicer and their respective agents (and any fees under the Lockbox Agreement).

         SECTION 4.10. [Reserved.]

         SECTION 4.11. Reports.

                  (a) Not later than the Reporting Date, the Servicer shall
forward to the Trust Collateral Agent, each Noteholder, the Trustee, the Backup
Servicer, each Rating Agency, the Insurer and the Seller a statement
substantially in the form attached hereto as Exhibit B (as such form may be
modified from time to time by agreement between the Trust Collateral Agent and
the Servicer with the prior written consent of the Insurer), certified by an
officer of the Servicer. In addition to the information required by Exhibit B,
the Servicer shall include in the copy of such statement delivered to the
Insurer, each Noteholder and the Trustee (i) the Delinquency Ratio, Average
Delinquency Ratio, Default Rate, Average Default Rate, Net Loss Rate, Average
Net Loss Rate, Average Extension Ratio and Extension Ratio for such Reporting
Date, (ii) whether any Trigger Event has occurred as of such Reporting Date,
(iii) whether any Trigger Event that may have occurred as of a prior Reporting
Date is deemed cured as of such Reporting Date, and (iv) whether to the
knowledge of the Servicer an Insurance Agreement Event of Default has occurred.

                  (b) On the first Business Day after each Determination Date,
the Trust Collateral Agent shall forward by telecopier to the Servicer, each
Noteholder, the Insurer and the Seller a statement (and shall also mail a copy
to the Servicer, each Noteholder, the Insurer and the Seller) setting forth the
amount, if any, on deposit in the Collection Account, the Distribution Account
and the Note Distribution Account as of such Determination Date. Not later than
the close of business on the fourth Business Day prior to each Distribution
Date, the Trust Collateral Agent shall forward by telecopier to the Collateral
Agent and the Insurer a copy of the statement required to be delivered to
Noteholders on such Distribution Date pursuant to Section 5.10 prepared assuming
that the Insurer will not exercise its right under Section 5.11 and based upon
information set forth by the Servicer in the statement substantially in the form
of Exhibit B hereto. Not later than five days after each Determination Date, the
Trust Collateral Agent shall forward to the Servicer, each Noteholder, the
Insurer and the Seller a statement showing, for the previous



                                       37
<PAGE>   43

Distribution Date, the aggregate of withdrawals from the Distribution Account
and the withdrawals and deposits to the Spread Account.

         SECTION 4.12. Annual Statement as to Compliance, Notice of Servicer
Termination Event.

                  (a) The Servicer shall deliver or cause to be delivered to
each Rating Agency, each Noteholder, the Trustee, the Owner Trustee, the Trust
Collateral Agent, the Backup Servicer and the Insurer on or before April 30 (or
120 days after the end of the Servicer's fiscal year, if other than December 31)
of each year, beginning on April 30, 2000, an Officer's Certificate signed by
any responsible officer of the Servicer, or such Eligible Sub-Servicer who is
performing the servicing duties of the Servicer, dated as of December 31 (or
other applicable date) of the immediately preceding year, stating that (i) a
review of the activities of the Servicer during the preceding calendar year and
of performance under this Agreement has been made under such officer's
supervision, (ii) to the best of such officer's knowledge, based on such review,
the Servicer has fulfilled all its obligations under this Agreement throughout
such year, or, if there has been a default in the fulfillment of any such
obligation, specifying each such default known to such officer and the nature
and status thereof and (iii) to the best of such officer's knowledge, each
Sub-Servicer has fulfilled its obligations under its Sub-Servicing Agreement in
all material respects, or if there has been a material default in the
fulfillment of such obligations, specifying such default known to such employee
and the nature and status thereof.

                  (b) The Servicer shall deliver to the Trust Collateral Agent,
the Insurer, the Backup Servicer, the Noteholders and each Rating Agency,
promptly after having obtained knowledge thereof, but in no event later than two
Business Days thereafter, written notice in an Officer's Certificate of any
event which with the giving of notice or lapse of time, or both, would become a
Servicer Termination Event under Section 10.1.

         SECTION 4.13. Annual Independent Accountants' Report.

                  (a) The Servicer shall, at its expense, cause a firm of
nationally recognized independent certified public accountants (the "Independent
Accountants"), who may also render other services to the Servicer or to the
Seller, to deliver to the Trustee, the Owner Trustee, the Trust Collateral
Agent, each Noteholder, the Backup Servicer and the Insurer, on or before March
30 (or 90 days after the end of the Servicer's fiscal year, if other than
December 31) of each year, beginning on March 30, 2000, with respect to the
twelve months ended the immediately preceding December 31 (or other applicable
date) (or such other period as shall have elapsed from the Closing Date to the
date of such certificate), a statement (the "Accountants' Report") addressed to
the Board of Directors of the Servicer, to the Trustee, the Owner Trustee, the
Trust Collateral Agent and to the Insurer, to the effect that such firm has
audited the books and records of the Servicer and that such audit (1) was made
in accordance with generally accepted auditing standards, and accordingly
included such tests of the accounting records and such other auditing procedures
as such firm considered necessary in the circumstances; (2) included an
examination of documents and records relating to the servicing of automobile
installment sales contracts under pooling and servicing agreements substantially
similar one to another (such statement to have attached thereto a schedule
setting forth the servicing agreements



                                       38
<PAGE>   44

covered thereby, including this Agreement); (3) included an examination of the
delinquency and loss statistics relating to the Servicer's portfolio of
automobile installment sales contracts; and (4) except as described in the
statement, disclosed no exceptions or errors in the records relating to
automobile and light truck loans serviced for others that, in the firm's
opinion, generally accepted auditing standards requires such firm to report. The
Accountants' Report shall further state that (1) a review in accordance with
agreed upon procedures was made of three randomly selected Servicer's
Certificates for the Trust; (2) except as disclosed in the Report, no exceptions
or errors in the Servicer's Certificates so examined were found; and (3) the
delinquency and loss information relating to the Receivables contained in the
Servicer Certificates were found to be accurate.

                  (b) The Accountants' Report shall also indicate that the firm
is independent of the Seller and the Servicer within the meaning of the Code of
Professional Ethics of the American Institute of Certified Public Accountants.

                  (c) A copy of the Accountant's Report may be obtained by any
Noteholder by a request in writing to the Trust Collateral Agent addressed to
its Corporate Trust Office.

         SECTION 4.14. Access to Certain Documentation and Information Regarding
Receivables. The Servicer shall provide to representatives of the Trust
Collateral Agent, any Noteholder holding 5% or more of the Note Balance of any
Class of Notes, the Trustee, the Backup Servicer and the Insurer reasonable
access to the documentation regarding the Receivables. Each of the Seller and
Servicer will permit any authorized representative or agent designated by the
Insurer to visit and inspect any of the properties of the Seller or Servicer, as
the case may be, to examine the corporate books and financial records of the
Seller or Servicer, as the case may be, its records relating to the Receivables,
and make copies thereof or extracts therefrom and to discuss the affairs,
finances, and accounts of the Seller or Servicer, as the case may be, with its
principal officers, as applicable, and its independent accountants. Any expense
incident to the exercise by the Insurer or any Noteholder of any right under
this Section 4.14 shall be borne by NAFI, so long as NAFI is the Servicer. In
each case, such access shall be afforded without charge but only upon reasonable
request and during normal business hours.

         SECTION 4.15. Monthly Tape. (a) On or before the fourth Business Day,
but in no event later than the fifth calendar day, of each month, the Servicer
will deliver to each of the Trustee, the Insurer, the Backup Servicer and each
Noteholder holding 5% or more of the Note Balance of any Class of Notes (upon
written request by such Noteholder to the Servicer) a computer tape and a
diskette (or any other electronic transmission acceptable to each of the
Trustee, the Insurer and the Backup Servicer) in a format acceptable to each of
the Trustee, the Backup Servicer, the Insurer (if requested by the Insurer) and
such Noteholder (if requested by such Noteholder) containing the information
with respect to the Receivables as of the preceding Determination Date necessary
for preparation of the Servicer's Certificate relating to the immediately
succeeding Determination Date and necessary to determine the application of
collections as provided in Section 5.4.

         SECTION 4.16. Retention and Termination of Servicer. The Servicer
hereby covenants and agrees to act as such under the Agreement for an initial
term, commencing on the Closing



                                       39
<PAGE>   45

Date and ending on October 31, 1999, which term shall be extendible by the
Controlling Party for successive monthly terms ending on each successive month
(or, pursuant to revocable written standing instructions from time to time to
the Servicer and the Trust Collateral Agent, for any specified number of terms
greater than one), until the termination of the Trust. Each such notice
(including each notice pursuant to standing instructions, which shall be deemed
delivered at the end of successive quarterly terms for so long as such
instructions are in effect) (a "Servicer Extension Notice") shall be delivered
by the Controlling Party to the Trust Collateral Agent and the Servicer. The
Servicer hereby agrees that, as of the date hereof and upon its receipt of any
such Servicer Extension Notice, the Servicer shall become bound, for the initial
term beginning on the date hereof and for the duration of the term covered by
such Notice, to continue as the Servicer subject to and in accordance with the
other provisions of this Agreement. The Trust Collateral Agent agrees that, as
of the fifteenth day prior to the last day of any term of the Servicer, if in
which the Trust Collateral Agent shall not have received any Servicer Extension
Notice from the Controlling Party, the Trust Collateral Agent will, within five
days thereafter, give written notice of such non-receipt to the Insurer, each
Noteholder and the Servicer and the Servicer's term shall not be extended unless
a Servicer Extension Notice is received on or before the last day of such term.

         SECTION 4.17. Custodial Arrangement. The Custodian shall maintain
custody and possession of the Receivable Files as custodian and bailee for the
Servicer and the Trust Collateral Agent in accordance with and pursuant to the
Custodial Agreement. The Servicer hereby assigns all of its right, title and
interest in, but none of its obligations thereunder, to such Custodial Agreement
to the Trust Collateral Agent. To the extent the Servicer receives any notices
with respect to the Custodial Agreement, the Servicer will forward a copy of
such notice to each Noteholder, the Trust Collateral Agent and the Insurer.

                                   ARTICLE V

                         TRUST ACCOUNTS; DISTRIBUTIONS;
                            STATEMENTS TO NOTEHOLDERS

         SECTION 5.1. Establishment of Trust Accounts.

                  (a) (i) The Trust Collateral Agent, on behalf of the
Noteholders, the Certificateholder and the Insurer, shall establish and maintain
in its own name an Eligible Deposit Account (the "Collection Account"), bearing
a designation clearly indicating that the funds deposited therein are held for
the benefit of the Trust Collateral Agent on behalf of the Noteholders, the
Certificateholder and the Insurer. The Collection Account shall initially be
established with the Trust Collateral Agent.

                           (ii) The Trust Collateral Agent, on behalf of the
         Noteholders and the Insurer, shall establish and maintain in its own
         name two separate Eligible Deposit Accounts (the "Class A Note
         Distribution Account" and the "Class B Note Distribution Account"),
         each bearing a designation clearly indicating that the funds deposited
         therein are held for the benefit of the Trust Collateral Agent on
         behalf of the related Class of Noteholders. The Class A Note
         Distribution Account will also be held for the benefit of



                                       40
<PAGE>   46

         the Insurer. Each of the Class A Note Distribution Account and the
         Class B Note Distribution Account shall initially be established with
         the Trust Collateral Agent.

                           (iii) The Trust Collateral Agent, on behalf of the
         Noteholders and the Insurer, shall establish and maintain in its own
         name an Eligible Deposit Account (the "Distribution Account"), bearing
         a designation clearly indicating that the funds deposited therein are
         held for the benefit of the Trust Collateral Agent on behalf of the
         Noteholders and the Insurer. The Distribution Account shall initially
         be established with the Trust Collateral Agent.

                  (b) The Trust Collateral Agent shall deposit the following
amounts into the Collection Account upon receipt: (i) all amounts withdrawn by
the Servicer from the Lockbox Account or by a Sub-Servicer from the Sub-Servicer
Account and all amounts received by the Servicer, the Seller, NAFI or any
Sub-Servicer and transferred to the Trust Collateral Agent pursuant to Section
4.6(d); (ii) the Purchase Amount received in respect of any Purchased
Receivables pursuant to Sections 2.5, 3.2 and 4.1 hereof; (iii) all income and
gain from investments of funds in the Collection Account; and (iv) all
Liquidation Proceeds (net of Liquidation Expenses retained by the Servicer or
Sub-Servicer) and other amounts with respect to the Trust Property, if any,
received from the Seller, the Servicer or any Sub-Servicer.

                  (c) On each Distribution Date, the Trust Collateral Agent
shall, at the written direction of the Servicer, withdraw from the Collection
Account and deposit in the Distribution Account the amount on deposit in the
Collection Account as of the close of business on the related Determination Date
(other than any pay-ahead amounts, as provided in Section 5.4) and any amount
deposited to the Collection Account in respect of Purchased Receivables on or
prior to the related Reporting Date and subsequent to the preceding Reporting
Date, less the sum of (i) the Supplemental Servicing Fee collected with respect
to the Receivables on deposit in the Collection Account as of such Determination
Date, (ii) any income and gain on investments of deposits in the Collection
Account as of such Determination Date and (iii) any collection or other amounts
deposited to the Collection Account in respect of Purchased Receivables other
than the Purchase Amounts. In addition, on each Distribution Date, the Trust
Collateral Agent shall, in accordance with the written direction of the
Servicer, withdraw from the Collection Account and shall pay to the Seller (i)
any income and gain on investments then on deposit in the Collection Account and
all late payment fees then on deposit in the Collection Account and (ii) with
respect to each Purchased Receivable or property acquired in respect thereof,
all amounts received thereon and not distributed as of, or received after, the
date on which the related Principal Balance or Purchase Amount (or, in the case
of a retransfer pursuant to Section 11.1, the purchase amount required therein)
is determined. In the event the Servicer, any Sub-Servicer or the Trust
Collateral Agent shall deposit in the Collection Account any amount in error and
such amount is not required to be deposited therein, the Trust Collateral Agent
may withdraw at any time, on its own behalf if the erroneous deposit was made by
the Trust Collateral Agent and on behalf of the Servicer or Sub-Servicer if the
erroneous deposit was made by the Servicer or Sub-Servicer promptly after
receipt of an Officer's Certificate by the Trust Collateral Agent (if such
amount was erroneously deposited by the Servicer or any Sub-Servicer) and the
Insurer setting forth the reason for such withdrawal of such amount from the
Collection Account, any provision herein to the contrary notwithstanding.



                                       41
<PAGE>   47

                  (d) Funds on deposit in the Collection Account, the Note
Distribution Accounts and the Distribution Account (collectively, the "Trust
Accounts") shall be invested by the Trust Collateral Agent (or any custodian
with respect to funds on deposit in any such account) in Eligible Investments
selected in writing by the Servicer (pursuant to standing instructions or
otherwise) which, absent any instruction shall be the investments specified in
clause (d) of the definition of Eligible Investments set forth herein. Other
than as permitted by the Rating Agencies and the Controlling Party, funds on
deposit in any Trust Account shall be invested in Eligible Investments that will
mature so that such funds will be available at the close of business on the
Business Day immediately preceding the following Distribution Date. Funds
deposited in a Trust Account on the day immediately preceding a Distribution
Date upon the maturity of any Eligible Investments are not required to be
invested overnight. All Eligible Investments will be held to maturity.

                  (e) All investment earnings of moneys deposited in the Trust
Accounts shall be deposited (or caused to be deposited) by the Trust Collateral
Agent in the Collection Account no later than the close of business on the
Business Day immediately preceding the related Distribution Date, and any loss
resulting from such investments shall be charged to the Collection Account. The
Servicer shall not direct the Trust Collateral Agent to make any investment of
any funds held in any of the Trust Accounts unless the security interest granted
and perfected in such account will continue to be perfected in such investment,
in either case without any further action by any Person, and, in connection with
any direction to the Trust Collateral Agent to make any such investment, if
necessary, the Servicer shall deliver to the Trust Collateral Agent and the
Insurer an Opinion of Counsel to such effect upon which the Trust Collateral
Agent may conclusively rely.

                  (f) The Trust Collateral Agent shall not in any way be held
liable by reason of any insufficiency in any of the Trust Accounts resulting
from any loss on any Eligible Investment included therein except for losses
attributable to the Trust Collateral Agent's negligence or bad faith or its
failure to make payments on such Eligible Investments issued by the Trust
Collateral Agent, in its commercial capacity as principal obligor and not as
trustee, in accordance with their terms.

                  (g) If (i) the Servicer shall have failed to give investment
directions for any funds on deposit in the Trust Accounts to the Trust
Collateral Agent by 2:00 p.m. Eastern Time (or such other time as may be agreed
by the Issuer and Trust Collateral Agent) on any Business Day; or (ii) a Default
or Event of Default (as such capitalized terms are defined in the Indenture)
shall have occurred and be continuing with respect to the Notes but the Notes
shall not have been declared due and payable, or, if such Notes shall have been
declared due and payable following an Event of Default (as defined in the
Indenture) and amounts collected or receivable from the Trust Property are being
applied as if there had not been such a declaration; then the Trust Collateral
Agent shall, to the fullest extent practicable, invest and reinvest funds in the
Trust Accounts in one or more Eligible Investments pursuant to paragraph (d)
above.

                  (h) (i) The Trust Collateral Agent shall possess all right,
title and interest in all funds on deposit from time to time in the Trust
Accounts and in all proceeds thereof (excluding all Investment Earnings on the
Collection Account) and all such funds, investments,



                                       42
<PAGE>   48

proceeds and income shall be part of the Owner Trust Estate. Except as otherwise
provided herein, the Trust Accounts shall be under the sole dominion and control
of the Trust Collateral Agent for the benefit of the Noteholders and the
Insurer. If, at any time, any of the Trust Accounts ceases to be an Eligible
Deposit Account, the Trust Collateral Agent (or the Servicer on its behalf)
shall within five Business Days (or such longer period as to which each Rating
Agency and the Controlling Party may consent) establish a new Trust Account as
an Eligible Deposit Account and shall transfer any cash and/or any investments
to such new Trust Account. In connection with the foregoing, the Servicer agrees
that, in the event that any of the Trust Accounts are not accounts with the
Trust Collateral Agent, the Servicer shall notify the Trust Collateral Agent and
the Insurer in writing promptly upon any of such Trust Accounts ceasing to be an
Eligible Deposit Account.

                           (ii) With respect to the Trust Account Property the
         Trust Collateral Agent agrees that:

                                    (A) any Trust Account Property that is held
                  in deposit accounts shall be held solely in the Eligible
                  Deposit Accounts; and, except as otherwise provided herein,
                  each such Eligible Deposit Account shall be subject to the
                  exclusive custody and control of the Trust Collateral Agent,
                  and the Trust Collateral Agent shall have sole signature
                  authority with respect thereto;

                                    (B) any Trust Account Property that
                  constitutes an instrument within the meaning of Section
                  9-105(1)(i) of the UCC and are susceptible of physical
                  delivery, the Trust Collateral Agent shall accept delivery in
                  accordance with paragraph (a) of the definition of "Delivery"
                  and shall be held, pending maturity or disposition, solely by
                  the Trust Collateral Agent or its nominee or custodian acting
                  solely for the Trust Collateral Agent;

                                    (C) any Trust Account Property that
                  constitutes a certificated security (as defined in Section
                  8-102(a)(4) of the UCC) shall be delivered to the Trust
                  Collateral Agent in accordance with paragraph (b) of the
                  definition of "Delivery" and shall be held, pending maturity
                  or disposition, solely by the Trust Collateral Agent or by a
                  securities intermediary (as defined in Section 8-102(a)(14) of
                  the UCC) acting on behalf of the Trust Collateral Agent;

                                    (D) any Trust Account Property that is a
                  book-entry security held through the Federal Reserve System
                  pursuant to Federal book-entry regulations shall be delivered
                  in accordance with paragraph (c) of the definition of
                  "Delivery" and shall be maintained by the Trust Collateral
                  Agent, pending maturity or disposition, through continued
                  book-entry registration of such Trust Account Property as
                  described in such paragraph;

                                    (E) any Trust Account Property that is an
                  "uncertificated security" under Article 8 of the UCC and that
                  is not governed by clause (D) above shall be delivered to the
                  Trust Collateral Agent in accordance with paragraph (d) of the
                  definition of "Delivery" and shall be maintained by the Trust
                  Collateral



                                       43
<PAGE>   49

                  Agent, pending maturity or disposition, through continued
                  registration of the Trust Collateral Agent's (or its
                  nominee's) ownership of such security or the agreement of the
                  issuer thereof to comply with the instructions of the Trust
                  Collateral Agent as described in such clause (D) pending
                  maturity or disposition; and

                                    (F) any Trust Account Property that is a
                  "security entitlement" (as defined in Section 8-102(a)(17) of
                  the UCC), a securities intermediary (i) credits, accepts for
                  credit or is required to credit a "financial asset" (as
                  defined in Section 8-102(a)(9) of the UCC) to the Trust
                  Collateral Agent's securities account, (ii) has agreed that it
                  will comply with the entitlement orders described in clause
                  (f) of the definition of "Delivery" or (iii) confirms the
                  purchase of such Trust Account Property, and makes such
                  entries on its books and records, in the manner and as
                  described in such clause (f), and such credit, agreement or
                  entries are maintained pending maturity or disposition.

         SECTION 5.2. [Reserved.]

         SECTION 5.3. Certain Reimbursements to the Servicer. The Servicer will
be entitled to be reimbursed from amounts on deposit in the Collection Account
with respect to a Due Period for amounts previously deposited in the Collection
Account but later determined by the Servicer to have resulted from mistaken or
postings or checks returned for insufficient funds. The amount to be reimbursed
hereunder shall be paid to the Servicer on the related Distribution Date
pursuant to Section 5.7(a)(i) upon certification by the Servicer of such amounts
and the provision of such information to the Trust Collateral Agent and the
Insurer as may be necessary in the opinion of the Insurer to verify the accuracy
of such certification. If the Trust Collateral Agent has not received written
confirmation from the Controlling Party of the Servicer's entitlement to
reimbursement pursuant to this Section, the Trust Collateral Agent shall not
make a distribution to the Servicer in respect of such amount pursuant to
Section 5.7, or if the Servicer prior thereto has been reimbursed pursuant to
Section 5.7, the Trust Collateral Agent shall withhold such amounts from amounts
otherwise distributable to the Servicer on the next succeeding Distribution
Date.

         SECTION 5.4. Application of Collections. For all purposes of this
Agreement the allocation of a payment on a Receivable between principal and
interest shall be made based upon the amortization method provided in the
related Contract. For purposes of allocating a pay-ahead payment on a Receivable
between principal and interest, the pay-ahead shall be deemed to have been
received on the date it was actually due. For all purposes of this Agreement, no
amount shall be treated as collected under a Receivable until such amount has
been deposited into the Collection Account.

         SECTION 5.5. Withdrawals from Series 1999-1 Spread Account.

                  (a) In the event that the Servicer's Certificate with respect
to any Determination Date shall state that the amount of funds available under
Section 5.7(a)(iii) and, if such Distribution Date is the Final Scheduled
Distribution Date, the amount of funds available under Sections 5.7(a)(iii) and
5.7(a)(v) with respect to such Distribution Date is not sufficient to



                                       44
<PAGE>   50

make payment of the amount payable on the related Distribution Date pursuant to
Section 5.7(a)(iii) and, if such Distribution Date is the Final Scheduled
Distribution Date, Sections 5.7(a)(iii) and 5.7(a)(v) (such deficiency being a
"Deficiency Claim Amount"), which notice shall also state if there are not
sufficient amounts in the Spread Account to cover such deficiency, then on the
Business Day immediately preceding the related Draw Date, the Trust Collateral
Agent shall deliver to the Collateral Agent, the Noteholders, the Owner Trustee,
the Insurer and the Servicer, by hand delivery, telex or facsimile transmission,
a written notice (a "Deficiency Notice") specifying the Deficiency Claim Amount
for such Distribution Date and the Class A Note Policy Claim Amount, if any.
Such Deficiency Notice shall direct the Collateral Agent to remit such
Deficiency Claim Amount (to the extent of the funds available to be distributed
pursuant to the Spread Account Agreement) to the Trust Collateral Agent for
deposit in the Collection Account on the related Distribution Date.

                  (b) Any Deficiency Notice shall be delivered by 10:00 am., New
York City time, on the Business Day immediately preceding the Draw Date
immediately preceding the related Distribution Date. The amounts distributed by
the Collateral Agent to the Trust Collateral Agent pursuant to a Deficiency
Notice shall be deposited by the Trust Collateral Agent into the Collection
Account pursuant to Section 5.6.

         SECTION 5.6. Additional Deposits.

                  (a) NAFI and the Seller, as applicable, shall deposit or cause
to be deposited in the Collection Account on the Reporting Date following the
date on which such obligations are due the aggregate Purchase Amount with
respect to Purchased Receivables. On or before each Draw Date, the Trust
Collateral Agent shall remit to the Collection Account any amounts delivered to
the Trust Collateral Agent by the Collateral Agent.

                  (b) Any Insolvency Proceeds shall be deposited in the
Collection Account pursuant to Section 11.1(b).

         SECTION 5.7. Distributions.

                  (a) On each Distribution Date, the Trust Collateral Agent
shall, to the extent of the Available Amount (any amount of which was deposited
to the Distribution Account pursuant to Section 5.11 to be applied only as
directed by the Insurer) together with funds withdrawn from the Spread Account,
if any, make the following payments (in case of the withdrawals from the Spread
Account, for payments of the Servicing Fee, the Noteholders' Distributable
Amount with respect to the Class A Notes and any amounts owing to the Insurer
pursuant to clause (vi) below only) in the following order of priority:

                           (i) from the Distribution Account to the Servicer,
         the Servicing Fee for the related Due Period, and any unpaid Servicing
         Fees from prior Due Periods to the extent not previously paid;



                                       45
<PAGE>   51

                           (ii) from the Distribution Account to each of the
         Trust Collateral Agent, the Backup Servicer, the Trustee, the Owner
         Trustee, the Collateral Agent and the Custodian, their respective
         accrued and unpaid fees to the extent not paid by the Servicer;

                           (iii) from the Distribution Account to the Class A
         Note Distribution Account to the Class A Noteholders, the Noteholders'
         Interest Distributable Amount with respect to the Class A Notes;

                           (iv) from the Distribution Account to the Class B
         Note Distribution Account to the Class B Noteholders, the Noteholders'
         Interest Distributable Amount with respect to the Class B Notes;

                           (v) from the Distribution Account, to the Class A
         Note Distribution Account to the Class A Noteholders, the sum of (i)
         the Class A Percentage of the Noteholders' Principal Distributable
         Amount and (ii) the Class A Principal Carryover Shortfall; provided,
         however, that on the Final Scheduled Distribution Date, the Class A
         Noteholders shall receive an amount sufficient to reduce the Class A
         Note Balance to zero;

                           (vi) from the Distribution Account to the Insurer (or
         any designee thereof), to the extent of any amounts owing to the
         Insurer with respect to this transaction under the Insurance Agreement,
         the Indenture or this Agreement and not paid;

                           (vii) from the Distribution Account to the Class B
         Note Distribution Account to the Class B Noteholders, the sum of (i)
         the Class B Percentage of the Noteholders' Principal Distributable
         Amount and (ii) the Class B Principal Carryover Shortfall; provided,
         however, that on the Final Scheduled Distribution Date, the Class B
         Noteholders shall receive an amount sufficient to reduce the Class B
         Note Balance to zero;

                           (viii) from the Distribution Account to the
         Collateral Agent for deposit to the Spread Account, all Available
         Amounts remaining after distribution pursuant to clauses (i) through
         (vii) above;

                           (ix) from amounts, if any, released from the Spread
         Account on such Distribution Date, for the first 12 Distribution Dates
         after the Closing Date, from the Distribution Account to the Class B
         Note Distribution Account to the Class B Noteholders, as additional
         payment of principal, 15% of the balance of any funds released from the
         Spread Account pursuant to the Series 1999-1 Supplement, and for each
         Distribution Date thereafter until the outstanding Class B Note Balance
         is zero, from the Distribution Account to the Class B Note Distribution
         Account to the Class B Noteholders, as additional payment of principal,
         65% of the balance of any funds released from the Spread Account
         pursuant to the Series 1999-1 Supplement;

                           (x) from amounts (as reduced by the distributions
         pursuant to clause (ix) above), if any, released from the Spread
         Account on such Distribution Date, to the



                                       46
<PAGE>   52

         Trustee and the Owner Trustee for any unreimbursed expenses and to pay
         any indemnities owed by the Issuer to the Trustee under the Indenture
         or to the Owner Trustee under the Trust Agreement;

                           (xi) from amounts (as reduced by the distributions
         pursuant to clauses (ix) and (x) above), if any, released from the
         Spread Account on such Distribution Date, to the Servicer for any
         expenses incurred by the Servicer in connection with a realization upon
         a Defaulted Receivable;

                           (xii) from amounts (as reduced by the distributions
         pursuant to clauses (ix), (x) and (xi) above), if any, released from
         the Spread Account on such Distribution Date, to the Backup Servicer
         for reimbursement to the Backup Servicer for expenses incurred by the
         Backup Servicer and to reimburse the Servicer for expenses incurred by
         and reimbursable, or any indemnities payable by the Seller to the
         Servicer pursuant to this Agreement; and

                           (xiii) from amounts (as reduced by the distributions
         pursuant to clauses (ix), (x), (xi) and (xii) above), if any, released
         from the Spread Account on such Distribution Date, to the holder of the
         Trust Certificate (subject to the claims of First Union National Bank
         under the Revolving Credit Agreement), any remaining funds;

provided, however, that, (A) following an acceleration of the Notes or, (B) if
an Insurer Default shall have occurred and be continuing and an Event of Default
pursuant to the Indenture shall have occurred and be continuing, in each case,
to the extent actually known by a Trust Officer of the Trust Collateral Agent,
or (C) the receipt of Insolvency Proceeds pursuant to Section 11.1(b), amounts
deposited in the Note Distribution Account (including any such Insolvency
Proceeds) and the Distribution Account shall be paid to the Noteholders and the
Certificateholder pursuant to Section 5.6 of the Indenture.

                  (b) The Certificateholder and each Noteholder, by its
acceptance of the Trust Certificate or a Note, as applicable, will be deemed to
have consented to the provisions of paragraph (a) above relating to the priority
of distributions and will be further deemed to have acknowledged that no
property rights in any amount of funds or the proceeds of any such amount shall
vest in the Certificateholder or such Noteholder, as applicable, until such
amount has been distributed to the Certificateholder or such Noteholder pursuant
to such provisions; provided, that the foregoing shall not restrict the right of
the Certificateholder or any Noteholder, upon compliance with the provisions
hereof, from seeking to compel the performance of the provisions hereof by the
parties hereto.

                  (c) In furtherance of and not in limitation of the foregoing,
the Certificateholder and each Class B Noteholder, by acceptance of the Trust
Certificate or its Class B Note, as applicable, specifically acknowledges that
no amounts shall be received by it, nor shall it have any right to receive any
amounts, unless and until such amounts have been distributed pursuant to clause
(xiii) above to such Certificateholder or pursuant to clauses (iv), (vii) and
(ix) above to such Class B Noteholder. The Certificateholder and each Class B
Noteholder, by acceptance of the Trust Certificate or its Class B Note, as
applicable, further specifically



                                       47
<PAGE>   53

acknowledges that it has no right to or interest in any monies at any time held
pursuant to the Spread Account Agreement or pursuant hereto prior to the release
of such monies as aforesaid, such monies being held in trust for the benefit of
the Class A Noteholders and the Insurer. Notwithstanding the foregoing, in the
event that it is ever determined that the monies held in the Spread Account
constitute a pledge of collateral, then the provisions of this Agreement and the
Spread Account Agreement shall be considered to constitute a security agreement
and the Seller and the Certificateholder hereby grant to the Collateral Agent
for the benefit of the Trustee and the Insurer a first priority perfected
security interest in such amounts, to be applied as set forth in Section 3.03 of
the Spread Account Agreement. In addition, the Certificateholder, by acceptance
of the Trust Certificate, hereby appoints the Seller as its agent to pledge a
first priority perfected security interest in the Spread Account, and any
amounts held therein from time to time to the Collateral Agent for the benefit
of the Trustee and the Insurer pursuant to the Spread Account Agreement and
agrees to execute and deliver such instruments of conveyance, assignment, grant,
confirmation, etc., as well as any financing statements, in each case as the
Insurer shall consider reasonably necessary in order to perfect the Collateral
Agent's Security Interest in the Collateral (as such terms are defined in the
Spread Account Agreement).

                  (d) In the event that the Collection Account is maintained
with an institution other than the Trust Collateral Agent, the Servicer shall
instruct and cause such institution to make all deposits and distributions
pursuant to Section 5.7(a) on the related Distribution Date.

         SECTION 5.8. Note Distribution Accounts.

                  (a) On each Distribution Date, the Trust Collateral Agent
shall distribute all amounts on deposit in the Class A Note Distribution Account
and Class B Note Distribution Account, as such amounts on deposit in the Class A
Note Distribution Account and Class B Note Distribution Account are specified in
the monthly Servicer's Certificate, to the Class A Noteholders and Class B
Noteholders in respect of the Class A Notes and Class B Notes to the extent of
amounts due and unpaid on the Class A Notes and Class B Notes for principal and
interest in the amounts and priorities set forth in Section 5.7(a).

                  (b) On each Distribution Date, the Trust Collateral Agent
shall send to each Noteholder, in accordance with Section 5.10, the statement
provided to the Trust Collateral Agent by the Servicer pursuant to Section
4.11(b) hereof for distribution on such Distribution Date.

                  (c) In the event that any withholding tax is imposed on the
Trust's payment (or allocations of income) to a Noteholder, such tax shall
reduce the amount otherwise distributable to the Noteholder in accordance with
this Section. The parties hereto hereby agree to provide to the Trust Collateral
Agent the information any such party may have, if any, with respect to any such
withholding tax. The Trust Collateral Agent is hereby authorized and directed to
retain from amounts otherwise distributable to the Noteholders sufficient funds
for the payment of any tax that is legally owed by the Trust (but such
authorization shall not prevent the Trust Collateral Agent from contesting any
such tax in appropriate proceedings, and withholding payment of such tax, if
permitted by law, pending the outcome of such proceedings). The amount of any
withholding tax imposed with respect to a Noteholder shall be treated as cash
distributed to such



                                       48
<PAGE>   54

Noteholder at the time it is withheld by the Trust and remitted to the
appropriate taxing authority. If there is a possibility that withholding tax is
payable with respect to a distribution (such as a distribution to a non-U.S.
Noteholder), the Trust Collateral Agent may in its sole discretion withhold such
amounts in accordance with this clause (c). In the event that a Noteholder
wishes to apply for a refund of any such withholding tax, the Trust Collateral
Agent shall reasonably cooperate with such Noteholder in making such claim so
long as such Noteholder agrees to reimburse the Trust Collateral Agent for any
out-of-pocket expenses incurred.

                  (d) Distributions required to be made to Noteholders on any
Distribution Date shall be made to each Noteholder of record on the preceding
Record Date either by wire transfer, in immediately available funds, to the
account of such Noteholder at a bank or other entity having appropriate
facilities therefor, if such Noteholder shall have provided to the Note
Registrar appropriate written instructions at least five Business Days prior to
such Distribution Date and such Holder's Notes in the aggregate evidence a
denomination of not less than $1,000,000 or, if not, by check mailed to such
Noteholder at the address of such holder appearing in the Note Register.

         SECTION 5.9. [Reserved.]

         SECTION 5.10. Statements to Noteholders. Concurrently with each
distribution charged to the Note Distribution Account, the Trust Collateral
Agent shall forward by mail to each Noteholder, the Seller, the Servicer, the
Insurer and each Rating Agency, a written statement prepared by the Servicer
substantially in the form attached hereto as Exhibit 5.10.

         SECTION 5.11. Optional Deposits by the Insurer. The Insurer shall at
any time, and from time to time, with respect to a Distribution Date, have the
option (but shall not be required, except in accordance with the terms of a
Policy) to deliver amounts to the Trust Collateral Agent for deposit into the
Distribution Account for any of the following purposes: (i) to provide funds in
respect of the payment of fees or expenses of any provider of services to the
Trust with respect to such Distribution Date, or (ii) to include such amount to
the extent that without such amount a draw would be required to be made on the
Class A Note Policy.

                                   ARTICLE VI

                             THE CLASS A NOTE POLICY

         SECTION 6.1. Claims Under Class A Note Policy.

                  (a) In the event that the Trust Collateral Agent has delivered
a Deficiency Notice with respect to any Determination Date pursuant to Section
5.5 hereof, the Trust Collateral Agent shall on the related Draw Date determine
the Class A Note Policy Claim Amount for the related Distribution Date. If the
Class A Note Policy Claim Amount specified on the Deficiency Notice for such
Distribution Date is greater than zero, the Trust Collateral Agent shall furnish
to the Insurer no later than 12:00 noon New York City time on the related Draw
Date, a completed Notice of Claim (as defined in (b) below) in the amount of the
Class A Note Policy Claim Amount. Amounts paid by the Insurer pursuant to a
claim submitted under this Section 6.1



                                       49
<PAGE>   55

shall be deposited by the Trust Collateral Agent into the Class A Note
Distribution Account for payment pursuant to paragraph (b) below to Class A
Noteholders on the related Distribution Date.

                  (b) Any notice delivered by the Trust Collateral Agent to the
Insurer pursuant to subsection 6.1(a) shall specify the Class A Note Policy
Claim Amount claimed under the Class A Note Policy and shall constitute a
"Notice of Claim" under the Class A Note Policy. In accordance with the
provisions of the Class A Note Policy, the Insurer is required to pay to the
Trust Collateral Agent the Class A Note Policy Claim Amount properly claimed
thereunder by 12:00 noon, New York City time, on the later of (i) the third
Business Day (as defined in the Class A Note Policy) following Receipt (as
defined in the Class A Note Policy) on a Business Day (as defined in the Class A
Note Policy) of the Notice of Claim, and (ii) the applicable Distribution Date.
Any payment made by the Insurer under the Class A Note Policy shall be applied
solely to the payment of the Class A Notes, and for no other purpose.

                  (c) The Trust Collateral Agent shall (i) receive as
attorney-in-fact of each Class A Noteholder any Class A Note Policy Claim Amount
from the Insurer and (ii) deposit the same in the Class A Note Distribution
Account for distribution solely to Class A Noteholders. Any and all Class A Note
Policy Claim Amounts disbursed by the Trust Collateral Agent from claims made
under the Class A Note Policy shall not be considered payment by the Trust or
from the Spread Account with respect to such Class A Notes, and shall not
discharge the obligations of the Trust with respect thereto. The Insurer shall,
to the extent it makes any payment with respect to the Class A Notes, become
subrogated to the rights of the recipients of such payment, to the extent of
such payments. Subject to and conditioned upon any payment with respect to the
Class A Notes by or on behalf of the Insurer, the Trust Collateral Agent shall
assign to the Insurer all rights to the payment of interest or principal with
respect to the Class A Notes which are then due for payment to the extent of all
payments made by the Insurer, and the Insurer may exercise any option, vote,
right, power or the like with respect to the Class A Notes to the extent that it
has made payment pursuant to the Class A Note Policy. To evidence such
subrogation, the Note Registrar (as defined in the Indenture) shall note the
Insurer's rights as subrogee upon the Note Register upon receipt from the
Insurer of proof of payment by the Insurer of any Noteholders' Interest
Distributable Amount or Noteholders' Principal Distributable Amount with respect
to the Class A Notes. The foregoing subrogation shall in all cases be subject to
the rights of the Class A Noteholders to receive all Scheduled Payments (as
defined in the Class A Note Policy) in respect of the Class A Notes.

                  (d) The Trust Collateral Agent shall keep a complete and
accurate record of all funds deposited by the Insurer into the Class A Note
Distribution Account and Distribution Account and the allocation of such funds
to payment of interest on and principal paid in respect of any Class A Note. The
Insurer shall have the right to inspect such records at reasonable times upon
one Business Day's prior notice to the Trust Collateral Agent.

                  (e) The Trust Collateral Agent shall be entitled to enforce on
behalf of the Class A Noteholders the obligations of the Insurer under the Class
A Note Policy. Notwithstanding any other provision of this Agreement or any
Transaction Document, the Class A Noteholders are not entitled to institute
proceedings directly against the Insurer.



                                       50
<PAGE>   56

         SECTION 6.2. Preference Claims.

                  (a) In the event that the Trust Collateral Agent has received
a certified copy of an order of the appropriate court that any Scheduled Payment
(as defined in the Class A Note Policy) has been avoided in whole or in part as
a preference payment under applicable bankruptcy law, the Trust Collateral Agent
shall so notify the Insurer, shall comply with the provisions of the Class A
Note Policy to obtain payment by the Insurer of such avoided payment, and shall,
at the time it provides notice to the Insurer, notify Holders of the Class A
Notes by mail that, in the event that any Class A Noteholder's payment is so
recoverable, such Class A Noteholder will be entitled to payment pursuant to the
terms of the Class A Note Policy. The Trust Collateral Agent shall furnish to
the Insurer its records evidencing the payments of principal of and interest on
Class A Notes, if any, which have been made by the Trust Collateral Agent and
subsequently recovered from the Class A Noteholders, and the dates on which such
payments were made. Pursuant to the terms of the Class A Note Policy, the
Insurer will make such payment on behalf of the Class A Noteholder to the
receiver, conservator, debtor-in-possession or trustee in bankruptcy named in
the Order (as defined in the Class A Note Policy) and not to the Trust
Collateral Agent or any Noteholder directly (unless a Class A Noteholder has
previously paid such payment to the receiver, conservator, debtor-in-possession
or trustee in bankruptcy, in which case the Insurer will make such payment to
the Trust Collateral Agent for distribution to such Class A Noteholder upon
proof of such payment reasonably satisfactory to the Insurer).

                  (b) The Trust Collateral Agent shall promptly notify the
Insurer of any proceeding or the institution of any action (of which the Trust
Collateral Agent has actual knowledge) seeking the avoidance as a preferential
transfer under applicable bankruptcy, insolvency, receivership, rehabilitation
or similar law (a "Class A Note Preference Claim") of any distribution made with
respect to the Class A Notes. Each Class A Noteholder, by its purchase of Class
A Notes, and the Trust Collateral Agent hereby agree that so long as an Insurer
Default shall not have occurred and be continuing, the Insurer may at any time
during the continuation of any proceeding relating to a Class A Note Preference
Claim direct all matters relating to such Class A Note Preference Claim
including, without limitation, (i) the direction of any appeal of any order
relating to any Class A Note Preference Claim and (ii) the posting of any
surety, supersedeas or performance bond pending any such appeal at the expense
of the Insurer, but subject to reimbursement as provided in the Insurance
Agreement. In addition, and without limitation of the foregoing, as set forth in
Section 6.1(c), the Insurer shall be subrogated to, and each Class A Noteholder
and the Trust Collateral Agent hereby delegates and assigns, to the fullest
extent permitted by law, the rights of the Trust Collateral Agent and each Class
A Noteholder in the conduct of any proceeding with respect to a Class Note
Preference Claim, including, without limitation, all rights of any party to an
adversary proceeding action with respect to any court order issued in connection
with any such Class A Note Preference Claim.

         SECTION 6.3. Surrender of Class A Note Policy. The Trust Collateral
Agent shall surrender the Class A Note Policy to the Insurer for cancellation
upon the expiration of such policy in accordance with the terms thereof.

         SECTION 6.4. Spread Account. The Seller agrees, simultaneously with the
execution and delivery of this Agreement, to execute and deliver the Spread
Account Agreement, and



                                       51
<PAGE>   57

pursuant to the terms thereof, to deposit the Initial Spread Account Deposit in
the Spread Account.

                                  ARTICLE VII

                                    RESERVED

                                  ARTICLE VIII

                                   THE SELLER

         SECTION 8.1. Representations, Warranties and Covenants of the Seller.
The Seller hereby represents, warrants and covenants to the Trust Collateral
Agent, the Insurer, the Noteholders and the Servicer, which representations,
warranties and covenants shall survive as long as any Note shall be outstanding
or this Agreement has not been terminated, that as of the Closing Date:

                  (a) the Seller is a Delaware business trust duly organized,
validly existing, and in good standing under the laws of the State of Delaware
and has all licenses and approvals necessary to carry on its business as now
being conducted and shall appoint and employ agents or attorneys in each
jurisdiction where it shall be necessary to take action under this Agreement and
the other Transaction Documents; the Seller has the full power and authority to
own its property, to carry on its business as presently conducted, and to
execute, deliver and perform each of the Transaction Documents to which it is a
party; the execution, delivery and performance of each of the Transaction
Documents to which it is a party (including all instruments of transfer to be
delivered pursuant to any such Transaction Documents to which it is a party) by
the Seller and the consummation of the transactions contemplated hereby and
thereby have been duly and validly authorized; each of the Transaction Documents
to which it is a party evidences the valid, binding and enforceable obligations
of the Seller (subject to applicable bankruptcy and insolvency laws and other
similar laws affecting the enforcement of creditors' rights generally and to
general principles of equity, regardless of whether enforcement is sought in a
proceeding in equity or at law); and all requisite corporate action has been
taken by the Seller to make each of the Transaction Documents to which it is a
party valid and binding upon the Seller (subject as aforesaid in the preceding
clause);

                  (b) the Seller is not required to obtain the consent of any
other party or obtain the consent, license, approval or authorization of, or
make any registration or declaration with, any governmental authority, bureau or
agency in connection with the execution, delivery, performance, validity or
enforceability of this Agreement or any other Transaction Document to which it
is a party;

                  (c) the consummation of the transactions contemplated by this
Agreement and the other Transaction Documents will not result in the breach of
any term or provision of the trust agreement of the Seller or result in the
breach of any term or provision of, or conflict with or constitute a default
(with or without notice, lapse of time or both) under or result in the



                                       52
<PAGE>   58

acceleration of any obligation under, any agreement, indenture or loan or credit
agreement or other instrument to which the Seller or its property is subject or
result in the creation or imposition of any Lien upon any of its properties
pursuant to the terms of any such agreement, indenture or loan or credit
agreement or other instrument (aside from the lien created pursuant to this
Agreement), or result in the violation of any law (including, without
limitation, any bulk transfer or similar law), rule, regulation, order, judgment
or decree to which the Seller or its property or the Receivables are subject;

                  (d) no statement, report or other document furnished or to be
furnished pursuant to this Agreement or in connection with the transaction
contemplated hereby contains or will, when furnished, contain any untrue
statement of a material fact or omits or will, when furnished, omit to state a
material fact necessary to make the statements contained therein not misleading,
in light of the circumstances under which they were made;

                  (e) neither the Seller nor any of its subsidiaries or
Affiliates is a party to, bound by or in breach or violation of any indenture or
other agreement or instrument, or subject to or in violation of any statute,
order or regulation of any court, regulatory body, administrative agency or
governmental body having jurisdiction over it, which materially and adversely
affects, or may in the future materially and adversely affect, the ability of
the Seller to perform its obligations under this Agreement or any other
Transaction Document;

                  (f) this Agreement and each Conveyance Agreement, when duly
executed and delivered, shall effect a valid sale, transfer and assignment of
the Receivables and the remaining Trust Property, enforceable against the Seller
and creditors of and purchasers from the Seller;

                  (g) except as set forth in Schedule C, there are no actions,
suits, proceedings or investigations pending or, to the Seller's knowledge,
threatened against the Seller or NAFI, before any court, regulatory body,
administrative agency or other tribunal or governmental instrumentality having
jurisdiction over the Seller or its properties (i) asserting the invalidity of
this Agreement or any of the Transaction Documents, (ii) seeking to prevent the
issuance of the Notes or the consummation of any of the transactions
contemplated by this Agreement or any of the Transaction Documents, (iii)
seeking any determination or ruling that might materially and adversely affect
the performance by the Seller of its obligations under, or the validity or
enforceability of, this Agreement or any of the Transaction Documents, (iv)
involving the Seller and which might adversely affect the federal income tax or
other federal, state or local tax attributes of the Notes, or (v) that could
have a material adverse effect on the Receivables;

                  (h) the Seller has obtained or made all necessary consents,
approvals, waivers and notifications of creditors, lessors and other
non-governmental persons, in each case, in connection with the execution and
delivery of this Agreement and the other Transaction Documents, and the
consummation of all the transactions herein and therein contemplated;

                  (i) the Seller shall not take any action to impair the Trust
Collateral Agent's rights on behalf of the Noteholders and the Insurer in any
Contract;



                                       53
<PAGE>   59

                  (j) the Seller has filed all federal, state, county, local and
foreign income, franchise and other tax returns required to be filed by it
through the date hereof, and has paid all taxes reflected as due thereon;

                  (k) since the date of its organization, the Seller has
maintained its chief executive office in the State of Florida or the State of
Delaware, and there have been no other locations of the Seller's principal
office during the four (4) months preceding the Closing Date;

                  (l) Seller is solvent and will not become insolvent after
giving effect to the transactions contemplated hereunder; Seller is paying its
debts as they become due; Seller, after giving effect to the contemplated
transactions, will have adequate capital to conduct its business;

                  (m) since February 1995, "National Financial Auto Funding
Trust" is the only trade name under which the Seller has operated its business
and, prior to such date, NAFCO Funding Trust was the only trade name under which
the Seller operated its business;

                  (n) the Seller shall not engage in any business or activity
other than in connection with or relating to the purchase of auto loan
receivables and the issuance of securities secured by, or evidencing beneficial
interests in, such auto loan receivables;

                  (o) the Seller is not and shall not be involved in the
day-to-day or other management of its parent or any of its Affiliates;

                  (p) the Seller's financial statements shall reflect its
separate legal existence from any of its Affiliates and the assets of the Seller
shall not be listed on the financial statements of any other entity;

                  (q) the Seller shall maintain records and books of account of
the Seller and shall not commingle such records and books of account, or its
assets, with the records and books of account, or assets, of any Person;

                  (r) the Seller shall act solely in its own name and through
the duly authorized trustees or agents in the conduct of its business, and shall
conduct its business so as not to mislead others as to the identity of the
entity with which they are concerned;

                  (s) at all times, except in the case of a temporary vacancy,
which shall promptly be filled, the Seller shall have at least one trustee who
qualifies as an independent trustee.

                  The Seller shall indemnify the Trust Collateral Agent, the
Insurer, the Servicer, their respective officers, directors, agents and
employees and each Noteholder, and hold each of them harmless against any and
all damages (including all expenses and legal fees) resulting from a breach of
the representations and warranties set forth in this Section 8.1.

                  The Insurer shall be deemed to have relied on the foregoing
representations, warranties and covenants in executing and delivering the Class
A Note Policy.



                                       54
<PAGE>   60

         SECTION 8.2. Corporate Existence.

                  (a) During the term of this Agreement, the Seller will keep in
full force and effect its existence, rights and franchises as a business trust
or a corporation under the laws of Delaware and will obtain and preserve its
qualification to do business in each jurisdiction in which such qualification is
or shall be necessary to protect the validity and enforceability of this
Agreement, the Transaction Documents and each other instrument or agreement
necessary or appropriate to the proper administration of this Agreement and such
other agreements and the transactions contemplated hereby and thereby and the
performance of its obligations hereunder and thereunder.

                  (b) During the term of this Agreement, the Seller shall
observe the applicable legal requirements for the recognition of the Seller as a
legal entity separate and apart from its Affiliates, including as follows:

                           (i) the Seller shall maintain business records and
                  books of account separate from those of its Affiliates;

                           (ii) except as otherwise provided in this Agreement,
                  the Seller shall not commingle its assets and funds with those
                  of its Affiliates;

                           (iii) the Seller shall at all times hold itself out
                  to the public under the Seller's own name as a legal entity
                  separate and distinct from its Affiliates; and

                           (iv) all transactions and dealings between the Seller
                  and its Affiliates will be conducted on an arm's-length basis.

         SECTION 8.3. Liability of Seller; Indemnities. The Seller shall be
liable in accordance herewith only to the extent of the obligations specifically
undertaken under this Agreement by the Seller and the representations made by
the Seller under this Agreement.

                  (a) The Seller shall indemnify, defend and hold harmless the
Issuer, the Owner Trustee, the Trust, the Insurer, the Noteholders, the Trustee,
the Trust Collateral Agent and their respective officers, directors, agents and
employees from and against any taxes that may at any time be asserted against
any such Person with respect to the transactions contemplated in this Agreement
and any of the Transaction Documents (except any income taxes arising out of
fees paid to the Owner Trustee, the Trust Collateral Agent, the Noteholders, the
Trustee and the Insurer and except any taxes to which the Owner Trustee, the
Trust Collateral Agent, the Noteholders or the Trustee may otherwise be subject
to), including any sales, gross receipts, general corporation, tangible personal
property, privilege or license taxes (but, in the case of the Issuer, not
including any taxes asserted with respect to, federal or other income taxes
arising out of distributions on the Notes) and costs and expenses in defending
against the same.

                  (b) The Seller shall indemnify, defend and hold harmless the
Issuer, the Owner Trustee, the Trustee, the Trust Collateral Agent, the Insurer,
their respective officers, directors, agents and employees and the Noteholders
from and against any loss, liability or expense incurred by reason of (i) the
Seller's willful misfeasance, bad faith or negligence in the performance of its



                                       55
<PAGE>   61

duties under this Agreement, or by reason of reckless disregard of its
obligations and duties under this Agreement and (ii) the Seller's or the
Issuer's violation of Federal or state securities laws in connection with the
offering and sale of the Notes.

                  (c) The Seller shall indemnify, defend and hold harmless the
Owner Trustee, Trustee, the Noteholders and the Trust Collateral Agent and their
respective officers, directors, employees and agents from and against any and
all costs, expenses, losses, claims, damages and liabilities arising out of, or
incurred in connection with the acceptance or performance of the trusts and
duties set forth herein and in the Transaction Documents except to the extent
that such cost, expense, loss, claim, damage or liability shall be due to the
willful misfeasance, bad faith or negligence (except for errors in judgment) of
the Owner Trustee.

                  Indemnification under this Section shall survive the
resignation or removal of the Owner Trustee, the Trustee or the Trust Collateral
Agent and the termination of this Agreement or the Indenture or the Trust
Agreement or the Custodial Agreement, as applicable, and shall include
reasonable fees and expenses of counsel and other expenses of litigation. If the
Seller shall have made any indemnity payments pursuant to this Section and the
Person to or on behalf of whom such payments are made thereafter shall collect
any of such amounts from others, such Person shall promptly repay such amounts
to the Seller, without interest.

         SECTION 8.4. Merger or Consolidation of, or Assumption of the
Obligations of, Seller. The Seller may not be merged or consolidated with or
into any Person or transfer substantially all of its assets to any Person.

         SECTION 8.5. Limitation on Liability of Seller and Others. The Seller
and any director or officer or employee or agent of the Seller may rely in good
faith on the written advice of counsel or on any document of any kind, prima
facie properly executed and submitted by any Person respecting any matters
arising under any Transaction Document. The Seller shall not be under any
obligation to appear in, prosecute or defend any legal action that shall not be
incidental to its obligations under this Agreement, and that in its opinion may
involve it in any expense or liability.

         SECTION 8.6. Seller May Own Notes. The Seller and any Affiliate thereof
(except NAFI) may in its individual or any other capacity become the owner or
pledgee of Notes with the same rights as it would have if it were not the Seller
or an Affiliate thereof, except as expressly provided herein or in any
Transaction Document. Notes so owned by the Seller or such Affiliate shall have
an equal and proportionate benefit under the provisions of the Transaction
Documents, without preference, priority, or distinction as among all of the
Notes; provided, however, that any Notes owned by the Seller or any Affiliate
thereof, during the time such Notes are owned by them, shall be without voting
rights for any purpose set forth in the Transaction Documents and will not be
entitled to the benefits of the Class A Note Policy. The Seller shall notify the
Owner Trustee, the Trustee, the Trust Collateral Agent and the Insurer promptly
after it or any of its Affiliates become the owner or pledgee of a Note.



                                       56
<PAGE>   62

                                   ARTICLE IX

                                  THE SERVICER

         SECTION 9.1. Representations, Warranties and Covenants of the Servicer.
The Servicer hereby represents, warrants and covenants to the Trust Collateral
Agent, the Noteholders and the Insurer that as of the Closing Date:

                  (a) the Servicer is duly organized, validly existing and in
good standing under the laws of the state of its organization and is qualified
to transact business in and is in good standing under the laws of each state in
which it is necessary for it to be so qualified in order to carry on its
business as now being conducted and has all licenses necessary to carry on its
business as now being conducted; the Servicer has the full power and authority
to own its property, to carry on its business as presently conducted, and to
execute, deliver and perform each of the Transaction Documents to which it is a
party; the execution, delivery and performance of each of the Transaction
Documents to which it is a party (including all instruments of transfer to be
delivered pursuant to any such Transaction Documents to which it is a party) by
the Servicer and the consummation of the transactions contemplated hereby and
thereby have been duly and validly authorized; each of the Transaction Documents
to which it is a party evidences the valid, binding and enforceable obligation
of the Servicer (subject to applicable bankruptcy and insolvency laws and other
similar laws affecting the enforcement of creditors' rights generally and to
general principles of equity, regardless of whether enforcement is sought in a
proceeding in equity or at law) and all requisite action has been taken by the
Servicer to make each of the Transaction Documents to which it is a party valid
and binding upon the Servicer (subject as aforesaid in the preceding clause);

                  (b) the Servicer is not required to obtain the consent of any
other party or obtain the consent, license, approval or authorization of, or
make any registration or declaration with, any governmental authority, bureau or
agency in connection with the execution, delivery, performance, validity or
enforceability of this Agreement or any other Transaction Documents to which it
is a party;

                  (c) the consummation of the transactions contemplated by the
Transaction Documents will not result in the breach of any term or provision of
the certificate of incorporation or by-laws of the Servicer or result in the
breach of any term or provision of, or conflict with or constitute a default
(with or without notice, lapse of time or both) under or result in the
acceleration of any obligation under, any agreement, indenture or loan or credit
agreement or other instrument to which the Servicer or its property is subject,
or result in the creation or imposition of any Lien upon any of its properties
pursuant to the terms of any such agreement, indenture or loan or credit
agreement or other instrument (aside from the lien created pursuant to this
Agreement) or result in the violation of any law, rule, regulation, order,
judgment or decree to which the Servicer or its property or the Receivables are
subject;

                  (d) the Servicer is not a party to, bound by or in breach or
violation of any indenture or other agreement or instrument, or subject to or in
violation of any statute, order or regulation of any court, regulatory body,
administrative agency or governmental body having



                                       57
<PAGE>   63

jurisdiction over it, which materially and adversely affects, or may in the
future materially and adversely affect, the ability of the Servicer to perform
its obligations under this Agreement or the interest of the Noteholders, the
Trust or the Insurer in any material respect;

                  (e) except as set forth on Schedule C, there are no actions,
suits, proceedings or investigations pending or, to the Servicer's knowledge,
threatened against the Servicer, before any court, regulatory body,
administrative agency or other tribunal or governmental instrumentality having
jurisdiction over the Servicer or any of its properties (i) asserting the
invalidity of this Agreement or any of the Transaction Documents, (ii) seeking
to prevent the issuance of the Notes or the consummation of any of the
transactions contemplated by this Agreement or any of the other Transaction
Documents, (iii) seeking any determination or ruling that might materially and
adversely affect the performance by the Servicer of its obligations under, or
the validity or enforceability of, this Agreement or any of the Transaction
Documents, (iv) involving the Servicer and which might adversely affect the
federal income tax or other federal, state or local tax attributes of the Notes,
or (v) that could have a material adverse effect on the Receivables, the
Servicer or the rights of the Noteholders, the Insurer or the Trustee under the
Transaction Documents;

                  (f) the principal office of the Servicer is located at 10302
Deerwood Park Boulevard, Suite 100, Jacksonville, Florida 32256; and

                  (g) to the Servicer's best knowledge (after using its best
efforts in conducting a detailed and complete analysis), any reprogramming
required to permit the proper functioning, in and following the year 2000, of
(i) the Servicer's computer systems used to conduct, operate and manage the
business, assets and operations of the Servicer, and (ii) equipment containing
embedded microchips (including systems and equipment supplied by others to the
Servicer, or with which systems used by, or on behalf of, the Servicer
interface) and the testing of all such systems and equipment, as so
reprogrammed, has been completed as of the date hereof. To the Servicer's best
knowledge (after using its best efforts in conducting a detailed and complete
analysis), the cost to the Servicer of such reprogramming and testing and of the
reasonably foreseeable consequences of year 2000 to the Servicer's systems and
equipment (including, without limitation, reprogramming errors and the failure
of others' systems) will not result in a Servicer Termination Event or have a
material adverse effect upon the Servicer's business, assets, operations,
prospects or condition, financial or otherwise. Except for such of the
reprogramming referred to in the preceding sentence as may be necessary, to the
Servicer's best knowledge (after using its best efforts in conducting a detailed
and complete analysis), the Servicer's computer and management information
systems used to conduct, operate and manage the Servicer's business, assets and
operations are and, with ordinary course upgrading and maintenance, will
continue for the term of this Agreement to be, sufficient to permit the Servicer
to conduct its business without having a material adverse effect upon the
Servicer's business, assets, operations, prospects or condition, financial or
otherwise.

                  It is understood and agreed that the representations and
warranties set forth in this Section 9.1 shall survive delivery of the
respective Receivable Files to the Custodian and the Sub-Servicers, if any, on
behalf of the Trust Collateral Agent and shall survive as long as any Note shall
be outstanding or this Agreement has not been terminated. Upon discovery by the
Seller, the



                                       58
<PAGE>   64

Servicer or a Responsible Officer of the Trust Collateral Agent of a breach of
any of the representations and warranties set forth in this Section 9.1 which
affects the interests of the Noteholders or the Insurer, the party discovering
such breach shall give prompt written notice thereof to the other parties, the
Noteholders and to the Insurer. In addition to the foregoing, the Servicer shall
indemnify the Seller, the Trust Collateral Agent, the Insurer, the Trust and the
Noteholders against all costs, expenses, losses, damages, claims and
liabilities, including reasonable fees and expenses of counsel, which may be
asserted against or incurred by any of them as a result of third party claims
arising out of the events or facts giving rise to a breach of the covenants or
representations and warranties set forth in Section 9.1.

                  The Insurer shall be deemed to have relied on the foregoing
representations, warranties and covenants in executing and delivering the Class
A Note Policy.

         SECTION 9.2. Liability of Servicer; Indemnities.

                  (a) The Servicer (in its capacity as such) shall be liable
hereunder only to the extent of the obligations in this Agreement specifically
undertaken by the Servicer and the representations made by the Servicer.

                  (b) The Servicer shall defend, indemnify and hold harmless the
Trust, the Trustee, the Trust Collateral Agent, the Owner Trustee, the Backup
Servicer, the Insurer, their respective officers, directors, agents and
employees, and the Noteholders from and 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 the use,
ownership or operation by the Servicer, any Affiliate thereof, or any
Sub-Servicer of any Financed Vehicle.

                  (c) The Servicer shall indemnify, defend and hold harmless the
Trustee, the Trust Collateral Agent, the Backup Servicer, the Noteholders, the
Insurer and the Owner Trustee and their respective officers, directors, agents
and employees from and against any taxes that may at any time be asserted
against any of such parties with respect to the transactions contemplated in
this Agreement except to the extent that such costs, expenses, losses, damages,
claims and liabilities arise out of the negligence or willful misconduct of such
parties.

                  (d) The Servicer (when the Servicer is NAFI) shall indemnify,
defend and hold harmless the Trust, the Trustee, the Trust Collateral Agent, the
Owner Trustee, the Backup Servicer, the Insurer, their respective officers,
directors, agents and employees and the Noteholders from and against any taxes
that may at any time be asserted against any of such parties with respect to the
transactions contemplated in this Agreement, including, without limitation, any
sales, gross receipts, tangible or intangible personal property, privilege or
license taxes (but not including any federal or other income taxes, including
franchise taxes, asserted with respect to, and as of the date of, the sale of
the Receivables and the Other Conveyed Property to the Trust or the issuance and
original sale of the Notes or asserted with respect to ownership of the
Receivables, or federal or other income taxes arising out of distributions on
the Notes) and costs and expenses in defending against the same.



                                       59
<PAGE>   65

                  (e) The Servicer (when the Servicer is not NAFI) shall
indemnify, defend and hold harmless the Trust, the Trustee, the Trust Collateral
Agent, the Owner Trustee, the Backup Servicer, the Insurer, their respective
officers, directors, agents and employees and the Noteholders from and against
any taxes with respect to the sale of Receivables in connection with servicing
hereunder that may at any time be asserted against any of such parties with
respect to the transactions contemplated in this Agreement, including, without
limitation, any sales, gross receipts, tangible or intangible personal property,
privilege or license taxes (but not including any federal or other income taxes,
including franchise taxes, asserted with respect to, and as of the date of, the
sale of the Receivables and the Other Conveyed Property to the Trust or the
issuance and original sale of the Notes or asserted with respect to ownership of
the Receivables, or federal or other income taxes arising out of distributions
on the Notes) and costs and expenses in defending against the same.

                  (f) The Servicer shall indemnify, defend and hold harmless the
Trust, the Trustee, the Trust Collateral Agent, the Backup Servicer, the Owner
Trustee, the Insurer, their respective officers, directors, agents and employees
and the Noteholders from and against any and all costs, expenses, losses,
claims, damages, and liabilities to the extent that such cost, expense, loss,
claim, damage, or liability arose out of, or was imposed upon the Trust, the
Trustee, the Trust Collateral Agent, the Insurer or the Noteholders by reason of
the breach of this Agreement by the Servicer, the negligence, willful
misfeasance, or bad faith of the Servicer in the performance of its duties under
this Agreement or by reason of reckless disregard of its obligations and duties
under this Agreement or otherwise incurred in connection with the transactions
contemplated hereby.

                  (g) NAFI shall indemnify, defend and hold harmless the Trust,
the Trustee, the Trust Collateral Agent, the Owner Trustee, the Backup Servicer,
the Insurer, their respective officers, directors, agents and employees and the
Noteholders from and against any loss, liability or expense incurred by reason
of the violation by Servicer or Seller of federal or state securities laws in
connection with the sale of the Notes.

                  (h) Indemnification under this Article shall survive the
termination of this Agreement and will survive the early resignation or removal
of any of the parties hereto and shall include, without limitation, reasonable
fees and expenses of counsel and expenses of litigation. If the Servicer has
made any indemnity payments pursuant to this Article and the recipient
thereafter collects any of such amounts from others, the recipient shall
promptly repay such amounts collected to the Servicer, without interest.
Notwithstanding any other provision of this Agreement, the obligations of the
Servicer shall not terminate or be deemed released upon the resignation or
termination of NAFI as the Servicer and shall survive any termination of this
Agreement.

         SECTION 9.3. Merger or Consolidation of, or Assumption of the
Obligations of the Servicer or the Trust Collateral Agent.

                  (a) During the term of this Agreement, the Servicer will keep
in full force and effect its existence, rights and franchises as a business
trust or corporation under the laws of Delaware and will obtain and preserve its
qualification to do business in each jurisdiction in which



                                       60
<PAGE>   66

such qualification is or shall be necessary to protect the validity and
enforceability of this Agreement, the Transaction Documents and each other
instrument or agreement necessary or appropriate to the proper administration of
this Agreement and the transactions contemplated hereby and thereby and the
performance of its obligations hereunder and thereunder.

                  (b) The Servicer may be merged or consolidated with or into
any Person, or transfer substantially all of its assets to any Person, in which
case any Person resulting from any merger or consolidation to which the Servicer
shall be a party, or any Person succeeding to the business of the Servicer,
shall be the successor of the Servicer hereunder, without the execution or
filing of any paper or any further act on the part of any of the parties hereto,
anything herein to the contrary notwithstanding; provided however, that the
successor or surviving person to the Servicer shall be an Eligible Servicer and
each successor to the Servicer by virtue of its acquisition of substantially all
of the Servicer's assets shall be deemed to have made the representations and
warranties set forth in Section 9.1 hereof and shall agree in writing to be
bound by each of the Servicer's obligations hereunder; provided further, that,
(i) no representation or warranty of the Servicer is breached at the time of
merger, (ii) no event has occurred that, after notice or lapse of time or both,
would be an Insurance Agreement Event of Default or an Event of Default and
(iii) an Opinion of Counsel to the effect that all conditions precedent to
merger have been satisfied and a first priority security interest opinion have
been provided to the Insurer and the Trust Collateral Agent. The Servicer shall
provide notice of any such merger, consolidation or transfer of substantially
all of its assets to the Insurer, the Trust Collateral Agent and the Rating
Agencies (which notice shall be forwarded by the Trust Collateral Agent to the
Noteholders).

                  (c) Any Person (i) into which the Trust Collateral Agent or
the Backup Servicer may be merged or consolidated, (ii) resulting from any
merger or consolidation to which the Trust Collateral Agent or the Backup
Servicer shall be a party, (iii) which acquires by conveyance, transfer or lease
substantially all of the assets of the Trust Collateral Agent or the Backup
Servicer, or (iv) succeeding to the business of the Trust Collateral Agent or
the Backup Servicer, in any of the foregoing cases shall execute an agreement of
assumption to perform every obligation of the Trust Collateral Agent or the
Backup Servicer, as the case may be, under this Agreement and, whether or not
such assumption agreement is executed, shall be the successor to the Trust
Collateral Agent or the Backup Servicer, as the case may be, under this
Agreement without the execution or filing of any paper or any further act on the
part of any of the parties to this Agreement, anything in this Agreement to the
contrary notwithstanding. The Trust Collateral Agent or the Backup Servicer, as
the case may be, or its successor hereunder shall provide the Servicer, the
Noteholders and the Insurer with prompt notice of any such transaction. In the
case of the Trust Collateral Agent, in the event that the resulting entity does
not meet the eligibility requirements set forth in Section 6.11 of the
Indenture, the Trust Collateral Agent, upon the written request of the
Controlling Party, shall resign. Nothing contained herein shall be deemed to
release the Trust Collateral Agent or the Backup Servicer, as the case may be,
from any obligation.

         SECTION 9.4. Limitation on Liability of Servicer, Trust Collateral
Agent and Others.

                  (a) In addition to the indemnities provided pursuant to
Section 9.2, the Servicer will defend and indemnify the Trust Collateral Agent,
the Backup Servicer, the Insurer



                                       61
<PAGE>   67

and their respective officers, directors, employees and agents and the
Noteholders against any and all costs, expenses, losses, damages, claims and
liabilities, including reasonable fees and expenses of counsel and expenses of
litigation, arising from a breach of its obligations to service the Receivables
in accordance with this Agreement; provided however, that the Servicer shall not
be liable for any such costs, expenses, losses, damages, claims or liabilities
to the extent that any thereof resulted from the negligence or willful
misconduct of the Trust Collateral Agent, the Backup Servicer or their
respective officers, directors, employees and agents; and provided further that
the Servicer will not be liable for any such amount that resulted from any act
or omission to act by it done in conformity with the written instruction of the
Trust Collateral Agent. If the Servicer or Seller has made any indemnity
payments to the Noteholders or the Trust Collateral Agent, the Insurer or their
respective officers, directors, employees or agents pursuant to this paragraph,
and the Trust Collateral Agent, the Insurer or their respective officers,
directors, employees or agents thereafter collects any of the amounts which gave
rise to such indemnity payments from others or any such amounts are received by
the Trust Collateral Agent or its officers, directors, employees or agents or
the Noteholders, the Trust Collateral Agent, the Insurer or its officers,
directors, employees or agents, the Insurer shall repay such amounts collected
to the Servicer or Seller who made such indemnity payment. These indemnities of
the Servicer and the Seller will survive any transfer of the respective rights,
duties and obligations of the Servicer or the Seller hereunder to another
Person, the termination of this Agreement, any Servicer Termination Event, the
termination of the Trust Property or the resignation or replacement of the Trust
Collateral Agent for acts accruing prior to the transfer, termination of the
Trust Property or the resignation or replacement of the Trust Collateral Agent,
but will not cover actions or omissions of any successor Servicer after a
Servicer Termination Event. Neither the Servicer nor any of its directors,
officers, employees or agents shall be under any liability to the Trust
Property, the Trust Collateral Agent, any Noteholder, the Insurer or the Seller
for any action taken by the Servicer in its capacity as such (and not in any
other capacity) in good faith or for errors in judgment except for any action
taken or errors committed which caused a breach of a representation or warranty
of the Servicer under Section 9.1. The Seller, the Servicer, the Backup Servicer
and any director, officer, employee or agent of the Seller, the Servicer or the
Backup Servicer may rely in good faith on any document of any kind prima facie
properly executed and submitted by any Person respecting any matters arising
hereunder.

                  (b) The Seller, the Servicer and any director, officer,
employee or agent of the Seller or the Servicer shall be indemnified by the
Trust Property and held harmless against any loss, liability or expense incurred
in connection with any legal action relating to this Agreement or the Notes,
other than any loss, liability or expense for which the Seller or Servicer
provides an indemnity as provided in Sections 8.3 and 9.2 hereof, respectively,
and in the preceding paragraph (except as any such loss, liability or expense
shall be otherwise reimbursable pursuant to this Agreement). Neither the Seller
nor the Servicer shall be under any obligation to appear in, prosecute or defend
any legal action which is not in its reasonable judgment incidental to its
respective duties under this Agreement and which in its reasonable judgment may
subject it to any expense or liability; provided however, that the Servicer may
in its discretion undertake any such action which it may deem necessary or
desirable in respect to this Agreement and the rights and duties of the parties
hereto and the interest of the Noteholders hereunder. In such event, the legal
expenses and costs of such action and any liability resulting therefrom shall be
expenses, costs and



                                       62
<PAGE>   68

liabilities of the Trust Property, and the Servicer shall be entitled to be
reimbursed therefor as provided herein. The rights of the Servicer to indemnity,
reimbursement or limitation on its liability pursuant to this Section 9.4 shall
survive the transfer of the rights, duties and obligations of the Servicer to
another Person or any Servicer Termination Event.

                  (c) The Backup Servicer shall not be required to expend or
risk its own funds or otherwise incur financing liability in the performance of
any of its duties hereunder, or in the exercise of any of its rights or powers,
if the repayment of such funds or adequate written indemnity against such risk
or liability is not reasonably assured to it in writing prior to the expenditure
or risk of such funds or incurrence of financial liability. Notwithstanding
anything herein to the contrary, neither the Trust Collateral Agent nor the
Backup Servicer shall be liable for any obligation of the Servicer contained in
this Agreement, and the Trust Collateral Agent, the Seller, the Insurer and the
Noteholders shall look only to the Servicer to perform such obligations. The
Backup Servicer shall perform such duties and only such duties as are
specifically set forth in the Transaction Documents, and no implied covenants or
obligations shall be read into the Transaction Documents against the Backup
Servicer.

                  (d) [Reserved]

                  (e) Neither the Backup Servicer, the Trust Collateral Agent
nor any of its directors, officers, employees or agents shall be under any
liability of any kind or type to any Person arising from the incomplete or
inaccurate contents of any computer tape provided by the Servicer in accordance
with Section 4.15 hereof. Neither the Trust Collateral Agent nor the Backup
Servicer shall be under any obligations to appear in, prosecute or defend any
legal motion that is not incidental to its duties hereunder and that in its
reasonable opinion may involve it in any expense or liability; provided,
however, that the Backup Servicer or the Trust Collateral Agent may, but shall
not be obligated to, take any such action that is reasonable and that may be
necessary or desirable in respect of this Agreement and the rights and duties of
the parties hereto. If any such proposed action is commenced, the legal expenses
and costs of such action and any liabilities resulting therefrom shall be
expenses, costs and liabilities of the Servicer, the Backup Servicer and the
Trust Collateral Agent shall be entitled to be reimbursed therefor by the
Servicer.

         SECTION 9.5. Delegation of Duties. The Servicer may delegate duties
under this Agreement to an Affiliate of NAFI, or, pursuant to Section 4.2, to a
Sub-Servicer, in each case with the prior written consent of the Controlling
Party and the Trust Collateral Agent. The Servicer also may at any time perform
through sub-contractors the specific duties of (i) repossession of Financed
Vehicles, (ii) tracking Financed Vehicles' insurance and (iii) pursuing the
collection of deficiency balances on certain Liquidated Receivables, in each
case, without the written consent of the Controlling Party and may perform other
specific duties through such sub-contractors in accordance with Servicer's
customary servicing policies and procedures, with the prior written consent of
the Controlling Party; provided, however, that no such delegation or
sub-contracting duties by the Servicer shall relieve the Servicer of its
responsibility with respect to such duties. Neither NAFI nor any party acting as
Servicer hereunder shall appoint any Sub-Servicer hereunder without the prior
written consent of the Controlling Party.



                                       63
<PAGE>   69

         SECTION 9.6. Servicer and Backup Servicer Not to Resign. Subject to the
provisions of Section 9.3, neither the Servicer nor the Backup Servicer shall
resign from the obligations and duties imposed on it by this Agreement as Backup
Servicer or as Servicer except (i) upon a determination that by reason of a
change in legal requirements the performance of its duties under this Agreement
would cause it to be in violation of such legal requirements in a manner which
would have a material adverse effect on the Servicer or the Backup Servicer, as
the case may be, and the Controlling Party does not elect to waive the
obligations of the Servicer or the Backup Servicer, as the case may be, to
perform the duties which render it legally unable to act or to delegate those
duties to another Person or (ii) with respect to the Backup Servicer, upon 90
days written notice to the Noteholders, the Insurer, the Trustee, the Owner
Trustee and the Servicer, and an entity that is an Eligible Servicer acceptable
to the Controlling Party shall have assumed the responsibilities and obligations
of the Backup Servicer. Any such determination permitting the resignation of the
Servicer or the Backup Servicer pursuant to clause (i) above shall be evidenced
by an Opinion of Counsel to such effect delivered and acceptable to the Trust
Collateral Agent, the Owner Trustee and the Insurer (unless an Insurer Default
shall have occurred and be continuing). No resignation of the Servicer shall
become effective until the Backup Servicer or an entity acceptable to the
Insurer shall have assumed the responsibilities and obligations of the Servicer
or a successor Servicer that is an Eligible Servicer shall have assumed the
responsibilities and obligations of the Servicer. Upon the resignation of the
Servicer, the Servicer shall give prompt written notice thereof to the Rating
Agencies. No resignation of the Backup Servicer shall become effective until an
entity acceptable to the Controlling Party shall have assumed the
responsibilities and obligations of the Backup Servicer.

                                   ARTICLE X

                                     Default

         SECTION 10.1. Servicer Termination Event. For purposes of this
Agreement, each of the following shall constitute a "Servicer Termination Event"
(whatever the reason for such Servicer Termination Event and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):

                  (a) Any failure by the Servicer to deliver, or cause to be
delivered by any Sub-Servicer, to the Trust Collateral Agent for distribution to
Noteholders or deposit in the Spread Account any proceeds or payment required to
be so delivered by the Servicer or Sub-Servicer under the terms of this
Agreement (including deposits of the Purchase Amount) that continues unremedied
for a period of two Business Days (one Business Day with respect to payment of
Purchase Amounts) after the earlier of the date on which (i) a responsible
officer of the Servicer obtains knowledge of such failure or (ii) notice is
received by the Servicer from the Trust Collateral Agent acting at the direction
of the Controlling Party (but in no event later than five Business Days after
the Servicer is required to make such delivery or deposit); or

                  (b) Any failure by the Servicer to observe or perform any
other of the covenants or agreements on the part of the Servicer in this
Agreement, which failure (i) materially



                                       64
<PAGE>   70

and adversely affects any Noteholder (determined without regard to the
availability of funds under the Class A Note Policy) or the Insurer (unless an
Insurer Default shall have occurred and be continuing), and (ii) continues
unremedied for a period of thirty days after the earlier of the date on which
(i) a responsible officer of the Servicer has knowledge of such failure or (ii)
notice, requiring the same to be remedied, shall have been given to the Servicer
by the Trust Collateral Agent acting at the direction of the Controlling Party,
or to the Servicer and the Trust Collateral Agent by the Insurer or any
Noteholder; or

                  (c) The entry of a decree or order for relief by a court or
regulatory authority having jurisdiction in respect of the Servicer in an
involuntary case under the federal bankruptcy laws, as now or hereafter in
effect, or another present or future, federal bankruptcy, insolvency or similar
law, or appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Servicer or of any substantial
part of its property or ordering the winding up or liquidation of the affairs of
the Servicer; or the commencement of an involuntary case under the federal
bankruptcy laws, as now or hereinafter in effect, or another present or future
federal or state bankruptcy, insolvency or similar law and such case is not
dismissed within 60 days; or

                  (d) The commencement by the Servicer of a voluntary case under
the federal bankruptcy laws, as now or hereafter in effect, or any other present
or future, federal or state, bankruptcy, insolvency or similar law, or the
consent by the Servicer to the appointment of or taking possession by a
receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Servicer or of any substantial part of its property or
the making by the Servicer of an assignment for the benefit of creditors or the
failure by the Servicer generally to pay its debts as such debts become due or
the taking of corporate action by the Servicer in furtherance of any of the
foregoing; or

                  (e) Any representation, warranty or statement of the Servicer
made in this Agreement or any certificate, report or other writing delivered
pursuant hereto shall prove to be incorrect in any material respect as of the
time when the same shall have been made, and the incorrectness of such
representation, warranty or statement has a material adverse effect on the
interests of the Trust, the Insurer or the Noteholders (or of the Seller if NAFI
is the Servicer) in any Trust Property or Transaction Document (determined
without regard to the availability of funds under the Class A Note Policy) and,
within 30 days after the earlier of the date on which (i) a responsible officer
of the Servicer has knowledge of such failure or (ii) notice shall have been
given to the Servicer by the Trust Collateral Agent acting at the direction of
the Controlling Party, the circumstances or condition in respect of which such
representation, warranty or statement was incorrect shall not have been
eliminated or otherwise cured; or

                  (f) There shall have occurred an Insurance Agreement Event of
Default or an event of default under any other insurance agreement to which the
Insurer and NAFI and/or the Seller or any other Affiliate of NAFI are party; or

                  (g) The Servicer fails to deliver the report required to be
delivered by the Servicer pursuant to Section 4.11 and such failure remains
unremedied for a period of five days;

                  (h) A claim is made under the Class A Note Policy; or



                                       65
<PAGE>   71

                  (i) so long as an Insurer Default shall not have occurred and
be continuing, the Insurer shall not have delivered a Servicer Extension Notice
pursuant to Section 4.16.

         SECTION 10.2. Consequences of a Servicer Termination Event. If a
Servicer Termination Event shall occur, then, and in each and every such case,
so long as such Servicer Termination Event shall not have been remedied, the
Trust Collateral Agent may, with the prior written consent or direction of the
Controlling Party, the Trust Collateral Agent shall, by notice in writing to the
Servicer, the Seller and the Backup Servicer, (i) terminate all of the rights
and obligations of the Servicer under this Agreement and in and to any
Receivables and the proceeds thereof, subject to compensation, rights of
reimbursement, indemnity and limitation on liability to which the Servicer is
then entitled and the rights of indemnity to which the Trust Collateral Agent
and the Insurer are then entitled pursuant to Sections 9.2 and 9.4 hereof,
together with any and all actions to which any Noteholder, the Trust Collateral
Agent or the Insurer may be entitled to under any applicable law, and (ii)
subject to Section 10.4, appoint the Backup Servicer as the successor Servicer.
Such notice shall specify, to the extent possible, the timing and method of
transition of the servicing of the Receivables from the Servicer to the Backup
Servicer or another successor Servicer appointed pursuant to Section 10.4. On
and after the receipt by the Servicer of such written notice and upon the
effective date of the transfer to the Backup Servicer or such other successor
Servicer specified in such notice, all authority and power of the Servicer under
this Agreement, whether with respect to the Notes, the Receivables, control over
the Post-Office Box and Lockbox Account or otherwise, shall pass to and be
vested in the Backup Servicer or such other successor Servicer, pursuant to and
under this Section; and, without limitation, such Person is hereby authorized
and empowered to execute and deliver, on behalf of the Servicer, an
attorney-in-fact or otherwise, any and all documents and other instruments, and
to do or accomplish all other acts or things necessary or appropriate to effect
the purposes of such notice of termination, whether to complete the transfer and
endorsement or assignment of the Receivables and related documents, or
otherwise. The Servicer agrees to cooperate with such Person in effecting the
termination of the Servicer's responsibilities and rights hereunder, including,
without limitation, the transfer to such party for administration by it of all
cash amounts which shall thereafter be received with respect to the Receivables.

                  The Trust Collateral Agent shall not be charged with knowledge
of any event referred to in clauses (a) through (f) above unless a Responsible
Officer of the Trust Collateral Agent at the Corporate Trust Office obtains
actual knowledge of such event or receives written notice of such event from the
Servicer, the Insurer or from a Noteholder. The Trust Collateral Agent promptly
shall send written notice to each Rating Agency, the Noteholders and the Insurer
of each Servicer Termination Event of which it is charged with knowledge in
accordance with the preceding sentence.

                  If the Servicer is terminated pursuant to this Section 10.2,
then the Servicer shall bear all of the costs and expenses of transferring the
duties and obligations of the Servicer to the Backup Servicer or a successor
Servicer, and such costs and expenses shall not be reimbursable from the Trust
Property nor payable by the Seller or the Trust Collateral Agent. To the extent
not borne by the Servicer as described above, such costs and expenses (including
attorney's fees and expenses) shall be borne by the Trust Property.



                                       66
<PAGE>   72

         SECTION 10.3. Additional Consequences of a Servicer Termination Event.
The successor Servicer is authorized and empowered by this Agreement to execute
and deliver, on behalf of the terminated Servicer, as attorney-in-fact or
otherwise, any and all documents and other instruments and to do or accomplish
all other acts or things necessary or appropriate to effect the purposes of such
notice of termination, whether to complete the transfer and endorsement of the
Receivables and the Other Conveyed Property and related documents to show the
Trust as lienholder or secured party on the related Lien Certificates, or
otherwise. The terminated Servicer agrees to cooperate with the Backup Servicer
or the successor Servicer, as the case may be, in effecting the termination of
the responsibilities and rights of the terminated Servicer under this Agreement,
including, without limitation, the transfer to the Backup Servicer or the
successor Servicer for administration by it of all cash amounts that shall at
the time be held by the terminated Servicer for deposit, or have been deposited
by the terminated Servicer, in the Collection Account or thereafter received
with respect to the Receivables and the delivery to the Backup Servicer or the
successor Servicer of all Receivable Files, Monthly Records and a computer tape
in readable form as of the most recent Business Day containing all information
necessary to enable the Backup Servicer or a successor Servicer to service the
Receivables and the Other Conveyed Property. If requested by the Controlling
Party, the successor Servicer shall terminate the Lockbox Agreement and direct
the Obligors to make all payments under the Receivables directly to the
successor Servicer (in which event the successor Servicer shall process such
payments in accordance with Section 4.6(e)), or to a lockbox established by the
successor Servicer at the direction of the Controlling Party, at the terminated
Servicer's expense. The terminated Servicer shall grant the Trust Collateral
Agent, the Backup Servicer or successor Servicer and the Controlling Party
reasonable access to the terminated Servicer's premises at the terminated
Servicer's expense.

         SECTION 10.4. Appointment of Successor.

                  (a) (i) On and after the time the Servicer receives a notice
of termination pursuant to Section 10.2, (ii) upon non-extension of the
servicing term as referred to in Section 4.16, or (iii) upon the resignation of
the Servicer pursuant to Section 9.6, the Backup Servicer (unless an alternate
successor Servicer shall have been appointed pursuant to Section 10.4(b)) shall
be the successor in all respects to the Servicer in its capacity as servicer
under this Agreement and the transactions set forth or provided for in this
Agreement, and shall be subject to all the rights, responsibilities,
restrictions, duties, liabilities and termination provisions relating thereto
placed on the Servicer by the terms and provisions of this Agreement except as
otherwise stated herein; provided, however, that the Backup Servicer shall not
be required to be the successor servicer unless it shall have been provided with
four weeks' advance notice of any of the events described in clauses (i), (ii)
and (iii) above. The Trust Collateral Agent and such successor shall take such
action, consistent with this Agreement, as shall be necessary to effectuate any
such succession. If a successor Servicer is acting as Servicer hereunder, it
shall be subject to term-to-term servicing as referred to in Section 4.16 and to
termination under Section 10.2 upon the occurrence of any Servicer Termination
Event applicable to it as Servicer.

                  (b) The Controlling Party may exercise at any time its right
to appoint as successor to the Servicer a Person other than the Person serving
as Backup Servicer at the time, and (in the case of the Insurer, without
limiting its obligations under the Class A Note



                                       67
<PAGE>   73

Policy) shall have no liability to the Trust Collateral Agent, NAFI, the Seller,
the Person then serving as Backup Servicer, any Noteholders or any other Person
if it does so.

                  (c) If, pursuant to Section 10.4(a) and (b) hereof, the Backup
Servicer would become successor Servicer and at such time the Backup Servicer
shall be legally unable or unwilling to act as Servicer, the Controlling Party
shall appoint a successor Servicer; provided, however, that if the Controlling
Party shall not appoint a successor Servicer within 180 days thereof, the Backup
Servicer may petition a court of competent jurisdiction to appoint, any
experienced servicer of motor vehicle installment sales contracts and notes
having a net worth of not less than $10,000,000 as the successor to the Servicer
hereunder in the assumption of all or any part of the responsibilities, duties
or liabilities of the Servicer hereunder. Pending appointment of a successor
Servicer pursuant to the preceding sentence, the Backup Servicer shall act as
successor Servicer unless it is legally unable to do so, in which event the
outgoing Servicer shall continue to act as Servicer until a successor has been
appointed and accepted such appointment.

                  (d) Subject to Section 9.6, no provision of this Agreement
shall be construed as relieving the Backup Servicer of its obligation to succeed
as Servicer upon the termination of the Servicer pursuant to Section 10.2, the
resignation of the Servicer pursuant to Section 9.6 or the non-extension of the
servicing term of the Servicer, as referred to in Section 4.16. If, upon the
termination of the Servicer pursuant to Section 10.2, the resignation of the
Servicer pursuant to Section 9.6 or the non-extension of the servicing term of
the Servicer pursuant to Section 4.16, a Person other than the Backup Servicer
is appointed as successor Servicer pursuant to subsection (b) or (c) above, the
Backup Servicer shall not be relieved of its duties as Backup Servicer
hereunder. If the Backup Servicer becomes the successor Servicer at a time when
it is also serving as Trust Collateral Agent, it may, with the prior written
consent of the Controlling Party, seek to have a successor to it appointed as
Servicer; and if such successor is appointed by the Controlling Party (or by a
court of competent jurisdiction pursuant to clause (c) above), the Backup
Servicer shall not be liable for the acts or omissions of such successor
Servicer.

                  (e) In connection with any appointment of a successor
Servicer, the Trust Collateral Agent may make such arrangements for the
compensation of such successor Servicer out of payments on Receivables as it and
such successor shall agree; provided however, that no such compensation to such
successor Servicer shall be in excess of that permitted the Servicer hereunder
unless the Trust Collateral Agent and the Controlling Party agree in writing to
a larger Servicing Fee

                  (f) The Seller, the Backup Servicer, the Trust Collateral
Agent, any Sub-Servicer and such successor shall take such action, consistent
with this Agreement, as shall be necessary to effectuate any such succession.

                  (g) If the Backup Servicer shall succeed to the Servicer's
duties as Servicer of the Receivables as provided herein, it shall do so in its
individual capacity and not in its capacity as Trust Collateral Agent. In the
event that the Backup Servicer shall not seek to appoint a successor Servicer
within three months of its succession to the Servicer's duties as servicer, it
shall resign as Trust Collateral Agent pursuant to Section 10.8 and the Seller
shall, with the



                                       68
<PAGE>   74

written consent of the Controlling Party, appoint, or petition a court to
appoint, a successor trust collateral agent. To the extent a successor Servicer
is appointed, the Backup Servicer shall not be liable for the acts or omissions
of such successor Servicer.

         SECTION 10.5. [RESERVED]

         SECTION 10.6. Notification to Noteholders and Rating Agencies. Upon any
termination of, or appointment of a successor to, the Servicer, the Trust
Collateral Agent shall give prompt written notice thereof to each Noteholder and
Rating Agency.

         SECTION 10.7. Waiver of Past Defaults. The Controlling Party may, on
behalf of all Noteholders, waive any default by the Servicer in the performance
of its obligations hereunder and its consequences. Upon any such waiver of a
past default, such default shall cease to exist, and any Servicer Termination
Event arising therefrom shall be deemed to have been remedied for every purpose
of this Agreement. No such waiver shall extend to any subsequent or other
default or impair any right consequent thereto. Written notice of such waiver
shall be given promptly to each Rating Agency.

         SECTION 10.8. Termination of Trust Collateral Agent. The Trust
Collateral Agent may at any time resign and be discharged from the trusts hereby
created by giving 60 days' prior written notice thereof to the Seller, the
Insurer and the Noteholders. Upon receiving such notice of resignation, the
Seller shall, with the prior written consent of the Controlling Party, promptly
appoint a successor trust collateral agent by written instrument, in triplicate,
one copy of which instrument shall be delivered to the resigning Trust
Collateral Agent, one copy to the Insurer, one copy to the Noteholders and one
copy to the successor trust collateral agent. If no successor shall have been so
appointed and have accepted appointment within thirty (30) days after the giving
of such notice of resignation, the resigning Trust Collateral Agent may petition
any court of competent jurisdiction for the appointment of a successor trust
collateral agent. If the Trust Collateral Agent shall resign voluntarily, for
any reason, except lack of eligibility, then the Trust Collateral Agent shall
bear all of its costs and expenses (including without limitation its attorney's
fees) of transferring the trusteeship to a successor trustee and such costs and
expenses shall not be reimbursable from the Trust Property nor payable by the
Seller or the Servicer.

                  If any of the following events occur and shall be continuing,
the Controlling Party may terminate all of the duties of the Trust Collateral
Agent under this Agreement:

                           (i) the Trust Collateral Agent shall cease to meet
         the eligibility requirements for the Trustee as set forth in Section
         6.11 of the Indenture and shall fail to resign after written request
         therefor by the Controlling Party, or

                           (ii) the Trust Collateral Agent shall become
         incapable of acting, or shall be adjudged a bankrupt or insolvent, or a
         receiver of the Trust Collateral Agent or of its property shall be
         appointed, or any public officer shall take charge or control of the
         Trust Collateral Agent or of its property or affairs for the purpose of
         rehabilitation, conservation or liquidation, or



                                       69
<PAGE>   75

                           (iii) the Trust Collateral Agent has failed to
         perform its duties hereunder.

                  On or after the receipt by the Trust Collateral Agent of such
written notice (which notice shall be forwarded by the Trust Collateral Agent to
the Noteholders), all authority, power, obligations and responsibilities of the
Trust Collateral Agent under this Agreement, whether with respect to the
Receivables or the Other Conveyed Property or otherwise, automatically shall
pass to, be vested in and become obligations and responsibilities of such other
successor trust collateral agent appointed by the Controlling Party. Nothing
contained herein shall be deemed to release the Trust Collateral Agent from any
obligation.

                  The Controlling Party at any time may remove the Trust
Collateral Agent and appoint a successor trust collateral agent by written
instrument or instruments, in triplicate, signed by the Insurer or such
Noteholders, as the case may be, or their attorneys-in-fact duly authorized, one
complete set of which instruments shall be delivered to the Seller, one complete
set to the Trust Collateral Agent so removed and one complete set to the
successor trust collateral agent so appointed.

         SECTION 10.9. Successor to Servicer.

                  (a) The Backup Servicer, in its capacity as successor to the
Servicer, shall perform such duties and only such duties as are specifically set
forth in this Agreement with respect to the assumption of any servicing duties,
including, without limitation, to supervise, verify, monitor or administer the
performance of the Servicer and no implied covenants or obligations shall be
read into this Agreement against the Backup Servicer.

                  (b) In the absence of bad faith or negligence on its part, the
Backup Servicer may conclusively rely as to the truth of the statements and the
correctness of the opinions expressed in certificates or opinions furnished to
the Backup Servicer and conforming to the requirements of this Agreement; but in
the case of any such certificates or opinions, which by any provision hereof are
specifically required to be furnished to the Backup Servicer, the Backup
Servicer shall be under a duty to examine the same and to determine whether or
not they conform to the requirements of this Agreement.

                  (c) The Backup Servicer shall have no liability for any
actions taken or omitted by the Servicer.

                                   ARTICLE XI

                                   TERMINATION

         SECTION 11.1. Optional Purchase of All Receivables.

                  (a) On the last day of any Due Period as of which the Pool
Balance shall be less than or equal to 10% of the Original Pool Balance sold to
the Trust on the Cut-off Date, the Seller or the Servicer shall have the option
to purchase the Owner Trust Estate, other than the



                                       70
<PAGE>   76

Trust Accounts (with the prior written consent of the Insurer if such purchase
would result in a claim on the Class A Note Policy or would result in any amount
owing to any Noteholder or the Insurer under the Insurance Agreement remaining
unpaid); provided, however, that the amount to be paid for such purchase (as set
forth in the following sentence) shall be sufficient to pay the full amount of
principal, and interest then due and payable on the Notes. To exercise such
option, the Seller shall (i) deliver written notice of such purchase to the
Trust Collateral Agent, the Insurer, the Noteholders and the Servicer not later
than the fifteenth day of the month next preceding the month in which such
purchase will occur, and (ii) deposit pursuant to Section 5.6 in the Collection
Account an amount equal to the aggregate Purchase Amount for the Receivables
(including Liquidated Receivables), plus the appraised value of any other
property held by the Trust, such value to be determined by an appraiser mutually
agreed upon by the Servicer, the Insurer and the Trust Collateral Agent, and
shall succeed to all interests in and to the Trust. Written notice of the
exercise of the option to purchase described in this Section 11.1(a) shall be
given to each Rating Agency by the Seller.

                  (b) Upon any sale of the assets of the Trust pursuant to
Section 9.1 of the Trust Agreement, the Servicer shall instruct the Trust
Collateral Agent to deposit the proceeds from such sale after all payments and
reserves therefrom (including the expenses of such sale) have been made (the
"Insolvency Proceeds") in the Collection Account.

                  (c) Notice of any termination of the Trust shall be given by
the Servicer to the Owner Trustee, the Noteholders, the Trustee, the Trust
Collateral Agent, the Backup Servicer, the Insurer and the Rating Agencies as
soon as practicable after the Servicer has received notice thereof. Such notice
shall state (i) the Distribution Date upon or with respect to which final
payment of the Notes shall be made upon which presentation and surrender of the
Notes at the office of the Trust Collateral Agent herein designated shall be
made on a date not more than 30 days following such payment on the Notes, (ii)
the amount of any such final payment, (iii) that the Record Date otherwise
applicable to such Distribution Date is not applicable, payments being made only
upon presentation and surrender of the Notes at the office of the Trust
Collateral Agent therein specified and (iv) no amounts will thereafter be
payable under the Notes.

                                  ARTICLE XII

                      ADMINISTRATIVE DUTIES OF THE SERVICER

         SECTION 12.1. Administrative Duties.

                  (a) Duties with Respect to the Indenture. The Servicer shall
perform all its duties and the duties of the Issuer under the Indenture. In
addition, the Servicer shall consult with the Owner Trustee as the Servicer
deems appropriate regarding the duties of the Issuer under the Indenture. The
Servicer shall monitor the performance of the Issuer and shall advise the Owner
Trustee when action is necessary to comply with the Issuer's duties under the
Indenture. The Servicer shall prepare for execution by the Issuer or shall cause
the preparation by other appropriate Persons of all such documents, reports,
filings, instruments, certificates and opinions as it shall be the duty of the
Issuer to prepare, file or deliver pursuant to the Indenture. In furtherance of
the foregoing, the Servicer shall take all necessary action that is the duty of
the



                                       71
<PAGE>   77

Issuer to take pursuant to the Indenture, including, without limitation,
pursuant to Sections 2.7, 3.5, 3.6, 3.7, 3.9, 3.10, 3.17, 5.1, 7.3, 8.3, 9.2,
9.3, 11.1 and 11.15 of the Indenture.

                  (b) Duties with Respect to the Issuer.

                           (i) In addition to the duties of the Servicer set
         forth in this Agreement or any of the Transaction Documents, the
         Servicer shall perform such calculations and shall prepare for
         execution by the Issuer or the Owner Trustee or shall cause the
         preparation by other appropriate Persons of all such documents,
         reports, filings, instruments, certificates and opinions as it shall be
         the duty of the Issuer or the Owner Trustee to prepare, file or deliver
         pursuant to this Agreement or any of the Transaction Documents or under
         state and federal tax and securities laws, and at the request of the
         Owner Trustee shall take all appropriate action that it is the duty of
         the Issuer to take pursuant to this Agreement or any of the Transaction
         Documents, including, without limitation, pursuant to Sections 2.6 and
         2.11 of the Trust Agreement. In accordance with the directions of the
         Issuer or the Owner Trustee, the Servicer shall administer, perform or
         supervise the performance of such other activities in connection with
         the Collateral (including the Transaction Documents) as are not covered
         by any of the foregoing provisions and as are expressly requested by
         the Issuer or the Owner Trustee and are reasonably within the
         capability of the Servicer.

                           (ii) Notwithstanding anything in this Agreement or
         any of the Transaction Documents to the contrary, the Servicer shall be
         responsible for promptly notifying the Owner Trustee and the Trust
         Collateral Agent in the event that any withholding tax is imposed on
         the Issuer's payments (or allocations of income) to an Owner (as
         defined in the Trust Agreement) as contemplated by this Agreement. Any
         such notice shall be in writing and specify the amount of any
         withholding tax required to be withheld by the Owner Trustee or the
         Trust Collateral Agent pursuant to such provision.

                           (iii) Notwithstanding anything in this Agreement or
         the Transaction Documents to the contrary, the Servicer shall be
         responsible for performance of the duties of the Issuer or the Seller
         set forth in Section 5.1(a), (b), (c) and (d) of the Trust Agreement
         with respect to, among other things, accounting and reports to Owners
         (as defined in the Trust Agreement).

                           (iv) The Servicer shall perform the duties of the
         Servicer specified in Section 10.2 of the Trust Agreement required to
         be performed in connection with the resignation or removal of the Owner
         Trustee, and any other duties expressly required to be performed by the
         Servicer under this Agreement or any of the Transaction Documents.

                           (v) In carrying out the foregoing duties or any of
         its other obligations under this Agreement, the Servicer may enter into
         transactions with or otherwise deal with any of its Affiliates;
         provided, however, that the terms of any such transactions or dealings
         shall be in accordance with any directions received from the Issuer and
         shall be, in the Servicer's opinion, no less favorable to the Issuer in
         any material respect.



                                       72
<PAGE>   78

                  (c) Tax Matters. The Servicer shall prepare and file, on
behalf of the Seller, all tax returns, tax elections, financial statements and
such annual or other reports of the Issuer as are necessary for preparation of
tax reports as provided in Article V of the Trust Agreement, including without
limitation forms 1099 and 1066. All tax returns will be signed by the Seller.

                  (d) Non-Ministerial Matters. With respect to matters that in
the reasonable judgment of the Servicer are non-ministerial, the Servicer shall
not take any action pursuant to this Article XII unless within a reasonable time
before the taking of such action, the Servicer shall have notified the Owner
Trustee, the Noteholders, the Trust Collateral Agent and the Insurer of the
proposed action and the Owner Trustee and, with respect to items (A), (B), (C)
and (D) below, the Insurer shall not have withheld consent or provided an
alternative direction. For the purpose of the preceding sentence,
"non-ministerial matters" shall include:

                                    (A) the amendment of or any supplement to
                  the Indenture;

                                    (B) the initiation of any claim or lawsuit
                  by the Issuer and the compromise of any action, claim or
                  lawsuit brought by or against the Issuer (other than in
                  connection with the collection of the Receivables);

                                    (C) the amendment, change or modification of
                  this Agreement or any of the Transaction Documents;

                                    (D) the appointment of successor Note
                  Registrars, successor Paying Agents and successor Trustees
                  pursuant to the Indenture or the appointment of successor
                  Servicers or the consent to the assignment by the Note
                  Registrar, Paying Agent or Trustee of its obligations under
                  the Indenture; and

                                    (E) the removal of the Trustee, the
                  Custodian, the Backup Servicer or the Trust Collateral Agent.

                  (e) Exceptions. Notwithstanding anything to the contrary in
this Agreement, except as expressly provided herein or in the other Transaction
Documents, the Servicer, in its capacity hereunder, shall not be obligated to,
and shall not, (1) make any payments to the Noteholders under the Transaction
Documents, (2) sell the Indenture Trust Property pursuant to Section 5.4 of the
Indenture, (3) take any other action that the Issuer directs the Servicer not to
take on its behalf, or (4) in connection with its duties hereunder assume any
indemnification obligation of any other Person.

                  (f) Notwithstanding anything to the contrary in this
Agreement, neither the Backup Servicer nor any successor Servicer shall be
responsible for any obligations or duties of the Servicer under Section 12.1.

         SECTION 12.2. Records. The Servicer shall maintain appropriate books of
account and records relating to services performed under this Agreement, which
books of account and records shall be accessible for inspection by the Issuer
and the Trust Collateral Agent at any time during normal business hours.



                                       73
<PAGE>   79

         SECTION 12.3. Additional Information to be Furnished to the Issuer. The
Servicer shall furnish to the Issuer and the Trust Collateral Agent from time to
time such additional information regarding the Collateral as the Issuer and the
Trust Collateral Agent shall reasonably request.

                                  ARTICLE XIII

                            MISCELLANEOUS PROVISIONS

         SECTION 13.1. Amendment.

                  (a) This Agreement may be amended from time to time by the
parties hereto, with the consent of the Trustee (which consent may not be
unreasonably withheld), with the prior written consent of the Controlling Party
and First Union National Bank (so long as First Union National Bank or an
Affiliate shall hold the Class B Notes), but without the consent of any of the
Noteholders, to cure any ambiguity, to correct or supplement any provisions in
this Agreement, to comply with any changes in the Code, or to make any other
provisions with respect to matters or questions arising under this Agreement
which shall not be inconsistent with the provisions of this Agreement or the
Insurance Agreement; provided, however, that such action shall not adversely
affect in any material respect the interests of any Noteholder or the Insurer.

                  (b) This Agreement may also be amended from time to time by
the parties hereto, with the prior written consent of the Controlling Party, the
consent of First Union National Bank (so long as First Union National Bank or an
Affiliate shall hold the Class B Notes), the consent of the Trustee and the
consent of the Holders of Notes evidencing not less than a majority of the
outstanding principal amount of the Notes of each Class (which consent of such
Holders of Notes given pursuant to this Section 13.1 or pursuant to any other
provision of this Agreement shall be conclusive and binding on such Holder and
on all future Holders of such securities and of any security issued upon the
transfer thereof or in exchange thereof or in lieu thereof whether or not
notation of such consent is made upon the security) for the purpose of adding
any provisions to or changing in any manner or eliminating any of the provisions
of this Agreement or of modifying in any manner the rights of the Noteholders;
provided, however, that no such amendment shall (a) increase or reduce in any
manner the amount of, or accelerate or delay the timing of, collections of
payments on Receivables or distributions that shall be required to be made for
the benefit of the Noteholders, or (b) reduce the aforesaid percentage of the
outstanding principal amount of the Notes and the Note Balance, the Holders of
which are required to consent to any such amendment, without the consent of the
Holders of all the outstanding Notes.

                  Promptly after the execution of any such amendment or consent,
the Trust Collateral Agent shall furnish written notification of the substance
of such amendment or consent to each Noteholder and each Rating Agency. In
addition, a copy of the final executed amendment shall be delivered to each
Rating Agency.

                  It shall not be necessary for the consent of Noteholders
pursuant to this Section to approve the particular form of any proposed
amendment or consent, but it shall be sufficient if such consent shall approve
the substance thereof. The manner of obtaining such consents (and any



                                       74
<PAGE>   80

other consents of Noteholders provided for in this Agreement) and of evidencing
the authorization of any action by Noteholders shall be subject to such
reasonable requirements as the Trustee or the Owner Trustee, as applicable, may
prescribe, including the establishment of record dates.

                  The Owner Trustee, the Trust Collateral Agent and the Trustee
may, but shall not be obligated to, enter into any amendment which affects the
Issuer's, the Owner Trustee's, the Trust Collateral Agent's or the Trustee's, as
applicable, own rights, duties or immunities under this Agreement or otherwise.

                  (c) Prior to the execution of any amendment to this Agreement,
the Trustee and the Trust Collateral Agent shall be entitled to receive and rely
conclusively upon an Opinion of Counsel stating that the execution of such
amendment is authorized or permitted by this Agreement and that all conditions
precedent to the execution and delivery of such amendment have been satisfied.

                  (d) Notwithstanding anything to the contrary contained in
subsection 13.1(a) above, the provisions of the Agreement relating to (i) the
Spread Account Agreement, the Series 1999-1 Spread Account, the Requisite
Amount, a Trigger Event or any component definition of a Trigger Event and (ii)
any additional sources of funds which may be added to the Series 1999-1 Spread
Account or uses of funds on deposit in the Series 1999-1 Spread Account may be
amended in any respect by the Seller, the Servicer, the Insurer and the Trust
Collateral Agent (the consent of which shall not be withheld or delayed with
respect to any amendment that does not adversely affect the Trust Collateral
Agent) without the consent of, or notice to, the Noteholders, but with the
consent of First Union National Bank (solely in their capacity as lender under
the Revolving Credit Agreement).

         SECTION 13.2. Protection of Title to Trust.

                  (a) The Seller shall execute and file such financing
statements and cause to be executed and filed such continuation statements, all
in such manner and in such places as may be required by law fully to preserve,
maintain and protect the interest of the Issuer and the interests of the Trust
Collateral Agent and the Insurer in the Receivables and the Other Conveyed
Property and in the proceeds thereof. The Seller shall deliver (or cause to be
delivered) to the Insurer, any Noteholder holding 5% or more of the Note Balance
of any Class, the Owner Trustee and the Trust Collateral Agent file-stamped
copies of, or filing receipts for, any document filed as provided above, as soon
as available following such filing.

                  (b) Neither the Seller nor the Servicer shall change its name,
identity or corporate structure in any manner that would, could or might make
any financing statement or continuation statement filed in accordance with
paragraph (a) above seriously misleading within the meaning of Section 9-402(7)
of the UCC, unless it shall have given the Insurer, the Noteholders, the Owner
Trustee, the Trust Collateral Agent and the Trustee at least thirty days' prior
written notice thereof and shall have filed appropriate amendments to all
previously filed financing statements or continuation statements prior to the
effectiveness of such change. Promptly upon such filing, the Seller or the
Servicer, as the case may be, shall deliver an Opinion



                                       75
<PAGE>   81

of Counsel in form and substance reasonably satisfactory to the Insurer, the
Noteholders, the Trust Collateral Agent and the Trustee, stating either (A) all
financing statements and continuation statements have been executed and filed
that are necessary fully to preserve and protect the interest of the Issuer and
the Trust Collateral Agent in the Receivables and the Other Conveyed Property,
and reciting the details of such filings or referring to prior Opinions of
Counsel in which such details are given, or (B) no such action shall be
necessary to preserve and protect such interest.

                  (c) Each of the Seller and the Servicer shall have an
obligation to give the Insurer, the Noteholders, the Owner Trustee, the Trust
Collateral Agent and the Trustee at least 60 days' prior written notice of any
relocation of its principal executive office if, as a result of such relocation,
the applicable provisions of the UCC would require the filing of any amendment
of any previously filed financing or continuation statement or of any new
financing statement and shall file any such amendment prior to the date of such
relocation. The Servicer shall at all times maintain each office from which it
shall service Receivables, and its principal executive office, within the United
States of America.

                  (d) The Servicer shall maintain accounts and records as to
each Receivable accurately and in sufficient detail to permit (i) the reader
thereof to know at any time the status of such Receivable, including payments
and recoveries made and payments owing (and the nature of each) and (ii)
reconciliation between payments or recoveries on (or with respect to) each
Receivable and the amounts from time to time deposited in the Collection Account
in respect of such Receivable.

                  (e) The Servicer shall maintain or cause to be maintained, a
computer systems so that, from and after the time of sale under this Agreement
of the Receivables to the Issuer, such master computer records (including any
backup archives) that refer to a Receivable shall indicate clearly the interest
of the Trust in such Receivable and that such Receivable is owned by the Trust.
Indication of the Trust's interest in a Receivable shall be deleted from or
modified on such computer systems when, and only when, the related Receivable
shall have been paid in full or repurchased by NAFI or the Seller.

                  (f) If at any time the Seller or NAFI shall propose to sell,
grant a security interest in or otherwise transfer any interest in automotive
receivables to any prospective purchaser, lender or other transferee, the
Servicer shall give to such prospective purchaser, lender or other transferee
computer tapes, records or printouts (including any restored from backup
archives) that, if they shall refer in any manner whatsoever to any Receivable,
shall indicate clearly that such Receivable has been sold and is owned by the
Trust unless such Receivable has been paid in full or repurchased by NAFI or the
Seller.

                  (g) Upon request, the Servicer shall furnish or cause to be
furnished to the Insurer, any Noteholder holding 5% or more of the Note Balance
of any Class, the Owner Trustee or to the Trustee, at any time upon request, a
list of all Receivables (by contract number and name of Obligor) then held as
part of the Trust, together with a reconciliation of such list to the
Receivables Schedule and to each of the Servicer's Certificates furnished before
such request indicating removal of Receivables from the Trust. The Trustee shall
hold any such list and



                                       76
<PAGE>   82

Receivables Schedule for examination by interested parties during normal
business hours at the Corporate Trust Office upon reasonable notice by such
Persons of their desire to conduct an examination.

                  (h) The Servicer shall deliver to the Insurer, the
Noteholders, the Owner Trustee, the Trust Collateral Agent and the Trustee:

                                    (A) simultaneously with the execution and
                  delivery of the Agreement and, if required pursuant to Section
                  13.1, of each amendment, an Opinion of Counsel stating that,
                  in the opinion of such Counsel, in form and substance
                  reasonably satisfactory to the Insurer, either (A) all
                  financing statements and continuation statements have been
                  executed and filed that are necessary fully to preserve and
                  protect the interest of the Trust and the Trust Collateral
                  Agent in the Receivables, and reciting the details of such
                  filings or referring to prior Opinions of Counsel in which
                  such details are given, or (B) no such action shall be
                  necessary to preserve and protect such interest or (C) any
                  action which is necessary to preserve and protect such
                  interest during the following 12-month period; and

                                    (B) within 90 days after the beginning of
                  each calendar year beginning with the first calendar year
                  beginning more than three months after the Cut-off Date, an
                  Opinion of Counsel, dated as of a date during such 90-day
                  period, stating that, in the opinion of such counsel, either
                  (A) all financing statements and continuation statements have
                  been executed and filed that are necessary fully to preserve
                  and protect the interest of the Trust and the Trust Collateral
                  Agent in the Receivables, and reciting the details of such
                  filings or referring to prior Opinions of Counsel in which
                  such details are given, or (B) no such action shall be
                  necessary to preserve and protect such interest.

                  Each Opinion of Counsel referred to in clause (A) or (B) above
shall specify any action necessary (as of the date of such opinion) to be taken
in the following year to preserve and protect such interest.

                  (i) The Servicer shall permit the Trustee, the Trust
Collateral Agent, the Backup Servicer, the Noteholders, the Insurer and their
respective agents, during regular business hours and upon reasonable advance
notice, to inspect and make copies of the records regarding any Receivables or
any other portion of the Receivables.

         SECTION 13.3. Notices. All demands, notices and communications upon or
to the Seller, the Servicer, the Owner Trustee, the Trustee, the Insurer or the
Rating Agencies under this Agreement shall be in writing, personally delivered,
or mailed by certified mail, or sent by confirmed telecopier transmission and
shall be deemed to have been duly given upon receipt (a) in the case of the
Seller to National Financial Auto Funding Trust, 10302 Deerwood Park Boulevard,
Suite 100, Jacksonville, Florida 32256, (b) in the case of the Servicer to
National Auto Finance Company, Inc., 10302 Deerwood Park Boulevard, Suite 100,
Jacksonville, Florida 32256, (c) in the case of the Issuer or the Owner Trustee,
at 1100 North Market Street, Rodney



                                       77
<PAGE>   83

Square North, Wilmington, Delaware 19890; Attention: Corporate Trust
Administration, (d) in the case of the Trustee or the Trust Collateral Agent, at
311 West Monroe Street, Chicago, Illinois 60606, (e) in the case of the Insurer,
to Financial Security Assurance Inc., 350 Park Avenue, New York, New York 10022;
Attention: Senior Vice President, Transaction Oversight (in each case in which
notice or other communication to the Insurer refers to a Servicer Termination
Event, an Insurance Agreement Event of Default, an Event of Default, a claim on
a Class A Note Policy, a Deficiency Notice pursuant to Section 5.5 of this
Agreement or with respect to which failure on the part of the Insurer to respond
shall be deemed to constitute consent or acceptance, then a copy of such notice
or other communication should also be sent to the attention of each of the
General Counsel and the Head -Financial Guaranty Group and shall be marked to
indicate "URGENT MATERIAL ENCLOSED") Telecopier # 212-339-3518, (f) in the case
of Moody's, to Moody's Investors Service, Inc., ABS Monitoring Department, 99
Church Street, New York, New York 10007, Telecopier # 212-553-0344, (g) in the
case of Standard & Poor's, to Standard & Poor's Ratings Group, 25 Broadway -
15th Floor, New York, New York 10004, Attention: Asset Backed Surveillance
Department, Telecopier # 212- 208-1582, (h) in the case of Prudential, to One
Gateway Center, 11th Floor, Newark, New Jersey 07102-5311, Attention: Michael J.
Bozzo, Telecopier # 973-802-2147 and (i) in the case of First Union National
Bank, to 301 South College Street, Charlotte, North Carolina 28288-0610,
Attention: Prakash Wadhwani, Telecopier # 704-374-3254. Any notice required or
permitted to be mailed to a Noteholder shall be given by first class mail,
postage prepaid, at the address of such Noteholder as shown in the Note
Register, as applicable. Any notice so mailed within the time prescribed in the
Agreement shall be conclusively presumed to have been duly given, whether or not
the Noteholder shall receive such notice.

         SECTION 13.4. Assignment. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective successors and
permitted assigns. Notwithstanding anything to the contrary contained herein,
except as provided in Sections 8.4 and 9.3 and as provided in the provisions of
this Agreement concerning the resignation of the Servicer, this Agreement may
not be assigned by the Seller or the Servicer without the prior written consent
of the Owner Trustee, the Trust Collateral Agent, the Trustee and the Insurer
(or if an Insurer Default shall have occurred and be continuing, the Noteholders
holding not less than 66% of the principal amount of each Class of the
outstanding Notes). Notwithstanding anything to the contrary contained herein,
the assignment or other transfer of all or any portion of the Servicer's rights
("Rights") or obligations under this Agreement (including, without limitation,
its right to receive all or any part of the Servicing Fee) shall only be
permitted to be transferred to a single transferee and such prospective
transferee must, as a condition to such assignment or other transfer acknowledge
and agree that (i) it has neither acquired nor will it transfer the such Rights
or cause such Rights to be marketed on or through an "established securities
market" within the meaning of Section 7704(b)(1) of the Code, including, without
limitation, an over-the- counter-market or an interdealer quotation system that
regularly disseminates firm buy or sell quotations; (ii) it either (A) is not,
and will not become, a partnership, an S corporation or a grantor trust for U.S.
federal income tax purposes, or (B) is such an entity, but none of the direct or
indirect beneficial owners of any of the interests in such transferee have
allowed or caused, or will allow or cause, fifty percent (50%) or more of the
value of such interests to be attributable to such transferee's ownership of the
Rights; and (iii) it understands that tax counsel to the Trust has



                                       78
<PAGE>   84

provided an opinion substantially to the effect that the Trust will not be
treated as a publicly traded partnership taxable as a corporation for U.S.
federal income tax purposes and that the validity of such opinion is dependent
in part on the accuracy of the representations in paragraphs (i) and (ii) above.

         SECTION 13.5. Limitations on Rights of Others. The provisions of this
Agreement are solely for the benefit of the parties hereto and for the benefit
of the Trustee and the Noteholders, as third-party beneficiaries. The Insurer
and its successors and assigns shall be a third-party beneficiary to the
provisions of this Agreement, and shall be entitled to rely upon and directly
enforce such provisions of this Agreement so long as no Insurer Default shall
have occurred and be continuing. Except as expressly stated otherwise herein,
any right of the Insurer to direct, appoint, consent to, approve of, or take any
action under this Agreement, shall be a right exercised by the Insurer in its
sole and absolute discretion. The Insurer may disclaim any of its rights and
powers under this Agreement (but not its duties and obligations under the Class
A Note Policy) upon delivery of a written notice to the Owner Trustee. Nothing
in this Agreement, whether express or implied, shall be construed to give to any
other Person any legal or equitable right, remedy or claim in the Owner Trust
Estate or under or in respect of this Agreement or any covenants, conditions or
provisions contained herein.

         SECTION 13.6. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

         SECTION 13.7. Separate Counterparts. This Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.

         SECTION 13.8. Headings. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.

         SECTION 13.9. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.

         SECTION 13.10. Assignment to Trustee. The Seller hereby acknowledges
and consents to any mortgage, pledge, assignment and grant of a security
interest by the Issuer to the Trustee pursuant to the Indenture for the benefit
of the Noteholders and the Insurer of all right, title and interest of the
Issuer in, to and under the Receivables and/or the assignment of any or all of
the Issuer's rights and obligations hereunder to the Trustee.



                                       79
<PAGE>   85

         SECTION 13.11. Nonpetition Covenants. (a) Notwithstanding any prior
termination of this Agreement, the Servicer, the Backup Servicer, the Trustee,
the Trust Collateral Agent, the Custodian, the Insurer, the Owner Trustee and
the Seller shall not, prior to the date which is one year and one day after the
termination of this Agreement with respect to the Issuer, acquiesce, petition or
otherwise invoke or cause the Issuer to invoke the process of any court or
government authority for the purpose of commencing or sustaining a case against
the Issuer under any federal or state bankruptcy, insolvency or similar law or
appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or
other similar official of the Issuer or any substantial part of its property, or
ordering the winding up or liquidation of the affairs of the Issuer.

                  (b) Notwithstanding any prior termination of this Agreement,
the Servicer, the Backup Servicer, the Trustee, the Trust Collateral Agent, the
Custodian, the Insurer and the Owner Trustee shall not, prior to the date that
is one year and one day after the termination of this Agreement with respect to
the Seller, acquiesce to, petition or otherwise invoke or cause the Seller to
invoke the process of any court or government authority for the purpose of
commencing or sustaining a case against the Seller under any federal or state
bankruptcy, insolvency or similar law, appointing a receiver, liquidator,
assignee, trustee, custodian, sequestrator, or other similar official of the
Seller or any substantial part of its property, or ordering the winding up or
liquidation of the affairs of the Seller.

         SECTION 13.12. Limitation of Liability of Owner Trustee, Trustee, Trust
Collateral Agent and Backup Servicer.

                  (a) Notwithstanding anything contained herein to the contrary,
this Agreement has been countersigned by Wilmington Trust Company not in its
individual capacity but solely in its capacity as Owner Trustee of the Issuer
and in no event shall Wilmington Trust Company in its individual capacity or,
except as expressly provided in the Trust Agreement, as Owner Trustee have any
liability for the representations, warranties, covenants, agreements or other
obligations of the Issuer hereunder or in any of the certificates, notices or
agreements delivered pursuant hereto, as to all of which recourse shall be had
solely to the assets of the Issuer. For all purposes of this Agreement, in the
performance of its duties or obligations hereunder or in the performance of any
duties or obligations of the Issuer hereunder, the Owner Trustee shall be
subject to, and entitled to the benefits of, the terms and provisions of
Articles VI, VII, VIII and X of the Trust Agreement.

                  (b) Notwithstanding anything contained herein to the contrary,
this Agreement has been countersigned by Chase Manhattan Bank Delaware not in
its individual capacity but solely in its capacity as Trustee of the Seller and
in no event shall Chase Manhattan Bank Delaware in its individual capacity have
any liability for the representations, warranties, covenants, agreements or
other obligations of the Seller hereunder or in any of the certificates, notices
or agreements delivered pursuant hereto, as to all of which recourse shall be
had solely to the assets of the Seller.

                  (c) Notwithstanding anything contained herein to the contrary,
this Agreement has been executed and delivered by Harris Trust and Savings Bank
not in its individual capacity but solely as Trust Collateral Agent and Backup
Servicer and in no event shall Harris Trust and



                                       80
<PAGE>   86

Savings Bank, have any liability for the representations, warranties, covenants,
agreements or other obligations of the Issuer hereunder or in any of the
certificates, notices or agreements delivered pursuant hereto, as to all of
which recourse shall be had solely to the assets of the Issuer.

                  (d) In no event shall Wilmington Trust Company, in any of its
capacities hereunder, be deemed to have assumed any duties of the Owner Trustee
under the Delaware Business Trust Statute, common law, or the Trust Agreement.

         SECTION 13.13. Independence of the Servicer. For all purposes of this
Agreement, the Servicer shall be an independent contractor and shall not be
subject to the supervision of the Issuer, the Trust Collateral Agent or the
Owner Trustee with respect to the manner in which it accomplishes the
performance of its obligations hereunder. Unless expressly authorized by this
Agreement, the Servicer shall have no authority to act for or represent the
Issuer or the Owner Trustee in any way and shall not otherwise be deemed an
agent of the Issuer or the Owner Trustee.

         SECTION 13.14. No Joint Venture. Nothing contained in this Agreement
(i) shall constitute the Servicer, the Backup Servicer and either of the Issuer
or the Owner Trustee as members of any partnership, joint venture, association,
syndicate, unincorporated business or other separate entity, (ii) shall be
construed to impose any liability as such on any of them or (iii) shall be
deemed to confer on any of them any express, implied or apparent authority to
incur any obligation or liability on behalf of the others.

         SECTION 13.15. Insurer as Controlling Party. Each Noteholder by
purchase of the Notes held by it acknowledges that as partial consideration of
the issuance of the Class A Note Policy, the Insurer shall have certain rights
hereunder for so long as no Insurer Default shall have occurred and be
continuing and the Class A Notes shall remain outstanding or amounts or amounts
owing the Insurer have not been paid to it. So long as an Insurer Default has
occurred and is continuing, any provision giving the Insurer the right to
direct, appoint or consent to, approve of, or take any action under this
Agreement shall be inoperative during the period of such Insurer Default and
such right shall instead vest in the Trust Collateral Agent acting at the
written direction of the Controlling Class. The Insurer may disclaim any of its
rights and powers under this Agreement (but not its duties and obligations under
the Class A Note Policy) upon delivery of a written notice to the Trust
Collateral Agent. The Insurer may give or withhold any consent hereunder in its
sole and absolute discretion.

         SECTION 13.16. Duties of Trust Collateral Agent. Prior to the payment
in full of the Notes and the expiration of the term of the Class A Note Policy,
the Trust Collateral Agent shall act solely for the benefit of the Noteholders
and the Insurer, as their interests may appear herein.



                                       81
<PAGE>   87

                  IN WITNESS WHEREOF, the parties hereto have caused this Sale
and Servicing Agreement to be duly executed and delivered by their respective
duly authorized officers as of the day and the year first above written.

                 NATIONAL AUTO FINANCE 1999-1 TRUST,
                 by Wilmington Trust Company, not in its individual capacity but
                 solely as Owner Trustee on behalf of the Trust,


                           By: /s/ JAMES P. LAWLER
                               --------------------------------------
                               Name: James P. Lawler
                               Title: Vice President


                 NATIONAL FINANCIAL AUTO FUNDING TRUST, Seller,
                 by Chase Manhattan Bank Delaware not in its individual capacity
                 but solely as Trustee of National Financial Auto Funding Trust,


                           By: /s/ JOHN J. CASHIN
                               --------------------------------------
                               Name: John J. Cashin
                               Title: Vice President


                 NATIONAL AUTO FINANCE COMPANY, INC.,
                 in its individual capacity and as Servicer,


                           By: /s/ STEPHEN R. VETH
                               --------------------------------------
                               Name: Stephen R. Veth
                               Title: Vice President, Secretary &
                                      General Counsel


                 HARRIS TRUST AND SAVINGS BANK,
                 not in its individual capacity but solely as
                 Trust Collateral Agent and Backup Servicer


                           By: /s/ KEITH RICHARDSON
                               --------------------------------------
                               Name: Keith Richardson
                               Title: Assistant Vice President




<PAGE>   88

                                   SCHEDULE A


                             SCHEDULE OF RECEIVABLES



                                      A-1
<PAGE>   89

                                   SCHEDULE B


                  REPRESENTATIONS AND WARRANTIES OF THE SELLER

         Each of NAFI and the Seller hereby represents and warrants to the Trust
Collateral Agent on behalf of the Noteholders and the Insurer as of the Closing
Date with respect to the Receivables transferred to the Trust on the Closing
Date (unless another date or time period is otherwise specified or indicated in
the particular representation or warranty):

         1. immediately prior to the Closing Date, the Seller had a valid and
enforceable security interest in the related Financed Vehicle, and such security
interest had been duly perfected and was prior to all other present and future
liens and security interests (except future tax liens and liens that, by
statute, may be granted priority over previously perfected security interests)
that now exist or may hereafter arise, and the Seller had the full right to
assign such security interest to the Trust Collateral Agent;

         2. on and after the Closing Date, there shall exist under the
Receivable a valid, subsisting and enforceable first priority perfected security
interest in the Financed Vehicle securing such Receivable (other than, as to the
priority of such security interest, any statutory lien arising by operation of
law after the Closing Date which is prior to such interest) and at such time as
enforcement of such security interest is sought there shall exist a valid,
subsisting and enforceable first priority perfected security interest in such
Financed Vehicle in favor of the Trust Collateral Agent (other than, as to the
priority of such security interest, any statutory lien arising by operation of
law after the Closing Date, which is prior to such interest);

         3. no Receivable has been sold, assigned or pledged to any other Person
other than an endorsement to the Servicer for purposes of servicing or any such
pledge has been released; immediately prior to the transfer and assignment
herein contemplated, the Seller has good and marketable title thereto free and
clear of any lien, encumbrance, equity, pledge, charge, claim or security
interest and is the sole owner thereof and has full right to transfer such
Receivable to the Trust Collateral Agent. No Dealer has a participation in, or
other right to receive, proceeds of any Receivable. None of NAFI, the Master
Trust, Funding Trust II nor the Seller has taken any action to convey any right
to any Person that would result in such Person having a right to payments
received under the related insurance policies, Dealer Agreements or Originator
Agreements or to payments due under such Receivable;

         4. upon the transfers pursuant to Section 2.1, the Trust Collateral
Agent will have a first priority ownership or security interest in each such
Receivable free and clear of any encumbrance, lien, pledge, charge, claim,
security interest or rights of others; the purchase of each such Receivable by
NAFI from a Dealer or Originator was not an extension of financing to such
Dealer or Originator;

         5. as of the Cut-off Date, no such Receivable is delinquent for more
than thirty days in payment as to any scheduled payment. In addition, as of the
Statistical Cut-off Date, each Receivable has a remaining maturity of 56 months
or less, has an original outstanding principal



                                      B-1
<PAGE>   90

balance of not more than $35,000, has made a minimum of 4 scheduled payments to
NAFI and has an APR of not less than 14% per annum;

         6. there is no lien against any related Financed Vehicle for delinquent
taxes;

         7. there is no right of rescission, offset, defense or counterclaim to
the obligation of the related Obligor to pay the unpaid principal or interest
due under such Receivable; the operation of the terms of such Receivable or the
exercise of any right thereunder will not render such Receivable unenforceable
in whole or in part or subject to any right of rescission, offset, defense or
counterclaim, and no such right of rescission, offset, defense or counterclaim
has been asserted;

         8. no Receivable is assumable by another Person in a manner which would
release the Obligor thereon from such Obligor's obligations to the Seller with
respect to such Receivable;

         9. there are no prior liens or claims for work, labor or material
affecting any related Financed Vehicle which are or may become a lien prior to
or equal with the security interest granted by such Receivable;

         10. each such Receivable, and the sale of the Financed Vehicle securing
such Receivable, where applicable, complied, at the time it was made and as of
the Closing Date in all material respects with applicable state and federal laws
(and regulations thereunder), including, without limitation, usury, disclosure
and consumer protection laws, equal credit opportunity, fair credit reporting,
truth-in-lending or other similar law, the Federal Trade Commission Act, and
applicable state laws regulating retail installment sales contracts and loans in
general and motor vehicle retail installment sales contracts and loans in
particular, and the transfer of such Receivable to the Trust will not violate
any such laws;

         11. each such Receivable is a legal, valid and binding obligation of
the Obligor thereunder and is enforceable in accordance with its terms, except
only as such enforcement may be limited by laws affecting the enforcement of
creditors' rights generally whether enforcement is sought in a proceeding in
equity or at law, and all parties to such Receivable had full legal capacity to
execute such Receivable and all documents related thereto and to grant the
security interest purported to be granted thereby at the time of execution and
grant;

         12. as of the Closing Date, the terms of each such Receivable have not
been impaired, waived, altered or modified in any respect, except by written
instruments that are part of the Receivable Documents, and no such Receivable
has been satisfied, subordinated or rescinded;

         13. at the time of origination of each such Receivable, the proceeds of
such Receivable were fully disbursed, there is no requirement for future
advances thereunder, and all fees and expenses in connection with the
origination of such Receivable have been paid;

         14. there is no default, breach, violation or event of acceleration
existing under any such Receivable (except payment delinquencies permitted by
paragraph 5 above) and no event which, with the passage of time or with notice
or with both, would constitute a default, breach, violation or event of
acceleration under any such Receivable or would otherwise affect the value



                                       2
<PAGE>   91

or marketability of such contract; NAFI and the Seller have not waived any such
default, breach, violation or event of acceleration; and as of the Cut-off Date,
the related Financed Vehicle has not been repossessed;

         15. at the origination date of each such Receivable, the related
Financed Vehicle was covered by a comprehensive and collision insurance policy
(a) in an amount at least equal to the lesser of (i) the actual cash value of
the related Financed Vehicle or (ii) the unpaid balance owing of such
Receivable, less the related Unearned Finance Charge, (b) naming NAFI as a loss
payee and (c) insuring against loss and damage due to fire, theft,
transportation, collision and other risks generally covered by comprehensive and
collision coverage; each Receivable requires the Obligor to maintain physical
loss and damage insurance, naming NAFI as an additional insured party;

         16. each such Receivable was acquired by NAFI from either a Dealer with
which it ordinarily does business or from an Originator; such Dealer or
Originator, as applicable, had full right to assign to NAFI such Receivable and
the security interest in the related Financed Vehicle (and the Dealer that
assigned any such Receivable to any such Originator had full right to assign to
such Originator such Receivable and the security interest in the related
Financed Vehicle) and the Dealer's or Originator's assignment thereof to NAFI is
legal, valid and binding (and any assignment by an Dealer to any Originator is
legal, valid and binding) and NAFI had full right to assign to the Seller such
Receivable and the respective security interest in the related Financed Vehicle
and NAFI's respective assignment thereof to the Seller is legal, valid and
binding;

         17. each such Receivable contains customary and enforceable provisions
such as to render the rights and remedies of the holder thereof adequate for the
realization against the related Financed Vehicle of the benefits of the
security;

         18. scheduled payments under each such Receivable are due monthly (or,
in the case of the first payment, no later than the forty-fifth day after the
date of the Receivable) in substantially equal amounts to maturity (other than
with respect to those Receivables designated as balloon contracts on the related
Receivables Schedule), and will be sufficient to fully amortize such Receivable
at maturity, assuming that each scheduled payment is made on its Due Date; such
scheduled payments are applicable only to payment of principal and interest on
such Receivable and not to the payment of any insurance premiums (although the
proceeds of the extension of credit on such Receivable may have been used to pay
insurance premiums); and the original term to maturity of each such Receivable
was not more than 60 months;

         19. the collection practices used with respect to each such Receivable
have been in all material respects legal, proper, prudent and customary in the
automobile installment sales contract or installment loan servicing business;

         20. there is only one original of each such Receivable, the Servicer or
a Sub-Servicer is currently in possession of the Receivable Documents for such
Receivable and there are no custodial agreements in effect adversely affecting
the rights of the Seller to make the deliveries required hereunder on the
Closing Date;



                                       3
<PAGE>   92

         21. as of the Cut-off Date, no Obligor was the subject of a current
bankruptcy proceeding;

         22. with respect to each Due Period, the aggregate of the interest due
on all the Receivables in such Due Period from scheduled payments is in excess
of the sum of (i) the Servicing Fee due and any fees due to the Trust Collateral
Agent and the Insurer, each with respect to such Due Period and (ii) the amount
of interest payable on the Notes with respect to such Due Period, in each case
assuming that each scheduled payment is made on its Due Date;

         23. the Receivables constitute "chattel paper" within the meaning of
the UCC as in effect in the applicable jurisdiction and all filings (including
without limitation, UCC filings) required to be made and all actions required to
be taken or performed by any Person in any jurisdiction to give the Trust
Collateral Agent a first priority perfected lien on, or ownership interest in,
the Receivables and the proceeds thereof and the remaining Trust Property have
been made, taken or performed;

         24. the information regarding such Receivables set forth in the
applicable Receivables Schedule is true and correct in all material respects at
the Cut-off Date and the Closing Date; each Receivable was originated in the
United States of America and at the time of origination, materially conformed to
all requirements of the NAFI underwriting policies and guidelines then in
effect; and no Obligor is the United States of America or any state or any
agency, department, subdivision or instrumentality thereof;

         25. by the Closing Date, NAFI will have caused the portions of NAFI's
servicing records relating to the Receivables to be clearly and unambiguously
marked to show that the Receivables constitute part of the Trust Property and
are owned by the Trust in accordance with the terms of this Agreement;

         26. the computer tape or listing made available by NAFI to the Trust
Collateral Agent on the Closing Date was complete and accurate as of the Cut-off
Date, and includes a description of the same Receivables that are described in
the applicable Receivables Schedule;

         27. no Receivable was originated in, or is subject to the laws of, any
jurisdiction, the laws of which would make unlawful, void or voidable the sale,
transfer and assignment of such Receivable under this Agreement, or pursuant to
transfers of the Notes. The Seller has not entered into any agreement with any
account debtor that prohibits, restricts or conditions the assignment of any
portion of the Receivables;

         28. no selection procedures adverse or beneficial to the Noteholders or
to the Insurer have been utilized in selecting such Receivable from all other
similar Receivables originated or purchased by NAFI;

         29. as of the Statistical Cut-off Date, the APR of the Receivables was
approximately 19.10% and the weighted average remaining scheduled maturity on
the Receivables was approximately 58.28 months and the percentage of the
aggregate outstanding balance of the Receivables relating to the financing of
used Financed Vehicles was 85%. The final scheduled



                                       4
<PAGE>   93

payment date on the Receivable with the latest maturity is April, 2004. Each
Receivable amortizes based on a Simple Interest Method or Rule of 78 Method;

         30. as of the Statistical Cut-off Date, Receivables originated by NAFI
are at least 75% of the Original Pool Balance, the top three states will
represent no more than 54.47% of the pool, PAC Receivables (i.e., Receivables
with planned principal balances) will not exceed 20% of the Original Pool
Balance, no originator will exceed 3% of the Original Pool Balance; and

         31. no Receivable provides for a prepayment penalty.



                                       5
<PAGE>   94

                                   SCHEDULE C

                                LEGAL PROCEEDINGS

         On October 22, 1998, Pearl Peckerman, I.R.A., on behalf of herself and
all others similarly situated, filed a putative class-action complaint (the
"Peckerman Complaint") in the United States District Court for the Southern
District of Florida against the Company and certain current and former officers
and directors of the Company, as well as the co-lead underwriters of the
Company's initial public offering. On December 4, 1998, Harvey Rooks, Rachel
Rooks and Joyce Bornstein, on behalf of themselves and all others similarly
situated, filed a putative class action complaint (the "Rooks Complaint") in the
United States District Court for the Southern District of Florida against the
Company and certain current and former officers and directors of the Company, as
well as the co-lead underwriters of the Company's initial public offering.

         On February 5, 1999, the United States District Court for the Southern
District of Florida ordered that these actions be consolidated. Thereafter, on
July 29, 1999, the plaintiffs filed an amended and consolidated class-action
complaint (the "Amended and Consolidated Complaint") styled In re National Auto
Finance Company, Inc. Securities Litigation, Case Number 98-8767-CIV-Hurley.

         The individual lead plaintiffs in the Amended and Consolidated
Complaint are Pearl Peckerman, Harvey Rooks, Rachel Rooks, Joyce Bornstein,
Emanuel Androulidakis, Frank Rosetti, Thomas R. Bopp, Noel V. Brodtman, Jr.,
Susan H. Jacobsen, Leonard R. Carothers, Fred Gaunce, Duane Morris, Ralph Casey,
Hiram Graham, and Vance Prigge. In addition, the action was instituted on behalf
of a putative class of plaintiffs consisting of those persons who purchased or
otherwise acquired stock of the Company between January 29, 1997 and April 15,
1998 inclusive, excluding the Company, its subsidiaries and affiliates, the
individual defendants, members of the immediate families of each of the
individual defendants, and the successors and assigns of any defendant. Other
than the Company, the defendants to the action are: Gary L. Shapiro, Keith B.
Stein, Roy E. Tipton, Kevin G. Adams, Edgar A. Otto, Peter Offerman, Morgan M.
Schussler, Steven L. Gurba, and the co-lead underwriters of the Company's
January 1997 initial public offering, Raymond James & Associates, Inc. and
Cruttenden Roth, Inc.

         The Amended and Consolidated Complaint sets forth allegations
surrounding the Company's 1997 restated financial statements, the interpretation
of FASB No. 125 and the relationship between the Company and its prior outside
service provider, Omni Financial Services of America, Inc. The plaintiffs'
allegations of liability are based on various theories of recovery, including
alleged violations of Section 11, 12(a)(2), 15 and 20(a) of the Securities Act
of 1933, as amended, and Section 10(b) and Rule 10b-5 of the Securities Exchange
Act of 1934, as amended. The plaintiffs are seeking compensatory damages as the
court deems appropriate.

         The Company is presently assessing the merits of the claims and
anticipates filing a motion to dismiss the complaint in its entirety in the near
future. In addition, the two underwriter defendants, Raymond James, Inc. and
Cruttenden Roth, Inc. have asserted that pursuant to the underwriting agreement
entered into with the Company in connection with its initial public offering,
the Company is required to indemnify the underwriters for their legal and other
costs



                                       1
<PAGE>   95

incurred in this litigation, including but not limited to any potential judgment
against them. The Company is presently assessing the merits of those claims.

         The Company has directors' and officers' liability insurance policy
with a liability limit of $5 million; and two excess policies with liability
limits of $2 million and $3 million, respectively. Each insurer has raised
certain coverage defenses or denied coverage. The Company has engaged, and will
continue to pursue appropriate strategies to protect and preserve its claims of
full coverage under all such policies.

         Litigation is subject to many uncertainties, and it is possible that
the above action could be decided unfavorably. In addition, the Company may
enter into discussions in an attempt to settle the pending litigation if it is
in the best interests of the Company's stockholders to do so. Management is
presently unable to make a meaningful estimate of the amount or range of loss
that could result from an unfavorable outcome or settlement of the pending
litigation. It is possible that the Company's business, volume, results of
operations, cashflows or financial position could be materially affected by an
unfavorable outcome or settlement of the pending litigation.



                                       2
<PAGE>   96

                                  EXHIBIT 5.10


                        FORM OF STATEMENT TO NOTEHOLDERS



                                       3
<PAGE>   97

                                    EXHIBIT A


                                   [RESERVED]



<PAGE>   98

                                    EXHIBIT B

                         FORM OF SERVICER'S CERTIFICATE