<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 14, 1996
REGISTRATION NO. 33-99422
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
WFS FINANCIAL 1996-B OWNER TRUST
WFS FINANCIAL AUTO LOANS, INC.
(ORIGINATOR OF THE TRUST DESCRIBED HEREIN)
<TABLE>
<S> <C> <C>
CALIFORNIA 9999 33-0149603
(STATE OR OTHER JURISDICTION OF (PRIMARY SIC (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
23 PASTEUR ROAD
IRVINE, CALIFORNIA 92718
(714) 753-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JAMES R. DOWLAN
PRESIDENT
WFS FINANCIAL AUTO LOANS, INC.
23 PASTEUR ROAD
IRVINE, CALIFORNIA 92718
(714) 753-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
ANDREW E. KATZ, ESQ. DALE W. LUM, ESQ.
MITCHELL, SILBERBERG & KNUPP LLP BROWN & WOOD
11377 W. OLYMPIC BOULEVARD 555 CALIFORNIA STREET
LOS ANGELES, CALIFORNIA 90064-1683 SAN FRANCISCO, CALIFORNIA 94104-1715
</TABLE>
------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration
Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
=====================================================================================================
PROPOSED PROPOSED
TITLE OF EACH MAXIMUM MAXIMUM AMOUNT OF
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE FEE*
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Auto Receivable Backed Securities....... $525,000,000 100% $525,000,000 $181,034.48
=====================================================================================================
</TABLE>
* Of this amount, $90,000.00 has been previously paid.
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<PAGE> 2
WFS FINANCIAL AUTO LOANS, INC.
WFS FINANCIAL 1996-B OWNER TRUST
------------------------
CROSS-REFERENCE SHEET BETWEEN CAPTIONS IN FORM S-1 AND
HEADINGS IN PROSPECTUS PURSUANT TO SECTION 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM AND CAPTION IN FORM S-1 CAPTION OR LOCATION IN PROSPECTUS
- -------------------------------------------------------- -------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus.................... Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................ Inside Front Cover Page and Outside
Back Cover Page of Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges......................... Summary of Prospectus; The Contracts
Pool
4. Use of Proceeds................................... Use of Proceeds
5. Determination of Offering Price................... *
6. Dilution.......................................... *
7. Selling Security Holders.......................... *
8. Plan of Distribution.............................. Underwriting
9. Description of Securities to be Registered........ Summary of Prospectus; Formation of
the Trust; The Contracts Pool; The
Notes; The Certificates; Certain
Information Regarding the
Securities
10. Interests of Named Experts and Counsel............ *
11. Information With Respect to the Registrant........ The Seller
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities.... *
</TABLE>
- ---------------
* Answer negative or item inapplicable.
<PAGE> 3
PROSPECTUS
JUNE 14, 1996
$525,000,000
WFS FINANCIAL 1996-B OWNER TRUST
$81,500,000 5.52% MONEY MARKET AUTO RECEIVABLE BACKED NOTES, CLASS A-1
$170,000,000 6.20% AUTO RECEIVABLE BACKED NOTES, CLASS A-2
$155,000,000 6.65% AUTO RECEIVABLE BACKED NOTES, CLASS A-3
$76,500,000 6.95% AUTO RECEIVABLE BACKED NOTES, CLASS A-4
$42,000,000 7.05% AUTO RECEIVABLE BACKED CERTIFICATES
WFS FINANCIAL AUTO LOANS, INC. (SELLER)
WFS FINANCIAL INC (MASTER SERVICER)
The WFS Financial 1996-B Owner Trust Auto Receivable Backed Securities will
consist of four Classes of notes (respectively, the "Class A- 1 Notes", the
"Class A-2 Notes", the "Class A-3 Notes" and the "Class A-4 Notes" and
collectively, the "Notes") and one Class of certificates (the "Certificates"
and, together with the Notes, the "Securities"). Principal, in the amounts set
forth herein, and interest at the Interest Rates and Pass-Through Rate specified
above for each Class of Notes and the Certificates will be distributed to the
related Securityholders on February 20, May 20, August 20 and November 20 of
each year (or, if any such day is not a Business Day, on the immediately
succeeding Business Day), beginning August 20, 1996. Distributions on the
Certificates will be subordinated to payments due on the Notes to the extent
described herein. Each Class of Notes and the Certificates will be payable in
full on the Final Distribution Dates specified herein for such Securities.
The WFS Financial 1996-B Owner Trust (the "Trust") will be formed pursuant
to a Trust Agreement to be entered into among WFS Financial Auto Loans, Inc.
(the "Seller"), Financial Security Assurance Inc. ("Financial Security"), WFS
Investments, Inc. and The Chase Manhattan Bank (USA), as Owner Trustee. The
Seller is a wholly owned, limited purpose operating subsidiary of WFS Financial
Inc ("WFS"). The Certificates will be issued pursuant to the Trust Agreement and
will represent fractional undivided interests in the Trust. The Notes will be
issued and secured pursuant to an Indenture to be entered into among the Trust,
Financial Security and Bankers Trust Company, as Indenture Trustee, and will
represent obligations of the Trust. Financial Security will issue a financial
guaranty insurance policy for the exclusive benefit of the Notes (the "Note
Policy") and a financial guaranty insurance policy for the exclusive benefit of
the Certificates (the "Certificate Policy" and, together with the Note Policy,
the "Policies").
The Trust property will primarily include a pool of retail installment sales
contracts and installment loans secured by new and used automobiles and light
duty trucks (the "Contracts"). The Contracts were primarily originated by motor
vehicle dealers and purchased by WFS. WFS will act as Master Servicer of the
Contracts and will have certain other limited obligations with respect thereto.
The Notes will be secured by the assets of the Trust pursuant to the Indenture.
It is a condition of issuance that the Class A-1 Notes be rated A-1+ by
Standard & Poor's Ratings Services, a division of McGraw-Hill, Inc. ("S&P") and
P-1 by Moody's Investors Service, Inc. ("Moody's" and, together with S&P, the
"Rating Agencies"), and the Class A-2 Notes, Class A-3 Notes, Class A-4 Notes
and the Certificates each be rated AAA by S&P and Aaa by Moody's. The ratings by
S&P of the Notes will be issued without regard to the benefit afforded by the
Note Policy. The rating by Moody's of the Class A-1 Notes will be substantially
based upon the issuance of the Note Policy by Financial Security, and the rating
by Moody's of the Class A-2 Notes, the Class A-3 Notes and the Class A-4 Notes
will be based on the issuance of the Note Policy by Financial Security. The
ratings by each Rating Agency of the Certificates will be based on the issuance
of the Certificate Policy by Financial Security.
Each Class of Notes and the Certificates will be represented by one or more
certificates registered in the name of Cede & Co., as nominee of The Depository
Trust Company ("DTC"). The interests of beneficial owners of the Securities will
be represented by book entries on the records of participating members of DTC.
Definitive Securities will be available only under the limited circumstances
described herein.
THE NOTES WILL REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES WILL REPRESENT
BENEFICIAL INTERESTS IN, THE TRUST AND WILL NOT REPRESENT OBLIGATIONS OF OR
INTERESTS IN WFS FINANCIAL AUTO LOANS, INC., WESTERN FINANCIAL SAVINGS
BANK, F.S.B., WFS FINANCIAL INC OR ANY OF THEIR RESPECTIVE
AFFILIATES, THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL ENTITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO THE DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) THE SELLER(1)(3)
<S> <C> <C> <C>
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Per Class A-1 Note.................................................... 100.000000% 0.150000% 99.850000%
Per Class A-2 Note.................................................... 99.974765% 0.190000% 99.784765%
Per Class A-3 Note.................................................... 99.928672% 0.250000% 99.678672%
Per Class A-4 Note.................................................... 99.931040% 0.270000% 99.661040%
Per Certificate....................................................... 99.908062% 0.400000% 99.508062%
Total................................................................. $524,755,173.74 $1,207,300.00 $523,547,873.74
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</TABLE>
(1) Plus accrued interest, if any, from June 1, 1996.
(2) See "Underwriting" for indemnification arrangements with the Underwriter.
(3) Before deducting expenses payable by the Seller estimated at $450,000.
The Securities are offered by the Underwriter subject to prior sale, when,
as and if delivered to and accepted by the Underwriter, and subject to various
prior conditions, including its right to reject orders in whole or in part. It
is expected that the Securities will be delivered in book-entry form on or about
June 20, 1996.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
<PAGE> 4
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE NOTES AND THE
CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
THE FINANCIAL GUARANTY INSURANCE POLICIES ARE NOT COVERED BY THE
PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW
YORK INSURANCE LAW.
AVAILABLE INFORMATION
The Seller, as originator of the Trust, has filed a registration statement
on Form S-1 (together with all amendments and exhibits thereto, the
"Registration Statement") under the Securities Act of 1933, as amended, with the
Securities and Exchange Commission (the "Commission") with respect to the
Securities offered hereby. This Prospectus, which forms a part of the
Registration Statement, does not contain all of the information included in the
Registration Statement and the exhibits thereto. The Registration Statement,
including exhibits thereto, may be inspected and copied at the public reference
facilities maintained by the Commission in Washington, D.C. at Judiciary Plaza,
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 or at the regional
offices of the Commission at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York,
New York 10048. Copies of such material can be obtained at prescribed rates from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Statements made in this Prospectus as to the contents of
any agreement or other document referred to herein are not necessarily complete
and reference is made to the copy of such agreement or other document filed as
an exhibit or schedule to the Registration Statement and to the exhibits and
schedules filed therewith, each such statement being qualified in all respects
by such reference.
REPORTS TO SECURITYHOLDERS
The Master Servicer, on behalf of the Trust, will prepare and the Indenture
Trustee and the Owner Trustee will provide to Securityholders of record (which
shall be Cede & Co. as the nominee of DTC unless Definitive Securities are
issued under the limited circumstances described herein) unaudited quarterly and
annual reports concerning the Contracts. See "Certain Information Regarding the
Securities -- Statements to Securityholders" and "-- Evidence as to Compliance."
UNTIL SEPTEMBER 12, 1996, ALL DEALERS EFFECTING TRANSACTIONS IN THE NOTES
OR THE CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
2
<PAGE> 5
SUMMARY OF PROSPECTUS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus. See the Index of
Principal Definitions for the location herein of certain capitalized terms.
Trust...................... WFS Financial 1996-B Owner Trust (the "Trust").
Seller..................... WFS Financial Auto Loans, Inc. (the "Seller"), a
wholly owned, limited-purpose operating subsidiary
of WFS Financial Inc. The principal executive
offices of the Seller are located at 23 Pasteur
Road, Irvine, California 92718 and its telephone
number is (714) 753-3000. Prior to May 29, 1996,
the Seller was known as Western Financial Auto
Loans, Inc. See "The Seller."
WFS........................ WFS Financial Inc ("WFS" or, in its capacity as
Master Servicer, the "Master Servicer"), a majority
owned, operating subsidiary of Western Financial
Savings Bank, F.S.B. (the "Bank"), a federally
chartered savings association. The principal
offices of WFS are located at 23 Pasteur Road,
Irvine, California 92718 and its telephone number
is (714) 753-3000. See "WFS."
WII........................ WFS Investments, Inc. ("WII"), a California
corporation and a wholly owned operating subsidiary
of WFS. The principal office of WII is 23 Pasteur
Road, Irvine, California 92718 and its telephone
number is (714) 727-1000. See "WII."
Securities Offered......... The securities offered are as follows:
A. General................. The WFS Financial 1996-B Owner Trust Auto
Receivable Backed Notes (the "Notes") will
represent obligations of the Trust secured by the
assets of the Trust (other than the Certificate
Distribution Account and the Certificate Policy).
The WFS Financial 1996-B Owner Trust Auto
Receivable Backed Certificates (the "Certificates"
and, together with the Notes, the "Securities")
will represent fractional undivided interests in
the Trust.
The Trust will issue four Classes of Notes pursuant
to an indenture to be dated as of June 1, 1996 (the
"Indenture"), between the Trust and Bankers Trust
Company, as trustee (the "Indenture Trustee"), as
follows: (i) $81,500,000 aggregate principal amount
of 5.52% Money Market Auto Receivable Backed Notes,
Class A-1 (the "Class A-1 Notes" or the "Money
Market Notes"), (ii) $170,000,000 aggregate
principal amount of 6.20% Auto Receivable Backed
Notes, Class A-2 (the "Class A-2 Notes"), (iii)
$155,000,000 aggregate principal amount of 6.65%
Auto Receivable Backed Notes, Class A-3 (the "Class
A-3 Notes") and (iv) $76,500,000 aggregate
principal amount of 6.95% Auto Receivable Backed
Notes, Class A-4 (the "Class A-4 Notes"). Payments
of principal and interest on the Notes will be made
in accordance with the priorities set forth under
"Certain Information Regarding the
Securities -- Distributions on the Securities."
The Trust will issue $42,000,000 aggregate
principal amount of 7.05% Auto Receivable Backed
Certificates (the "Certificates") pursuant to a
trust agreement to be dated as of June 1, 1996 (the
"Trust Agreement"), among the Seller, Financial
Security Assurance Inc. ("Financial Secur-
3
<PAGE> 6
ity"), WII and The Chase Manhattan Bank (USA), as
trustee (the "Owner Trustee" and, together with the
Indenture Trustee, the "Trustees"). Payments in
respect of the Certificates will be subordinated to
payments on the Notes to the extent described
herein.
Each Class of Notes and the Certificates will be
issued in minimum denominations of $1,000 and
integral multiples of $1,000 in excess thereof.
Definitive Securities will be issued only under the
limited circumstances described herein. See
"Certain Information Regarding the
Securities -- Book-Entry Registration" and
"-- Definitive Securities."
B. Property of the Trust... Each Note will represent an obligation of, and each
Certificate will represent a fractional undivided
interest in, the Trust. The property of the Trust
will primarily include (i) a pool of retail
installment sales contracts and installment loans
(the "Contracts") secured by the new and used
automobiles and light-duty trucks financed thereby
(the "Financed Vehicles"); (ii) certain monies due
under the Contracts on and after June 1, 1996 (the
"Cut-Off Date"); (iii) security interests in the
Financed Vehicles; (iv) a financial guaranty
insurance policy (the "Note Policy") to be issued
by Financial Security for the exclusive benefit of
Noteholders, which will unconditionally and
irrevocably guarantee payment of the Scheduled
Payments on each Distribution Date; (v) a financial
guaranty insurance policy (the "Certificate Policy"
and, together with the Note Policy, the "Policies")
to be issued by Financial Security for the
exclusive benefit of Certificateholders, which will
unconditionally and irrevocably guarantee payment
of the Guaranteed Distributions on each
Distribution Date; (vi) amounts on deposit in the
Collection Account, the Note Distribution Account,
the Certificate Distribution Account, the Spread
Account and the Holding Account, including all
Eligible Investments therein and all income from
the investment of funds therein and all proceeds
therefrom; (vii) proceeds from claims under certain
insurance policies in respect of individual
Financed Vehicles or obligors under the Contracts
(the "Obligors"); and (viii) certain rights under
the sale and servicing agreement to be dated as of
June 1, 1996 (the "Sale and Servicing Agreement"),
among the Trust, the Seller and the Master
Servicer. Pursuant to the Indenture, the property
of the Trust (other than the Certificate
Distribution Account and the Certificate Policy)
will be held by the Master Servicer for the benefit
of the Indenture Trustee and Financial Security on
behalf of the holders of the Notes.
C. Distribution Dates...... Distributions of interest and principal on the
Securities will be made on February 20, May 20,
August 20 and November 20 of each year (or, if any
such day is not a Business Day, on the next
succeeding Business Day) (each, a "Distribution
Date"), commencing August 20, 1996. Payments on the
Securities on each Distribution Date will be paid
to the holders of record of the related Securities
on the Business Day immediately preceding such
Distribution Date or, in the event that Definitive
Securities are issued, as of the 15th day of the
month immediately preceding the month in which such
Distribution Date occurs (each, a "Record Date").
A "Business Day" will be any day other than a
Saturday, a Sunday or a day on which banking
institutions in New York, New York, Wilmington,
4
<PAGE> 7
Delaware, or Los Angeles, California are authorized
or obligated by law, executive order or government
decree to be closed.
To the extent not previously paid prior to such
dates, the outstanding principal amount of (i) the
Class A-1 Notes will be payable on May 20, 1997
(the "Class A-1 Final Distribution Date"), (ii) the
Class A-2 Notes will be payable on May 20, 1999
(the "Class A-2 Final Distribution Date"), (iii)
the Class A-3 Notes will be payable on August 20,
2000 (the "Class A-3 Final Distribution Date") and
(iv) the Class A-4 Notes will be payable on
November 20, 2003 (the "Class A-4 Final
Distribution Date" and, together with the Class A-1
Final Distribution Date, the Class A-2 Final
Distribution Date and the Class A-3 Final
Distribution Date, the "Note Final Distribution
Dates"). To the extent not previously paid in full
prior to such date, the unpaid principal balance of
the Certificates will be payable on November 20,
2003 (the "Certificate Final Distribution Date"
and, together with the Note Final Distribution
Dates, the "Final Distribution Dates").
Terms of the Notes......... The principal terms of the Notes will be as
described below:
A. Interest Rates.......... Interest will be borne on (i) the Class A-1 Notes
at the rate of 5.52% per annum (the "Class A-1
Rate"), (ii) the Class A-2 Notes at the rate of
6.20% per annum (the "Class A-2 Rate"), (iii) the
Class A-3 Notes at the rate of 6.65% per annum (the
"Class A-3 Rate") and (iv) the Class A-4 Notes at
the rate of 6.95% per annum (the "Class A-4 Rate"
and, together with the Class A-1 Rate, the Class
A-2 Rate and the Class A-3 Rate, the "Interest
Rates"). Interest on the Notes will be calculated
on the basis of a 360-day year consisting of twelve
30-day months.
B. Interest................ Interest on the outstanding principal amount of
each Class of Notes will accrue at the related
Interest Rate from and including the most recent
Distribution Date on which interest has been paid
(or from and including the Cut-Off Date with
respect to the first Distribution Date) to but
excluding the current Distribution Date (each, an
"Interest Period"). Interest on the Notes for any
Distribution Date due but not paid on such
Distribution Date will be due on the next
Distribution Date, together with, to the extent
permitted by applicable law, interest on such
shortfall at the related Interest Rate. See "The
Notes -- Payments of Interest" and "Certain
Information Regarding the
Securities -- Distributions on the Securities."
C. Principal............... Principal of the Notes will be payable on each
Distribution Date in an amount generally equal to
the Note Principal Distributable Amount for such
Distribution Date, calculated as described under
"Certain Information Regarding the
Securities -- Distributions on the
Securities -- Deposits to the Distribution
Accounts; Priority of Payments." The Note Principal
Distributable Amount will include an amount equal
to the Accelerated Principal Distributable Amount
for such Distribution Date. On each Distribution
Date, the Note Principal Distributable Amount will
be applied in the following priority: first to
reduce the principal amount of the Money Market
Notes; second, after the principal amount of the
Money Market Notes has been reduced to zero, to
reduce the principal amount of the Class A-2 Notes;
third, after the principal amount of the Class A-2
Notes has been reduced to zero, to reduce the
principal amount of the Class A-3 Notes; and
fourth, after the principal
5
<PAGE> 8
amount of the Class A-3 Notes has been reduced to
zero, to reduce the principal amount of the Class
A-4 Notes. Notwithstanding the foregoing, if the
principal amount of a Class of Notes has not been
paid in full prior to its Note Final Distribution
Date, the Note Principal Distributable Amount for
such Note Final Distribution Date will include an
amount sufficient to reduce the unpaid principal
amount of such Class of Notes to zero on such Note
Final Distribution Date. See "The Notes -- Payments
of Principal" and "Certain Information Regarding
the Securities -- Distributions on the
Securities -- Deposits to the Distribution
Accounts; Priority of Payments."
D. Optional Redemption..... In the event of an Optional Purchase, each Class of
outstanding Notes will be redeemed in whole, but
not in part, at a redemption price equal to the
unpaid principal amount of such Class of Notes plus
accrued interest thereon at the related Interest
Rate. See "The Notes -- Optional Redemption."
E. Mandatory Redemption.... Under certain conditions, the Notes may be
accelerated upon the occurrence of an Event of
Default under the Indenture. So long as no Insurer
Default shall have occurred and be continuing,
under certain circumstances Financial Security will
have the right (in addition to its obligation to
make Scheduled Payments on the Notes in accordance
with the terms of the Note Policy) but not the
obligation, to elect to accelerate the principal of
the Notes and to cause the Master Servicer or the
Trustee to sell or otherwise liquidate the property
of the Trust and to deliver the proceeds to the
Indenture Trustee for distribution in accordance
with the terms of the Indenture. See "The
Notes -- Events of Default."
Terms of the
Certificates............... The principal terms of the Certificates will be as
described below:
A. Interest................ On each Distribution Date, the Owner Trustee or any
paying agent as the Owner Trustee may designate
from time to time (the "Paying Agent") will
distribute pro rata to Certificateholders of record
as of the related Record Date accrued interest at
the rate of 7.05% per annum (the "Pass-Through
Rate") on the Certificate Balance as of the
immediately preceding Distribution Date (after
giving effect to distributions of principal to be
made on such immediately preceding Distribution
Date) or, in the case of the first Distribution
Date, the Original Certificate Balance. Interest in
respect of a Distribution Date will accrue from and
including the Cut-Off Date (in the case of the
first Distribution Date), or from and including the
most recent Distribution Date on which interest has
been paid, to but excluding the current
Distribution Date. Interest on the Certificates for
any Distribution Date due but not paid on such
Distribution Date will be due on the next
Distribution Date, together with, to the extent
permitted by applicable law, interest on such
shortfall at the Pass-Through Rate. See "The
Certificates -- Distributions of Interest" and
"Certain Information Regarding the Securities --
Distributions on the Securities."
The "Certificate Balance" will equal $42,000,000
(the "Original Certificate Balance") on the date of
initial issuance of the Certificates (the "Closing
Date") and on any date thereafter will equal the
Original Certificate Balance reduced by all
distributions of principal previously made in
respect of the Certificates. Distributions on the
Certificates will
6
<PAGE> 9
be subordinated to payments of interest and
principal on the Notes as described under "The
Certificates" and "Certain Information Regarding
the Securities -- Distributions on the Securities."
B. Principal............... No principal will be paid on the Certificates until
the Distribution Date on which the principal amount
of the Class A-1, Class A-2 and Class A-3 Notes has
been reduced to zero. On such Distribution Date and
each Distribution Date thereafter, principal of the
Certificates will be payable in an amount equal to
the Certificate Principal Distributable Amount for
such Distribution Date, calculated as described
under "Certain Information Regarding the
Securities -- Distributions on the
Securities -- Deposits to the Distribution
Accounts; Priority of Payments." On each
Distribution Date on or after the Distribution Date
on which the Class A-4 Notes have been paid in
full, any Accelerated Principal Distributable
Amount will be included in the Certificate
Principal Distributable Amount. If not paid in full
prior to the Certificate Final Distribution Date,
the remaining Certificate Balance, if any, will be
payable on that date. See "The
Certificates -- Distributions of Principal."
C. Optional Prepayment..... In the event of an Optional Purchase, the
Certificates will be repaid in whole, but not in
part, at a repayment price equal to the Certificate
Balance plus accrued interest thereon at the
Pass-Through Rate. See "The
Certificates -- Optional Prepayment."
Security for the
Securities................. The principal security for the Securities will be
as described below:
A. The Contracts........... The Contracts will consist of retail installment
sales contracts and installment loans, secured by
liens on the Financed Vehicles, purchased from WFS
by the Seller and from the Seller by the Trust,
including the right to receive the payments
thereunder on and after the Cut-Off Date. The
Seller will be required to repurchase certain of
the Contracts under certain circumstances if
certain representations and warranties made by the
Seller are incorrect in a manner that materially
and adversely affects the Securityholders, the
Indenture Trustee, the Owner Trustee or Financial
Security. The Contracts were purchased from new and
used car dealers or originated directly from
consumers by WFS or, to a lesser extent, by the
Bank and were subsequently assigned to WFS. The
Contracts were originated in California and 20
other states by new and used car dealers not
affiliated with WFS or the Bank, except for a
limited number of Contracts originated directly
from consumers by WFS or, to a lesser extent, by
the Bank and were subsequently assigned to WFS. The
Contracts will be selected by WFS from its
portfolio of retail installment contracts and
installment loans based upon the criteria to be
specified in the Sale and Servicing Agreement. As
of the Cut-Off Date, the Aggregate Scheduled
Balance will be $525,000,000 (the "Cut-Off Date
Aggregate Scheduled Balance") and the Contracts
will have an expected weighted average annual
percentage rate of approximately 15.46% and an
expected weighted average remaining maturity of
approximately 56 months. See "The Contracts Pool."
Approximately 48.6% of the aggregate principal
amount of the Contracts will be Rule of 78's
Contracts and approximately 51.4% will be Simple
7
<PAGE> 10
Interest Contracts, based upon the anticipated
Scheduled Balances of the Contracts as of the
Cut-Off Date.
All net collections received by the Master Servicer
on or in respect of the Contracts, any Advances
made by the Master Servicer and all amounts paid
under the Policies will be deposited in or credited
to the Collection Account or, in certain limited
instances, the Holding Account. On each
Distribution Date the Indenture Trustee will
distribute the amounts on deposit in the Collection
Account with respect to such Distribution Date to
the Note Distribution Account and, to the extent
applicable, the Certificate Distribution Account.
All payments to Noteholders will be made from the
Note Distribution Account and to Certificateholders
from the Certificate Distribution Account. See
"Certain Information Regarding the
Securities -- The Accounts and Eligible
Investments" and "-- Distributions on the
Securities."
B. The Spread Account...... The Securityholders will be afforded certain
limited protection, to the extent described herein,
against losses in respect of the Contracts by the
establishment of a segregated trust account in the
name of the Indenture Trustee for the benefit of
the Securityholders (the "Spread Account"). The
Spread Account will be part of the Trust.
The Spread Account will be created with an initial
deposit by the Seller of $15,750,000 (the "Spread
Account Initial Deposit"). The funds in the Spread
Account will thereafter be supplemented on each
Distribution Date by the deposit of any Excess
Amounts (as defined below), until the cash on
deposit in the Spread Account is at least equal to
the Minimum Funded Amount and the sum of the Funded
Amount and the Overcollateralization Amount is at
least equal to the Specified Spread Account
Balance. "Excess Amounts" in respect of a
Distribution Date will be calculated as described
under "Certain Information Regarding the
Securities -- Distributions on the
Securities -- Deposits to the Distribution
Accounts; Priority of Payments" and will equal the
funds on deposit in the Collection Account in
respect of such Distribution Date, after giving
effect to all distributions required to be made on
such Distribution Date. The Specified Spread
Account Balance, the Minimum Funded Amount and the
Overcollateralization Amount will be calculated as
described under "Certain Information Regarding the
Securities -- Payment Priorities of the Notes and
the Certificates; The Spread Account -- Calculation
of Specified Spread Account Balance." On each
Distribution Date, funds will be withdrawn from the
Spread Account for distribution to Securityholders
to cover any shortfalls in interest and principal
required to be paid on the Securities (before
giving effect to any claim under the Policies).
If on the last day of any month (each, a
"Calculation Day") or on any Distribution Date the
Spread Account is fully funded, any excess cash on
deposit therein will be released therefrom and upon
such distribution Securityholders will have no
further rights in, or claims to, such amounts. See
"Certain Information Regarding the
Securities -- Withdrawals from the Spread Account."
C. The Policies............ On the Closing Date, Financial Security will issue
the Note Policy to the Indenture Trustee and the
Certificate Policy to the Owner Trustee pursuant to
the insurance, indemnity and pledge agreement to be
dated
8
<PAGE> 11
as of June 1, 1996 (the "Insurance Agreement"),
among Financial Security, the Trust, the Seller,
Bankers Trust Company as Collateral Agent for
Financial Security, WII and WFS. Pursuant to the
Note Policy, Financial Security will
unconditionally and irrevocably guarantee to the
Noteholders payment of the Scheduled Payments for
each Distribution Date. Pursuant to the Certificate
Policy, Financial Security will unconditionally and
irrevocably guarantee to the Certificateholders
payment of the Guaranteed Distributions for each
Distribution Date. See "The Policies" and
"Financial Security Assurance Inc."
Optional Purchase.......... The Seller may, but will not be obligated to,
purchase all of the Contracts in the Trust, and
thereby cause early retirement of all outstanding
Securities, on any Distribution Date as of which
(i) the Aggregate Scheduled Balance is 10% or less
of the Cut-Off Date Aggregate Scheduled Balance and
(ii) the aggregate outstanding principal amount of
the Securities is 5% or less of the initial
aggregate amount of the Securities (an "Optional
Purchase"). See "Certain Information Regarding the
Securities -- Termination."
The Master Servicer........ WFS, as Master Servicer, will be obligated pursuant
to the Sale and Servicing Agreement, subject to the
limitations set forth therein, to service the
Contracts and to repurchase certain of the
Contracts under certain circumstances if certain
representations and warranties made by WFS are
incorrect or if WFS, as Master Servicer, breaches
certain of its servicing obligations under the Sale
and Servicing Agreement, in either case in a manner
that materially and adversely affects such
Contracts. See "The Master Servicer."
Ratings.................... It is a condition of issuance that the Class A-1
Notes be rated A-1+ by Standard & Poor's Ratings
Services, a division of McGraw-Hill, Inc. ("S&P")
and P-1 by Moody's Investors Service, Inc.
("Moody's" and, together with S&P, the "Rating
Agencies"), and the Class A-2, Class A-3 and Class
A-4 Notes and the Certificates each be rated AAA by
S&P and Aaa by Moody's. See "Ratings of the
Securities."
Tax Status................. In the opinion of counsel to the Seller, for both
federal and California income tax purposes, the
Notes will be characterized as debt, and the Trust
will not be characterized as an association (or a
publicly traded partnership) taxable as a
corporation. Each Noteholder, by the acceptance of
a Note, will agree to treat the Notes as
indebtedness, and each Certificateholder, by the
acceptance of a Certificate, will agree to treat
the Trust as a partnership in which the
Certificateholders are partners for federal income
tax purposes. See "Certain Federal Income Tax
Consequences" and "Certain California Income Tax
Consequences."
ERISA Considerations....... Subject to the considerations discussed under
"ERISA Considerations," the Notes will be eligible
for purchase by employee benefit plans that are
subject to the Employee Retirement Income Security
Act of 1974, as amended ("ERISA").
Since the Certificates will be subordinated to the
Notes to the extent described herein, employee
benefit plans subject to ERISA will not be eligible
to purchase the Certificates. Any benefit plan
fiduciary considering purchase of the Securities
should, among other things, consult with its
counsel in determining whether all required
conditions have been satisfied. See "ERISA
Considerations."
9
<PAGE> 12
Legal Investment........... The Money Market Notes will be eligible securities
for purchase by money market funds under Rule 2a-7
under the Investment Company Act of 1940, as
amended.
10
<PAGE> 13
FORMATION OF THE TRUST
GENERAL
The Trust will be a business trust formed under the laws of the State of
Delaware pursuant to the Trust Agreement for the transactions described herein.
After its formation, the Trust will not engage in any activity other than (i)
acquiring, holding and managing the Contracts and the other assets of the Trust
and proceeds therefrom; (ii) issuing the Notes and the Certificates; (iii)
making payments on the Notes and the Certificates; and (iv) engaging in other
activities that are necessary, suitable or convenient to accomplish the
foregoing purposes or are incidental thereto or connected therewith.
On the Closing Date, the Seller will establish the Trust by selling and
assigning the property of the Trust to the Trust. WFS will act as Master
Servicer of the Contracts and will receive compensation and fees for such
services. See "The Master Servicer -- Servicing Compensation." WFS, as Master
Servicer, may retain physical possession of the original executed Contracts, and
certain other documents or instruments relating to the Contracts, as custodian
for the Owner Trustee pursuant to the Sale and Servicing Agreement, or may
employ one or more Subservicers as custodians. In order to protect the Trust's
ownership interest in the Contracts, the Seller will file UCC-1 financing
statements in the State of California to give notice of the Trust's ownership of
the Contracts. Under the Sale and Servicing Agreement and the Indenture, WFS
will be obligated to take all necessary steps to preserve and protect the
interests of the Trustees in the Contracts. Neither the Indenture Trustee nor
the Owner Trustee will be responsible for the legality, validity or
enforceability of any security interest in respect of any Contract. WFS will not
physically segregate the Contracts from the other retail installment sales
contracts and installment loans owned or serviced by it and will not stamp the
Contracts with notice of the sale to the Seller or the Trust. See "Certain Legal
Aspects of the Contracts."
Simultaneously with the issuance of the Securities, Financial Security will
issue the Note Policy to the Indenture Trustee and the Certificate Policy to the
Owner Trustee for the benefit of the related Securityholders. Under the Note
Policy and the Certificate Policy, Financial Security will unconditionally and
irrevocably guarantee to the related Securityholders full and complete payment
of the Scheduled Payments and the Guaranteed Distributions, respectively, for
each Distribution Date. Financial Security will have a lien on the Contracts and
other documents relating to the Contracts subordinate to the interest of the
Securityholders, which lien cannot be executed upon until all required payments
under the Policies have been made. See "The Policies."
After the sale and assignment of the Contracts to the Trust, so long as WFS
acts as Master Servicer, WFS's obligations to the Trust with respect to the
Contracts will be limited to the repurchase of Contracts in the event of a
breach of (i) certain representations and warranties made by it as Master
Servicer or (ii) certain servicing obligations, in either case that materially
and adversely affects such Contracts.
The Trust's principal offices will be in Wilmington, Delaware, in care of
The Chase Manhattan Bank (USA), as Owner Trustee, at the address listed below
under "The Owner Trustee".
CAPITALIZATION
The Trust will initially be capitalized with equity equal to the Original
Certificate Balance. WII will purchase Certificates with an original Certificate
Balance of approximately 1% of the Original Certificate Balance and the
remaining equity interests will be sold to third party investors that are
expected to be unaffiliated with the Seller, the Master Servicer or the Trust.
11
<PAGE> 14
The following table illustrates the capitalization of the Trust as of the
Cut-Off Date, as if the issuance and sale of the Securities had taken place on
such date:
<TABLE>
<S> <C>
Class A-1 Notes................................................ $ 81,500,000
Class A-2 Notes................................................ 170,000,000
Class A-3 Notes................................................ 155,000,000
Class A-4 Notes................................................ 76,500,000
Certificates................................................... 42,000,000
-------------
Total................................................ $ 525,000,000
===========
</TABLE>
THE OWNER TRUSTEE
The Chase Manhattan Bank (USA) will be the Owner Trustee under the Trust
Agreement. The Chase Manhattan Bank (USA) is a Delaware corporation and its
Corporate Trust Office is located at 802 Delaware Avenue, Wilmington, Delaware
19801.
The Owner Trustee will have the rights and duties set forth herein under
"Certain Information Regarding the Securities -- The Trustees" and "-- Duties of
the Trustees."
THE CONTRACTS POOL
Each Contract is a retail installment sales contract originated by a new or
used car dealer located in California or one of the other 20 states listed below
and purchased primarily by WFS or, to a lesser extent, by the Bank (except for a
limited number of Contracts in the form of installment loans originated by
branch offices of WFS or the Bank directly from consumers) and subsequently
assigned to WFS. Each Contract is secured by a Financed Vehicle.
WFS will select the Contracts from its portfolio of fixed-interest rate
retail installment sales contracts and installment loans which are secured by
new and used automobiles or light-duty trucks. The Contracts were underwritten
and purchased by WFS or the Bank or in the ordinary course of its business
operations. It is currently anticipated, based on the Cut-Off Date Aggregate
Scheduled Balance, that not more than approximately 42.3% of the Contracts will
have been originally underwritten by the Branch Division of WFS. Approximately
55.1% of the aggregate principal amount of the Contracts will have been
originated by WFS or the Bank in California and approximately 44.9% of the
aggregate principal amount of the Contracts will have been originated by WFS or
the Bank in states other than California. Each of the Contracts is fully
amortizing and provides for level payments over its term, with the portions of
principal and interest of each such level payment being determined on the basis
of the Rule of 78's or the simple interest (actual number of days) method.
Contracts originated in Oregon, Arizona, Washington, Colorado, Idaho, Utah,
Florida, North Carolina, Georgia, Kansas or Hawaii and all Contracts with
original maturities in excess of 60 months, regardless of their state of
origination, utilize the simple interest method. The amortization of the Rule of
78's Contracts will result in the outstanding principal balance on each such
Contract being in excess of the Scheduled Balance of that Contract. See "Index
of Principal Definitions" for an explanation of the Rule of 78's and Simple
Interest Contracts.
The aggregate outstanding principal amount of the Contracts will be
$525,000,000. Based on the anticipated Cut-Off Date Aggregate Scheduled Balance,
approximately 48.6% of the Contracts will be Rule of 78's Contracts and
approximately 51.4% will be Simple Interest Contracts.
The information concerning the Contracts presented in this Prospectus is
based upon a pool of retail installment sales contracts and installment loans
originated through May 31, 1996. While information as of the Cut-Off Date for
the Contracts that will be actually sold to the Trust may differ somewhat from
the Contract information presented herein, WFS does not expect that the
characteristics of the Contracts that will be sold to the Trust will vary
materially from the information concerning the Contracts presented.
12
<PAGE> 15
For Contracts originated through May 31, 1996, approximately 22.5% of the
aggregate principal amount of the Contracts relate to the purchase of new
vehicles and approximately 77.5% of the Contracts relate to the purchase of used
vehicles. Approximately 65.0% of the aggregate principal amount of these
Contracts consists of contracts secured by automobiles and approximately 35.0%
of the aggregate principal amount consists of contracts secured by light-duty
trucks. These Contracts have an annual percentage rate ("APR") of at least 7.75%
and not more than 30.00%, and the weighted average APR of these Contracts is
approximately 15.46%. These Contracts have remaining maturities of at least 3
months but not more than 84 months and original maturities of at least 6 months
but not more than 84 months. The weighted average original maturity of these
Contracts was 58 months and the weighted average remaining maturity of these
Contracts as of May 31, 1996 was 56 months. It is currently anticipated that not
more than 22.9% of the aggregate principal amount of the Contracts (by Cut-Off
Date Aggregate Scheduled Balance) will have had original maturities of more than
60 months. The average principal amount outstanding per Contract as of May 31,
1996 was $10,832 and the outstanding principal balance of these Contracts as of
May 31, 1996 ranged from $1,000 to $72,820.
DISTRIBUTION OF CONTRACTS BY APR(1)
<TABLE>
<CAPTION>
PERCENTAGE
OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
APR RANGE CONTRACTS BALANCE BALANCE
- ------------------------------------------------------- ---------- ------------ -----------
<S> <C> <C> <C>
7.00% to 7.99%........................................ 48 $ 703,876 0.13%
8.00% to 8.99%........................................ 977 15,224,703 2.90
9.00% to 9.99%........................................ 2,541 38,512,220 7.34
10.00% to 10.99%....................................... 3,623 53,190,839 10.13
11.00% to 11.99%....................................... 3,375 48,389,455 9.22
12.00% to 12.99%....................................... 3,785 50,183,799 9.56
13.00% to 13.99%....................................... 2,761 34,106,200 6.50
14.00% to 14.99%....................................... 2,388 26,913,877 5.13
15.00% to 15.99%....................................... 3,123 30,652,876 5.84
16.00% to 16.99%....................................... 1,882 19,782,761 3.77
17.00% to 17.99%....................................... 2,107 22,557,863 4.30
18.00% to 18.99%....................................... 3,800 42,114,750 8.02
19.00% to 19.99%....................................... 2,318 22,818,861 4.35
20.00% to 20.99%....................................... 5,260 46,627,600 8.87
21.00% and over........................................ 10,481 73,221,261 13.94
---------- ------------ -----------
Total............................................. 48,469 $525,000,941 100.00%
======== =========== ========
</TABLE>
- ---------------
(1) Information as of May 31, 1996 for Contracts originated through May 31,
1996. Contracts having Cut-Off Date Aggregate Scheduled Balances of
$525,000,000 will be included in the Trust.
13
<PAGE> 16
GEOGRAPHIC CONCENTRATION OF THE CONTRACTS(1)
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
CONTRACTS BALANCE BALANCE
---------- ------------ --------------
<S> <C> <C> <C>
California........................................... 26,944 $289,024,188 55.05%
Texas................................................ 4,674 49,857,594 9.50
Nevada............................................... 2,595 32,508,847 6.19
Oregon............................................... 3,185 32,414,098 6.17
Arizona.............................................. 2,685 30,674,746 5.84
Washington........................................... 2,211 21,142,875 4.03
Colorado............................................. 1,027 12,519,565 2.38
Missouri............................................. 882 11,520,464 2.19
Florida.............................................. 613 6,982,368 1.33
New Mexico........................................... 565 6,024,120 1.15
Idaho................................................ 595 5,135,409 0.98
Utah................................................. 438 4,308,589 0.82
North Carolina....................................... 405 4,271,098 0.81
Georgia.............................................. 325 4,167,969 0.79
Illinois............................................. 399 4,060,011 0.77
Oklahoma............................................. 385 3,449,724 0.67
Kansas............................................... 208 2,728,793 0.52
Indiana.............................................. 154 1,816,834 0.36
Hawaii............................................... 69 1,128,717 0.21
Iowa................................................. 69 794,228 0.15
Wisconsin............................................ 41 470,704 0.09
---------- ------------ -------
Total........................................... 48,469 $525,000,941 100.00%
======== =========== ==========
</TABLE>
- ---------------
(1) Information as of May 31, 1996 for Contracts originated through May 31,
1996. Contracts having Cut-Off Date Aggregate Scheduled Balances of
$525,000,000 will be included in the Trust.
UNDERWRITING PROCEDURES RELATING TO THE CONTRACTS
WFS and its predecessors and affiliates have underwritten and purchased
motor vehicle installment sales contracts and installment loans since 1973. The
retail installment sales contracts and installment loans secured by automobiles
and light-duty trucks included in the Contracts were underwritten through
regional contract purchasing offices ("dealer centers") or through a branch
office. Prior to May 1, 1995, all dealer centers were operated by the Bank.
Effective May 1, 1995, as more fully described under "WFS," all such dealer
centers were transferred to WFS, at which time they became part of the Dealer
Center Division. All contracts purchased or originated after May 1, 1995, with
minor exceptions, were originated by WFS through either the Dealer Center
Division or the Branch Division. See "WFS." Each contract is fully amortizing
and provides for level payments over its term with the portion of principal and
interest of each level payment determined generally on the basis of the sum of
the digits (also known as the Rule of 78's), or on a simple interest basis
otherwise.
The contracts are purchased primarily through the dealer centers and branch
offices as part of WFS' program to provide diversified financial services and
develop multiple relationships with consumers. A limited number of contracts are
originated directly from consumers through the dealer centers or through branch
offices, as described below. The purchased contracts are generated by
experienced sales managers. Additional approval by a credit officer is required
for purchase through a dealer center, or by a branch manager, when purchased
through a branch office. Typically, for a contract purchased through a dealer
center, a credit officer, depending on his or her experience and training, will
have approval authority ranging from $15,000 to $30,000. A senior vice president
reviews and approves all such loans in excess of $30,000. Additionally, for
contracts
14
<PAGE> 17
purchased through a branch office, a branch manager, depending on his or her
experience and training, will typically have approval authority ranging from
$10,000 to $25,000. A regional vice president or a senior vice president reviews
and approves all such contracts in excess of $25,000.
As noted, a limited number of contracts are originated from consumers
directly by dealer centers and by branch offices. The credit application is
reviewed by a loan officer, the manager of the dealer center or the branch
manager of the originating branch, as the case may be. Depending upon his or her
experience and training, a loan officer or the manager of the dealer center will
typically have approval authority ranging from $10,000 to $20,000 or $10,000 to
$30,000, respectively. A regional vice president reviews and approves all auto
loans in excess of $30,000. The approval process and limits for loans originated
directly from consumers at branch offices is identical to that for contracts
purchased through branch offices from dealers. The underwriting standards for
contracts so originated are the same as for those purchased from new or used car
dealers through the dealer centers or branch offices.
The sales managers at the dealer centers work as product specialists in
generating motor vehicle contracts through franchised new car dealers. The
branch manager of a branch office is responsible for generating motor vehicle
contracts through franchised new car dealers and from reputable used car
dealers. Marketing is accomplished through personal calls to auto dealerships as
well as referrals.
In order to maintain its competitive position in the marketplace, WFS,
through its Dealer Center Division and its Branch Division, emphasizes a fast
approval process and, under normal circumstances, an approval or declination is
given on the same day that the application is received. A sample of all loans
purchased through the dealer centers are reviewed to insure proper documentation
as well as adherence to the dealer center's underwriting guidelines. Similarly,
all loans made or purchased by new branch offices, and a sample of loans made or
purchased through established branch offices, are reviewed and reunderwritten to
insure proper documentation as well as adherence to underwriting standards. The
Dealer Center Division's underwriting standards are stricter than those of the
Branch Division. Substantially all motor vehicle contracts are nonrecourse to
the originating dealer. In the case of new car contracts, the original amount
financed does not exceed the sum of the dealer's cost, taxes, license fees,
service warranty cost and, if applicable, premium for credit life or credit
disability insurance, and in some cases, miscellaneous costs. Over-advances
(i.e., advances in excess of the amount specified in the previous sentence) may
be made under certain circumstances to assist a dealer in selling an automobile
or light duty truck by permitting a lower down payment, and in some cases no
down payment, based on the creditworthiness of the applicant. For loans made or
purchased through the dealer centers, such over-advances generally do not exceed
$1,500. For used cars, the amount financed does not exceed the wholesale "blue
book" value for the car plus the related expenses and the over-advances just
described. For loans made or purchased through branch offices, WFS offers the
dealers a more flexible program of over-advances on both new and used vehicles,
based on the creditworthiness of the applicant, at a higher rate of interest.
WFS does not have minimum maturity requirements; however, retail
installment sales contracts and installment loans of less than three years
maturity are seldom purchased or made due to low customer demand.
15
<PAGE> 18
DELINQUENCY AND LOAN LOSS INFORMATION
The following tables set forth (i) the delinquency experience in regard to
motor vehicle installment sales contracts purchased and serviced by WFS and its
affiliates, including contracts subsequently sold to WFS Financial Auto Loans,
Inc., and WFS Financial Auto Loans 2, Inc. as of and for the years ended
December 31, 1991 through 1995 and for the three months ended March 31, 1996 and
(ii) the loss experience for such contracts purchased and serviced by WFS and
its affiliates, including contracts subsequently sold to WFS Financial Auto
Loans, Inc. and WFS Financial Auto Loans 2, Inc. as of and for the years ended
December 31, 1991 through 1995 and for the three months ended March 31, 1996.
There is no assurance that the future delinquency and loss experience of the
Contracts will be similar to that set forth below.
MOTOR VEHICLE INSTALLMENT SALES CONTRACT DELINQUENCY EXPERIENCE(1)
(ALL INSTALLMENT SALES CONTRACTS)
<TABLE>
<CAPTION>
AT
DECEMBER
AT MARCH 31, AT DECEMBER 31, AT DECEMBER 31, AT DECEMBER 31, 31,
1996 1995 1994 1993 1992
--------------------- --------------------- --------------------- --------------------- ---------
NUMBER NUMBER NUMBER NUMBER NUMBER
OF AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF
CONTRACTS (2) CONTRACTS (2) CONTRACTS (2) CONTRACTS (2) CONTRACTS
--------- ---------- --------- ---------- --------- ---------- --------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio............... 279,164 $2,426,638 258,665 $2,209,594 201,957 $1,633,177 164,516 $1,233,732 148,467
======= ========== ======= ========== ======= ========== ======= ========== =======
Period of delinquency(4)
31-59 days............ 1,771 $ 14,924 2,180 $ 18,557 1,136 $ 8,510 818 $ 5,239 1,112
60-89 days............ 670 6,127 690 6,143 336 2,616 254 1,849 435
90 days or more....... 363 3,094 308 2,701 145 998 138 983 349
------- ---------- ------- ---------- ------- ---------- ------- ---------- -------
Total contracts
delinquent............ 2,804 $ 24,145 3,178 $ 27,401 1,617 $ 12,124 1,210 $ 8,071 1,896
======= ========== ======= ========== ======= ========== ======= ========== =======
Delinquencies as a
percentage of number
and amount of
contracts
outstanding........... 1.00% 0.99% 1.23% 1.24% 0.80% 0.74% 0.74% 0.65% 1.28%
======= ========== ======= ========== ======= ========== ======= ========== =======
<CAPTION>
AT DECEMBER 31,
1991
---------------------
NUMBER
AMOUNT OF AMOUNT
(2) CONTRACTS (3)
---------- --------- ----------
<S> <<C> <C> <C>
Portfolio............... $1,058,267 141,210 $1,213,793
========== ======= ==========
Period of delinquency(4)
31-59 days............ $ 7,311 1,493 $ 8,556
60-89 days............ 2,803 471 3,438
90 days or more....... 2,504 789 5,300
---------- ------- ----------
Total contracts
delinquent............ $ 12,618 2,753 $ 17,294
========== ======= ==========
Delinquencies as a
percentage of number
and amount of
contracts
outstanding........... 1.19% 1.95% 1.42%
========== ======= ==========
</TABLE>
- ---------------
(1) Includes delinquency information relating to those contracts that are owned
by WFS and contracts that were sold to grantor trusts beginning in 1990, but
which are serviced by WFS.
(2) This amount is net of unearned add-on interest.
(3) This amount includes unearned add-on interest.
(4) The period of delinquency is based on the number of days payments are
contractually past due.
MOTOR VEHICLE INSTALLMENT SALES CONTRACTS LOSS EXPERIENCE(1)
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Portfolio
At end of period (net of unearned
add-on interest)..................... $2,426,638 $2,209,594 $1,633,177 $1,233,732 $1,058,267 $995,018
========= ========= ========= ========= ========= ========
Average during period (net of unearned
add-on interest)..................... $2,297,590 $1,886,359 $1,438,582 $1,132,538 $1,025,682 $969,088
========= ========= ========= ========= ========= ========
Gross chargeoffs of contracts during
period............................... $ 18,425 $ 48,999 $ 27,620 $ 24,612 $ 20,950 $ 15,003
Recoveries during period of contracts
charged off.......................... 5,943 18,715 11,927 7,308 3,226 1,400
---------- ---------- ---------- ---------- ---------- --------
Net chargeoffs......................... $ 12,482 $ 30,284 $ 15,693 $ 17,304 $ 17,724 $ 13,603
========= ========= ========= ========= ========= ========
Net chargeoffs as a percentage of
contracts outstanding during
period............................... 0.54%(2)(3) 1.61%(3) 1.09% 1.53% 1.73% 1.40%
</TABLE>
- ---------------
(1) Includes loan loss information of contracts that are owned by WFS and
contracts that were sold to grantor trusts beginning in 1990, but which are
serviced by WFS.
(2) On an annualized basis, this percentage would be 2.17%.
(3) The loan loss experience in 1995 and the first quarter of 1996 was impacted
by a variety of factors, including, in particular, an increase in the
percentage of the outstanding contracts which were originated by the Branch
Division of WFS and by general economic conditions.
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POOL FACTORS AND TRADING INFORMATION
The "Note Pool Factor" for each Class of Notes will be a six-digit decimal
which the Master Servicer will compute prior to each Distribution Date with
respect to the Notes indicating the unpaid principal amount of such Class of
Notes, after giving effect to payments to be made on such Distribution Date, as
a fraction of the initial outstanding principal amount of such Class of Notes.
The "Certificate Pool Factor" for the Certificates will be a six-digit decimal
which the Master Servicer will compute prior to each Distribution Date
indicating the remaining Certificate Balance after giving effect to
distributions to be made on such Distribution Date, as a fraction of the
Original Certificate Balance. Each Note Pool Factor and the Certificate Pool
Factor will be 1.000000 as of the Closing Date, and thereafter will decline to
reflect reductions in the outstanding principal amount of the applicable Class
of Notes, or the reduction of the Certificate Balance, as the case may be. A
Noteholder's portion of the aggregate outstanding principal amount of the
related Class of Notes will be the product of (i) the original denomination of
such Noteholder's Note and (ii) the applicable Note Pool Factor at the time of
determination. A Certificateholder's portion of the aggregate outstanding
Certificate Balance will be the product of (i) the original denomination of such
Certificateholder's Certificate and (ii) the Certificate Pool Factor at the time
of determination.
The Noteholders will receive reports on or about each Distribution Date
concerning payments received on the Contracts, the Pool Balance, each Note Pool
Factor and various other items of information, and the Certificateholders will
receive reports on or about each Distribution Date concerning payments received
on the Contracts, the Pool Balance, the Certificate Pool Factor and various
other items of information. In addition, Securityholders of record during any
calendar year will be furnished information for tax reporting purposes not later
than the latest date permitted by law. See "Certain Information Regarding the
Securities -- Statements to Securityholders."
USE OF PROCEEDS
The net proceeds from the sale of the Securities (i.e., the proceeds of the
public offering of the Securities minus expenses relating thereto) will be
applied by the Seller to the purchase of the Contracts from WFS.
THE NOTES
GENERAL
The Notes will be issued pursuant to the Indenture, a form of which has
been filed as an exhibit to the Registration Statement. Copies of the Indenture
(without exhibits) may be obtained by Noteholders upon request in writing to the
Indenture Trustee at its Corporate Trust Office. Citations to the relevant
Sections of the Indenture appear below and under "Certain Information Regarding
the Securities" in parentheses. The following summary does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the Notes and the Indenture. Where particular provisions
or terms used in the Notes or the Indenture are referred to, the actual
provisions of such documents (including definitions of terms and Section
references) are incorporated by reference as part of such summaries.
PAYMENTS OF INTEREST
Interest on the outstanding principal amount of each Class of Notes will
accrue at the applicable Interest Rate and will be payable to the Noteholders of
such Class on each Distribution Date. Interest accrued but not paid on any
Distribution Date will be due on the immediately succeeding Distribution Date,
together with, to the extent permitted by applicable law, interest on such
shortfall at the related Interest Rate. Interest payments on the Notes will be
made from Net Collections after all accrued and unpaid Trustees' fees and other
administrative fees of the Trust and payment of all applicable servicing
compensation to the Master Servicer (collectively, "Trust Fees and Expenses")
have been paid. See "Certain Information Regarding the
Securities -- Distributions on the Securities -- Deposits to the Distribution
Accounts; Priority of Payments."
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PAYMENTS OF PRINCIPAL
Principal payments will be made to the Noteholders, to the extent described
below, on each Distribution Date in an amount equal to the Note Percentage of
the related Principal Distributable Amount, in each case calculated as described
under "Certain Information Regarding the Securities -- Distributions on the
Securities -- Deposits to the Distribution Accounts; Priority of Payments."
Principal payments on the Notes will be made from Net Collections after all
Trust Fees and Expenses have been paid, and after the Note Interest
Distributable Amount has been distributed. See "Certain Information Regarding
the Securities -- Distributions on the Securities -- Deposits to the
Distribution Accounts; Priority of Payments."
Principal payments on the Notes will be applied on each Distribution Date
from the Note Distribution Account as follows: first to the holders of the Class
A-1 Notes until the principal amount of the Class A-1 Notes has been reduced to
zero and in no event later than the Class A-1 Final Distribution Date, second to
the holders of the Class A-2 Notes until the principal amount of the Class A-2
Notes has been reduced to zero, third to the holders of the Class A-3 Notes
until the principal amount of the Class A-3 Notes has been reduced to zero, and
fourth to the holders of the Class A-4 Notes until the principal amount of the
Class A-4 Notes has been reduced to zero. The Note Principal Distributable
Amount for each Distribution Date will include an amount equal to the
Accelerated Principal Distributable Amount for such Distribution Date, if any.
See "Certain Information Regarding the Securities -- Deposits to the
Distribution Accounts; Priority of Payments."
After the principal amount of the Class A-3 Notes has been reduced to zero,
the Principal Distributable Amount will be allocated to the Class A-4 Notes and
the Certificates based on a fraction, the numerator of which will be the then
outstanding principal amount of the Class A-4 Notes and the denominator of which
will be the sum of the then outstanding principal amounts of the Class A-4 Notes
and the Certificates.
The principal amount of each Class of Notes, to the extent not previously
paid, will be due on the related Note Final Distribution Date for that Class of
Notes.
The actual date on which the outstanding principal amount of any Class of
Notes is paid may be earlier than its Note Final Distribution Date based on a
variety of factors, including the factors described under "Certain Information
Regarding the Securities -- Prepayment Considerations."
OPTIONAL REDEMPTION
Each Class of outstanding Notes will be subject to redemption in whole, but
not in part, on any Distribution Date relating to an Optional Purchase. The
redemption price will equal the unpaid principal amount of such Class of Notes
plus accrued interest thereon at the applicable Interest Rate.
THE INDENTURE TRUSTEE
Bankers Trust Company will be the Indenture Trustee. The Indenture Trustee
is a New York corporation and its Corporate Trust Office is located at Four
Albany Street, New York, New York 10006.
The Indenture Trustee will have the rights and duties set forth under
"Certain Information Regarding the Securities -- The Trustees" and "-- Duties of
the Trustees."
EVENTS OF DEFAULT
"Events of Default" under the Indenture will consist of: (i) a default by
the Trust for five days or more in the payment of any interest on the Notes of
any Class when the same becomes due and payable; (ii) a default by the Trust in
the payment of the principal of or any installment of the principal of the Notes
of any Class when the same becomes due and payable; (iii) a default in the
observance or performance of any covenant or
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agreement of the Trust made in the Indenture or any representation or warranty
made by the Trust in the Indenture or in any certificate delivered pursuant
thereto or in connection therewith having been incorrect in a material respect
as of the time made, and the continuation of any such default for a period of 30
days after notice thereof is given to the Issuer by the Indenture Trustee or to
the Issuer and the Indenture Trustee by the holders of Notes evidencing at least
25% of the voting interest thereof, voting together as a single class; and (iv)
certain events of bankruptcy, insolvency, receivership or liquidation relating
to the Trust (each, a "Trust Insolvency"). (Indenture, Section 5.01)
Upon the occurrence of an Event of Default, so long as an Insurer Default
(as defined below) shall not have occurred and be continuing, Financial Security
will have the right (in addition to its obligation to make Scheduled Payments on
the Notes in accordance with the terms of the Note Policy) but not the
obligation, to elect (i) to accelerate the principal of the Notes and to cause
the Master Servicer or the Trustee to sell or otherwise liquidate the property
of the Trust, in whole or in part on any date or dates following such
acceleration as Financial Security, in its sole discretion, shall elect, and to
deliver the proceeds thereof to the Indenture Trustee for distribution in
accordance with the terms of the Indenture or (ii) to make Scheduled Payments on
the Notes in accordance with the terms of the Note Policy. If an Insurer Default
has occurred and is continuing, upon the occurrence of an Event of Default, the
Trustee may, or if so requested in writing by holders of Notes evidencing at
least 66 2/3% of the voting interests thereof, voting together as a single
class, shall, declare the Notes due and payable at par, together with accrued
interest thereon. Notwithstanding the foregoing, upon the occurrence of a Trust
Insolvency, if an Insurer Default shall have occurred and be continuing, the
Notes will become immediately due and payable at par, together with accrued
interest thereon. (Indenture, Section 5.02) An "Insurer Default" will consist of
(i) a default by Financial Security of its obligations under either Policy or
(ii) certain events of bankruptcy, insolvency, receivership or liquidation
relating to Financial Security.
No sale or liquidation of the property of the Trust described in the
immediately preceding paragraph may be made if the proceeds thereof are not
sufficient to pay all outstanding principal of and accrued interest on the
Notes, unless (i) no Insurer Default has occurred and is continuing and the
related Event of Default arose as described in clauses (i), (ii) or (iv) of the
second preceding paragraph or (ii) an Insurer Default shall have occurred and be
continuing and (a) holders of Notes evidencing 100% of the voting interests
thereof, voting together as a single class, consent to such sale or liquidation,
or (b) (1) the Trustee determines that the property of the Trust will not
continue to provide sufficient funds for the payment of principal of and
interest on the Notes, (2) the Trustee provides prior written notice of such
sale or liquidation to each Rating Agency, and (3) holders of Notes evidencing
66 2/3% of the voting interests thereof, voting together as a single class,
consent to such sale or liquidation. (Indenture, Section 5.04)
Further, in the event that no Insurer Default has occurred and is
continuing, following the occurrence of an Event of Default, if Financial
Security has not elected to accelerate the principal of the Notes and such Event
of Default is subsequently cured, Financial Security shall not thereafter have
the right to elect to accelerate the principal of the Notes or to cause the
property of the Trust to be sold or liquidated by reason of that Event of
Default and the rights of all parties shall thereupon be restored as though such
Event of Default had not occurred.
Following the occurrence of an Event of Default and provided that (i) no
Insurer Default has occurred and is continuing and (ii) Financial Security has
not elected to accelerate the principal of the Notes, the Indenture Trustee and
the Owner Trustee will continue to submit claims under the Policies for any
shortfalls in Scheduled Payments on the Notes and Guaranteed Distributions on
the Certificates, respectively. (Indenture, Section 5.02 and 5.04) See "The
Policies."
THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Trust Agreement, a form of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. Copies of the Trust Agreement
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(without exhibits) may be obtained by holders of Certificates upon request in
writing to the Owner Trustee at its Corporate Trust Office. Citations to the
relevant Sections of the Trust Agreement appear below and under "Certain
Information Regarding the Securities" in parentheses. The following summary
describes certain terms of the Certificates and the Trust Agreement and does not
purport to be complete and is subject to, and qualified in its entirety by,
reference to all of the provisions of the Certificates and the Trust Agreement.
Where particular provisions or terms used in the Trust Agreement are referred
to, the actual provisions (including definitions of terms and Section
references) are incorporated by reference as part of such summaries.
DISTRIBUTIONS OF INTEREST
Interest on the Certificate Balance will accrue at the Pass-Through Rate
and will be payable to Certificateholders on each Distribution Date. Interest
accrued but not paid on any Distribution Date will be due on the immediately
succeeding Distribution Date, together with, to the extent permitted by
applicable law, interest on such amount at the Pass-Through Rate. Interest
distributions with respect to the Certificates will be made from Net Collections
after all Trust Fees and Expenses have been paid and after the Note
Distributable Amount has been distributed. See "Certain Information Regarding
the Securities -- Distributions on the Securities -- Deposits to the
Distribution Accounts; Priority of Payments."
DISTRIBUTIONS OF PRINCIPAL
No principal will be paid on the Certificates until the Distribution Date
on which the principal amount of the Class A-1, Class A-2 and Class A-3 Notes
has been reduced to zero. On such Distribution Date and each Distribution Date
thereafter, the Certificateholders will be entitled to distributions in an
amount equal to the Certificate Percentage of the Principal Distributable
Amount, in each case calculated as described under "Certain Information
Regarding the Securities -- Distributions on the Securities -- Deposits to the
Distribution Accounts; Priority of Payments." Distributions with respect to
principal payments will be made from Net Collections after all Trust Fees and
Expenses have been paid and after the Note Distributable Amount and the
Certificate Interest Distributable Amount has been distributed. On each
Distribution Date on or after the Distribution Date on which the principal
amount of the Class A-4 Notes is reduced to zero, the Accelerated Principal
Distributable Amount will be included in the Certificate Principal Distributable
Amount. See "Certain Information Regarding the Securities -- Distributions on
the Securities -- Deposits to the Distribution Accounts; Priority of Payments."
If not paid in full prior to the Certificate Final Distribution Date, the
remaining Certificate Balance, if any, will be payable on such Distribution
Date.
The actual date on which the Certificate Balance is reduced to zero may be
earlier than the Certificate Final Distribution Date based on a variety of
factors, including the factors described under "Certain Information Regarding
the Securities -- Prepayment Considerations."
OPTIONAL PREPAYMENT
The Certificates will be subject to prepayment in whole, but not in part,
on any Distribution Date relating to an Optional Purchase. Certificateholders
will receive an amount in respect of the Certificates equal to the Certificate
Balance, together with accrued interest at the Pass-Through Rate. Any such
distribution will effect early retirement of the Certificates. See "Certain
Information Regarding the Securities -- Termination."
MANDATORY PREPAYMENT
As more fully described under "The Notes -- Events of Default," upon the
occurrence of an Event of Default (so long as an Insurer Default shall not have
occurred and be continuing), under certain circumstances Financial Security will
have the right, but not the obligation, to cause the property of the Trust
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to be sold or liquidated in whole or in part, on any date or dates as Financial
Security, in its sole discretion, shall elect prior to the date on which such
Event of Default is cured. Any such sale or liquidation may cause a full or
partial prepayment of the Certificates.
PAYING AGENTS
Distributions of principal of and interest on the Certificates will be made
by the Owner Trustee or any Paying Agent or Paying Agents as the Owner Trustee
may designate from time to time. The Chase Manhattan Bank, N.A. will be
designated as the initial Paying Agent with respect to the Certificates. (Trust
Agreement, Section 3.10)
CERTAIN INFORMATION REGARDING THE SECURITIES
BOOK-ENTRY REGISTRATION
DTC, New York, New York, will act as securities depository for the
Securities. Each Class of Notes and the Certificates will be issued as fully
registered securities registered in the name of Cede & Co. ("Cede"), the nominee
of DTC. As such, it is anticipated that the only Noteholders or
Certificateholders, as the case may be, will be Cede, as nominee of DTC. Note
Owners will not be recognized by the Indenture Trustee as "Noteholders," as such
term will be used in the Indenture. Certificate Owners will not be recognized by
the Owner Trustee as "Certificateholders," as such term will be used in the
Trust Agreement. Security Owners will only be permitted to exercise the rights
of Securityholders indirectly through DTC and its Participants, as further
described below.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the Uniform Commercial Code (the "UCC") in effect in the
State of New York and a "clearing agency" registered pursuant to the provisions
of Section 17A of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). DTC was created to hold securities for its participating members
("Participants") and to facilitate the clearance and settlement of securities
transactions between Participants through electronic book-entry changes in
accounts of its Participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers (including
the Underwriter), banks, trust companies and clearing corporations. Indirect
access to the DTC system also is available to banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly (the "Indirect Participants"). The
rules applicable to DTC and its Participants are on file with the Commission.
Security Owners that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or an interest in,
Securities may do so only through Participants and Indirect Participants.
Participants will receive a credit for the related Securities on DTC's records.
The ownership interest of each Security Owner will in turn be recorded on the
respective records of Participants and Indirect Participants. Security Owners
will not receive written confirmation from DTC of their purchase, but Security
Owners are expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the
Participant or Indirect Participant through which the Security Owner entered
into the transaction. Transfers of ownership interests in the Securities will be
accomplished by entries made on the books of Participants acting on behalf of
Security Owners.
To facilitate subsequent transfers, all Securities deposited by
Participants with DTC will be registered in the name of Cede, as nominee of DTC.
The deposit of Securities with DTC and their registration in the name of Cede
will effect no change in beneficial ownership. DTC will have no knowledge of the
actual Security Owners and its records will reflect only the identity of the
Participants to whose accounts such Securities are credited, which may or may
not be the Security Owners. Participants and Indirect Participants will remain
responsible for keeping account of their holdings on behalf of their customers.
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Conveyance of notices and other communications by DTC to Participants, by
Participants to Indirect Participants and by Participants and Indirect
Participants to Security Owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
DTC's practice is to credit Participants' accounts on each Distribution
Date in accordance with their respective holdings of Securities shown on DTC's
records unless DTC has reason to believe that it will not receive payment on
such Distribution Date. Payments by Participants and Indirect Participants to
Security Owners will be governed by standing instructions and customary
practices, as is the case with securities held for the accounts of customers in
bearer form or registered in "street name," and will be the responsibility of
such Participant or Indirect Participant and not of DTC, the Indenture Trustee,
the Owner Trustee, Financial Security or the Seller, subject to any statutory or
regulatory requirements as may be in effect from time to time. Payment of
principal of and interest on the Securities to DTC will be the responsibility of
the related Trustee, disbursement of such payments to Participants will be the
responsibility of DTC and disbursement of such payments to Security Owners will
be the responsibility of Participants and Indirect Participants. As a result,
under the book-entry format, Security Owners may experience some delay in their
receipt of payments. DTC will forward such payments to its Participants which
thereafter will forward them to Indirect Participants or Security Owners.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Security
Owner to pledge Securities to persons or entities that do not participate in the
DTC system, or otherwise take actions with respect to such Securities, may be
limited due to the lack of a physical certificate for such Securities.
Neither DTC nor Cede will consent or vote with respect to the Securities.
Under its usual procedures, DTC will mail an "Omnibus Proxy" to the Indenture
Trustee or the Owner Trustee, as the case may be, as soon as possible after each
applicable record date for such a consent or vote. The Omnibus Proxy will assign
Cede's consenting or voting rights to those Participants to whose accounts the
related Securities will be credited on that record date (identified in a listing
attached to the Omnibus Proxy).
None of the Master Servicer, the Seller, Financial Security, the Indenture
Trustee or the Owner Trustee will have any liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests of the Securities held by Cede, as nominee for DTC, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
DEFINITIVE SECURITIES
Definitive Securities representing any Class of Notes or the Certificates
will be issued to the related Security Owners rather than to DTC, only if (i)
DTC is no longer willing or able to discharge its responsibilities as depository
with respect to the Securities, and neither the Indenture Trustee nor the Owner
Trustee, as the case may be, nor the Administrator is able to locate a qualified
successor, (ii) the Administrator, at its option, elects to terminate the
book-entry system with respect to the related Securities through DTC or (iii)
after an Event of Default or Servicer Default, Security Owners evidencing not
less than 51% of the voting interests of the related Securities advise the
related Trustee through DTC and its Participants in writing that the
continuation of a book-entry system through DTC or its successor is no longer in
the best interests of the related Security Owners. (Indenture, Section 2.11;
Trust Agreement, Section 3.14)
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Owner Trustee or Indenture Trustee, as the case may be,
will be required to notify the related Security Owners, through Participants, of
the availability through DTC of Definitive Securities. Upon surrender by DTC of
the certificates representing all Securities of any affected Class and the
receipt of instructions for re-registration, such Trustee will issue Definitive
Securities to the related Security Owners, who thereupon will become Noteholders
or Certificateholders, as the case may be, for all purposes of the Indenture or
the Trust Agreement, respectively. (Indenture, Section 2.11; Trust Agreement,
Section 3.14)
Distributions on the Definitive Securities will thereafter be made by the
related Trustee directly to holders of such Definitive Securities in accordance
with the procedures described herein and to be set forth in
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the Indenture and the Trust Agreement. Interest payments and any principal
payments on the Securities on each Distribution Date will be made to holders in
whose names the Definitive Securities were registered at the close of business
on the Record Date with respect to such Distribution Date. Distributions will be
made by check mailed to the address of such holders as they appear on the
register specified in the Trust Agreement or the Indenture, as the case may be.
The final payment on any Securities (whether Definitive Securities or Securities
registered in the name of Cede), however, will be made only upon presentation
and surrender of such Securities at the office or agency specified in the notice
of final distribution to Securityholders. The Owner Trustee or the Indenture
Trustee will mail such notice to registered Securityholders within five Business
Days of receipt from the Master Servicer of notice of termination of the Trust.
(Indenture, Section 2.07; Trust Agreement, Section 9.01)
Definitive Securities will be transferable and exchangeable at the offices
of the Owner Trustee or the Indenture Trustee (or any security registrar
appointed thereby), as will be set forth in the Trust Agreement or the
Indenture, as the case may be. No service charge will be imposed for any
registration of transfer or exchange, but such Trustee may require payment of a
sum sufficient to cover any tax or other governmental charge imposed in
connection therewith. (Indenture, Section 2.04; Trust Agreement, Section 3.04)
PAYMENTS ON THE CONTRACTS
All Net Collections on or in respect of the Contracts will be deposited in
or credited to the Collection Account or, in limited instances, the Holding
Account described under "The Accounts and Eligible Investments." Such "Net
Collections" will include all payments received by the Master Servicer on or in
respect of the Contracts due on or after the Cut-Off Date, net of late payments
in respect of which the Master Servicer has previously made an Advance or
reimbursement to the Master Servicer for Nonrecoverable Advances, and will
include (i) prepayments, Net Liquidation Proceeds and Net Insurance Proceeds;
(ii) any amounts deposited in the Collection Account (a) by the Seller to
purchase Contracts because of certain material defects in the related Contract
Documents or certain breaches in representations or warranties regarding the
Contracts to be made by the Seller in the Sale and Servicing Agreement, in
either case that materially and adversely affect the interests of the
Securityholders, the Indenture Trustee, the Owner Trustee or Financial Security,
or (b) by the Master Servicer to purchase Contracts because of certain breaches
in representations and warranties to be made by the Master Servicer in the Sale
and Servicing Agreement or certain breaches by the Master Servicer in servicing
procedures relating to the Contracts, in each case that materially and adversely
affect such Contracts; (iii) any amounts deposited by the Seller in the
Collection Account as a result of exercising its right under certain
circumstances to purchase all of the outstanding Contracts; and (iv) any
Advances that may be made by the Master Servicer in respect of delinquent
Contracts. "Net Liquidation Proceeds" will be proceeds received by the Master
Servicer (net of Liquidation Expenses) upon liquidation of any Defaulted
Contract. "Liquidation Expenses" will be the reasonable out-of-pocket expenses
(exclusive of overhead expenses) incurred by the Master Servicer in realizing
upon a defaulted Contract. "Net Insurance Proceeds" will be proceeds paid by any
insurer under a comprehensive and collision or limited dual interest insurance
related to a Contract (other than funds used for the repair of the related
Financed Vehicle or otherwise released to the related Obligor in accordance with
normal servicing procedures), after reimbursement to the Master Servicer of
expenses recoverable under such insurance policy. (Sale and Servicing Agreement,
Section 5.02)
Subject to the remainder of this paragraph, distributions on the Securities
will be made on each Distribution Date out of Net Collections (exclusive of
amounts representing payments due in the Due Period in which such Distribution
Date occurs and any future Due Periods) for the related Due Period plus certain
reinvestment earnings on Eligible Investments and any Advance made by the Master
Servicer as described under "The Master Servicer -- Advances." The amount of
such Net Collections, reinvestment earnings and Advances on each Distribution
Date will be applied as described under "Distributions on the Securities."
Amounts, to the extent available, will be withdrawn from the Spread Account to
cover any shortfalls in distributions to Securityholders. Under the Policies,
Financial Security will be obligated to provide for distribution on the
Securities on each Distribution Date the amount, if any, by which the amount of
such Net Collections and funds available in the Spread Account is less than the
sum of the interest and principal due on
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the Securities for such Distribution Date and will be obligated to provide for
the payment of Guaranteed Distributions on the Certificates on the Certificate
Final Distribution Date.
THE ACCOUNTS AND ELIGIBLE INVESTMENTS
The Collection Account. The Master Servicer will cause all collections made
on or in respect of the Contracts during a Due Period (other than amounts to be
deposited in the Holding Account as described below), net of late payments in
respect of which the Master Servicer has previously made an Advance and
reimbursements to it for Nonrecoverable Advances, to be deposited in or credited
to an account (the "Collection Account") to be established by the Master
Servicer under the Sale and Servicing Agreement. The Collection Account may,
upon prior written approval of Financial Security, be an uninsured general
ledger account or a deposit account at the Bank. Funds in the Collection Account
will be invested in a reinvestment contract (the "Reinvestment Contract") under
which the Bank will be the obligor, so long as the Reinvestment Contract is an
Eligible Investment as described below. The reinvestment earnings on the
Reinvestment Contract for each Distribution Date will be equal to the amount, if
any, by which the related payment of interest for such Distribution Date exceeds
the aggregate amount of interest (adjusted to the Pass-Through Rate) accrued on
the Contracts during the related Due Period. If the Reinvestment Contract does
not qualify as an Eligible Investment, the Indenture Trustee shall invest the
funds on deposit in the Collection Account in one or more other Eligible
Investment or Investments. Payments under the Reinvestment Contract will be
deposited in the Collection Account no later than the fifth Business Day
immediately preceding each Distribution Date. (Sale and Servicing Agreement,
Section 5.01)
If an Event of Default under the Sale and Servicing Agreement has occurred
and is continuing, funds in the Collection Account eligible to be invested in
Eligible Investments will be invested at the direction of the Indenture Trustee.
"Eligible Investments" will be specified in the Sale and Servicing Agreement and
will be limited to investments which meet the criteria of each Rating Agency as
being consistent with their then-current ratings of the Securities. All income
or other gain from such investments will be promptly deposited in, and any loss
resulting from such investments shall be charged to, the Collection Account.
(Sale and Servicing Agreement, Section 5.01)
The Distribution Accounts. The Master Servicer will establish and maintain
with the Indenture Trustee (i) an account, in the name of the Indenture Trustee
on behalf of the Noteholders, in which amounts released from the Collection
Account for distribution to Noteholders will be deposited and from which all
distributions to Noteholders will be made (the "Note Distribution Account") and
(ii) an account, in the name of the Owner Trustee on behalf of the
Certificateholders, in which amounts released from the Collection Account for
distribution to Certificateholders will be deposited and from which all
distributions to Certificateholders will be made (the "Certificate Distribution
Account" and, together with the Note Distribution Account, the "Distribution
Accounts"). (Sale and Servicing Agreement, Section 5.01; Trust Agreement,
Section 5.01)
The Holding Account. The Master Servicer will establish an account (the
"Holding Account") into which it will deposit during each Due Period payments on
Rule of 78's Contracts that are due in one or more Due Periods subsequent to
such Due Period. Funds in the Holding Account due in the next Due Period will be
transferred to the Collection Account immediately after the next succeeding
Distribution Date. (Sale and Servicing Agreement, Sections 5.01 and 5.02)
DISTRIBUTIONS ON THE SECURITIES
General. On or before the fifth Business Day prior to each Distribution
Date (each such date, a "Determination Date"), the Master Servicer will deliver
to the Indenture Trustee, the Owner Trustee, Financial Security and each Rating
Agency a statement (the "Distribution Date Statement") setting forth, among
other things, the following amounts with respect to the related Due Period and
such Distribution Date: (i) the amount of funds in the Collection Account
allocable to collections on the Contracts in the preceding Due Period (excluding
any Advances and Repurchase Amounts); (ii) the Repurchase Amount of all
Contracts repurchased by the Seller or the Master Servicer during the related
Due Period; (iii) the Advances made by the Master Servicer and the amounts which
the Master Servicer is entitled to be reimbursed for
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unreimbursed Advances; (iv) the amount of Net Collections; (v) the Note Interest
Distributable Amount; (vi) the Note Principal Distributable Amount; (vii) the
Certificate Interest Distributable Amount; (viii) the Certificate Principal
Distributable Amount; and (ix) the Servicing Fee.
Deposits to the Distribution Accounts; Priority of Payments. On each
Distribution Date, the Master Servicer will allocate amounts on deposit in the
Collection Account with respect to the related Due Period and such Distribution
Date as described below and will instruct the Indenture Trustee to make the
following deposits and distributions in the following amounts and order of
priority:
(i) to the Master Servicer, the Servicing Fee, including any unpaid
Servicing Fees with respect to one or more prior Due Periods;
(ii) to the Indenture Trustee and the Owner Trustee, any accrued and
unpaid Trustees' fees, in each case to the extent such fees have not been
previously paid by the Master Servicer;
(iii) to the Note Distribution Account, from Net Collections (after
giving effect to the reduction in Net Collections described in clauses (i)
and (ii) above), the Note Interest Distributable Amount to be distributed
to the holders of the Notes at their respective Interest Rates;
(iv) to the Note Distribution Account, from Net Collections (after
giving effect to the reduction in Net Collections described in clauses (i)
through (iii) above), the Note Principal Distributable Amount to the
holders of the Class A-1 Notes until the principal amount of the Class A-1
Notes has been reduced to zero, second to the holders of the Class A-2
Notes until the principal amount of the Class A-2 Notes has been reduced to
zero, third to the holders of the Class A-3 Notes until the principal
amount of the Class A-3 Notes has been reduced to zero, and fourth to the
holders of the Class A-4 Notes until the principal amount of the Class A-4
Notes has been reduced to zero;
(v) to the Note Distribution Account, if such Distribution Date is a
Note Final Distribution Date, the remaining principal amount of the related
Class of Notes (after giving effect to the reduction in Net Collections
described in clauses (i) through (iv) above) to be distributed to the
holders of such Class of Notes;
(vi) to the Certificate Distribution Account, from Net Collections
(after giving effect to the reduction in Net Collections described in
clauses (i) through (v) above), the Certificate Interest Distributable
Amount to be distributed to the holders of the Certificates;
(vii) to the Certificate Distribution Account, from Net Collections
(after giving effect to the reduction in Net Collections described in
clauses (i) through (vi) above), the Certificate Principal Distributable
Amount to be distributed to the holders of the Certificates;
(viii) to the Certificate Distribution Account, if such Distribution
Date is the Certificate Final Distribution Date, from Net Collections
(after giving effect to the reduction in Net Collections described in
clauses (i) through (vii) above), the Certificate Balance, as such balance
has been reduced by payments thereon in respect of such Distribution Date
to be distributed to the holders of the Certificates;
(ix) to Financial Security, from Net Collections (after giving effect
to the reduction in Net Collections described in clauses (i) through (viii)
above), any amounts owing to Financial Security in respect of all payments,
if any, made under the Policies for which reimbursement has not yet been
made to Financial Security and any unreimbursed fees, expenses or other
amounts owing to Financial Security under the Insurance Agreement
(collectively, "Unreimbursed Insurer Amounts"); and
(x) in the event that the distributions described in clauses (i)
through (ix) above have been funded exclusively from Net Collections, any
Net Collections remaining after distribution of the Accelerated Principal
Distributable Amount as part of the Note Principal Distributable Amount or
the Certificate Principal Distributable Amount, as the case may be ("Excess
Amounts"), will be deposited into the Spread Account, until the amount on
deposit therein equals the Minimum Funded Amount and the sum of the Funded
Amount and the Overcollateralization Amount equals the Specified Spread
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Account Balance, with any remaining Excess Amounts being distributed as
described under "-- Withdrawals from the Spread Account."
If the Notes are accelerated following an Event of Default, amounts
collected following the sale or liquidation of the property of the Trust will be
distributed in the priority described above. See "The Notes -- Events of
Default."
For the purposes hereof, the following terms will have the following
meanings:
The "Accelerated Principal Distributable Amount" will mean, with respect to
any Distribution Date, an amount equal to the lesser of (i) the sum of
one-twelfth of 2.00% of the Aggregate Scheduled Balance as of the opening of
business on the first day of each month of the Due Period relating to a
Distribution Date, and (ii) amounts remaining on deposit in the Collection
Account for such Distribution Date after giving effect to distributions pursuant
to clauses (i) through (ix) above without regard to the inclusion of such amount
as part of the Note Principal Distributable Amount or the Certificate Principal
Distributable Amount, as the case may be. The Accelerated Principal
Distributable Amount shall be included in the Note Principal Distributable
Amount until the Class A-4 Notes have been paid in full, and thereafter shall be
included in the Certificate Principal Distributable Amount.
The "Aggregate Scheduled Balance" will equal the sum of the Scheduled
Balances of each outstanding Contract. At the time of initial issuance of the
Securities, the initial aggregate principal amount of the Securities will equal
the Aggregate Scheduled Balance.
The "Aggregate Scheduled Balance Decline" will mean, with respect to any
Distribution Date, the amount by which the Aggregate Scheduled Balance as of the
Distribution Date immediately preceding such Distribution Date (or as of the
Cut-Off Date in the case of the first Distribution Date) exceeds the Aggregate
Scheduled Balance as of such Distribution Date.
The "Certificate Distributable Amount" will mean, with respect to any
Distribution Date, the sum of the Certificate Principal Distributable Amount and
the Certificate Interest Distributable Amount for such Distribution Date.
The "Certificate Interest Carryover Shortfall" will mean, with respect to
any Distribution Date, the excess of the sum of the Certificate Quarterly
Interest Distributable Amount for the immediately preceding Distribution Date
and any outstanding Certificate Interest Carryover Shortfall on such preceding
Distribution Date, over the amount in respect of interest on the Certificates
that is actually deposited in the Certificate Distribution Account on such
preceding Distribution Date, plus interest on such excess, to the extent
permitted by law, at the Pass-Through Rate for the related Interest Period.
The "Certificate Interest Distributable Amount" will mean, with respect to
any Distribution Date, the sum of the Certificate Quarterly Interest
Distributable Amount for such Distribution Date and the Certificate Interest
Carryover Shortfall for such Distribution Date.
The "Certificate Percentage" will mean (i) for each Distribution Date to
and including the Distribution Date on which the principal amount of the Class
A-3 Notes is reduced to zero, 0% and (ii) for each Distribution Date on and
after the Distribution Date on which the principal amount of the Class A-3 Notes
is reduced to zero, a percentage equal to 100% minus the Note Percentage for
such Distribution Date.
The "Certificate Principal Carryover Shortfall" will mean, as of the close
of any Distribution Date, the excess of the sum of the Certificate Quarterly
Principal Distributable Amount and any outstanding Certificate Principal
Carryover Shortfall for the immediately preceding Distribution Date, over the
amount in respect of principal that is actually deposited in the Certificate
Distribution Account on such Distribution Date.
The "Certificate Principal Distributable Amount" will mean, with respect to
any Distribution Date, the sum of the Certificate Quarterly Principal
Distributable Amount for such Distribution Date and any outstanding Certificate
Principal Carryover Shortfall for the immediately preceding Distribution Date
and, on and after the Distribution Date on which the Class A-4 Notes are paid in
full, the Accelerated Principal Distributable Amount, if any, for such
Distribution Date; provided, however, that the Certificate Principal
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Distributable Amount shall not exceed the Certificate Balance. In addition, on
the Certificate Final Distribution Date, the principal required to be deposited
into the Certificate Distribution Account will include the amount necessary to
reduce the Certificate Balance to zero.
The "Certificate Quarterly Interest Distributable Amount" will mean, with
respect to any Distribution Date, 90 days of interest (or, in the case of the
first Distribution Date, interest accrued from and including the Cut-Off Date to
but excluding such Distribution Date) at the Pass-Through Rate on the
Certificate Balance on the immediately preceding Distribution Date, after giving
effect to all payments of principal on such preceding Distribution Date (or, in
the case of the first Distribution Date, the Original Certificate Balance).
The "Certificate Quarterly Principal Distributable Amount" will mean, with
respect to any Distribution Date, the Certificate Percentage of the Principal
Distributable Amount for such Distribution Date.
A "Defaulted Contract" will mean, with respect to any Due Period, a
Contract (i) which is, at the end of such Due Period, delinquent in the amount
of at least two monthly payments or (ii) with respect to which the related
Financed Vehicle has been repossessed or repossession efforts have been
commenced.
A "Due Period" will mean, with respect to any Distribution Date, the
three-month period commencing on the first day of the third month preceding the
month in which such Distribution Date occurs (or commencing on the Cut-Off Date
in the case of the first Distribution Date) to the last day of the month
immediately preceding the month in which such Distribution Date occurs.
A "Liquidated Contract" will be a Contract that (i) is the subject of a
Full Prepayment; (ii) is a Defaulted Contract with respect to which the related
Financed Vehicle was repossessed and, after any cure period required by law has
expired, the Master Servicer has charged-off any losses prior to the four-month
period referenced in clause (iv) below; (iii) has been paid in full on or after
its Maturity Date; or (iv) is delinquent as to all or part of four or more
payments of Monthly P&I. Contracts that become Liquidated Contracts pursuant to
clause (ii) or (iv) above and any collections thereon will thereupon no longer
be part of the Trust, although collections thereon will be deposited in the
Collection Account.
The "Note Distributable Amount" will mean, with respect to any Distribution
Date, the sum of the Note Principal Distributable Amount and the Note Interest
Distributable Amount for such Distribution Date.
The "Note Interest Carryover Shortfall" will mean, with respect to any
Distribution Date and a Class of Notes, the excess, if any, of the sum of the
Note Interest Distributable Amount for such Class for the immediately preceding
Distribution Date plus any outstanding Note Interest Carryover Shortfall for
such Class on such preceding Distribution Date, over the amount in respect of
interest that is actually deposited in the Note Distribution Account with
respect to such Class on such preceding Distribution Date, plus, to the extent
permitted by applicable law, interest on the amount of interest due but not paid
to Noteholders of such Class on such preceding Distribution Date at the related
Interest Rate for the related Interest Period.
The "Note Interest Distributable Amount" will mean, with respect to any
Distribution Date and a Class of Notes, the sum of the Note Quarterly Interest
Distributable Amount and the Note Interest Carryover Shortfall for such Class of
Notes for such Distribution Date.
The "Note Percentage" will mean (i) for each Distribution Date to and
including the Distribution Date on which the principal amount of the Class A-3
Notes is reduced to zero, 100% (ii) on the Distribution Date on which the
principal amount of the Class A-3 Notes is reduced to zero, (a) 100% until the
principal amount of the Class A-3 Notes has been reduced to zero and (b) with
respect to any remaining portion of the Principal Distributable Amount, the
percentage calculated as set forth in clause (iii); (iii) for each Distribution
Date after the principal amount of the Class A-3 Notes is reduced to zero to and
including the Distribution Date on which the principal amount of the Class A-4
Notes is reduced to zero, a percentage, expressed as a fraction, the numerator
of which is the principal amount of the Class A-4 Notes as of the immediately
preceding Distribution Date and the denominator of which is the sum of the
principal amount of the Class A-4 Notes and the principal amount of the
Certificates as of the immediately preceding Distribution Date, in each instance
after giving effect to all payments of principal (including distributions of any
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Accelerated Principal Distributable Amounts) on such preceding Distribution
Date; and (iv) for any Distribution Date thereafter, zero.
The "Note Principal Carryover Shortfall" will mean, as of the close of any
Distribution Date, the excess of the sum of the Note Quarterly Principal
Distributable Amount and any outstanding Note Principal Carryover Shortfall for
the immediately preceding Distribution Date over the amount in respect of
principal that is actually deposited in the Note Distribution Account on such
Distribution Date.
The "Note Principal Distributable Amount" will mean, with respect to any
Distribution Date, the sum of the Note Quarterly Principal Distributable Amount
and the Accelerated Principal Distributable Amount, if any, for such
Distribution Date and any outstanding Note Principal Carryover Shortfall for the
immediately preceding Distribution Date; provided, however, that the Note
Principal Distributable Amount with respect to a Class of Notes shall not exceed
the outstanding principal amount of such Class of Notes. Notwithstanding the
foregoing, the Note Principal Distributable Amount on each Note Final
Distribution Date shall not be less than the amount that is necessary (after
giving effect to other amounts to be deposited in the Note Distribution Account
on such Distribution Date and allocable to principal) to reduce the outstanding
principal amount of the related Class of Notes to zero.
The "Note Quarterly Interest Distributable Amount" will mean, with respect
to any Distribution Date, 90 days of interest (or in the case of the first
Distribution Date, interest accrued from and including the Cut-Off Date to but
excluding such Distribution Date) at the related Interest Rate for each Class of
Notes on the outstanding principal amount of the Notes of such Class on the
immediately preceding Distribution Date, after giving effect to all payments of
principal to Noteholders of such Class on or prior to such Distribution Date
(or, in the case of the first Distribution Date, on the original principal
amount of such Class of Notes).
The "Note Quarterly Principal Distributable Amount" will mean, with respect
to any Distribution Date, the Note Percentage of the Principal Distributable
Amount for such Distribution Date.
The "Principal Distributable Amount" will mean, with respect to any
Distribution Date, the sum of (i) the Aggregate Scheduled Balance Decline for
such Distribution Date, plus (ii) the aggregate Scheduled Balances as of such
Distribution Date of all Rule of 78's Contracts that became Liquidated Contracts
pursuant to clause (i), (ii) or (iv) of the definition of the term "Liquidated
Contract" during the related Due Period.
The "Scheduled Balance" of a Rule of 78's Contract will represent the
present value of the remaining scheduled payments of Monthly P&I due on such
Contract discounted on a monthly basis as described below, while the Scheduled
Balance of a Simple Interest Contract will be its actual principal balance. The
"Monthly P&I" for a Contract will be the installment of principal and interest
due thereunder each month (each such date, a "Due Date") and will be
substantially equal for the term of the Contract. The Scheduled Balance of a
Rule of 78's Contract for the Cut-Off Date and each Due Date will be set forth
in a schedule to the Sale and Servicing Agreement and will be equal to the
present value (determined as discussed below) at each such date of all payments
of Monthly P&I on the Contract that are due after such Due Date. Such present
value will be determined by discounting (on a monthly basis) each payment of
Monthly P&I from the last day of the month in which such payment of Monthly P&I
is due to the first day of the month in which such Due Date occurs using a
discount rate that will produce a present value at the Cut-Off Date equal to
the outstanding principal balance of the Contract as of the Cut-Off Date. The
interest rate borne by each Contract, will at least equal the sum of the
weighted average of the Interest Rates and the Pass-Through Rate on the Closing
Date plus the Servicing Fee Percent.
PAYMENT PRIORITIES OF THE NOTES AND THE CERTIFICATES; THE SPREAD ACCOUNT
General. The rights of the Securityholders to receive distributions with
respect to the Contracts will be subordinated to the rights of the Master
Servicer (to the extent that the Master Servicer has not been reimbursed for any
outstanding Advances and has not been paid all Servicing Fees), the Trustees and
certain other entities (to the extent the Trustees and such other entities have
not received all Trust Fees and Expenses
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payable to them). In addition, the rights of the Noteholders to receive
distributions with respect to the Contracts will be subject to the priorities
set forth under "-- Distributions on the Securities -- Deposits to the
Distribution Accounts; Priority of Payments," and the rights of the
Certificateholders to receive distributions with respect to the Contracts will
be subordinated to the rights of the Noteholders, in each case to the extent
described above. Such priorities and subordination are intended to enhance the
likelihood of timely receipt by senior Securityholders of the full amount of
interest and principal required to be paid to them, and to afford such senior
Securityholders limited protection against losses in respect of the Contracts.
In the event of delinquencies or losses on the Contracts, the foregoing
protection will be effected both by the preferential right of the Noteholders to
receive, to the extent described herein, current distributions with respect to
the Contracts and by the establishment of the Spread Account. The Spread Account
will be a part of the Trust and will be a segregated trust account in the name
of the Indenture Trustee and the Indenture Trustee will have a perfected
security interest therein and in all amounts deposited in or credited to the
Spread Account as well as all Eligible Investments made with such deposits and
earnings. The Spread Account will be created with an initial deposit by the
Seller on the Closing Date of an amount equal to the Spread Account Initial
Deposit. The Spread Account will thereafter be funded by the deposit therein of
all Excess Amounts, if any, in respect of each Distribution Date.
Amounts held from time to time in the Spread Account will continue to be
held for the benefit of holders of the Securities and Financial Security and may
be invested in Eligible Investments. Investment income on monies on deposit in
the Spread Account will be credited to the Spread Account. Any loss on such
investment will be charged to the Spread Account. (Sale and Servicing Agreement,
Section 5.03)
Calculation of Specified Spread Account Balance. The "Specified Spread
Account Balance" will be calculated as of each Calculation Day and will equal
6.00% of the Aggregate Scheduled Balance on such Calculation Day, except that if
on any Calculation Day (i) the Charge-Off Percentage for the three calendar
month period ending on such Calculation Day exceeds 4.00% or (ii) the
Delinquency Percentage for the three calendar month period ending on such
Calculation Day exceeds 1.50%, then the Specified Spread Account Balance shall
equal 10.00% of the Aggregate Scheduled Balance on such Calculation Day (but
only for so long as such Charge-Off Percentage or Delinquency Percentage
thresholds continue to be exceeded on any subsequent Calculation Day).
Notwithstanding the foregoing, in no event can the Specified Spread Account
Balance be greater than $52,500,000 or less than $9,450,000; provided, however,
it shall not be greater than the outstanding aggregate principal amount of the
Securities if such amount is less than $9,450,000.
The "Charge-Off Percentage" will mean, with respect to any three calendar
month period, the annualized percentage equivalent of the average of the
percentages of charged-off Contracts for each month in such period. For each
month, the percentage of charged-off Contracts shall be the percentage
equivalent of a fraction, the numerator of which is the aggregate Scheduled
Balance for such month of all Contracts that have become Liquidated Contracts
(as specified in clause (ii) or (iv) of the definition of Liquidated Contracts)
during such month, less any Net Liquidation Proceeds received during such month
(and not reflected in prior periods) with respect to such Contracts or from any
Contracts charged-off in prior periods, and the denominator of which is the
aggregate Scheduled Balances of all outstanding Contracts as of the end of the
immediately preceding month. The "Delinquency Percentage" will mean, with
respect to any three calendar month period, the average of the percentages of
delinquent Contracts for each month in such period. For each month the
percentage of delinquent Contracts shall be the percentage equivalent of a
fraction, the numerator of which is the sum of (i) the aggregate Scheduled
Balance of all outstanding Contracts 61 days or more delinquent (after taking
into account permitted extensions), plus (ii) the aggregate Scheduled Balance of
all Contracts in respect of which the related Financed Vehicles have been
repossessed but have not been liquidated (to the extent the related Contract is
not otherwise reflected in clause (i) above), and the denominator of which is
the aggregate Scheduled Balance of all outstanding Contracts, in each case on
the last day of such calendar month.
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The Spread Account will be considered fully funded on any Calculation Day
or Distribution Date if (i) the Funded Amount equals or exceeds the greater of
(A) 3% of the Aggregate Scheduled Balance on such date of calculation or (B) 1%
of the Cut-Off Date Aggregate Scheduled Balance (the "Minimum Funded Amount")
and (ii) the sum of the Funded Amount and the Overcollateralization Amount
equals or exceeds the Specified Spread Account Balance. The "Funded Amount" on
any Calculation Day or Distribution Date will be the amount of cash on deposit
in the Spread Account. The "Overcollateralization Amount" on any Calculation Day
or Distribution Date will equal the amount by which (i) the sum of (A) the
Aggregate Scheduled Balance as of such date of calculation plus (B) the portion
of Net Collections constituting principal payments on or in respect of the
Contracts on deposit in the Collection Account on such date of calculation plus
(C) amounts on deposit in the Holding Account constituting principal payments as
of such date of calculation exceeds (ii) the aggregate unpaid principal amount
of the Securities on such date of calculation. At no time after the Closing Date
will the Seller, WII, the Master Servicer, Financial Security or any other
entity be required to deposit funds into the Spread Account.
The Master Servicer may, from time to time after the date of this
Prospectus, and with the approval of Financial Security, request each Rating
Agency to approve a formula for determining the Specified Spread Account Balance
or for determining that the Spread Account is fully funded that is different
from that described above and would result in a decrease in the amount of the
Specified Spread Account Balance, the Minimum Funded Amount or the
Overcollateralization Amount or the manner by which the Spread Account is
funded. If each Rating Agency delivers a letter to the Indenture Trustee, the
Owner Trustee and Financial Security to the effect that the use of any such new
formulation will not in and of itself result in a qualification, reduction or
withdrawal of its then-current rating of any Class of Securities (without giving
effect to the guaranty under either Policy of payments owing to the
Securityholders), then the Specified Spread Account Balance, the Minimum Funded
Amount or the Overcollateralization Amount, as the case may be, will be
determined in accordance with such new formula. The Sale and Servicing Agreement
will accordingly be amended to reflect such new calculation without the consent
of any Securityholder.
WITHDRAWALS FROM THE SPREAD ACCOUNT
Amounts held from time to time in the Spread Account will continue to be
held for the benefit of the Noteholders, the Certificateholders and Financial
Security. On each Distribution Date funds will be withdrawn from the Spread
Account to the extent that the amount on deposit in the Note Distribution
Account with respect to any Distribution Date is less than the Note
Distributable Amount and will be deposited in the Note Distribution Account. In
addition, after giving effect to such withdrawal, funds will be withdrawn from
the Spread Account to the extent that the amount on deposit in the Certificate
Distribution Account is less than the Certificate Distributable Amount and will
be deposited in the Certificate Distribution Account. See "Payments from the
Spread Account and Under the Policies."
On any Calculation Day or Distribution Date on which the Spread Account is
fully funded, as more fully described under "Payment Priorities of the Notes and
the Certificates; The Spread Account -- Calculation of Specified Spread Account
Balance" (after giving effect to all deposits thereto or withdrawals therefrom
on such Distribution Date), the Indenture Trustee will distribute an amount of
cash equal to the lesser of (i) the amount by which the sum of the Funded Amount
and the Overcollateralization Amount exceeds the Specified Spread Account
Balance and (ii) the amount by which the Funded Amount exceeds the Minimum
Funded Amount, first to Financial Security, to the extent of any Unreimbursed
Insurer Amounts, then to the Seller until the Seller has received from the
Spread Account an aggregate amount equal to the Spread Account Initial Deposit
and then to the Seller and WII in the proportions of 99% and 1%, respectively.
Upon any such distributions to Financial Security, the Seller or WII, the
Securityholders will have no further rights in, or claims to, such amounts.
(Sale and Servicing Agreement, Section 5.06)
None of Securityholders, the Indenture Trustee, the Owner Trustee, the
Seller, WII or Financial Security will be required to refund any amounts
properly distributed or paid to them, whether or not there are sufficient funds
on any subsequent Distribution Date to make full distributions to the
Securityholders. The obligations of Financial Security under the Policies will
not be diminished or otherwise affected by any amounts distributed to Financial
Security.
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PAYMENTS FROM THE SPREAD ACCOUNT AND UNDER THE POLICIES
On each Distribution Date on which the Note Distributable Amount exceeds
the amount then on deposit in the Note Distribution Account, the Noteholders
will be entitled to receive such deficiency (including amounts necessary to
reduce the outstanding principal balance of a given Class of Notes to zero on
the related Note Final Distribution Date), first, from amounts on deposit in the
Spread Account, second, if such amounts are insufficient, from amounts otherwise
payable to Certificateholders in respect of the Certificate Distributable Amount
and third, if such amounts are still insufficient, then from the payment of a
claim under the Note Policy. (Sale and Servicing Agreement, Section 5.05)
On each Distribution Date on which the Certificate Distributable Amount
exceeds the amount then on deposit in the Certificate Distribution Account, the
Certificateholders will be entitled to receive such deficiency (including
amounts necessary to reduce the Certificate Balance to zero on the Certificate
Final Distribution Date), first, from amounts on deposit in the Spread Account,
and second, if such amounts are insufficient, from the payment of a claim under
the Certificate Policy. (Sale and Servicing Agreement, Section 5.05)
STATEMENTS TO SECURITYHOLDERS
On or prior to each Distribution Date, the Master Servicer will prepare and
provide to the Indenture Trustee a statement to be delivered to each Noteholder
and to the Owner Trustee a statement to be delivered to each Certificateholder
on such Distribution Date (the "Statement to Securityholders"), setting forth
with respect to the related Distribution Date or Due Period, as applicable,
among other things, the following information:
(i) the amount of the Noteholder's or Certificateholder's distribution
allocable to principal (stated separately for each Class of Notes and the
Certificates);
(ii) the amount of the Noteholder's or Certificateholder's
distribution allocable to interest (stated separately for each Class of
Notes and the Certificates);
(iii) the Aggregate Scheduled Balance as of the close of business on
the last day of such Due Period;
(iv) the amount of the Servicing Fee paid to the Master Servicer with
respect to the related Due Period;
(v) the amount of any Note Interest Carryover Shortfall, Note
Principal Carryover Shortfall, Certificate Interest Carryover Shortfall and
Certificate Principal Carryover Shortfall on such Distribution Date and the
change in such amounts from those with respect to the immediately preceding
Distribution Date;
(vi) the Note Pool Factor for each Class of Notes and the Certificate
Pool Factor, in each case as of such Distribution Date; and
(vii) the balance on deposit in the Spread Account on such
Distribution Date, after giving effect to distributions made on such
Distribution Date, and the change in such balance from the immediately
preceding Distribution Date.
Each amount set forth pursuant to subclauses (i), (ii), (iv) and (v) above
will be expressed in the aggregate and as a dollar amount per $1,000 of original
principal amount of a Note or the original Certificate Balance of a Certificate,
as the case may be. Copies of such statements may be obtained by Security Owners
by a request in writing addressed to the related Trustee at its Corporate Trust
Office. In addition, within the prescribed period of time for tax reporting
purposes after the end of each calendar year during the term of the Sale and
Servicing Agreement, the Indenture Trustee and the Owner Trustee will mail to
each person who at any time during such calendar year shall have been a
Noteholder or a Certificateholder, as the case may be, a statement containing
the sum of the amounts described in clauses (i), (ii), (iv) and (v) above for
the
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purposes of such holder's preparation of federal income tax returns. See
"Certain Federal Income Tax Consequences." (Sale and Servicing Agreement,
Section 5.07)
EVIDENCE AS TO COMPLIANCE
The Sale and Servicing Agreement. The Sale and Servicing Agreement will
provide that a firm of independent public accountants will furnish to the
Indenture Trustee and the Owner Trustee and Financial Security, on or before 90
days after the end of each fiscal year of the Master Servicer, beginning with
the fiscal year ended December 31, 1996, a statement as to compliance by the
Master Servicer during the preceding fiscal year (or since the Closing Date in
the case of the first such statement) with certain standards relating to the
servicing of the Contracts. (Sale and Servicing Agreement, Section 4.11)
The Sale and Servicing Agreement will also provide for delivery to the
Indenture Trustee and the Owner Trustee and Financial Security, on or before 90
days after the end of each fiscal year of the Master Servicer, commencing with
the fiscal year ended December 31, 1996, of a certificate signed by two officers
of the Master Servicer stating that the Master Servicer has fulfilled its
obligations under the Sale and Servicing Agreement throughout the preceding
fiscal year (or since the Closing Date in the case of the first such
certificate) or, if there has been a default in the fulfillment of any such
obligation, describing each such default. (Sale and Servicing Agreement, Section
4.10)
Copies of such statements and certificates may be obtained by
Securityholders by a request in writing addressed to the related Trustee at its
Corporate Trust Office.
The Indenture. The Trust will be required to file annually with the
Indenture Trustee and Financial Security a written statement as to the
fulfillment of its obligations under the Indenture. (Indenture, Section 3.09)
The Indenture Trustee will be required to mail each year to all related
Noteholders a brief report relating to, among other things, its eligibility and
qualification to continue as Indenture Trustee under the Indenture, any amounts
advanced by it under the Indenture, the amount, interest rate and maturity date
of certain indebtedness owing by the Trust to the Indenture Trustee in its
individual capacity, the property and funds physically held by such Indenture
Trustee as such and any action taken by it that materially affects the Notes and
that has not been previously reported. (Indenture, Section 7.04)
CERTAIN MATTERS REGARDING THE MASTER SERVICER
The Sale and Servicing Agreement will provide that the Master Servicer may
not resign from its obligations and duties as Master Servicer thereunder except
upon determination that the Master Servicer's performance of such duties is no
longer permissible under applicable law. No such resignation will become
effective until (i) the Indenture Trustee or a successor servicer has assumed
the Master Servicer's servicing obligations and duties under the Sale and
Servicing Agreement and (ii) each Rating Agency confirms that the selection of
such successor master servicer will not result in the qualification, reduction
or withdrawal of its then-current rating of any Class of Securities. (Sale and
Servicing Agreement, Section 7.04)
The Sale and Servicing Agreement will further provide that neither the
Master Servicer nor any of its directors, officers, employees and agents shall
be under any liability to the Trust or the Securityholders for taking any action
or for refraining from taking any action pursuant to the Sale and Servicing
Agreement, or for errors in judgment; provided, however, that neither the Master
Servicer nor any such person will be protected against any liability that would
otherwise be imposed by reason of willful misfeasance, bad faith or negligence
in the performance of duties or by reason of reckless disregard of obligations
and duties thereunder. In addition, the Sale and Servicing Agreement will
provide that the Master Servicer will be under no obligation to appear in,
prosecute or defend any legal action that is not incidental to its servicing
responsibilities under the Sale and Servicing Agreement and that, in its
opinion, may cause it to incur any expense or liability. The Master Servicer
may, however, undertake any reasonable action that it may deem necessary or
desirable in respect of the Sale and Servicing Agreement and the rights and
duties of the parties thereto and the interests of the Securityholders
thereunder. In any event, the legal expenses and costs of such action and any
liability
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resulting therefrom will be expenses, costs and liabilities of the Trust, and
the Master Servicer will be entitled to be reimbursed therefor out of funds on
deposit in the Collection Account. Any such indemnification or reimbursement
could reduce the amount otherwise available for distribution to Securityholders.
(Sale and Servicing Agreement, Section 7.05)
Any corporation into which the Master Servicer may be merged or
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Master Servicer is a party or any corporation
succeeding to the business of the Master Servicer, or, with respect to the
Master Servicer's obligation as the Master Servicer, will be the successor of
the Master Servicer under the Sale and Servicing Agreement. (Sale and Servicing
Agreement, Sections 7.02 and 7.04)
SERVICER DEFAULT
"Servicer Defaults" under the Sale and Servicing Agreement will consist of
(i) a claim being made under either the Note Policy or the Certificate Policy,
(ii) any failure by the Master Servicer to deposit in or credit to the
Collection Account, either Distribution Account, the Spread Account or the
Holding Account any amount required to be so deposited or credited or to make
the required distributions therefrom, which failure continues unremedied for
three Business Days after written notice from the Indenture Trustee, the Owner
Trustee or Financial Security is received by the Master Servicer or discovery by
the Master Servicer; (iii) any failure by the Master Servicer to deliver to
Financial Security, the Indenture Trustee, or the Owner Trustee certain reports
required by the Sale and Servicing Agreement by the fourth Business Day prior to
the related Distribution Date or to perform certain other covenants under the
Sale and Servicing Agreement; (iv) any failure by the Master Servicer or the
Seller duly to observe or perform in any material respect any other covenant or
agreement in the Sale and Servicing Agreement, which failure materially and
adversely affects the rights of Securityholders, Financial Security, the
Indenture Trustee or the Owner Trustee and which continues unremedied for 30
days after the giving of written notice of such failure (A) to the Master
Servicer or the Seller, as the case may be, by the Owner Trustee, the Indenture
Trustee or Financial Security or (B) to the Master Servicer or the Seller, as
the case may be, and to the Indenture Trustee or the Owner Trustee by holders of
Notes evidencing not less than 25% of the voting interests thereof, voting
together as a single class, or, if the Notes have been paid in full, by the
holders of Certificates evidencing not less than 25% of the voting interests
thereof or, so long as no default under either Policy has occurred and is
continuing and no insolvency of Financial Security has occurred, by Financial
Security; (v) certain events of insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings and certain actions by the Seller
or the Master Servicer indicating its insolvency, reorganization pursuant to
bankruptcy or similar proceedings or inability to pay its obligations (each, an
"Insolvency Event"); and (vi) any material breach of any of the representations
and warranties of the Master Servicer or the Seller (except for any breaches
relating to Contracts repurchased by the Seller or the Master Servicer) that has
a material adverse effect on the Noteholders or the Certificateholders and,
within 30 days after written notice thereof shall have been given to the Master
Servicer or the Seller by the Indenture Trustee or the Owner Trustee or by
holders of Notes (voting together as a single class) or Certificates evidencing
not less than 25% of the respective voting interests thereof or, so long as no
default under either Policy has occurred and is continuing and no insolvency of
Financial Security has occurred, by Financial Security. (Sale and Servicing
Agreement, Section 8.01)
RIGHTS UPON SERVICER DEFAULT
As long as a Servicer Default remains unremedied, the Indenture Trustee,
Financial Security or holders of Notes representing not less than 25% of the
voting interests thereof (or, if the Notes have been paid in full and the
Indenture has been discharged in accordance with its terms, by holders of
Certificates evidencing not less than 25% of the voting interests thereof),
voting together as a single class, may terminate all the rights and obligations
of the Master Servicer under the Sale and Servicing Agreement, whereupon the
Indenture Trustee will succeed, without further action, to all the
responsibilities, duties and liabilities of the Master Servicer in its capacity
as such under such agreement and will be entitled to similar compensation
arrangements. If, however, a bankruptcy trustee or similar official has been
appointed for the Master Servicer, and no Servicer Default other than such
appointment has occurred, such trustee or official may have the power to prevent
the
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Indenture Trustee, Financial Security or the Noteholders (or Certificateholders)
from effecting a transfer of servicing. In the event that the Indenture Trustee
is unwilling or unable so to act, it may appoint or petition a court of
competent jurisdiction to appoint a successor with a net worth of at least
$50,000,000 and whose regular business includes the servicing of motor vehicle
receivables. The Indenture Trustee may make such arrangements for compensation
to be paid, which in no event may be greater than the servicing compensation
paid to the Master Servicer under the Sale and Servicing Agreement.
Notwithstanding such termination, the Master Servicer shall be entitled to
payment of certain amounts payable to it prior to such termination, for services
rendered prior to such termination. (Sale and Servicing Agreement, Sections 8.01
and 8.02)
So long as Financial Security is not in default under either Policy it may
direct the actions of the Indenture Trustee upon an Event of Default. (Sale and
Servicing Agreement, Section 8.06)
WAIVER OF PAST DEFAULTS
The holders of Notes evidencing at least 51% of the voting interests
thereof, voting together as a single class (or, if all of the Notes have been
paid in full and the Indenture has been discharged in accordance with its terms,
the holders of Certificates evidencing not less than 51% of the voting interests
thereof), may, on behalf of all Securityholders, with the consent of Financial
Security, waive any default by the Master Servicer in the performance of its
obligations under the Sale and Servicing Agreement and its consequences, except
a default in making any required deposits to or payments from the Collection
Account, the Holding Account, the Spread Account, the Certificate Distribution
Account or the Note Distribution Account in accordance with that agreement or in
respect of a covenant or provision of that agreement that cannot be modified or
amended without the consent of each Securityholder (in which event the related
waiver will require the approval of holders of all of the Securities). No such
waiver will impair the Securityholders' rights with respect to subsequent
Servicer Defaults. (Sale and Servicing Agreement, Section 8.05)
VOTING INTERESTS
The "voting interests" of the (i) Notes of a Class or Classes will be
allocated among the Noteholders or related Note Owners, as the case may be, in
accordance with the unpaid principal amount of the Notes of such Class or
Classes represented thereby and (ii) Certificates will be allocated among the
Certificateholders or related Certificate Owners, as the case may be, in
accordance with the Certificate Balance represented thereby; except that in
certain circumstances any Securities held by the Seller, WFS or any of their
respective affiliates shall be excluded from such determination.
AMENDMENT
Amendment of the Sale and Servicing Agreement. The Sale and Servicing
Agreement may be amended, with the consent of Financial Security but without the
consent of the Noteholders or the Certificateholders, to cure any ambiguity,
correct or supplement any provision therein which may be inconsistent with any
other provision therein, to add any other provisions with respect to matters or
questions arising under such agreement which are not inconsistent with the
provisions thereof, to add or provide for any credit enhancement for any Class
of Securities or to permit certain changes with respect to the Specified Spread
Account Balance, the Minimum Funded Amount or the Overcollateralization Amount;
provided, that any such action will not, in the opinion of counsel satisfactory
to the related Trustee, materially and adversely affect the interests of any
such Securityholder; and provided further, that in the case of a change with
respect to the Specified Spread Account Balance, the Minimum Funded Amount or
the Overcollateralization Amount, the Trustee receives a letter from S&P to the
effect that its then-current rating on each Class of Securities will not be
qualified, reduced or withdrawn due to such amendment and the Master Servicer
shall provide Moody's notice of such amendment. (Sale and Servicing Agreement,
Section 10.01)
The Sale and Servicing Agreement may also be amended from time to time with
the consent of the holders of Notes and Certificates evidencing not less than
51% of the respective voting interests thereof, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
such agreement or of modifying in any manner the rights of the related
Securityholders of each Class; provided, that no such amendment may (i) except
as described above, increase or reduce in any manner the amount of
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or accelerate or delay the timing of collections of payments on or in respect of
the Contracts, required distributions on the Notes or the Certificates, or the
Specified Spread Account Balance, the Minimum Funded Amount, the
Overcollateralization Amount or the manner in which the Spread Account is
funded, or (ii) reduce the aforesaid percentage of the voting interests of which
the holders of any Class of Securities are required to consent to any such
amendment, without the consent of Financial Security and the holders of all of
the relevant Class of Securities. (Sale and Servicing Agreement, Section 10.01)
Amendment of the Trust Agreement. The Trust Agreement may be amended, with
the consent of Financial Security but without the consent of the
Securityholders, to cure any ambiguity, correct or supplement any provision
therein which may be inconsistent with any other provision therein, or to add
any other provisions with respect to matters or questions arising thereunder
which are not inconsistent with the provisions thereof; provided, that any such
action will not, in the opinion of counsel satisfactory to the related Trustee,
materially and adversely affect the interests of any such Noteholder or
Certificateholder. (Trust Agreement, Section 11.01)
The Trust Agreement may also be amended from time to time with the consent
of Securityholders evidencing not less than 51% of the respective voting
interests thereof, for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of such agreement or of
modifying in any manner the rights of the Noteholders or the Certificateholders;
provided, that no such amendment may increase or reduce in any manner the amount
of or accelerate or delay the timing of (i) collections of payments on or in
respect of the Contracts or required distributions on the Notes or the
Certificates or any Interest Rate or the Pass-Through Rate or (ii) reduce the
aforesaid percentage of the voting interests of which the holders of any Class
of Securities are required to consent to any such amendment, without the consent
of Financial Security and the holders of all of the relevant Class of
Securities. (Trust Agreement, Section 11.01)
Amendment of the Indenture. The Trust and the Indenture Trustee (on behalf
of such Trust) may, without the consent of the Noteholders but with the consent
of Financial Security, enter into one or more supplemental indentures for any of
the following purposes: (i) to correct or amplify the description of the
property subject to the lien of the Indenture or to subject additional property
to the lien of the Indenture; (ii) to provide for the assumption of the Notes
and the Indenture obligations by a permitted successor to the Trust; (iii) to
add additional covenants for the benefit of the related Noteholders or to
surrender any rights or powers conferred upon the Trust; (iv) to convey,
transfer, assign, mortgage or pledge any property to the Indenture Trustee; (v)
to cure any ambiguity or correct or supplement any provision in the Indenture or
in any supplemental indenture which may be inconsistent with any other provision
in the Indenture, any supplemental indenture, the Sale and Servicing Agreement
or certain other agreements; provided, that any action specified in clause (v)
shall not adversely affect the interests of any Noteholder; (vi) to provide for
the acceptance of the appointment of a successor Indenture Trustee or to add to
or change any of the provisions of the Indenture as shall be necessary and
permitted to facilitate the administration by more than one trustee; (vii) to
modify, eliminate or add to the provisions of the Indenture in order to comply
with the Trust Indenture Act of 1939, as amended; and (viii) to add any
provisions to, change in any manner, or eliminate any of the provisions of, the
Indenture or modify in any manner the rights of Noteholders under such
Indenture; provided that any action specified in clause (viii) shall not, as
evidenced by any opinion of counsel, adversely affect in any material respect
the interests of any Noteholder unless such Noteholder's consent is otherwise
obtained as described below. (Indenture, Section 9.01)
Without the consent of the holder of each outstanding Note affected
thereby, no supplemental indenture may: (i) change the due date of any
installment of principal of or interest on any Note or reduce the principal
amount thereof, the interest rate thereon (or the method by which such interest
or principal is calculated) or the redemption price with respect thereto or
change any place of payment where or the coin or currency in which any such Note
or any interest thereon is payable; (ii) impair the right to institute suit for
the enforcement of provisions of the Indenture regarding payment; (iii) reduce
the percentage of the voting interests of the Notes, the consent of the holders
of which is required for any such supplemental indenture or the consent of the
holders of which is required for any waiver of compliance with certain
provisions of the Indenture or of certain defaults thereunder and their
consequences as provided for in the Indenture; (iv) modify or alter the
provisions of the Indenture regarding the voting of Notes held by the Trust, any
other
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obligor on such Notes, the Seller, or any of their respective affiliates; (v)
reduce the percentage of the voting interests of the Notes, the consent of the
holders of which is required to direct the Indenture Trustee to sell or
liquidate the property of the Trust if the proceeds of such sale or liquidation
would be insufficient to pay the principal amount and accrued but unpaid
interest on the outstanding Notes; (vi) decrease the percentage of the voting
interests of such Notes required to amend the provisions of the Indenture which
specify the applicable percentage of voting interests of the Notes necessary to
amend such Indenture or certain other related agreements; or (vii) permit the
creation of any lien ranking prior to or on a parity with the lien of the
Indenture with respect to any of the collateral for the Notes or, except as
otherwise permitted or contemplated in the Indenture, terminate the lien of such
Indenture on any such collateral or deprive the holder of any such Note of the
security afforded by the lien of such Indenture. (Indenture, Section 9.02)
LIST OF SECURITYHOLDERS
Upon the written request of the Master Servicer, the Owner Trustee will
provide to the Master Servicer within 15 days after receipt of such request, a
list of the names and addresses of all Certificateholders. In addition, three or
more holders of Certificates or holders of Certificates evidencing not less than
25% of the voting interests of the Certificates, upon compliance by such
Certificateholders with certain provisions of the Trust Agreement, may request
that the Owner Trustee afford such Certificateholders access during business
hours to the current list of Certificateholders for purposes of communicating
with other Certificateholders with respect to their rights under the Trust
Agreement. (Trust Agreement, Section 3.07)
Three or more holders of Notes may, by written request to the Indenture
Trustee, obtain access to the list of all Noteholders maintained by such
Indenture Trustee for the purpose of communicating with the other Noteholders
with respect to their rights under the Indenture or under the Notes. The
Indenture Trustee may elect not to afford the requesting Noteholders access to
the list of Noteholders if it agrees to mail the desired communication or proxy,
on behalf of and at the expense of the requesting Noteholders, to all
Noteholders. (Indenture, Section 7.02)
Neither the Trust Agreement nor the Indenture will provide for the holding
of any annual or other meetings of Securityholders.
TRUST; INSOLVENCY EVENT
The Trust Agreement will provide that, in the event that WII becomes
insolvent, withdraws or is expelled as the general partner of the Trust or is
terminated or dissolved, the Trust will terminate in 90 days and thereafter
effect redemption of the Notes (if any) and prepayment of the Certificates
following the winding-up of the affairs of the Trust, unless within such 90 day
period holders of Certificates evidencing more than 50% of the voting interests
thereof agree in writing to the continuation of the business of the Trust and to
the appointment of a successor to the general partner, and the Owner Trustee is
able to obtain an opinion of counsel satisfactory to Financial Security to the
effect that the Trust will not thereafter be an association (or publicly traded
partnership) taxable as a corporation for federal or California income tax
purposes. (Trust Agreement, Section 9.02)
The Trust Agreement will provide that the Owner Trustee, each
Certificateholder, the Indenture Trustee and each Noteholder shall agree that
they will not at any time institute, or join in any institution against, the
Trust, the Seller or WII, any bankruptcy proceedings relating to the
Certificates, the Notes, the Trust Agreement, the Indenture or certain other
agreements. (Trust Agreement, Section 11.08)
TERMINATION
The obligations of the Master Servicer, the Seller, the Owner Trustee and
Indenture Trustee with respect to the related Securityholders pursuant to the
Trust Agreement, Sale and Servicing Agreement or Indenture will terminate upon
the earliest to occur of (i) the maturity or other liquidation of the last
Contract and the disposition of any amounts received upon liquidation of any
property remaining in the Trust, (ii) the payment to such Securityholders of all
amounts required to be paid to them pursuant to such agreement and (iii) the
occurrence of the event described below.
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In order to avoid excessive administrative expenses, the Seller will be
permitted to purchase the remaining Contracts from the Trust on any Distribution
Date as of which (i) the Aggregate Scheduled Balance is less than 10% of the
Cut-Off Date Aggregate Scheduled Balance and (ii) the aggregate outstanding
principal amount of Securities is 5% or less of the initial aggregate principal
amount of Securities at a price equal to the aggregate unpaid principal balances
of the related Contracts, together with accrued interest thereon to the last Due
Date in the Due Period in which such repurchase occurs. (Sale and Servicing
Agreement, Section 9.01)
The Owner Trustee and Indenture Trustee will give written notice of
termination to each Securityholder of record. The final distribution to each
Securityholder will be made only upon surrender and cancellation of such
holder's Securities at the office or agency of the related Trustee specified in
the notice of termination. Any funds remaining in the Trust, after such Trustee
has taken certain measures to locate a Securityholder and such measures have
failed, will be distributed to a charity designated by the Master Servicer.
Any outstanding Notes will be redeemed concurrently with any Optional
Purchase described above, and the subsequent distribution to the related
Certificateholders of all amounts required to be distributed to them pursuant to
the Trust Agreement will effect early retirement of the Certificates.
PAYMENT IN FULL OF NOTES
Upon the payment in full of all outstanding Notes and the satisfaction and
discharge of the Indenture, the Owner Trustee will succeed to all the rights of
the Indenture Trustee, and the Certificateholders will succeed to all the rights
of the Noteholders, under the Sale and Servicing Agreement, except as otherwise
provided therein. (Sale and Servicing Agreement, Section 9.01)
THE TRUSTEES
A Trustee may resign at any time, in which event the Administrator, or its
successor, will be obligated to appoint a successor trustee. The Administrator
may also remove the Owner Trustee or the Indenture Trustee, in each case if such
Trustee becomes insolvent or ceases to be eligible to continue as such under the
Trust Agreement or Indenture, as the case may be. In such event, the
Administrator will be obligated to appoint a successor Trustee. Any resignation
or removal of a Trustee and appointment of a successor Trustee will not become
effective until acceptance of the appointment by the successor Trustee. (Trust
Agreement, Section 10.02; Indenture, Section 6.08)
Each Trustee and any of its affiliates may hold Securities in their own
names or as pledgees. For the purpose of meeting the legal requirements of
certain jurisdictions, the Administrator and the Owner Trustee or Indenture
Trustee acting jointly (or in some instances, the Owner Trustee and Indenture
Trustee acting without the Administrator) will have the power to appoint
co-trustees or separate trustees of all or any part of the Trust. In the event
of such an appointment, all rights, powers, duties and obligations conferred or
imposed upon such Trustee by the Indenture, Sale and Servicing Agreement or
Trust Agreement will be conferred or imposed upon such Trustee and such separate
trustee or co-trustee jointly, or, in any jurisdiction in which such Trustee
will be incompetent or unqualified to perform certain acts, singly upon such
separate trustee or co-trustee who will exercise and perform such rights,
powers, duties and obligations solely at the direction of such Trustee. (Trust
Agreement, Section 10.05; Indenture, Section 6.10)
The Trust Agreement will further provide that WII will pay the fees of the
Owner Trustee and the Trust will, or will cause the Administrator to, pay the
fees of the Indenture Trustee. The Trust Agreement will further provide that the
Owner Trustee will be entitled to indemnification by the Master Servicer for,
and will be held harmless against, any loss, liability or expense incurred by
such Trustee not resulting from its own willful misconduct, bad faith or
negligence (other than by reason of a breach of any of its representations or
warranties set forth in such agreement). The Indenture will further provide that
the Indenture Trustee will be entitled to indemnification by the Trust or the
Administrator for any loss, liability or expense incurred by such Trustee not
resulting from its own willful misconduct, negligence or bad faith. (Trust
Agreement, Section 8.02; Indenture, Section 6.07)
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DUTIES OF THE TRUSTEES
Neither Trustee will make any representations as to the validity or
sufficiency of the Trust Agreement or Indenture, the Securities issued pursuant
thereto (other than the execution and authentication thereof), or of any
Contracts or related documents, and will not be accountable for the use or
application by the Seller, WII or the Master Servicer of any funds paid to the
Seller, WII or the Master Servicer in respect of such Securities or the related
Contracts, or the investment of any monies by the Master Servicer before such
monies are deposited into the Collection Account. The Trustees will not
independently verify the existence or characteristics of the Contracts. If no
Event of Default or Servicer Default has occurred and is continuing, each
Trustee will be required to perform only those duties specifically required of
it under the Indenture, Trust Agreement or Sale and Servicing Agreement, as the
case may be. Generally those duties will be limited to the receipt of the
various certificates and reports or other instruments required to be furnished
to such Trustee under such agreements, in which case it will only be required to
examine them to determine whether they conform to the requirements of such
agreements. No Trustee will be charged with knowledge of a failure by the Master
Servicer to perform its duties under the relevant agreements which failure
constitutes an Event of Default or a Servicer Default unless such Trustee
obtains actual knowledge of such failure as specified in such agreements.
No Trustee will be under any obligation to exercise any of the rights or
powers vested in it by the Indenture, Trust Agreement or Sale and Servicing
Agreement, as the case may be, or to make any investigation of matters arising
thereunder or to institute, conduct or defend any litigation thereunder or in
relation thereto at the request order or direction of any of the
Securityholders, unless such Securityholders have offered to such Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that may be incurred therein or thereby. No Securityholder will have any right
under any such agreement to institute any proceeding with respect to such
agreement, unless such holder previously has given to such Trustee written
notice of default and (i) the default arises from the Master Servicer's failure
to remit payments when due or (ii) the holders of Securities evidencing not less
than 25% of the voting interests of all of the related Securities, voting
together as a single class, have made written request upon such Trustee to
institute such proceeding in its own name as Trustee thereunder and have offered
to such Trustee reasonable indemnity and such Trustee for 60 days has neglected
or refused to institute any such proceedings.
THE TRUST; WII LIABILITY
The Trust Agreement will require WII to agree to be liable directly to an
injured party for the entire amount of any losses, claims, damages or
liabilities (other than those incurred by a Securityholder in the capacity of an
investor with respect to the Trust) arising out of or based on the arrangement
created by the Trust Agreement as though such arrangement created a partnership
under the Delaware Revised Uniform Limited Partnership Act in which WII was a
general partner. (Trust Agreement, Section 2.07)
ADMINISTRATION AGREEMENT
WFS, in its capacity as administrator (the "Administrator"), will enter
into an agreement (the "Administration Agreement") with the Trust, the Seller,
WII and the Indenture Trustee pursuant to which the Administrator will agree, to
the extent provided in the Administration Agreement, to provide the notices and
to perform other administrative obligations required to be provided or performed
by the Trust or the Owner Trustee under the Indenture. As compensation for the
performance of the Administrator's obligations under the Administration
Agreement and as reimbursement for its expenses related thereto, the
Administrator will be entitled to a monthly administration fee (the
"Administration Fee"), which fee will be paid by the Seller.
PREPAYMENT CONSIDERATIONS
Because the rate of distribution of principal on the Securities will depend
on the rate of payment on the Contracts (including prepayments, liquidations and
repurchases of Contracts by the Seller or the Master Servicer under certain
conditions, the payment of Accelerated Principal Distributable Amounts and the
sale or liquidation of the property of the Trust under certain conditions
following the occurrence of an Event of
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Default), the final distribution on each Class of Notes or the Certificates may
occur earlier than the related Final Distribution Date. The right of the Seller
to repurchase all of the Contracts upon certain events prior to the Certificate
Final Distribution Date is described under "-- Termination" and "The Master
Servicer -- Repurchases of Certain Contracts by the Master Servicer and the
Seller."
The law of California and most other states generally requires that retail
installment sales contracts such as the Contracts permit full and partial
prepayment without penalty, although a minimum finance charge may be applicable
in some circumstances. Any prepayments (including certain partial prepayments
not designated as advance payments by the Obligor on the related Contract) can
reduce the average life of the Contracts. The Master Servicer will permit the
sale or other transfer of a Financed Vehicle without accelerating the maturity
of the related Contract if such Contract is assumed by a person satisfying WFS'
then-current underwriting standards. See "The Master Servicer." Partial
prepayments not designated as advance payments by the Obligor on a Contract and
all partial prepayments as to Simple Interest Contracts will affect the average
life of the Contracts because those partial prepayments will be passed through
to Securityholders on the Distribution Date following the Due Period in which
they are received, while those partial prepayments designated as advance
payments for Rule of 78's Contracts only will be held until passed through in
accordance with the original schedule of payments for the related Contract or
until the amount of such partial prepayment equals the remaining principal
amount plus accrued interest due on the related Contract. Any reinvestment risk
resulting from the rate of prepayments of the Contracts and the distribution of
such prepayments to Securityholders will be borne entirely by the
Securityholders.
Purchases by the Seller of Contracts because of certain material defects in
Contract documentation or due to breaches of its respective representations and
warranties in respect thereof, in either case that materially and adversely
affect the interests of Securityholders, the Indenture Trustee, the Owner
Trustee or Financial Security, and purchases by the Master Servicer of Contracts
due to certain breaches in representations and warranties made by the Master
Servicer or due to certain breaches by the Master Servicer in servicing
procedures, in either case that materially and adversely affect such Contracts
can reduce the average life of the Contracts. Any reduction in the average life
of the Securities will reduce the aggregate amount of interest received by the
Securityholders over the life of the Securities. See "The Master Servicer."
While WFS does not maintain specific records for this purpose, it estimates
that, based on its experience over the past five years, the monthly prepayment
rate on the outstanding principal amount of the retail installment sales
contracts and installment loans secured by automobiles and light duty trucks it
has originated and serviced, for itself or others, has been approximately 1.5%.
However, no assurance can be given that the Contracts will experience this rate
of prepayment or any greater or lesser rate. WFS does not maintain specific
records which would suggest any difference in prepayment rate for Rule of 78's
Contracts as compared with Simple Interest Contracts.
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THE POLICIES
The following summary of the terms of the Policies does not purport to be
complete and is qualified in its entirety by reference to the Note Policy and
the Certificate Policy included as exhibits to the Registration Statement.
THE NOTE POLICY
Simultaneously with the issuance of the Notes, Financial Security will
deliver the Note Policy to the Indenture Trustee for the benefit of each
Noteholder. Under the Note Policy, Financial Security will unconditionally and
irrevocably guarantee to the Indenture Trustee for the benefit of each
Noteholder the full and complete payment of (i) Scheduled Payments (as defined
below) on the Notes and (ii) the amount of any Scheduled Payment which
subsequently is avoided in whole or in part as a preference payment under
applicable law.
"Scheduled Payments" will mean, with respect to any Distribution Date,
payments which are scheduled to be made on the Notes during the term of the Note
Policy in accordance with the original terms of the Notes when issued and
without regard to any subsequent amendment or modification of the Notes or of
the Indenture except amendments or modifications to which Financial Security has
given its prior written consent in an amount equal to (i) the Note Interest
Distributable Amount and (ii) the Note Principal Distributable Amount. Scheduled
Payments will not include payments which become due on an accelerated basis as a
result of (a) a default by the Trust, (b) any election to pay principal on an
accelerated basis, (c) the occurrence of an Event of Default under the Indenture
or (d) any other cause, unless Financial Security elects, in its sole
discretion, to pay in whole or in part such principal due upon acceleration,
together with any accrued interest to the date of acceleration. In the event
Financial Security does not so elect, the Note Policy will continue to guarantee
Scheduled Payments on the Notes in accordance with their original terms.
Scheduled Payments shall not include any portion of a Note Interest
Distributable Amount due to Noteholders because a notice and certificate in
proper form was not timely Received (as defined below) by Financial Security
unless, in each case, Financial Security elects, in its sole discretion, to pay
such amount in whole or in part. Scheduled Payments shall not include any
amounts due in respect of the Notes attributable to any increase in interest
rate, penalty or other sum payable by the Trust by reason of any default or any
event of default in respect of the Notes, or by reason of any deterioration of
the creditworthiness of the Trust, nor shall Scheduled Payments include, nor
shall coverage be provided under the Note Policy in respect of, any taxes,
withholding or other charge with respect to any Noteholder imposed by any
governmental authority due in connection with the payment of any Scheduled
Payment to a Noteholder.
Payment of claims on the Note Policy made in respect of Scheduled Payments
will be made by Financial Security following Receipt (as defined below) by
Financial Security of the appropriate notice for payment on the later to occur
of (a) 12:00 noon, New York City time, on the fourth Business Day following
Receipt of such notice for payment, and (b) 12:00 noon, New York City time, on
the date on which such payment was due on the Notes.
THE CERTIFICATE POLICY
Simultaneously with the issuance of the Certificates, Financial Security
will deliver the Certificate Policy to the Owner Trustee for the benefit of each
Certificateholder. Under the Certificate Policy, Financial Security will
unconditionally and irrevocably guarantee to the Owner Trustee for the benefit
of each Certificateholder the full and complete payment of (i) Guaranteed
Distributions (as defined below) with respect to the Certificates and (ii) the
amount of any Guaranteed Distribution which subsequently is avoided in whole or
in part as a preference payment under applicable law.
"Guaranteed Distributions" will mean, with respect to each Distribution
Date, the distributions to be made to Certificateholders (other than to WII) in
an aggregate amount equal to the Certificate Distributable Amount due and
payable on such Distribution Date in accordance with the original terms of the
Certificates when issued and without regard to any amendment or modification of
the Certificates, the Sale and Servicing Agreement or the Trust Agreement to
which Financial Security has not given its prior written consent.
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Guaranteed Distributions shall not include, nor shall coverage be provided under
the Certificate Policy in respect of, any taxes, withholding or other charge
imposed with respect to any Certificateholder by any governmental authority.
Payment of claims on the Certificate Policy made in respect of Guaranteed
Distributions will be made by Financial Security following Receipt (as defined
below) by Financial Security of the appropriate notice for payment on the later
to occur of (a) 12:00 noon, New York City time, on the fourth Business Day
following Receipt of such notice for payment, and (b) 12:00 noon, New York City
time, on the date on which such payment was due on the Certificates.
OTHER TERMS OF THE POLICIES
If payment of any amount avoided as a preference under applicable
bankruptcy, insolvency, receivership or similar law is required to be made under
either Policy, Financial Security shall cause such payment to be made on the
later of (a) the date when due to be paid pursuant to the Order referred to
below or (b) the first to occur of (i) the fourth Business Day following Receipt
by Financial Security from the Indenture Trustee or the Owner Trustee, as the
case may be, of (A) a certified copy of the order (the "Order") of the court or
other governmental body which exercised jurisdiction to the effect that the
Noteholder is required to return principal or interest paid on the Notes during
the term of the Note Policy or the Certificateholder is required to return
principal or interest distributed with respect to the Certificates during the
term of the Certificate Policy, in either case because such distributions were
avoidable as preference payments under applicable bankruptcy law, (B) a
certificate of the Noteholder or Certificateholder, as the case may be, that the
Order has been entered and is not subject to any stay and (C) an assignment duly
executed and delivered by such Noteholder or Certificateholder, as the case may
be, in such form as is reasonably required by Financial Security and provided to
such Securityholder by Financial Security, irrevocably assigning to Financial
Security all rights and claims of such Securityholder relating to or arising
under the related Class of Notes or the Certificates, as the case may be,
against the debtor which made such preference payments or otherwise with respect
to such preference payment, or (ii) the date of Receipt by Financial Security
from the Indenture Trustee or the Owner Trustee, as the case may be, of the
items referred to in clauses (A), (B) and (C) above if, at least four Business
Days prior to such date of Receipt, Financial Security shall have Received
written notice from the related Trustee that such items were to be delivered on
such date and such date was specified in such notice. Such payment shall be
disbursed to the receiver, conservator, debtor-in-possession or trustee in
bankruptcy named in the Order and not to the related Trustee or any
Securityholder directly (unless a Securityholder has previously paid such amount
to the receiver, conservator, debtor-in-possession or trustee in bankruptcy
named in the Order in which case such payment shall be disbursed to the related
Trustee for distribution to such Securityholder upon proof of such payment
reasonably satisfactory to Financial Security). In connection with the
foregoing, and as will be provided in the Indenture and Sale and Servicing
Agreement, Financial Security will have certain rights to direct proceedings
regarding the seeking to avoid payments made on or in respect of the Contracts,
the Notes or the Certificates as preferential.
The terms "Receipt" and "Received," with respect to either Policy, shall
mean actual delivery to Financial Security and to its fiscal agent, if any,
prior to 12:00 noon, New York City time, on a Business Day and delivery either
on a day that is not a Business Day or after 12:00 noon, New York City time,
shall be deemed to be Receipt on the next succeeding Business Day. If any notice
or certificate given under a Policy by the Indenture Trustee or the Owner
Trustee, as the case may be, is not in proper form or is not properly completed,
executed or delivered, it shall be deemed not to have been Received, and
Financial Security or its fiscal agent shall promptly so advise the Indenture
Trustee or the Owner Trustee, as the case may be, and such Trustee may submit an
amended notice.
Under the Policies, "Business Day" will mean any day other than (i) a
Saturday or Sunday or (ii) a day on which banking institutions in The City of
New York, New York are authorized or obligated by law or executive order to be
closed.
Financial Security's obligations under the Note Policy in respect of
Scheduled Payments and under the Certificate Policy in respect of Guaranteed
Distributions shall in each case be discharged to the extent funds
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are transferred to the Indenture Trustee or the Owner Trustee, as the case may
be, as provided in the related Policy whether or not such funds are properly
applied by the Indenture Trustee or the Owner Trustee.
Financial Security shall be subrogated to the rights of each Noteholder or
Certificateholder, as the case may be, to receive payments of principal and
interest to the extent of any payment by Financial Security under the related
Policy.
Claims under the Policies will constitute direct, unsecured and
unsubordinated obligations of Financial Security ranking not less than pari
passu with other unsecured and unsubordinated indebtedness of Financial Security
for borrowed money. Claims against Financial Security under each other financial
guaranty insurance policy issued thereby constitute pari passu claims against
the general assets of Financial Security. The terms of the Policies cannot be
modified or altered by any other agreement or instrument, or by the merger,
consolidation or dissolution of the Trust. The Note Policy may not be cancelled
or revoked prior to distribution in full of all Scheduled Payments and the
Certificate Policy may not be canceled or revoked prior to distribution in full
of all Guaranteed Distributions with respect to the Certificates. The Policies
are not covered by the property/casualty insurance security fund specified in
Article 76 of the New York Insurance Law. The Policies are governed by the laws
of the State of New York.
FINANCIAL SECURITY ASSURANCE INC.
GENERAL
Financial Security is a monoline insurance company incorporated in 1984
under the laws of the State of New York. Financial Security is licensed to
engage in financial guaranty insurance business in all 50 states, the District
of Columbia and Puerto Rico.
Financial Security and its subsidiaries are engaged in the business of
writing financial guaranty insurance, principally in respect of securities
offered in domestic and foreign markets. In general, financial guaranty
insurance consists of the issuance of a guaranty of scheduled payments of an
issuer's securities -- thereby enhancing the credit rating of those
securities -- in consideration for the payment of a premium to the insurer.
Financial Security and its subsidiaries principally insure asset-backed,
collateralized and municipal securities. Asset-backed securities are generally
supported by residential mortgage loans, consumer or trade receivables,
securities or other assets having an ascertainable cash flow or market value.
Collateralized securities include public utility first mortgage bonds and
sale/leaseback obligation bonds. Municipal securities consist largely of general
obligation bonds, special revenue bonds and other special obligations of state
and local governments. Financial Security insures both newly issued securities
sold in the primary market and outstanding securities sold in the secondary
market that satisfy Financial Security's underwriting criteria.
Financial Security is a wholly owned subsidiary of Financial Security
Assurance Holdings Ltd. ("Holdings"), a New York Stock Exchange listed company.
Major shareholders of Holdings include Fund American Enterprises Holdings, Inc.,
US WEST Capital Corporation and The Tokio Marine and Fire Insurance Co., Ltd. No
shareholder of Holdings is obligated to pay any debt of Financial Security or
any claim under any insurance policy issued by Financial Security or to make any
additional contribution to the capital of Financial Security.
The principal executive offices of Financial Security are located at 350
Park Avenue, New York, New York 10022, and its telephone number at that location
is (212) 826-0100.
REINSURANCE
Pursuant to an intercompany agreement, liabilities on financial guaranty
insurance written or reinsured from third parties by Financial Security or any
of its domestic operating insurance company subsidiaries are reinsured among
such companies on an agreed-upon percentage substantially proportional to their
respective capital, surplus and reserves, subject to applicable statutory risk
limitations. In addition, Financial Security reinsures a portion of its
liabilities under certain of its financial guaranty insurance policies with
other reinsurers under various quota share treaties and on a
transaction-by-transaction basis. Such reinsurance is utilized by Financial
Security as a risk management device and to comply with certain statutory and
rating
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agency requirements; it does not alter or limit Financial Security's obligations
under any financial guaranty insurance policy.
RATINGS OF CLAIMS-PAYING ABILITY
Financial Security's claims-paying ability is rated "Aaa" by Moody's and
"AAA" by S&P, Nippon Investors Service Inc. and Standard & Poor's (Australia)
Pty. Ltd. Such ratings reflect only the views of the respective rating agencies,
are not recommendations to buy, sell or hold securities and are subject to
revision or withdrawal at any time by such rating agencies. See "Ratings of the
Securities."
CAPITALIZATION
The following table sets forth the capitalization of Financial Security and
its wholly owned subsidiaries on the basis of generally accepted accounting
principles as of March 31, 1996 (in thousands):
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------
(UNAUDITED)
<S> <C>
Unearned Premium Reserve (net of prepaid reinsurance premiums)........ $ 340,226
--------------
Shareholder's Equity:
Common Stock........................................................ 15,000
Additional Paid-In Capital.......................................... 681,470
Unrealized Loss on Investments
(net of deferred income taxes)................................... (737)
Accumulated Earnings................................................ 83,444
--------------
Total Shareholder's Equity............................................ 779,177
--------------
Total Unearned Premium Reserve and Shareholder's Equity............... $1,119,403
===========
</TABLE>
For further information concerning Financial Security, see the Consolidated
Financial Statements of Financial Security and Subsidiaries, and the notes
thereto, included at page A-2 et seq. of this Prospectus. Copies of the
statutory quarterly and annual statements filed with the State of New York
Insurance Department by Financial Security are available upon request to the
State of New York Insurance Department.
INSURANCE REGULATION
Financial Security is licensed and subject to regulation as a financial
guaranty insurance corporation under the laws of the State of New York, its
state of domicile. In addition, Financial Security and its insurance
subsidiaries are subject to regulation by insurance laws of the various other
jurisdictions in which they are licensed to do business. As a financial guaranty
insurance corporation licensed to do business in the State of New York,
Financial Security is subject to Article 69 of the New York Insurance Law which,
among other things, limits the business of each such insurer to financial
guaranty insurance and related lines, requires that each such insurer maintain a
minimum surplus to policyholders, establishes contingency, loss and unearned
premium reserve requirements for each such insurer, and limits the size of
individual transactions ("single risks") and the volume of transactions
("aggregate risks") that may be underwritten by each such insurer. Other
provisions of the New York Insurance Law, applicable to non-life insurance
companies such as Financial Security, regulate, among other things, permitted
investments, payment of dividends, transactions with affiliates, mergers,
consolidations, acquisitions or sales of assets and incurrence of liability for
borrowings.
THE MASTER SERVICER
The Contracts will be serviced by WFS in its capacity as Master Servicer.
While WFS may or may not use a Subservicer in servicing the Contracts, WFS is
referred to as the Master Servicer herein.
WFS, as Master Servicer, will be obligated pursuant to the Sale and
Servicing Agreement, subject to the limitations set forth therein, to service
the Contracts and to repurchase certain of the Contracts under certain
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circumstances if certain representations and warranties made by WFS are
incorrect or if WFS, as Master Servicer, breaches certain of its servicing
obligations under the Sale and Servicing Agreement, in either case in a manner
that materially and adversely affects the Securityholders. WFS, as Master
Servicer, may perform its servicing duties through one or more subservicers
(each, a "Subservicer"), provided that the employment of a Subservicer shall not
relieve the Master Servicer from any liability of the Master Servicer under the
Sale and Servicing Agreement.
If WFS uses a Subservicer, WFS, as Master Servicer, will enter into a
subservicing agreement with that Subservicer. Such subservicing agreements must
not be inconsistent with the terms of the Sale and Servicing Agreement. The
Master Servicer may terminate a subservicing agreement and either service the
related Contracts directly or enter into a new subservicing agreement for such
Contracts with a Subservicer that need not be an affiliate of the Master
Servicer. Notwithstanding any subservicing agreement, the Master Servicer will
remain obligated and liable to the Indenture Trustee, the Owner Trustee and the
Securityholders for servicing and administering the Contracts in accordance with
the Sale and Servicing Agreement as if the Master Servicer alone were servicing
the Contracts. References herein to actions required or permitted to be taken by
the Master Servicer include such actions by a Subservicer. (Sale and Servicing
Agreement, Section 4.01)
COLLECTION OF PAYMENTS
The Master Servicer will service the Contracts and will provide certain
accounting and reporting services with respect to the Contracts and the
Securities. The Master Servicer must take all actions necessary to maintain
continuous perfection of the security interests granted by the Obligors in the
Financed Vehicles. The Master Servicer will be obligated to service the
Contracts in accordance with the customary and usual servicing procedures
employed by financial institutions that service retail installment sales
contracts and/or installment loan agreements secured by motor vehicles and, to
the extent more exacting, the procedures used for such contracts owned by the
Master Servicer. In its judgment, the Master Servicer may reduce the APR of a
delinquent Contract (but not below the sum of the Pass-Through Rate and the
Servicing Fee Percent), may reduce the principal balance and may extend the
scheduled maturity of a delinquent Contract for up to 90 days in the aggregate
past the originally scheduled date of the last payment on such Contract, so long
as the Master Servicer makes an appropriate Advance as will be required in the
Sale and Servicing Agreement. (Sale and Servicing Agreement, Sections 4.01 and
4.02)
The Master Servicer shall deposit in or credit to the Collection Account or
the Holding Account, within two Business Days of receipt, all Net Collections
received on or in respect of the Contracts (except that as to Contracts serviced
by a Subservicer, such proceeds shall be deposited within three Business Days of
receipt by the Subservicer). The Master Servicer will also deposit in or credit
to the Collection Account or the Holding Account, within two Business Days of
receipt, all Net Liquidation Proceeds and Net Insurance Proceeds, after
deducting therefrom the amount of any outstanding and unreimbursed Advances.
(Sale and Servicing Agreement, Section 4.01) See "Certain Information Regarding
the Securities -- The Accounts and Eligible Investments."
ADVANCES
The Master Servicer will be obligated to advance delinquent payments of
Monthly P&I on individual Rule of 78's Contracts and to advance 30 days of
interest at the sum of the Pass-Through Rate and the Servicing Fee Percent for
each month of delinquency in that Due Period on individual Simple Interest
Contracts (each, an "Advance") to the extent that any such Advance, if made,
would not, in the good faith judgment of the Master Servicer, constitute a
Nonrecoverable Advance. A "Nonrecoverable Advance" will be an Advance previously
made or to be made by the Master Servicer which, in the good faith judgment of
the Master Servicer, may not be ultimately recoverable by the Master Servicer
from Liquidation Proceeds, Insurance Proceeds or otherwise. Concurrently with
the furnishing of the related Distribution Date Statement to the Indenture
Trustee and the Owner Trustee, the Master Servicer will deposit in the
Collection Account all Advances, if any, in respect of the related Due Period.
The Master Servicer will not be entitled to any interest on Advances when it is
reimbursed for Advances. The amount of Advances deposited in the
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Collection Account for any Distribution Date may be net of amounts otherwise
payable to the Master Servicer on such Distribution Date. (Sale and Servicing
Agreement, Section 5.04)
In making Advances, the Master Servicer will be endeavoring to maintain a
regular flow of interest and principal payments to the Securityholders rather
than to guarantee or insure against losses. Advances will be reimbursed to the
Master Servicer out of recoveries on the related Contracts (e.g., late payments
by the Obligor, Net Liquidation Proceeds and Net Insurance Proceeds) or, to the
extent any portion of an Advance is determined to be a Nonrecoverable Advance,
out of unrelated installments of Monthly P&I or prepayment proceeds.
INSURANCE ON FINANCED VEHICLES
Each Obligor on a Contract is required to maintain insurance covering
physical damage to the Financed Vehicle of such Obligor in an amount not less
than the lesser of its maximum insurable value or the unpaid principal balance
under such Contract; provided, however, that the Master Servicer will not be
obligated to enforce this requirement when the principal balance of a Contract
is less than $4,000. The Master Servicer or a Subservicer is required to be
named as a loss payee under the policy of insurance obtained by the Obligor. In
addition, to the extent required by applicable law, the policy of insurance will
be delivered to the Master Servicer or Subservicer, as appropriate. The Financed
Vehicle is required to be insured against loss and damage due to fire, theft,
transportation, collision and other risks covered by comprehensive coverage. The
Master Servicer shall maintain a limited dual interest insurance policy in
respect of each Financed Vehicle that provides coverage for physical damage to,
or loss of, a Financed Vehicle; provided, however, that the Master Servicer
shall not be required to maintain such insurance in respect of any Financed
Vehicle as to which the related Contract has an unpaid principal balance of less
than $4,000. (Sale and Servicing Agreement, Section 4.04) Since Obligors may
choose their own insurers to provide the required coverage, the specific terms
and conditions of their policies vary. If the Obligor fails to obtain or
maintain the required insurance, the Master Servicer will be obligated, except
in certain limited circumstances, to obtain such insurance and may add the
premium for such insurance to the balance due on the Contract to the extent
permitted by applicable law. The Scheduled Balance of a Contract will not
include any amount for such premium, and payments by an Obligor in respect of
such financed premium will not be applied to distributions on the Securities.
SERVICER DETERMINATION AND REPORTS TO TRUSTEES
The Master Servicer will perform certain monitoring and reporting functions
for the Owner Trustee, the Indenture Trustee and Financial Security, including
the preparation and delivery to the Owner Trustee, the Indenture Trustee and
Financial Security of each Statement to Securityholders and an additional report
covering the aggregate amount, if any, paid by or due from it or the Seller for
the purchase of Contracts which it or the Seller has become obligated to
purchase and the net amount of funds which have been deposited in or credited to
the Collection Account or Holding Account. (Sale and Servicing Agreement,
Section 4.09)
REPURCHASES OF CERTAIN CONTRACTS BY THE MASTER SERVICER AND THE SELLER
The Seller will have the option to purchase the remaining Contracts, and
thereby cause early retirement of the Securities, on any Distribution Date as of
which (i) the Aggregate Scheduled Balance is less than 10% of the Cut-Off Date
Aggregate Scheduled Balance and (ii) the aggregate outstanding principal amount
of Securities is 5% or less of the initial aggregate principal amount of
Securities. See "Certain Information Regarding the Securities -- Termination."
In addition, the Seller will be required to repurchase certain Contracts under
certain circumstances if certain representations and warranties made by the
Seller are incorrect and materially and adversely affect the interests of the
Securityholders, the Indenture Trustee, the Owner Trustee or Financial Security.
The Master Servicer will be required to purchase a Contract if it breaches
certain of its servicing obligations with respect to such Contract such that the
Contract is materially and adversely affected. Any such repurchase must be
effected at a price (the "Repurchase Amount") equal to the outstanding principal
balance of such Contract plus accrued interest thereon to the last Due Date in
the Due Period in which such repurchase occurs. (Sale and Servicing Agreement,
Sections 3.02, 4.07 and 9.01)
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SERVICING COMPENSATION
The Master Servicer will be entitled to compensation for the performance of
its obligations under the Sale and Servicing Agreement. The Master Servicer
shall be entitled to receive for each Contract from the Monthly P&I paid on or
in respect of such Contract an amount (the "Servicing Fee") equal to one-twelfth
of 1.00% per annum (the "Servicing Fee Percent") of the Scheduled Balance of
such Contract for the related month in respect of which the Monthly P&I for such
month has been collected or advanced. As additional compensation, the Master
Servicer or its designee shall be entitled to retain all late payment charges,
extension fees (the Master Servicer will determine when an extension is to be
granted, subject to the limitations described under "Collection of Payments")
and similar items paid in respect of the Contracts. The Master Servicer or its
designee will receive as additional servicing compensation the amount, if any,
by which the outstanding principal balance of a Contract that is prepaid in full
prior to its maturity exceeds the Scheduled Balance of such Contract. The Master
Servicer shall pay all expenses incurred by it in connection with its servicing
activities under the Sale and Servicing Agreement and shall not be entitled to
reimbursement of such expenses except to the extent they constitute Liquidation
Expenses or expenses recoverable under an applicable insurance policy. (Sale and
Servicing Agreement, Section 4.08)
The Servicing Fee will compensate the Master Servicer for performing the
functions of a third party servicer of the Contracts as an agent for the
Indenture Trustee and the Owner Trustee, including collecting and posting all
payments, responding to inquiries of Obligors, investigating delinquencies,
sending payment statements and reporting tax information to Obligors, paying
costs of collections and policing the collateral. The Servicing Fee will also
compensate the Master Servicer for administering the Contracts, including making
Advances, accounting for collections, furnishing quarterly and annual statements
to the Indenture Trustee and the Owner Trustee with respect to distributions and
generating federal income tax information and certain taxes, accounting fees,
outside auditor fees, data processing costs and other costs incurred in
connection with administering the Contracts.
REALIZATION UPON DEFAULTED CONTRACTS
The Master Servicer will liquidate any Contract that comes into and
continues in default and as to which no satisfactory arrangements can be made
for collection of delinquent payments. Such liquidation may be through
repossession or sale of the Financed Vehicle securing such Contract or
otherwise. In connection with such repossession or other conversion, the Master
Servicer will follow such procedures as are normal and usual for holders of
motor vehicle retail installment sales contracts and installment loans. In this
regard, the Master Servicer may sell the Financed Vehicle at a repossession or
other sale. (Sale and Servicing Agreement, Section 4.03)
CERTAIN LEGAL ASPECTS OF THE CONTRACTS
GENERAL
The Contracts are "chattel paper" as defined in the Uniform Commercial Code
as in effect in California and the other states in which the Contracts are
originated ("UCC"). Pursuant to the UCC, an ownership interest in chattel paper
may be perfected by possession of the chattel paper or filing a UCC-1 financing
statement with the Secretary of State or other central filing office in the
appropriate state as required by the applicable UCC.
WFS and the Seller will take or cause to be taken such action as is
required to perfect the Trust's rights in the Contracts and will represent and
warrant that the Trust, subject to the interest of Financial Security under the
Insurance Agreement pursuant to which the Policies will be issued, has good
title, free and clear of liens and encumbrances, to each Contract on the Closing
Date. Under the Sale and Servicing Agreement, WFS, as Master Servicer (or one or
more Subservicers), will have custody of the Contracts following the sale of the
Contracts to the Trust and will hold the Contracts as bailee for the benefit of
the Trust. However, the Contracts will not be physically marked to indicate the
ownership interest thereof by the Trust. UCC-1 financing statements will be
filed with the California Secretary of State to perfect by filing and give
notice of
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the Trust's ownership interest in the Contracts. If, through inadvertence or
otherwise, any of the Contracts were sold to another party who purchased such
Contracts in the ordinary course of its business and took possession of such
Contracts, the purchaser would acquire an interest in the Contracts superior to
the interests of the Trust if the purchaser acquired the Contracts in good
faith, for value and without actual knowledge of the Trust's ownership interest
in the Contracts. The Master Servicer will agree in the Sale and Servicing
Agreement to take all necessary action to preserve and protect the Trust's
ownership interest in the Contracts. The Seller will represent and warrant that
each Contract is secured by a Financed Vehicle. Notwithstanding the failure of
the Trust to have obtained a valid, first priority ownership interest in a
Contract, Financial Security will remain unconditionally and irrevocably
obligated on its guarantee of Scheduled Payments payable to Noteholders and
Guaranteed Distributions payable to Certificateholders on each Distribution
Date. See "The Policies."
SECURITY INTERESTS IN THE FINANCED VEHICLES
All of the Financed Vehicles were registered in the State of California or
another of the states listed above under "The Contracts Pool" at the time of
origination of the related Contracts. Perfection of security interests in motor
vehicles is generally governed by state certificate of title statutes or by the
motor vehicle registration laws of the state in which each vehicle is located.
Security interests in vehicles registered in the State of California (the state
in which the largest number of Financed Vehicles is located) may be perfected by
depositing with the California Department of Motor Vehicles a properly endorsed
certificate of title showing the secured party as legal owner or an application
for an original registration together with an application for registration of
the secured party as legal owner. Security interests in vehicles registered in
most other states are perfected, generally, in a similar manner. The Seller will
represent and warrant to the Trust in the Sale and Servicing Agreement that all
steps necessary to obtain a perfected first priority security interest with
respect to the Financed Vehicles securing the Contracts have been taken. If the
Master Servicer fails, because of clerical error or otherwise, to effect or
maintain such notation for a Financed Vehicle, the Trust may not have a first
priority security interest in such Financed Vehicle.
All retail installment sales contracts purchased by WFS or the Bank name
WFS or the Bank, as the case may be, as obligee or assignee and as the secured
party. WFS also takes all actions necessary under the laws of the state in which
the related vehicles are located to perfect its security interest in such
vehicles, including, where applicable, having a notation of its lien recorded on
the related certificate of title and obtaining possession of the certificates of
title.
The Seller will sell the Contracts and assign its security interests in the
Financed Vehicles to the Trust and Financial Security. However, because of the
administrative burden and expense, neither the Trust nor Financial Security will
amend any certificate of title to identify the Trust or Financial Security as
the new secured party nor will the certificates of title be delivered to the
Trustee. Accordingly, WFS or the Bank, as the case may be, will continue to be
named as the secured party on the certificates of title for the Financed
Vehicles relating to Contracts originated by it. Under the law of California and
most other states, the assignment of the Contracts is an effective conveyance of
a security interest without amendment of any lien noted on a vehicle's
certificate of title, and the new secured party succeeds thereby to the
assignor's rights as secured party. However, there exists a risk in not
identifying the Trust as the new secured party on the certificates of title
that, through fraud or negligence, the security interest of the Trust in one or
more Financed Vehicles could be released.
In the absence of fraud or forgery by the Financed Vehicle owner or
administrative error by state recording officials, notation of the lien of WFS
or the Bank on the certificates of title should be sufficient to protect the
Trust against the rights of subsequent purchasers of a Financed Vehicle or
subsequent lenders who take a security interest in such Financed Vehicle. If
there are any Financed Vehicles as to which WFS or the Bank has failed to
perfect the security interest assigned to the Trust, such security interest
would be subordinate to, among others, subsequent purchasers of the Financed
Vehicles and holders of perfected security interests.
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In the event that the owner of a Financed Vehicle relocates to a state
other than the state in which the Financed Vehicle is registered, under the laws
of most states the perfected security interest in the Financed Vehicle would
continue for four months after such relocation and thereafter, in most
instances, until the owner registers the Financed Vehicle in such state. A
majority of states, including California, generally require surrender of a
certificate of title to initially register in that state a vehicle originally
registered in another state. Therefore, the Master Servicer on behalf of the
Trust must surrender possession, if it holds the certificate of title to such
Financed Vehicle, for the Financed Vehicle owner to effect the registration. If
the Financed Vehicle owner moves to a state that provides for notation of lien
on the certificate of title to perfect the security interests in the Financed
Vehicle, WFS or the Bank, absent clerical errors or fraud, would receive notice
of surrender of the certificate of title if WFS' or the Bank's lien is noted
thereon. Accordingly, WFS or the Bank will have notice and the opportunity to
reperfect the security interest in the Financed Vehicle in the state of
relocation. If the Financed Vehicle owner moves to a state which does not
require surrender of a certificate of title for registration of a motor vehicle,
registration in that state could defeat perfection. In the ordinary course of
servicing its portfolio of motor vehicle loans, WFS takes steps to effect such
reperfection upon receipt of notice of reregistration or information from the
obligor as to relocation. Similarly, when an Obligor under a Contract sells a
Financed Vehicle, the Master Servicer must surrender possession of the
certificate of title or will receive notice as a result of its lien noted
thereon and accordingly will have an opportunity to require satisfaction of the
related Contract before release of the lien. Under the Sale and Servicing
Agreement, the Master Servicer, at its cost, will be obligated to maintain the
continuous perfection of security interests in the Financed Vehicles.
Under the law of California and most other states, liens for unpaid taxes
and possessory liens for storage of and repairs performed on a motor vehicle
take priority even over a perfected security interest in such vehicle. The
Internal Revenue Code of 1986, as amended, also grants priority to certain
federal tax liens over the lien of a secured party. The laws of certain states
and federal law permit the confiscation of motor vehicles by governmental
authorities under certain circumstances if used in unlawful activities, which
may result in the loss of a secured party's perfected security interest in a
confiscated vehicle. The Seller will represent in the Sale and Servicing
Agreement that, as of the Closing Date, the security interest in each Financed
Vehicle is prior to all other present liens upon and security interests in such
Financed Vehicle. However, liens for repairs or taxes could arise at any time
during the term of a Contract. No notice will be given to the Trustees, the
Master Servicer or Securityholders in the event such a lien or confiscation
arises and any such lien or confiscation arising after the Closing Date would
not give rise to the Seller's repurchase obligations under the Sale and
Servicing Agreement.
ENFORCEMENT OF SECURITY INTERESTS IN FINANCED VEHICLES
The Master Servicer, on behalf of the Trust, may take action itself or
through one or more Subservicers to enforce its security interest with respect
to defaulted Contracts by repossession and resale of the Financed Vehicles
securing such defaulted Contracts. In addition to the provisions of the UCC,
under California law the Contracts originated in California are subject to the
provisions of its Rees-Levering Motor Vehicle Sales and Finance Act (the
"Rees-Levering Act"). Contracts originated in other states are subject to retail
installment sales laws and similar laws of those states. The provisions of the
Rees-Levering Act and similar laws of other states control in the event of a
conflict with the provisions of the UCC. Under the UCC and laws applicable in
most states, a creditor can, without prior notice to the debtor, repossess a
motor vehicle securing a loan by voluntary surrender, by "self-help"
repossession without breach of peace, and by judicial process. The Rees-Levering
Act and similar laws of other states place restrictions on repossession sales,
including notice to the debtor of the intent to sell and of the debtor's right
to redeem the vehicle. In addition, the UCC requires commercial reasonableness
in the conduct of the sale.
In the event of repossession and resale of a Financed Vehicle, the Master
Servicer for the benefit of the Trust would be entitled to be paid out of the
sale proceeds before such proceeds could be applied to the payment of the claims
of unsecured creditors or the holders of subsequently perfected security
interests or, thereafter, to the debtor.
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Under the UCC and laws applicable in most states, a creditor is entitled to
obtain a deficiency judgment from a debtor for any deficiency on repossession
and resale of the motor vehicle securing such debtor's loan. However, some
states impose prohibitions or limitations on deficiency judgments. Under
California law the proceeds from the resale of the motor vehicle securing the
debtor's loan are required to be applied first to the expenses of resale and
repossession, and if the remaining proceeds are not sufficient to repay the
indebtedness, the creditor may seek a deficiency judgment for the balance. The
priority of application of proceeds of sale as to repossessed vehicles under the
Contracts originated in most other states is similar.
Certain other statutory provisions, including federal and state bankruptcy
and insolvency laws, may limit or delay the ability of a creditor to repossess
and resell collateral or enforce a deficiency judgment.
In the event that deficiency judgments are not satisfied or are satisfied
at a discount or are discharged in whole or in part in bankruptcy proceedings,
including proceedings under Chapter 13 of the Bankruptcy Reform Act of 1978, as
amended, the loss will be borne by the Trust.
OTHER MATTERS
The so-called "holder-in-due-course" rule of the Federal Trade Commission
is intended to defeat the ability of the transferor of a consumer credit
contract which is the seller of goods which give rise to the transaction (and
certain related lenders and assignees) to transfer such contract free of notice
of claims by the debtor thereunder. The effect of this rule is to subject the
assignee of such a contract to all claims and defenses which the debtor could
assert against the seller of goods. Liability under this rule, which would be
applicable to the Trust and Financial Security, is limited to amounts paid under
a Contract; however, the Obligor may also assert the rule to set off remaining
amounts due as a defense against a claim brought by the Trustee against such
Obligor.
The courts have imposed general equitable principles on repossession and
litigation involving deficiency balances. These equitable principles may have an
effect of relieving an Obligor from some or all of the legal consequences of a
default.
Numerous other federal and state consumer protection laws, regulations and
rules impose requirements applicable to the origination and servicing of the
Contracts, including the Truth-in-Lending Act (and Federal Reserve Board
Regulation Z), the Federal Trade Commission Act, the Fair Credit Billing Act,
the Fair Credit Reporting Act, the Equal Credit Opportunity Act (and Federal
Reserve Board Regulation B), the Fair Debt Collection Practices Act, the
Magnuson-Moss Warranty Act, state adaptations of the National Consumer Act and
of the Uniform Consumer Credit Code and the California Rees-Levering Act and
motor vehicle retail installment sale acts in other states, and similar laws and
rules. Also, the laws of certain states impose finance charge ceilings and other
restrictions on consumer transactions and require contract disclosures in
addition to those required under federal law. These requirements impose specific
statutory liabilities upon creditors who fail to comply with their provisions.
In some cases, this liability could affect the ability of an assignee such as
the Trustee to enforce consumer finance contracts such as the Contracts. The
Seller will represent and warrant in the Sale and Servicing Agreement that each
of the Contracts, and the sale of the Financed Vehicles sold thereunder,
complied with all material requirements of such laws.
REPURCHASE OBLIGATION
Under the Sale and Servicing Agreement, the Seller will make
representations and warranties relating to validity, subsistence, perfection and
priority of the security interest in each Financed Vehicle as of the Closing
Date. Accordingly, if any defect exists in the perfection of the security
interest in any Financed Vehicle as of the Closing Date, including any defect
arising from the violation of laws or rules, and such defect materially and
adversely affects the interests of the Securityholders, the Indenture Trustee,
the Owner Trustee or Financial Security, such defect would constitute a breach
of a representation and warranty under the Sale and Servicing Agreement and, if
uncured, would create an obligation of the Seller to repurchase such Contract
unless the breach is cured. Additionally, in the Sale and Servicing Agreement
the Master Servicer will make certain representations, warranties and
affirmative covenants regarding, among other things, the maintenance
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of the security interest in each Financed Vehicle, the breach of which would
create an obligation of the Master Servicer to repurchase any affected Contract
unless the breach is cured.
THE SELLER
The Seller is a wholly owned, limited-purpose operating subsidiary of WFS
which was incorporated under the laws of the State of California on October 24,
1985. The principal office of the Seller is 23 Pasteur Road, Irvine, California
92718.
The Seller was organized principally for the purpose of purchasing retail
installment sales contracts and installment loans from the Bank in connection
with its activities as a finance subsidiary of the Bank. Effective May 1, 1995,
ownership of the Seller was transferred to WFS and it is now a limited purpose
operating subsidiary of WFS. The Seller has not and will not engage in any
activity other than (i) acquiring, owning, holding, selling, transferring,
assigning, pledging or otherwise dealing in installment sales contracts and
installment loans secured by automobiles and light-duty trucks or (ii)
authorizing, issuing, selling and delivering one or more series of obligations
consisting of one or more classes of bonds or pass-through certificates
collateralized by installment sales contracts and installment loans secured by
automobiles and light-duty trucks, which bonds or pass-through certificates are
rated in the highest available category by at least one nationally recognized
statistical rating agency.
The Seller's Articles of Incorporation limit the activities of the Seller
to the above purposes and to any activities incidental to and necessary for such
purposes.
BREACH OF REPRESENTATIONS AND WARRANTIES; DEFECTIVE CONTRACT DOCUMENTATION
In the Sale and Servicing Agreement, the Seller will make certain
representations and warranties with respect to each Contract as of the Closing
Date, including but not limited to, perfection, validity, enforceability of and
the absence of liens prior to the security interest granted pursuant to each
Contract, title of the Trust in and to such Contracts, validity and
enforceability of the Contracts as against the related Obligor, and collision
and comprehensive insurance coverage related to each Financed Vehicle. (Sale and
Servicing Agreement, Section 3.01) If (i) any of such representations and
warranties is found to have been incorrect as of the time it was made or any
document evidencing or securing a Contract is found to be defective or not to be
contained in the Contract files, and (ii) the same materially and adversely
affects the interest of the Certificateholders, the Indenture Trustee, the Owner
Trustee or Financial Security in and to such Contract, the Seller must cure the
defect or eliminate or otherwise cure the circumstances or condition in respect
of which such representation or warranty is incorrect within 90 days of the
discovery thereof. If the defect is not cured within such 90-day period, the
Seller must purchase the Contract affected by the defect at a price equal to the
outstanding principal amount of such Contract plus accrued interest thereon to
the last Due Date in the Due Period in which such repurchase occurs. (Sale and
Servicing Agreement, Section 3.02)
WFS
GENERAL
WFS is an auto finance company incorporated in California in 1988. WFS was
formerly known as Westcorp Financial Services, Inc. ("Westcorp Financial"), a
wholly owned subsidiary of the Bank and a licensed consumer finance company.
Prior to May 1, 1995, the auto finance activities described in this Prospectus
were conducted separately by the Bank, through its auto finance division, and by
Westcorp Financial. Effective May 1, 1995, the Bank's auto finance division was
combined with the consumer auto finance activities of Westcorp Financial, with
Westcorp Financial then changing its corporate name to WFS Financial Inc. The
Bank's former auto finance division now operates as the "Dealer Center
Division." WFS' pre-existing auto finance operation now operates as the "Branch
Division." In August 1995, WFS completed an initial public offering of 19.7% of
its common stock. WFS is now a majority owned operating subsidiary of the Bank.
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Based upon over 20 years of experience in the auto finance business, WFS
believes that two different marketing, underwriting and collection approaches
are required to purchase and service motor vehicle retail installment sales
contracts across the full spectrum of prime credit quality contracts.
Accordingly, the Dealer Center Division provides financing for the upper half of
the prime credit spectrum and the Branch Division provides financing for the
lower half of such spectrum. The combination of the Dealer Center Division with
the Branch Division permits WFS to service the full spectrum of the prime
quality motor vehicle loan market, while permitting each division to continue to
service its traditional individual niche within that market as well as
increasing WFS' overall penetration through cross marketing opportunities.
WFS is an operating subsidiary of the Bank. As an operating subsidiary, WFS
is subject to regulation and supervision by the Office of Thrift Supervision
("OTS") and the Federal Deposit Insurance Corporation ("FDIC"). At March 31,
1996, WFS had total assets of $610 million, total liabilities of $492 million
and stockholder's equity of $118 million. As of March 31, 1996, WFS' net loan
portfolio totalled approximately $306 million.
WFS' revenues are derived principally from contractual servicing fees, the
retained interest on contracts sold for which servicing is retained, interest on
contracts not sold and fee income including late fees, deferment fees,
documentation fees and other fees, interest charged on its loan portfolio and,
to a lesser extent, gain on other investments. Interest on borrowings and
general and administrative costs are WFS' major expense items.
The principal executive offices of WFS are located at 23 Pasteur Road,
Irvine, California 92718.
BUSINESS ACTIVITIES
WFS is engaged principally in the business of purchasing retail installment
sales contracts secured by automobiles and light duty trucks from new and used
car dealers and making loans to the public. WFS currently conducts its
operations through its principal office and 14 dealer centers and 87 branch
offices.
WII
WII is a wholly owned limited-purpose, operating subsidiary of WFS. WII was
incorporated in California on June 11, 1996, for the purpose of purchasing an
ownership interest in the Trust and similar trusts. WII is limited by its
Articles of Incorporation from engaging in any business activities not
incidental or necessary to its stated purpose.
The principal executive office of WII is located at 23 Pasteur Road,
Irvine, California 92718 and its telephone number is (714) 727-1000.
THE BANK
GENERAL
The Bank is a federally chartered savings association the principal office
of which is located in Irvine, California. As of March 31, 1996, the Bank had
total assets of $3.1 billion, total deposits of $1.8 billion and stockholder's
equity of $258 million on a generally accepted accounting principles basis. The
Bank is a wholly owned subsidiary of Westcorp. Westcorp is a broadly based
financial services holding company which operates principally through the Bank,
its wholly owned subsidiary, and through WFS.
As a federally chartered savings association, the Bank is subject to
regulation and supervision by the OTS and the FDIC. The Bank is a member of the
Federal Home Loan Bank of San Francisco.
The principal executive office of the Bank is located at 16985 Laguna
Canyon Road, Irvine, California 92718 and its telephone number is (714)
727-1000.
BUSINESS ACTIVITIES
The Bank is engaged principally in the business of attracting deposits
from, and making real estate secured loans to the public. The Bank currently
operates 25 retail banking offices and 8 mortgage banking
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offices located throughout California, and in Nevada, Colorado and Arizona, and
through a majority owned subsidiary operates 17 mortgage banking offices in
California, Arizona, Oregon, Hawaii and Nevada. Funds for lending are obtained
from deposits, borrowings, payments on existing loans and contracts and sales of
loans and contracts.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain federal income tax
consequences of the purchase, ownership and disposition of the Securities. This
summary is based upon laws, regulations, rulings and decisions currently in
effect, all of which are subject to change. The discussion does not deal with
all federal tax consequences applicable to all categories of investors, some of
which may be subject to special rules. In addition, this summary is generally
limited to investors who will hold the Securities as "capital assets"
(generally, property held for investment) within the meaning of Section 1221 of
the Internal Revenue Code of 1986, as amended (the "Code").
Investors should consult their own tax advisors to determine the federal,
state, local and other tax consequences of the purchase, ownership and
disposition of the Securities. Prospective investors should note that no rulings
have been or will be sought from the Internal Revenue Service (the "IRS") with
respect to any of the federal income tax consequences discussed below, and no
assurance can be given that the IRS will not take contrary positions. Moreover,
there are no cases or IRS rulings on transactions similar to those described
herein with respect to the Trust, involving both debt and equity interests
issued by a trust with terms similar to those of the Notes and the Certificates.
Prospective investors are urged to consult their own tax advisors in determining
the federal, state, local, foreign and any other tax consequences to them of the
purchase, ownership and disposition of the Securities.
TAX CHARACTERIZATION OF TRUSTS
In the opinion of Mitchell, Silberberg & Knupp LLP, special tax counsel to
the Seller, the Trust will not be an association (or a publicly traded
partnership) taxable as a corporation for federal income tax purposes. This
opinion will be based on the assumption that the terms of the Trust Agreement
and related documents will be complied with, and on such counsel's conclusions
that (i) the Trust will not have certain characteristics necessary for a
business trust to be classified as an association taxable as a corporation and
(ii) the nature of the income of the Trust will exempt it from the rule that
certain publicly traded partnerships are taxable as corporations.
If the Trust were taxable as a corporation for federal income tax purposes,
it would be subject to corporate income tax on its taxable income. The Trust's
taxable income would include all its income on the related Contracts, which may
be reduced by its interest expense on the Notes. Any such corporate income tax
could materially reduce cash available to make payments on the Notes and
distributions on the Certificates, and Certificateholders could be liable for
any such tax that is unpaid by the Trust.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES
Treatment of the Notes as Indebtedness. The Seller will agree, and the
Noteholders will agree by their purchase of Notes, to treat the Notes as debt
for federal income tax purposes. Mitchell, Silberberg & Knupp LLP, special tax
counsel to the Seller, will render an opinion that the Notes will be classified
as debt for federal income tax purposes. The discussion below assumes this
characterization of the Notes is correct.
OID. The discussion below assumes that all payments on the Notes are
denominated in U.S. dollars. Moreover, the discussion assumes that the interest
formula for the Notes meets the requirements for "qualified stated interest"
under Treasury regulations relating to original issue discount ("OID"), and that
any OID on the Notes (i.e., any excess of the principal amount of the Notes over
their issue price) does not exceed a de minimis amount (i.e., 1/4% of their
principal amount multiplied by the number of full years included in their term),
all within the meaning of such OID regulations.
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Interest Income on the Notes. Based on the above assumptions, except as
discussed in the following paragraph, the Notes will not be considered issued
with OID. The stated interest thereon will be taxable to a Noteholder as
ordinary interest income when received or accrued in accordance with such
Noteholder's method of tax accounting. Under the OID regulations, a holder of a
Note issued with a de minimis amount of OID must include such OID in income, on
a pro rata basis, as principal payments are made on the Note. A purchaser who
buys a Note for more or less than its principal amount will generally be
subject, respectively, to the premium amortization or market discount rules of
the Code.
However, because a failure to pay interest currently on the Notes is not a
default and does not give rise to a penalty, under the OID regulations the Notes
might be viewed as having been issued with OID. This interpretation would not
significantly affect accrual basis holders of Notes, although it would somewhat
accelerate taxable income to cash basis holders by in effect requiring them to
report interest income on the accrual basis.
Sale or Other Disposition. If a Noteholder sells a Note, the holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the holder's adjusted tax basis in the Note. The
adjusted tax basis of a Note to a particular Noteholder will equal the holder's
cost for the Note, increased by any market discount, acquisition discount, OID
and gain previously included by such Noteholder in income with respect to the
Note and decreased by the amount of bond premium (if any) previously amortized
and by the amount of principal payments previously received by such Noteholder
with respect to such Note. Any such gain or loss will be capital gain or loss if
the Note was held as a capital asset, except for gain representing accrued
interest and accrued market discount not previously included in income. Capital
losses generally may be used only to offset capital gains.
Foreign holders. Interest payments made (or accrued) to a Noteholder who is
a nonresident alien, foreign corporation or other non-United States person (a
"foreign person") generally will be considered "portfolio interest," and
generally will not be subject to United States federal income tax and
withholding tax, if the interest is not effectively connected with the conduct
of a trade or business within the United States by the foreign person and the
foreign person (i) is not actually or constructively a "10 percent shareholder"
of the Trust or the Seller (including a holder of 10% of outstanding Notes or
Certificates) or a "controlled foreign corporation" with respect to which the
Trust or the Seller is a "related person" within the meaning of the Code and
(ii) provides the Trustee or other person who is otherwise required to withhold
U.S. tax with respect to the Notes with an appropriate statement (on Form W-8 or
a similar form), signed under penalty of perjury, certifying that the beneficial
owner of the Note is a foreign person and providing the foreign person's name
and address. If a Note is held through a securities clearing organization or
certain other financial institutions, the organization or institution may
provide the relevant signed statement to the withholding agent; in that case,
however, the signed statement must be accompanied by a Form W-8 or substitute
form provided by the foreign person that owns the Note. If such interest is not
portfolio interest, then it will be subject to United States federal income and
withholding tax at a rate of 30%, unless reduced or eliminated pursuant to an
applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States federal income and withholding tax, provided that (i) such gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person and (ii) in the case of an individual foreign
person, the foreign person is not present in the United States for 183 days or
more in the taxable year.
Backup Withholding. Each holder of a Note (other than an exempt holder such
as a corporation, tax exempt organization, qualified pension and profit sharing
trust, individual retirement account or nonresident alien who provides
certification as to status as a nonresident) will be required to provide, under
penalty of perjury, a certificate containing the holder's name, address, correct
federal taxpayer identification number and a statement that the holder is not
subject to backup withholding. Should a nonexempt Noteholder fail to provide the
required certification, the Trust will be required to withhold 31% of the amount
otherwise payable to the holder, and remit the withheld amount to the IRS as a
credit against the holder's federal income tax liability.
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Possible Alternative Treatments of the Notes. If, contrary to the opinion
of special tax counsel, the IRS successfully asserted that one or more of the
Notes did not represent debt for federal income tax purposes, the Notes might be
treated as equity interests in the Trust. If so treated, the Trust might be
taxable as a corporation with the adverse consequences described above (and the
resulting taxable corporation would not be able to reduce its taxable income by
deductions for interest expense on Notes recharacterized as equity).
Alternatively, and most likely in the view of special tax counsel, the Trust
might be treated as a publicly traded partnership that would not be taxable as a
corporation because it would meet certain qualifying income tests. Nonetheless,
treatment of the Notes as equity interests in such a publicly traded partnership
could have adverse tax consequences to certain holders. For example, income to
certain tax-exempt entities (including pension funds) would be "unrelated
business taxable income", income to foreign holders generally would be subject
to U.S. tax and U.S. tax return filing and withholding requirements, and
individual holders might be subject to certain limitations on their ability to
deduct their share of Trust expenses.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES
Treatment of Trust as a Partnership. The Seller and the Master Servicer
will agree, and the related Certificateholders will agree by their purchase of
Certificates, to treat the Trust as a partnership for purposes of federal and
state income tax, franchise tax and any other tax measured in whole or in part
by income, with the assets of the partnership being the assets held by the
Trust, the partners of the partnership being the Certificateholders, and the
Notes being debt of the partnership. However, the proper characterization of the
arrangement involving the Trust, the Certificates, the Notes, the Seller and the
Master Servicer is not certain because there is no authority on transactions
closely comparable to that contemplated herein.
A variety of alternative characterizations are possible. For example,
because the Certificates have certain features characteristic of debt, the
Certificates might be considered debt of the Seller or the Trust. Any such
characterization would not result in materially adverse tax consequences to
Certificateholders as compared to the consequences from treatment of the
Certificates as equity in a partnership, described below. The following
discussion assumes that the Certificates represent equity interests in a
partnership and that all payments on the Certificates are denominated in U.S.
dollars.
Partnership Taxation. As a partnership, the Trust will not be subject to
federal income tax. Rather, each Certificateholder will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the Trust. The Trust's income will consist
primarily of interest and finance charges earned on the related Contracts
(including appropriate adjustments for market discount, OID and bond premium)
and any gain upon collection or disposition of such Contracts. The Trust's
deductions will consist primarily of interest accruing with respect to the
Notes, servicing and other fees, and losses or deductions upon collection or
disposition of Contracts.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement (i.e., the
Trust Agreement and related documents). The Trust Agreement will provide, in
general, that the Certificateholders will be allocated taxable income of the
Trust for each month equal to the sum of (i) the interest that accrues on the
Certificates in accordance with their terms for such month, including interest
accruing at the Pass-Through Rate for such month and interest on amounts
previously due on the Certificates but not yet distributed; (ii) any Trust
income attributable to discount on the related Contracts that corresponds to any
excess of the principal amount of the Certificates over their initial issue
price; (iii) prepayment premium payable to the Certificateholders for such
month; and (iv) any other amounts of income payable to the Certificateholders
for such month. Such allocation will be reduced by any amortization by the Trust
of premium on Contracts that corresponds to any excess of the issue price of
Certificates over their principal amount. All remaining taxable income of the
Trust will be allocated to the Seller and WII, in the proportion of 99% and 1%,
respectively. Based on the economic arrangement of the parties, this approach
for allocating Trust income should be permissible under applicable Treasury
regulations, although no assurance can be given that the IRS would not require a
greater amount of income to be allocated to Certificateholders. Moreover, even
under the foregoing method of allocation, Certificateholders may be allocated
income equal to the entire Pass-Through Rate plus the other items described
above, even though the Trust might not have sufficient cash to make current cash
distributions of such amount. Thus, cash basis
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holders will in effect be required to report income from the Certificates on the
accrual basis and Certificateholders may become liable for taxes on Trust income
even if they have not received cash from the Trust to pay such taxes. In
addition, because tax allocations and tax reporting will be done on a uniform
basis for all Certificateholders but Certificateholders may be purchasing
Certificates at different times and at different prices, Certificateholders may
be required to report on their tax returns taxable income that is greater or
less than the amount reported to them by the Trust.
All of the taxable income allocated to a Certificateholder that is a
pension, profit sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) will constitute "unrelated business
taxable income" generally taxable to such a holder under the Code.
An individual taxpayer's share of expenses of the Trust (including fees to
the Master Servicer but not interest expense) would be miscellaneous itemized
deductions. Such deductions might be disallowed to the individual in whole or in
part and might result in such holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to such holder over the life of
the Trust.
The Trust intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Contract, the Trust
might be required to incur additional expense but it is believed that there
would not be a material adverse effect on Certificateholders.
Discount and Premium. It is believed that the Contracts will not be issued
with OID, and, therefore, the Trust should not have OID income. However, the
purchase price paid by the Trust for the related Contracts may be greater or
less than the remaining principal balance of the Contracts at the time of
purchase. If so, the Contracts will have been acquired at a premium or discount,
as the case may be. As indicated above, the Trust will make this calculation on
an aggregate basis, but might be required to recompute it on a Contract-by-
Contract basis.
If the Trust acquires the Contracts at a market discount or premium, it
will elect to include any such discount in income currently as it accrues over
the life of such Contracts or to offset any such premium against interest income
on such Contracts. As indicated above, a portion of such market discount income
or premium deduction may be allocated to Certificateholders.
Section 708 Termination. Under Section 708 of the Code, the Trust will be
deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust are sold or exchanged within a
12-month period. If such a termination occurs, the Trust will be considered to
distribute its assets to the partners, who would then be treated as
recontributing those assets to the Trust, as a new partnership. The Trust will
not comply with certain technical requirements that might apply when such a
constructive termination occurs. As a result, the Trust may be subject to
certain tax penalties and may incur additional expenses if it is required to
comply with those requirements. Furthermore, the Trust might not be able to
comply due to lack of data.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
A Certificateholder's tax basis in a Certificate will generally equal the
holder's cost increased by the holder's share of Trust income (includible in
income) and decreased by any distributions received with respect to such
Certificate. In addition, both the tax basis in the Certificates and the amount
realized on a sale of a Certificate would include the holder's share of the
Notes and other liabilities of the Trust. A holder acquiring Certificates at
different prices may be required to maintain a single aggregate adjusted tax
basis in such Certificates, and, upon sale or other disposition of some of the
Certificates, allocate a portion of such aggregate tax basis to the Certificates
sold (rather than maintaining a separate tax basis in each Certificate for
purposes of computing gain or loss on a sale of that Certificate).
Any gain on the sale of an Certificate attributable to the holder's share
of unrecognized accrued market discount on the related Contracts would generally
be treated as ordinary income to the holder and would give rise to special tax
reporting requirements. The Trust does not expect to have any other assets that
would give
55
<PAGE> 58
rise to such special reporting requirements. Thus, to avoid those special
reporting requirements, the Trust will elect to include market discount in
income as it accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise to
a capital loss upon the retirement of the Certificates.
Allocations Between Transferors and Transferees. In general, the Trust's
taxable income and losses will be determined monthly and the tax items for a
particular calendar month will be apportioned among the Certificateholders in
proportion to the principal amount of Certificates owned by them as of the close
of the last day of such month. As a result, a holder purchasing Certificates may
be allocated tax items (which will affect its tax liability and tax basis)
attributable to periods before the actual transaction.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Trust might be reallocated among the Certificateholders. The Seller will
be authorized to revise the Trust's method of allocation between transferors and
transferees to conform to a method permitted by future regulations.
Section 754 Election. In the event that a Certificateholder sells its
Certificates at a profit (loss), the purchasing Certificateholder will have a
higher (lower) basis in the Certificates than the selling Certificateholder had.
The tax basis of the Trust's assets will not be adjusted to reflect that higher
(or lower) basis unless the Trust were to file an election under Section 754 of
the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the Trust will not make such election. As a
result, Certificateholders might be allocated a greater or lesser amount of
Trust income than would be appropriate based on their own purchase price for
Certificates.
Administrative Matters. The Trustee is required to keep or have kept
complete and accurate books of the Trust. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year of
the Trust will be the calendar year. The Trustee will file a partnership
information return (IRS Form 1065) with the IRS for each taxable year of the
Trust and will report each Certificateholder's allocable share of items of Trust
income and expense to holders and the IRS on Schedule K-1. The Trust will
provide the Schedule K-l information to nominees that fail to provide the Trust
with the information statement described below and such nominees will be
required to forward such information to the beneficial owners of the
Certificates. Generally, holders must file tax returns that are consistent with
the information return filed by the Trust or be subject to penalties unless the
holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust with
a statement containing certain information on the nominee, the beneficial owners
and the Certificates so held. Such information includes (i) the name, address
and taxpayer identification number of the nominee and (ii) as to each beneficial
owner (a) the name, address and identification number of such person, (b)
whether such person is a United States person, a tax-exempt entity, a foreign
government or an international organization, or any wholly owned agency or
instrumentality of either of the foregoing, and (c) certain information on
Certificates that were held, bought or sold on behalf of such person throughout
the year. In addition, brokers and financial institutions that hold Certificates
through a nominee are required to furnish directly to the Trust information as
to themselves and their ownership of Certificates. A clearing agency registered
under Section 17A of the Exchange Act is not required to furnish any such
information statement to the Trust. The information referred to above for any
calendar year must be furnished to the Trust on or before the following January
31. Nominees, brokers and financial institutions that fail to provide the Trust
with the information described above may be subject to penalties.
WII will be designated as the tax matters partner for the Trust in the
Trust Agreement and, as such, will be responsible for representing the
Certificateholders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer.
56
<PAGE> 59
Generally, the statute of limitations for partnership items does not expire
before three years after the date on which the partnership information return is
filed. Any adverse determination following an audit of the return of the Trust
by the appropriate taxing authorities could result in an adjustment of the
returns of the Certificateholders, and, under certain circumstances, a
Certificateholder may be precluded from separately litigating a proposed
adjustment to the items of the Trust. An adjustment could also result in an
audit of a Certificateholder's returns and adjustments of items not related to
the income and losses of the Trust.
Tax Consequences to Foreign Certificateholders. It is not clear whether the
Trust would be considered to be engaged in a trade or business in the United
States for purposes of federal withholding taxes with respect to non-U.S.
persons because there is no clear authority dealing with that issue under facts
substantially similar to those described herein. Although it is not expected
that the Trust would be engaged in a trade or business in the United States for
such purposes, the Trust will withhold as if it were so engaged in order to
protect the Trust from possible adverse consequences of a failure to withhold.
The Trust expects to withhold on the portion of its taxable income that is
allocable to foreign Certificateholders pursuant to Section 1446 of the Code, as
if such income were effectively connected to a U.S. trade or business, at a rate
of 35% for foreign holders that are taxable as corporations and 39.6% for all
other foreign holders. These rates may be increased by proposed tax legislation.
Subsequent adoption of Treasury regulations or the issuance of other
administrative pronouncements may require the Trust to change its withholding
procedures. In determining a holder's withholding status, the Trust may rely on
IRS Form W-8, IRS Form W-9 or the holder's certification of nonforeign status
signed under penalty of perjury.
Each foreign holder might be required to file a U.S. individual or
corporate income tax return (including, in the case of a corporation, the branch
profits tax) on its share of the Trust's income. Each foreign holder must obtain
a taxpayer identification number from the IRS and submit that number to the
Trust on Form W-8 in order to assure appropriate crediting of the taxes
withheld. A foreign holder generally would be entitled to file with the IRS a
claim for refund with respect to taxes withheld by the Trust, taking the
position that no taxes were due because the Trust was not engaged in a U.S.
trade or business. However, interest payments made (or accrued) to a
Certificateholder who is a foreign person generally will be considered
guaranteed payments to the extent such payments are determined without regard to
the income of the Trust. If these interest payments are properly characterized
as guaranteed payments, then the interest will not be considered "portfolio
interest". As a result, Certificateholders will be subject to United States
federal income tax and withholding tax at a rate of 30%, unless reduced or
eliminated pursuant to an applicable treaty. In such case, a foreign holder
would only be entitled to claim a refund for that portion of the taxes in excess
of the taxes that should be withheld with respect to the guaranteed payments.
Backup Withholding. Distributions made on the Certificates and proceeds
from the sale of the Certificates will be subject to a "backup" withholding tax
of 31% if, in general, the Certificateholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code.
CERTAIN CALIFORNIA INCOME TAX CONSEQUENCES
In the opinion of Mitchell, Silberberg & Knupp LLP, special tax counsel to
the Seller, the Trust will not be an association taxable as a corporation for
California income tax purposes. This opinion will be based on the assumption
that the terms of the Trust Agreement and related documents will be complied
with, and such counsel's conclusions that the Trust will not have certain
characteristics necessary for a business trust to be classified as an
association taxable as a corporation. Mitchell, Silberberg & Knupp LLP will
further render an opinion that Certificateholders and Noteholders who are not
residents of or otherwise subject to tax in California will not, solely by
reason of their acquisition of an interest in the Certificates or any Class of
Notes, respectively, be subject to California income, franchise, excise or
similar taxes with respect to interest on the Certificates or any Class of
Notes, respectively, or with respect to any of the other Trust Property.
Investors should consult their own tax advisors to determine the state,
local and other tax consequences to them of the purchase, ownership and
disposition of the Securities.
57
<PAGE> 60
ERISA CONSIDERATIONS
OVERVIEW
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain restrictions on employee benefit plans subject to ERISA
("Plans") and on persons who are parties in interest or disqualified persons
("parties in interest") with respect to such Plans which would affect purchases
of Securities by or on behalf of Plans. Certain employee benefit plans, such as
governmental plans and church plans (if no election has been made under Section
410(d) of the Code), are not subject to the requirements of ERISA and assets of
such plans may be invested in Certificates without regard to the ERISA
considerations described below, subject to the provisions of other applicable
federal and state law, including, for any such government or church plan
qualified under Section 401(a) of the Code and exempt from taxation under
Section 501(a) of the Code, the prohibited transaction rules set forth in
Section 503 of the Code.
Investments by Plans are subject to ERISA's general fiduciary requirements,
including the requirement of investment prudence and diversification,
requirements respecting delegation of investment authority and the requirement
that a Plan's investment be made in accordance with the documents governing the
Plan.
PROHIBITED TRANSACTIONS
Section 406 of ERISA prohibits parties in interest with respect to a Plan
from engaging in certain transactions involving a Plan and its assets unless a
statutory or administrative exemption applies to the transaction. Section 4975
of the Code and Section 502(i) of ERISA impose certain excise taxes on such
prohibited transactions. Securities purchased by a Plan would be assets of the
Plan. Under regulations issued by the U.S. Department of Labor, the Contracts in
certain circumstances may also be deemed to be assets of each Plan that
purchases Securities. If this were so, persons that cause a Plan to acquire
Securities or that sponsor or insure the related Contracts or manage, control or
service the Contracts may be subject to the fiduciary responsibility provisions
of ERISA and the prohibited transaction provisions of Section 4975 of the Code
in the absence of a statutory or administrative exemption.
THE NOTES
The Notes may be purchased by a Plan subject to ERISA or Section 4975 of
the Code. A fiduciary of a Plan must determine that the purchase of a Note is
consistent with its fiduciary duties under ERISA and does not result in a
nonexempt prohibited transaction as defined in Section 406 of ERISA or Section
4975 of the Code.
The Notes may not be purchased with the assets of a Plan if the Seller, the
Master Servicer, the Indenture Trustee, the Owner Trustee or any of their
affiliates (i) has investment or administrative discretion with respect to such
Plan assets; (ii) has authority or responsibility to give, or regularly gives,
investment advice with respect to such Plan assets, for a fee and pursuant to an
agreement or understanding that such advice (a) will serve as a primary basis
for investment decisions with respect to such Plan assets and (b) will be based
on the particular investment needs for such Plan; or (iii) is an employer
maintaining or contributing to such Plan.
THE CERTIFICATES
The Certificates may not be acquired by (i) an employee benefit plan (as
defined in Section 3(3) of ERISA) that is subject to the provisions of Title I
of ERISA, (ii) a plan described in Section 4975(e)(1) of the Code (other than a
governmental plan described in Section 4975(g)(2) of the Code) or (iii) any
entity whose underlying assets include plan assets by reason of a plan's
investment in the entity or which uses plan assets to acquire Certificates. By
its acceptance of a Certificate or a beneficial interest therein, each
Certificateholder or Certificate Owner will be deemed to have represented and
warranted that it is not subject to the foregoing limitation.
Due to the complexities of the foregoing rules and the penalties imposed
upon persons involved in prohibited transactions, it is important that the
fiduciary of an employee benefit plan considering the purchase
58
<PAGE> 61
of Certificates consult with its counsel regarding the applicability of the
prohibited transaction provisions of ERISA and the Code to such investment.
Prohibited Transaction Class Exemption ("PTCE") 95-60 was issued by the
Department of Labor on July 12, 1995 in response to the United States Supreme
Court decision John Hancock Mutual Life Insurance Co. v. Harris Trust and
Savings Bank, 114 S.Ct. 517 (1993), in which the Court held that assets held in
an insurance company's general account may be deemed to be "plan assets" for
ERISA purposes under certain circumstances. Subject to certain conditions, PTCE
95-60 provides general relief from the prohibited transaction rules that would
otherwise be applicable to assets held in an insurance company's general
account. Prospective insurance company purchasers should consult with their
counsel to determine whether the decision in John Hancock, as modified by PTCE
95-60, affects their ability to make purchases of the Certificates.
UNDERWRITING
Donaldson, Lufkin & Jenrette Securities Corporation (the "Underwriter") has
agreed, subject to the terms and conditions set forth in the Underwriting
Agreement among the Seller, WFS and the Underwriter, to purchase from the Trust
the entire principal amount of each Class of Notes and the Certificates. The
Underwriter currently intends, but will not be obligated, to make a market in
the Securities. However, there can be no assurance that the Underwriter will
make such a market, that a secondary market will develop or, if it does develop,
that it will provide the related Securityholders with liquidity of investment or
will continue for the life of the related Security.
The Seller has been advised by the Underwriter that it proposes initially
to offer the Notes to the public at the respective public offering prices set
forth on the cover page of this Prospectus and to certain dealers at such prices
less a concession not in excess of 0.0750% of the principal amount of the Class
A-1 Notes, 0.0950% of the principal amount of the Class A-2 Notes, 0.1250% of
the principal amount of the Class A-3 Notes and 0.1350% of the principal amount
of the Class A-4 Notes. The Underwriter may allow, and such dealers may reallow,
a discount not in excess of 0.0375% of the principal amount of the Class A-1
Notes, 0.0475% of the principal amount of the Class A-2 Notes, 0.0625% of the
principal amount of the Class A-3 Notes and 0.0675% of the principal amount of
the Class A-4 Notes on sales to certain other dealers. After the initial public
offering, the public offering prices of the Notes and such concessions and
discounts may be changed.
The Seller has been advised by the Underwriter that it proposes initially
to offer the Certificates to the public at the public offering price set forth
on the cover page of this Prospectus and to certain dealers at such prices less
a concession not in excess of 0.2000% of the principal amount thereof. The
Underwriter may allow, and such dealers may reallow, a discount not in excess of
0.1000% of the principal amount of the Certificates. After the initial public
offering, the public offering price of the Certificates and such concessions and
discounts may be changed.
The Underwriting Agreement provides that the Underwriter's obligations
thereunder are subject to approval of certain legal matters by counsel and to
various other conditions.
The Seller and WFS have agreed to indemnify the Underwriter against certain
liabilities, including liabilities under applicable securities laws, or
contribute to payments the Underwriter may be required to make in respect
thereof.
RATINGS OF THE SECURITIES
It is a condition of issuance that the Class A-1 Notes be rated A-1+ by S&P
and P-1 by Moody's, and the Class A-2 Notes, Class A-3 Notes, Class A-4 Notes
and the Certificates each be rated AAA by S&P and Aaa by Moody's. The ratings by
S&P of the Notes will be issued without regard to the benefit afforded by the
Note Policy. The rating by Moody's of the Class A-1 Notes will be substantially
based on the issuance of the Note Policy by Financial Security, and the rating
by Moody's of the Class A-2 Notes, the Class A-3 Notes
59
<PAGE> 62
and the Class A-4 Notes will be based on the issuance of the Note Policy by
Financial Security. The ratings by each Rating Agency of the Certificates will
be based on the issuance of the Certificate Policy by Financial Security.
Although the ratings of the Notes by S&P do not take into account the benefit of
the Note Policy, the Notes will have the benefit of the Note Policy.
There is no assurance that any such rating will continue for any period of
time or that it will not be revised or withdrawn entirely by the assigning
rating agency if, in its judgment, circumstances (including, in the case of the
Certificates and, with respect to Moody's in the case of the Class A-2 Notes,
the Class A-3 Notes and the Class A-4 Notes, as a result of any change in the
claims-paying ability of Financial Security) so warrant. A revision or
withdrawal of such rating may have an adverse effect on the market price of the
Notes and the Certificates. A security rating is not a recommendation to buy,
sell or hold the Securities.
LEGAL MATTERS
Certain legal matters with respect to the Securities, including certain
federal and California income tax matters, will be passed upon for the Seller by
Mitchell, Silberberg & Knupp LLP, Los Angeles, California. Brown & Wood, San
Francisco, California will act as counsel for the Underwriter. Certain legal
matters relating to the Policies will be passed upon for Financial Security by
Bruce E. Stern, Esq., General Counsel, Financial Security or an Associate
General Counsel of Financial Security and by Rogers & Wells, New York, New York.
EXPERTS
The consolidated balance sheets of Financial Security Assurance Inc. and
Subsidiaries as of December 31, 1995 and 1994 and the related consolidated
statements of income, changes in shareholder's equity and cash flows for each of
the three years in the period ended December 31, 1995, have been included herein
in reliance on the report of Coopers & Lybrand L.L.P., independent certified
public accountants, given on the authority of that firm as experts in accounting
and auditing.
60
<PAGE> 63
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
A. 1995 YEAR END FINANCIAL STATEMENTS
Report of Independent Accountants........................................... A-1
Consolidated Balance Sheets as of December 31, 1995 and 1994................ A-2
Consolidated Statements of Income for the Years Ended December 31, 1995,
1994
and 1993.................................................................. A-3
Consolidated Statements of Changes in Shareholder's Equity for the Years
Ended
December 31, 1995, 1994 and 1993.......................................... A-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995,
1994 and 1993............................................................. A-5
Notes to Consolidated Financial Statements for the Years Ended December 31,
1995,
1994 and 1993............................................................. A-6-A-24
B. 1996 QUARTERLY FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of March 31, 1996 (unaudited) and
December 31, 1995......................................................... A-25
Condensed Consolidated Statements of Income for the Three Months Ended
March 31, 1996 and 1995 (unaudited)....................................... A-26
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1996 and 1995 (unaudited)....................................... A-27
Notes to Condensed Consolidated Financial Statements for the Three Months
Ended
March 31, 1996 and 1995 (unaudited)....................................... A-28
</TABLE>
The New York State Insurance Department recognizes only statutory
accounting practices for determining and reporting the financial condition and
results of operations of an insurance company, for determining its solvency
under the New York Insurance Law, and for determining whether its financial
condition warrants the payment of a dividend to its stockholders. No
consideration is given by the New York State Insurance Department to financial
statements prepared in accordance with generally accepted accounting principles
in making such determinations.
61
<PAGE> 64
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Directors
of Financial Security Assurance Inc.:
We have audited the accompanying consolidated balance sheets of Financial
Security Assurance Inc. and Subsidiaries as of December 31, 1995 and 1994 and
the related consolidated statements of income, changes in shareholder's equity,
and cash flows for each of the three years in the period ended December 31,1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Financial
Security Assurance Inc. and Subsidiaries at December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, the
Company, in 1993, adopted the method of accounting and reporting for certain
investments in debt and equity securities prescribed by Statement of Financial
Accounting Standards No. 115.
New York, New York
January 17, 1996
A-1
<PAGE> 65
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Bonds at market value (amortized cost of $1,006,084 and
$659,894)........................................................ $1,036,382 $ 627,026
Short-term investments............................................. 14,568 88,951
Cash equivalents................................................... 35,277 13,457
---------- ----------
Total investments........................................ 1,086,227 729,434
Cash............................................................... 555 2,663
Deferred acquisition costs......................................... 132,951 91,839
Prepaid reinsurance premiums....................................... 133,548 121,668
Reinsurance recoverable on unpaid losses........................... 61,532 55,491
Receivable for securities sold..................................... 2,326 17,592
Other assets....................................................... 59,499 36,222
---------- ----------
TOTAL ASSETS............................................. $1,476,638 $1,054,909
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Unearned premiums.................................................. $ 463,897 $ 334,569
Losses and loss adjustment expenses................................ 111,759 91,130
Deferred federal income taxes...................................... 43,205 10,222
Ceded reinsurance balances payable................................. 13,664 5,676
Payable for securities purchased................................... 9,516 56,112
Amounts withheld on account for others............................. 1,004 974
Accrued expenses and other liabilities............................. 43,607 27,250
---------- ----------
TOTAL LIABILITIES........................................ 686,652 525,933
---------- ----------
COMMITMENTS AND CONTINGENCIES
Common stock (1,000 shares authorized; 750 and 800 shares issued
and outstanding; par value of $20,000 and $18,750 per share)..... 15,000 15,000
Additional paid-in capital......................................... 681,470 497,506
Unrealized gain (loss) on investments (net of deferred income tax
provision (benefit) of $10,604 and ($11,504)).................... 19,694 (21,364)
Accumulated earnings............................................... 73,822 37,834
---------- ----------
TOTAL SHAREHOLDER'S EQUITY............................... 789,986 528,976
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY............... $1,476,638 $1,054,909
========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
A-2
<PAGE> 66
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1995 1994 1993
-------- --------- ---------
<S> <C> <C> <C>
REVENUES:
Net premiums written (net of premiums ceded of $33,166,
$28,692 and $62,403, of which $20,582, $15,999 and
$42,541 were ceded to affiliates)................... $ 77,576 $ 77,757 $ 65,006
Increase in unearned premiums.......................... (8,229) (12,003) (1,629)
-------- --------- ---------
Premiums earned (net of premiums ceded of $38,013,
$35,051 and $32,736)................................ 69,347 65,754 63,377
Net investment income.................................. 47,083 45,282 47,547
Net realized gains (losses)............................ 5,032 (3,829) 18,352
Other income........................................... 4,722 732 (2,057)
-------- --------- ---------
TOTAL REVENUES................................. 126,184 107,939 127,219
-------- --------- ---------
EXPENSES:
Losses and loss adjustment expenses:
Related to merger................................... 15,400
Other (net of reinsurance recoveries of $9,101,
$56,895 and $18,628, of which $7,111, $50,839 and
$12,632 were ceded to affiliates)................. 6,258 3,024 84,054
Amortization and write-off of goodwill................. 81,598
Restructuring charge................................... 85,409
Policy acquisition costs............................... 16,888 15,057 15,575
Other operating expenses............................... 12,352 11,574 23,768
-------- --------- ---------
TOTAL EXPENSES................................. 50,898 29,655 290,404
-------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES........................ 75,286 78,284 (163,185)
-------- --------- ---------
Provision (benefit) for income taxes:
Current................................................ 23,353 13,338 (9,991)
Deferred............................................... (3,055) 4,682 (28,806)
-------- --------- ---------
Total provision (benefit).............................. 20,298 18,020 (38,797)
-------- --------- ---------
NET INCOME (LOSS).............................. $ 54,988 $ 60,264 $(124,388)
======== ========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
A-3
<PAGE> 67
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL UNREALIZED
COMMON PAID-IN GAINS ON RETAINED
STOCK CAPITAL INVESTMENTS EARNINGS TOTAL
------- ---------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1992......... $15,000 $ 475,171 $ 119,458 $ 609,629
Net loss for the year.............. (124,388) (124,388)
Net change in unrealized gains on
investments (net of deferred
income taxes of $18,788)......... $ 34,892 34,892
Capital contribution (net of
$11,960 which was subsequently
written off)..................... 100,835 100,835
Stock repurchase................... (78,500) (78,500)
------- ---------- ----------- --------- ---------
BALANCE, December 31, 1993......... 15,000 497,506 34,892 (4,930) 542,468
Net income for the year............ 60,264 60,264
Dividends paid on common stock..... (17,500) (17,500)
Net change in unrealized losses on
investments (net of deferred
income tax benefit of $30,292)... (56,256) (56,256)
------- ---------- ----------- --------- ---------
BALANCE, December 31, 1994......... 15,000 497,506 (21,364) 37,834 528,976
Net income......................... 54,988 54,988
Dividends paid on common stock..... (19,000) (19,000)
Net change on unrealized gains on
investments (net of deferred
income taxes of $22,108)......... 41,058 41,058
Capital contribution of CGIC....... 233,964 233,964
Stock repurchase................... (50,000) (50,000)
------- ---------- ----------- --------- ---------
BALANCE, December 31, 1995......... $15,000 $ 681,470 $ 19,694 $ 73,822 $ 789,986
======= ======== ======== ========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
A-4
<PAGE> 68
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1995 1994 1993
-------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Premiums received, net................................................. $ 85,481 $ 58,191 $ 79,166
Policy acquisition and other operating expenses paid, net.............. (40,243) (29,623) (26,257)
Restructuring charge................................................... (85,409)
Recoverable advances received (paid)................................... (9,419) (939) 953
Losses and loss adjustment expenses paid............................... (4,954) (5,124) (43,345)
Net investment income received......................................... 40,160 41,429 43,627
Federal income taxes received (paid)................................... (17,295) (14,358) 1,738
Interest and liquidity fees paid....................................... (1,525) (2,145) (4,766)
Other.................................................................. 2,552 (4,314) 4,627
-------- -------- ---------
Net cash provided by (used for) operating activities........... 54,757 43,117 (29,666)
-------- -------- ---------
Cash flows from investing activities:
Proceeds from sales of bonds........................................... 603,545 790,517 522,261
Proceeds from maturities of bonds...................................... 606 55 3,700
Purchases of bonds..................................................... (685,984) (758,254) (448,997)
Purchases of property and equipment.................................... (958) (937) (749)
Cash and cash equivalents of contributed subsidiary.................... 39,215
Net decrease (increase) in short-term investments...................... 77,531 (56,648) (24,802)
-------- -------- ---------
Net cash provided by (used for) investing activities........... 33,955 (25,267) 51,413
-------- -------- ---------
Cash flows from financing activities:
Stock repurchase....................................................... (50,000) (78,500)
Dividends paid......................................................... (19,000) (17,500)
Capital contribution................................................... 59,040
-------- -------- ---------
Net cash used for financing activities......................... (69,000) (17,500) (19,460)
-------- -------- ---------
Net increase in cash................................................... 19,712 350 2,287
Cash and cash equivalents at beginning of year......................... 16,120 15,770 13,483
-------- -------- ---------
Cash and cash equivalents at end of year............................... $ 35,832 $ 16,120 $ 15,770
======== ======== =========
</TABLE>
In addition to the cash and cash equivalents received from the contribution of
the subsidiary, the Company also received net assets of $194,749.
<TABLE>
<S> <C> <C> <C>
Reconciliation of net income (loss) to net cash flows from operating
activities:
Net income (loss)........................................................ $ 54,988 $ 60,264 $(124,388)
Losses paid by U S WEST................................................ 63,326
Decrease (increase) in accrued investment income....................... 14 1,773 (121)
Increase in unearned premiums and related foreign exchange
adjustment.......................................................... 8,141 12,585 1,468
Decrease (increase) in deferred acquisition costs...................... (10,305) (9,847) 3,092
Increase (decrease) in current federal income taxes payable............ 6,057 (1,020) (8,253)
Increase (decrease) in unpaid losses and loss adjustment expenses...... 14,587 (376) (22,665)
Increase (decrease) in amounts withheld for others..................... 30 (24,675) 24,012
Provision (benefit) for deferred income taxes.......................... (3,055) 4,682 (28,806)
Net realized losses (gains) on investments............................. (5,032) 3,829 (18,352)
Amortization and write-off of goodwill................................. 81,598
Depreciation and accretion of bond discount............................ (5,564) (4,082) (3,835)
Change in other assets and liabilities................................. (5,104) (16) 3,258
-------- -------- ---------
Cash provided by (used for) operating activities......................... $ 54,757 $ 43,117 $ (29,666)
======== ======== =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
A-5
<PAGE> 69
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1. ORGANIZATION AND OWNERSHIP
Financial Security Assurance Inc. (the Company), a wholly owned subsidiary
of Financial Security Assurance Holdings Ltd. (the Parent), is an insurance
company domiciled in the State of New York. The Company is engaged in providing
financial guaranty insurance on asset-backed financings and municipal
obligations. The Company's underwriting policy is to insure asset-backed and
municipal obligations that would otherwise be investment grade without the
benefit of the Company's insurance. The asset-backed obligations insured by the
Company are generally issued in structured transactions and are backed by pools
of assets such as residential mortgage loans, consumer or trade receivables,
securities or other assets having an ascertainable cash flow or market value.
The municipal obligations insured by the Company consist primarily of general
obligation bonds that are supported by the issuers' taxing power and special
revenue bonds and other special obligations of the states and local governments
that are supported by the issuers' ability to impose and collect fees and
charges for public services or specific projects. Financial guaranty insurance
written by the Company guarantees payment when due of scheduled payments on an
issuer's obligation. In the case of a payment default on an insured obligation,
the Company is generally required to pay the principal, interest or other
amounts due in accordance with the obligation's original payment schedule or, at
its option, to pay such amounts on an accelerated basis.
The Company expects to continue to emphasize a diversified insured
portfolio characterized by insurance of both asset-backed and municipal
obligations, with a broad geographic distribution and a variety of revenue
sources and transaction structures. The Company's insured portfolio consists
primarily of asset-backed and municipal obligations originated in the United
States, but the Company has also written and continues to pursue business in
Europe and the Pacific Rim.
At December 31, 1993, the Parent was owned 92.5% by U S WEST and 7.5% by
Tokio Marine. The Parent completed an initial public offering of common shares
on May 13, 1994. In connection with the initial public offering, the Parent, U S
WEST and Fund American Enterprises Holdings, Inc. (Fund American) entered into
certain agreements providing, among other things, certain rights of Fund
American to acquire additional shares of the Parent from the Parent and U S
WEST. At December 31, 1994, the Parent was owned 60.9% by U S WEST, 7.7% by Fund
American, 7.4% by Tokio Marine and 24.0% by the public and employees.
On December 20, 1995, a subsidiary of the Parent merged (the Merger) with
Capital Guaranty Corporation (CGC). The Merger provided for each CGC share to be
exchanged for 0.6716 share of the Parent's common stock and cash of $5.69. The
Parent issued in the aggregate 6,051,661 common shares and aggregate cash
consideration of $51,300,000. In conjunction with the Merger, the Parent
contributed (the Contribution) the common stock of Capital Guaranty Insurance
Company (CGIC), a subsidiary of CGC, to the Company. As a result of the
Contribution, the Company's net assets increased by $233,964,000. Net premiums
written by CGIC in 1995 prior to the Contribution were $26,070,000. At December
31, 1995, the Parent was owned 50.3% by U S WEST, 7.8% by Fund American, 6.1% by
Tokio Marine and 35.8% by the public and employees.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles (GAAP), which differ in certain
material respects from the accounting practices prescribed or permitted by
insurance regulatory authorities (see Note 6). The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of
A-6
<PAGE> 70
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
contingent assets and liabilities in the Company's consolidated balance sheets
at December 31, 1995 and 1994, and the reported amounts of revenues and expenses
in the consolidated statements of income during the years ended December
31,1995, 1994 and 1993. Such estimates and assumptions include, but are not
limited to, losses and loss adjustment expenses and the deferral and
amortization of deferred policy acquisition costs. Actual results may differ
from those estimates. Significant accounting policies under GAAP are as follows:
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, Financial Security Assurance of Maryland Inc.
(which was named Capital Guaranty Insurance Corporation until the Merger),
Financial Security Assurance International Inc., Financial Security Assurance of
Oklahoma, Inc. and Financial Security Assurance (U.K.) Limited (collectively,
the Subsidiaries). All intercompany accounts and transactions have been
eliminated. Certain prior-year balances have been reclassified to conform with
the 1995 presentation. The Merger, and the related Contribution to the Company,
were accounted for on a purchase accounting basis. In view of the short period
between the date of the Contribution, December 20, 1995, and the year-end, the
date of the Contribution for accounting purposes is considered to be December
31, 1995. As a result, the accounting for the Contribution has no effect on the
Company's consolidated statement of income for the year ended December 31, 1995,
except for the recording of $15,400,000 in losses and loss adjustment expenses
to increase the Company's general reserve to provide for the insured portfolio
assumed by the Company as a result of the Contribution (see Note 17).
INVESTMENTS
In 1993, the Company adopted Financial Accounting Standards Board Statement
of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Pursuant to SFAS 115, investments in
debt securities designated as available for sale are carried at market value
rather than the previous method, which was at the lower of amortized cost or
market value. Any resulting unrealized gain or loss is reflected as a separate
component of shareholders' equity, net of applicable deferred income taxes. All
of the Company's long-term investments are classified as available for sale.
Investments in debt securities designated as available for sale are carried
at market value. Any resulting unrealized gain or loss is reflected as a
separate component of shareholder's equity, net of applicable deferred income
taxes. All of the Company's long-term investments are classified as available
for sale.
Bond discounts and premiums are amortized on the effective yield method
over the remaining terms of the securities acquired. For mortgage-backed
securities, and any other holdings for which prepayment risk may be significant,
assumptions regarding prepayments are evaluated periodically and revised as
necessary. Any adjustments required due to the resultant change in effective
yields are recognized in current income. Short-term investments, which are those
investments with a maturity of more than three months but less than one year at
time of purchase, are carried at market value, which approximates cost. Realized
gains or losses on sale of investments are determined on the basis of specific
identification. Investment income is recorded as earned.
Cash equivalents represent amounts deposited in money market funds and
investments with a maturity at time of purchase of three months or less.
A-7
<PAGE> 71
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
PREMIUM REVENUE RECOGNITION
Gross and ceded premiums are earned in proportion to the amount of risk
outstanding over the expected period of coverage. Unearned premiums and prepaid
reinsurance premiums represent that portion of premium which is applicable to
coverage of risk to be provided in the future on policies in force. When an
insured issue is retired or defeased prior to the end of the expected period of
coverage, the remaining unearned premium and prepaid reinsurance premium, less
any amount credited to a refunding issue insured by the Company, are recognized.
LOSSES AND LOSS ADJUSTMENT EXPENSES
A case basis reserve for unpaid losses and loss adjustment expenses is
recorded at the present value of the estimated loss when, in management's
opinion, the likelihood of a future loss is probable and determinable at the
balance sheet date. The estimated loss on a transaction is discounted using
current risk-free rates.
The general reserve is calculated by applying a loss factor to the total
net par amount outstanding of the Company's insured obligations outstanding over
the term of such insured obligations and discounting the result at risk-free
rates. The loss factor used for this purpose has been determined based upon an
independent rating agency study of bond defaults and the Company's portfolio
characteristics and history. The general reserve is available to be applied
against future additions or accretions to existing case basis reserves or to new
case basis reserves to be established in the future.
Management of the Company periodically evaluates its estimates for losses
and loss adjustment expenses and establishes reserves that management believes
are adequate to cover the ultimate net cost of claims; the reserves are
necessarily based on estimates, and there can be no assurance that the ultimate
liability will not differ from such estimates. The Company will, on an ongoing
basis, monitor these reserves and may periodically adjust such reserves based on
the Company's actual loss experience, its future mix of business, and future
economic conditions.
DEFERRED ACQUISITION COSTS
Deferred acquisition costs comprise those expenses that vary with and are
primarily related to the production of business, including commissions paid on
reinsurance assumed, compensation and related costs of underwriting and
marketing personnel, certain rating agency fees, premium taxes and certain other
underwriting expenses, reduced by ceding commission income on premiums ceded to
reinsurers. Deferred acquisition costs and the cost of acquired business are
amortized over the period in which the related premiums are earned.
Recoverability of deferred acquisition costs is determined by considering
anticipated losses and loss adjustment expenses.
FEDERAL INCOME TAXES
The provision for income taxes consists of an amount for taxes currently
payable and a provision for tax consequences deferred to future periods
reflected at current income tax rates.
Effective January 1, 1993, the Company adopted SFAS No. 109, "Accounting
for Income Taxes." The new standard did not materially affect the Company's
financial position or results of operations as federal income taxes were
previously accounted for in accordance with SFAS No. 96.
A-8
<PAGE> 72
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
GOODWILL
At the time of the acquisition of the Parent by U S WEST in December 1989,
the commercial real estate portion of the Company's business was a major factor
in valuing the Company's franchise and determining the purchase price for the
Parent. Since that time, weaknesses in the general commercial real estate market
caused the Company to withdraw from that market and, through December 31, 1993,
it incurred approximately $113,000,000 of losses. These losses had a negative
impact on the Company's performance in the marketplace and have impaired the
Company's franchise value. In connection with U S WEST's intention, announced in
1993 (see Note 15), to divest its ownership of the Parent, U S WEST wrote off
the remaining goodwill recorded in connection with its acquisition of the Parent
to reflect its investment in the Parent at net realizable value. Accordingly,
the Company's financial statements reflect the write-off of goodwill that had
represented the excess of the purchase price paid by U S WEST over the Parent's
net tangible and identifiable intangible assets at the time of the acquisition
by U S WEST. Goodwill was previously being amortized on a straight line basis
over 25 years.
3. INVESTMENTS
Bonds at amortized cost of $11,969,000 and $41,893,000 at December 31, 1995
and 1994, respectively, were on deposit with state regulatory authorities as
required by insurance regulations.
Consolidated net investment income consisted of the following (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Long-term bonds............................... $43,114 $46,517 $48,620
Equity securities............................. 20
Short-term investments and cash equivalents... 5,705 778 769
Investment expenses........................... (1,736) (2,013) (1,862)
------- ------- -------
Net investment income......................... $47,083 $45,282 $47,547
======= ======= =======
</TABLE>
The credit quality of the investment portfolio at December 31, 1995, was as
follows:
<TABLE>
<CAPTION>
PERCENT OF
RATING INVESTMENT PORTFOLIO
---------------------------- --------------------
<S> <C>
AAA......................... 71.2%
AA.......................... 22.3
A........................... 5.7
BBB......................... 0.8
</TABLE>
A-9
<PAGE> 73
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
The amortized cost and estimated market value of long-term bonds were as
follows (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1995 COST GAINS LOSSES VALUE
- --------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and
agencies................................... $ 44,873 $ 2,231 $ -- $ 47,104
Obligations of states and political
subdivisions............................... 635,872 20,112 (330) 655,654
Foreign securities........................... 28,691 1,909 (17) 30,583
Mortgage-backed securities................... 262,936 5,949 (51) 268,834
Corporate securities......................... 1,254 51 1,305
Asset-backed securities...................... 32,458 444 32,902
---------- ---------- ---------- ----------
Total.............................. $1,006,084 $ 30,696 $ (398) $1,036,382
========= ======== ======== =========
DECEMBER 31, 1994
- ---------------------------------------------
U.S. Treasury securities and obligations of
U.S. government corporations and
agencies................................... $ 6,734 $ 85 $ (35) $ 6,784
Obligations of states and political
subdivisions............................... 380,178 1,950 (24,778) 357,350
Foreign securities........................... 16,536 (519) 16,017
Mortgage-backed securities................... 176,978 88 (9,153) 167,913
Asset-backed securities...................... 79,468 (506) 78,962
---------- ---------- ---------- ----------
Total.............................. $ 659,894 $ 2,123 $ (34,991) $ 627,026
========= ======== ======== =========
</TABLE>
Unrealized gains (losses) consisted of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
------- --------
<S> <C> <C>
Long-term bonds:
Gains......................................................... $30,696 $ 2,123
Losses........................................................ (398) (34,991)
------- --------
Unrealized gains (losses), net............................. $30,298 $(32,868)
======= ========
</TABLE>
The change in net unrealized gains (losses) consisted of (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
------- -------- -------
<S> <C> <C> <C>
Long-term bonds...................................... $63,166 $(86,564) $32,937
Short-term investments............................... 16 (16)
------- -------- -------
Change in net unrealized gains (losses)......... $63,166 $(86,548) $32,921
======= ======== =======
</TABLE>
A-10
<PAGE> 74
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
The amortized cost and estimated market value of long-term bonds at
December 31, 1995 and 1994, by contractual maturity, are shown below (in
thousands). Actual maturities could differ from contractual maturities because
borrowers have the right to call or prepay certain obligations with or without
call or prepayment penalties.
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------------- -----------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Due in one year or less...................... $ 2,776 $ 2,778 $ 1,501 $ 1,493
Due after one year through five years........ 25,735 26,075 19,701 19,232
Due after five years through ten years....... 157,161 162,573 36,140 36,453
Due after ten years.......................... 525,018 543,220 346,106 322,973
Mortgage-backed securities (stated maturities
of 16 to 30 years)......................... 262,936 268,834 176,978 167,913
Asset-backed securities (stated maturities of
2 to 5 years).............................. 32,458 32,902 79,468 78,962
---------- ---------- --------- ---------
Total.............................. $1,006,084 $1,036,382 $ 659,894 $ 627,026
========= ========= ======== ========
</TABLE>
Proceeds from sales of long-term bonds during 1995, 1994 and 1993 were
$587,516,000, $808,143,000 and $522,248,000, respectively. Gross gains of
$12,346,000, $13,919,000 and $19,211,000 and gross losses of $7,314,000,
$17,748,000 and $859,000 were realized on sales in 1995, 1994 and 1993,
respectively.
4. DEFERRED ACQUISITION COSTS
Acquisition costs deferred for amortization against future income and the
related amortization charged to expenses are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of period............................... $ 91,839 $ 81,992 $ 85,084
-------- -------- --------
Costs deferred during the period:
Ceding commission income................................. (9,836) (8,476) (18,567)
Assumed commission expense............................... 55 84 82
Premium taxes............................................ 2,537 2,589 2,963
Compensation and other acquisition costs................. 34,437 30,707 28,005
-------- -------- --------
Total............................................ 27,193 24,904 12,483
-------- -------- --------
Costs amortized during the period.......................... (16,888) (15,057) (15,575)
-------- -------- --------
Balance of contributed subsidiary.......................... 30,807
-------- -------- --------
Balance, end of period..................................... $132,951 $ 91,839 $ 81,992
======== ======== ========
</TABLE>
5. OTHER OPERATING EXPENSES
As a result of certain events that occurred in the fourth quarter of 1993,
the Company recognized non-recurring charges of approximately $7,158,000. These
charges were: (i) the acceleration of the amortization of deferred general
liquidity facility fees of $2,105,000 and legal fees of $203,000; (ii) a
$2,900,000 accrual for salary and related benefits primarily due to a settlement
for terminated employees in the Company's Profit
A-11
<PAGE> 75
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Participation Plan; and (iii) $1,950,000 primarily relating to the acceleration
of deferred acquisition expenses (net of amortization) as a result of the
non-recurring charges.
Total salary expense and related benefits included in other operating
expenses were $10,976,000, $9,187,000 and $14,953,000 for the years ended
December 31, 1995, 1994 and 1993, respectively.
6. STATUTORY ACCOUNTING PRACTICES
GAAP for the Company differs in certain significant respects from
accounting practices prescribed or permitted by insurance regulatory
authorities. The principal differences result from the following statutory
accounting practices:
- Up front premiums on municipal business are recognized as earned when
related risk has expired rather than over the expected coverage period;
- Acquisition costs are charged to operations as incurred rather than as
related premiums are earned;
- A contingency reserve is computed based on the following statutory
requirements (rather than establishing a general loss reserve):
a. For all policies written prior to July 1, 1989, an amount equal to
50% of cumulative earned premiums less permitted reductions, plus;
b. For all policies written on or after July 1, 1989, an amount equal
to the greater of 50% of premiums written for each category of insured
obligation or a designated percent of principal guaranteed for that
category. These amounts are provided each quarter as either 1/60th or
1/80th of the total required for each category, less permitted reductions;
- Certain assets designated as "non-admitted assets" are charged directly
to statutory surplus but are reflected as assets under GAAP;
- Federal income taxes are provided only on taxable income for which income
taxes are currently payable;
- Accruals for deferred compensation are not recognized;
- Purchase accounting adjustments are not recognized;
- Incurred losses are reduced by recoveries under the U S WEST LOC (see
Note 14);
- Bonds are carried at amortized cost.
A-12
<PAGE> 76
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
A reconciliation of the Company's net income (loss) for the calendar years
1995, 1994 and 1993 and shareholder's equity at December 31, 1995, 1994 and
1993, prepared on a GAAP basis, to the amounts reported on a statutory basis, is
as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Net Income (Loss):
GAAP BASIS...................................... $ 54,988 $ 60,264 $(124,388)
Premium revenue recognition..................... (4,805) (5,425) (6,229)
Losses and loss adjustment expenses incurred.... 10,871 (13,908) 83,677
Deferred acquisition costs...................... (10,305) (9,847) 3,092
Deferred income tax provision (benefit)......... (3,055) 4,682 (28,806)
Amortization of bonds........................... 1,195 520 69
Amortization and write-off of goodwill.......... 81,598
Accrual of deferred compensation................ 5,663 (9,062) 2,323
Other........................................... (1,580) (274) 2,251
-------- -------- ---------
STATUTORY BASIS................................. $ 52,972 $ 26,950 $ 13,587
======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Shareholder's Equity:
GAAP BASIS...................................... $ 789,986 $ 528,976 $ 542,468
Premium revenue recognition..................... (46,248) (29,891) (24,466)
Loss and loss adjustment expense reserves....... 31,798 20,927 34,835
Deferred acquisition costs...................... (132,951) (91,839) (81,992)
Contingency reserve............................. (183,967) (121,414) (97,098)
Unrealized loss (gain) on investments, net of
tax........................................... (30,298) 32,868 (34,892)
Deferred income taxes........................... 43,205 10,222 17,044
Accrual of deferred compensation................ 5,653 9,062
Other........................................... (16,492) (5,475) (8,011)
--------- ---------
STATUTORY BASIS (SURPLUS)....................... $ 460,686 $ 344,374 $ 356,950
========= =========
SURPLUS PLUS CONTINGENCY RESERVE................ $ 644,653 $ 465,788 $ 454,048
========= =========
</TABLE>
7. FEDERAL INCOME TAXES
For periods prior to May 13, 1994, the date of initial public offering when
the Parent became less than 80% owned by U S WEST, the Parent, the Company and
its Subsidiaries joined with U S WEST and its subsidiaries in filing a
consolidated federal income tax return. For the Company, under a written tax
sharing agreement with U S WEST, the allocation of income taxes was based upon
separate return calculations which provided that benefits or liabilities created
by the Company will be allocated to the Company regardless of whether the
benefits were usable or additional liabilities were incurred in the U S WEST tax
returns. For periods subsequent to May 12, 1994, the Parent and all members of
its group elected to file consolidated federal tax returns. The calculation of
each member's tax benefit or liability by the Company will be controlled by a
tax sharing agreement that will base the allocation of such benefit or liability
upon a separate return calculation.
A-13
<PAGE> 77
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
The cumulative balance sheet effects of deferred tax consequences are (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
<S> <C> <C>
Deferred acquisition costs............................. $ 46,533 $ 32,144
Unearned premium adjustments........................... 2,905 1,964
Contingency reserve.................................... 11,542
Unrealized capital gains............................... 14,950
Market discounts....................................... 900 1,991
------- --------
Total deferred tax liabilities............... 76,830 36,099
------- --------
Loss and loss adjustment expense reserves.............. (11,129) (7,195)
Deferred compensation.................................. (5,529) (2,791)
Tax credits............................................ (3,795) (1,135)
Tax and loss bonds..................................... (11,116)
Unrealized capital losses.............................. (11,504)
Capital loss carryforward.............................. (1,878)
Other, net............................................. (2,056) (1,374)
------- --------
Total deferred tax assets.................... (33,625) (25,877)
------- --------
Total deferred income taxes............................ $ 43,205 $ 10,222
======= ========
</TABLE>
No valuation allowance was necessary at December 31, 1995 or 1994. On
August 10, 1993, federal legislation was enacted that increased the corporate
tax rate from 34% to 35% effective January 1, 1993. The higher tax rate
increased the Company's deferred tax liability by $715,000 at the date of
enactment.
A reconciliation of the effective tax rate with the federal statutory rate
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Tax at statutory rate............................... 35.0% 35.0% 35.0%
Tax-exempt interest................................. (8.3) (12.0) 6.7
Amortization and write-off of goodwill.............. (17.5)
Other............................................... 0.3 (0.5)
---- ---- ----
Provision for income taxes.......................... 27.0% 23.0% 23.7%
==== ==== ====
</TABLE>
8. DIVIDENDS AND CAPITAL REQUIREMENTS
Under New York Insurance Law, the Company may pay a dividend without the
prior approval of the Superintendent of the New York State Insurance Department
only from earned surplus subject to the maintenance of a minimum capital
requirement, and the dividend, which together with all dividends declared or
distributed by it during the preceding twelve months, may not exceed the lesser
of 10% of its policyholders' surplus shown on its last filed statement, or
adjusted net investment income, as defined, for such twelve-month period. As of
December 31, 1995, the Company had $46,779,000 available for the payment of
dividends over the next twelve months. However, as a customary condition for
approving the application of Fund American for a change in control of the
Company, the prior approval of the Superintendent of the New York State
Insurance Department is required for any payment of dividends by the Company to
the Parent for a period of
A-14
<PAGE> 78
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
two years following such changed control. Such approval was provided for the
payment of dividends by the Company to the Parent in 1995 and 1994 in the
ordinary course of business.
9. CREDIT ARRANGEMENTS AND ADDITIONAL CLAIMS-PAYING RESOURCES
The Company has a credit arrangement aggregating $150,000,000 at December
31, 1995, which is provided by commercial banks and intended for general
application to transactions insured by the Company and the Subsidiaries. At
December 31, 1995, there have been no borrowings under this arrangement. In
addition, there are credit arrangements assigned to specific insured
transactions. In August 1994, the Company entered into a facility agreement with
Canadian Global Funding Corporation and Hambros Bank Limited. Under the
agreement, the Company can arrange financing for transactions subject to certain
conditions. The amount of this facility was $186,911,000, of which $100,911,000
was unutilized at December 31, 1995.
10. EMPLOYEE BENEFIT PLANS
The Company maintains both a qualified and a non-qualified non-contributory
defined contribution pension plan for the benefit of all eligible employees. The
Company's contributions are based upon a fixed percentage of employee
compensation. Pension expense, which is funded as accrued, amounted to
$1,784,000, $1,888,000 and $2,108,000 for the years ended December 31, 1995,
1994 and 1993, respectively. Of these amounts, $1,144,000, $1,266,000 and
$1,449,000 have been deferred as policy acquisition costs during the respective
periods.
The Company has an employee retirement savings plan for the benefit of all
eligible employees. The plan permits employees to contribute a percentage of
their salaries up to limits prescribed by the Internal Revenue Service (IRS
Code, Section 401(k)). The Company's contributions are discretionary, and none
have been made.
During 1991, the Company established the Profit Participation Plan as
along-term incentive compensation plan for the benefit of certain of its
employees. Prior to the closing of the Initial Public Offering (see Note 15),
the Parent adopted a Supplemental Restricted Stock Plan. Pursuant to this plan,
awards of outstanding units to existing employees under the Profit Participation
Plan were valued at $0.20 per dollar of award ($0.70 per dollar of award in the
case of 1994 regular units granted thereunder) and, at the election of each
outstanding employee, were exchanged for restricted shares of the Parent's
common stock valued at the initial public offering price of $20.00 per share.
All employees of the Company, including all senior executives, exchanged their
outstanding interests in the Profit Participation Plan for restricted shares of
the Parent's common stock at the public offering price under the Supplemental
Restricted Stock Plan. In settlement of an accrued balance of $7,126,000 in such
Profit Participation Plan, the Company purchased 356,345 shares of restricted
stock from the Parent and awarded the shares to employees. The stock is
restricted because ownership of the shares by employees requires continued
employment; the shares vest ratably over a three-year period on July 1, 1994,
1995 and 1996.
Pursuant to the 1993 Equity Participation Plan adopted prior to the Initial
Public Offering, 1,810,780 shares of the Parent's common stock, subject to
anti-dilutive adjustment, were reserved for awards of options and restricted
shares of common stock to employees for the purpose of providing, through the
grant of long-term incentives, a means to attract and retain key personnel and
to provide to participating officers and other key employees long-term
incentives for sustained high levels of performance. Shares available under the
1993 Equity Participation Plan were increased from 1,810,780 to 2,110,780 in May
1995. The 1993 Equity Participation Plan also contains provisions that permit
the Compensation Committee to pay all or a portion of
A-15
<PAGE> 79
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
an employee's bonuses in the form of shares of the Parent's common stock
credited to the employees at a 15% discount from current market value and paid
to employees five years from the date of award. Up to an aggregate of 10,000,000
shares may be allocated to such equity bonuses. Common stock to pay equity bonus
awards will be acquired by the Parent through open-market purchases by a trust
established for such purpose.
During 1994, the Parent granted to officers and employees, in respect of
future performance, non-qualified options to purchase an aggregate of 1,099,000
shares of the Parent's common stock, of which 39,000 were forfeited and
1,060,000 were still outstanding at December 31, 1994, substantially all of
which have an exercise price of $20.00 per share. (As described below, 1,025,500
of these options will be converted to performance plan shares.) The foregoing
options will vest, subject to continuation of employment and other terms of the
option grants, at the rate of 20% per year, for five one-year periods, with the
first period ending on July 1, 1994. Such options expire ten years after the
effective dates of their grant. In the fourth quarter of 1994, holders of
outstanding stock options under the 1993 Equity Participation Plan were offered
the right to exchange such stock options for an equal number of performance
shares under such Plan. Giving effect to such exchange, at December 31, 1995,
there would have been outstanding 1,111,000 performance shares and options to
purchase 67,000 shares of common stock.
The Company estimates the final cost of these performance shares at their
payout date and accrues for this expense over the performance period. In tandem
with this accrual, the Parent records the pre-tax amount in stockholders' equity
as deferred compensation.
On November 10, 1994, the Parent announced the appointment of an
independent trustee authorized to purchase shares of the Parent's common stock
in open market transactions, at times and prices determined by the trustee.
These purchases are intended to fund future obligations relating to equity
bonuses, performance shares and stock options under the 1993 Equity
Participation Plan. The Parent also repurchased stock from its employees in
satisfaction of withholding taxes on shares distributed under its restricted
stock plan. During 1995, the total number of shares acquired by the Parent were
591,714 at a cost of $14,444,000 compared with 182,562 shares at a cost of
$3,730,000 in 1994.
The Company does not currently provide post-retirement benefits, other than
pensions to its employees, nor does it provide post-employment benefits to
former employees.
11. COMMITMENTS AND CONTINGENCIES
The Company leases office space and equipment under non-cancelable
operating leases, which expire at various dates through 2005.
Future minimum rental payments are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
<S> <C>
1996.......................................... $ 1,651
1997.......................................... 1,907
1998.......................................... 1,907
1999.......................................... 1,907
2000.......................................... 1,918
Thereafter.................................... 8,741
-------
Total.................................... $18,031
=======
</TABLE>
A-16
<PAGE> 80
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Rent expense for the years ended December 31, 1995, 1994 and 1993 was
$3,493,000, $3,430,000 and $3,743,000, respectively (net of sublease income of
$0, $0 and $16,000 for the respective periods).
During the ordinary course of business, the Company and its Subsidiaries
have become parties to certain litigation. Management believes that these
matters will be resolved with no material financial impact on the Company.
12. REINSURANCE
The Company reinsures portions of its risks with affiliated (see Note 14)
and unaffiliated reinsurers under quota share treaties and on a facultative
basis. The Company's principal ceded reinsurance program consists of three quota
share treaties. One treaty covers all of the Company's approved regular lines of
business, except municipal obligation insurance. Under this treaty in 1995, the
Company ceded 14.5% of each covered policy, up to a maximum of $29,000,000
insured principal per policy. At its sole option, the Company could have
increased, and in certain instances did increase, the ceding percentage to
21.75% up to $43,500,000 of each covered policy. A second treaty covers the
Company's municipal obligation insurance business. Under this treaty in 1995,
the Company ceded 14% of each covered policy that is classified by the Company
as providing municipal bond insurance as defined by Article 69 of the New York
Insurance Law up to a limit of $37,333,000 per single risk, which is defined by
revenue source. At its sole option, the Company could have increased, and in
certain instances did increase, the ceding percentage to 30% up to $80,000,000
per single risk. Under the third treaty in 1995, the Company ceded 5% or 15%
(depending on the type of obligation) of its retention (i.e., after cessions of
policies under the municipal obligation insurance treaty) covering substantially
all teaching hospital and higher education risks, up to limits that range from
$7,500,000 to $30,000,000 per single risk. At its sole option, the Company could
have increased, and in certain instances did increase, the ceding percentage
from 5%to 15% or from 15% to 30% (depending on the type of obligation) of its
retention, subject to the same limits. Each of the three treaties allows the
Company to withhold a ceding commission to defray their expenses.
In the event (which management considers to be highly unlikely) that any or
all of the reinsuring companies were unable to meet their obligations to the
Company, the Company would be liable for such defaulted amounts. The Company has
also assumed reinsurance of municipal obligations from unaffiliated insurers.
Amounts reinsured were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Written premiums ceded........................................ $33,166 $28,692 $62,403
Written premiums assumed...................................... 1,684 1,973 401
Earned premiums ceded......................................... 38,013 35,051 32,736
Earned premiums assumed....................................... 2,759 7,059 1,546
Loss and loss adjustment expense payments ceded............... 3,060 1,483 32,299
Loss and loss adjustment expense payments assumed............. 3 3 3
Incurred losses and loss adjustment expenses ceded............ 9,101 56,895 18,628
Incurred losses and loss adjustment expenses assumed.......... 81 137 47
</TABLE>
A-17
<PAGE> 81
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
Principal outstanding ceded....................................... $14,355,664 $12,116,420
Principal outstanding assumed..................................... 2,347,122 824,296
Unearned premium reserve ceded.................................... 133,548 121,668
Unearned premium reserve assumed.................................. 5,027 6,050
Loss and loss adjustment expense reserves ceded................... 61,532 55,491
Loss and loss adjustment expense reserves assumed................. 670 593
</TABLE>
13. OUTSTANDING EXPOSURE AND COLLATERAL
The Company's policies insure the scheduled payments of principal and
interest on asset-backed and municipal obligations. The principal amount insured
(in millions) as of December 31, 1995 and 1994 (net of amounts ceded to other
insurers of $6,093 and $5,975 of asset-backed and $8,263 and $6,141 of
municipal, respectively) and the terms to maturity are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
-------------------------- --------------------------
TERMS TO MATURITY ASSET-BACKED MUNICIPAL ASSET-BACKED MUNICIPAL
- ------------------------------------------- ------------ --------- ------------ ---------
<S> <C> <C> <C> <C>
0 to 5 Years............................... $ 5,931 $ 3,293 $ 5,510 $ 2,308
5 to 10 Years.............................. 3,679 4,713 2,129 3,071
10 to 15 Years............................. 1,183 4,299 1,070 2,711
15 to 20 Years............................. 423 6,986 386 2,770
20 Years and Above......................... 5,847 9,625 3,780 4,488
------------ --------- ------------ ---------
Total............................ $ 17,063 $28,916 $ 12,875 $15,348
========== ======= ========== =======
</TABLE>
The principal amount ceded as of December 31, 1995 and 1994 and the terms
to maturity are as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
-------------------------- --------------------------
TERMS TO MATURITY ASSET-BACKED MUNICIPAL ASSET-BACKED MUNICIPAL
- ------------------------------------------- ------------ --------- ------------ ---------
<S> <C> <C> <C> <C>
0 to 5 Years............................... $2,297 $ 1,103 $2,470 $ 794
5 to 10 Years.............................. 1,503 1,775 1,640 1,203
10 to 15 Years............................. 403 1,020 446 906
15 to 20 Years............................. 126 1,514 104 1,044
20 Years and Above......................... 1,764 2,851 1,315 2,194
------------ --------- ------------ ---------
Total............................ $6,093 $ 8,263 $5,975 $ 6,141
========== ======= ========== =======
</TABLE>
A-18
<PAGE> 82
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
The Company limits its exposure to losses from writing financial guarantees
by underwriting investment-grade obligations, by diversifying its portfolio and
by maintaining rigorous collateral requirements on asset-backed obligations. The
principal amounts of insured obligations in the asset-backed insured
portfolio,net of amounts ceded, are collateralized by the following types of
collateral (in millions):
<TABLE>
<CAPTION>
NET OF AMOUNTS
CEDED CEDED
DECEMBER 31, DECEMBER 31,
------------------- -----------------
TYPES OF COLLATERAL 1995 1994 1995 1994
- ---------------------------------------------------- ------- ------- ------ ------
<S> <C> <C> <C> <C>
Residential mortgages............................... $ 6,740 $ 4,836 $1,909 $1,736
Consumer receivables................................ 5,105 2,479 1,320 658
Government securities............................... 1,651 2,017 263 500
Pooled corporate obligations........................ 1,819 1,686 732 701
Commercial mortgage portfolio:
Commercial real estate............................ 148 156 640 734
Corporate secured................................. 98 118 801 1,118
Investor-owned utility obligations.................. 821 786 292 331
Other asset-backed obligations...................... 681 797 136 197
------- ------- ------ ------
Total asset-backed obligations............ $17,063 $12,875 $6,093 $5,975
======= ======= ====== ======
</TABLE>
The asset-backed insured portfolio, which aggregated $23.2 billion
principal before reinsurance at December 31, 1995, was collateralized by assets
with an estimated fair value of $28.0 billion. At December 31, 1994, it
aggregated $18.9 billion principal before reinsurance and was collateralized by
assets with an estimated fair value of $23.4 billion. Such estimates of the
collateral's fair value, which is reduced as exposure expires are based upon
information at the inception of the insurance policy. At December 31, 1995, the
estimated fair value of collateral and reserves over the principal insured
averaged from 100% for commercial real estate to 164% for corporate secured
obligations. At December 31, 1994, the estimated fair value of collateral and
reserves over the principal insured averaged from 100% for commercial real
estate to 168% for corporate secured obligations. Collateral for specific
transactions is generally not available to pay claims related to other
transactions. The amounts of losses ceded to reinsurers is determined net of
collateral.
The principal amount of insured obligations in the municipal insured
portfolio, net of amounts ceded, included the following types of issues (in
millions):
<TABLE>
<CAPTION>
NET OF AMOUNTS
CEDED CEDED
DECEMBER 31, DECEMBER 31,
------------------- -----------------
TYPES OF ISSUES 1995 1994 1995 1994
- ------------------------------------------------------ ------- ------- ------ ------
<S> <C> <C> <C> <C>
General obligation bonds.............................. $ 8,738 $ 3,809 $1,764 $1,252
Housing revenue bonds................................. 1,674 1,622 685 606
Municipal utility revenue bonds....................... 3,873 2,169 1,107 794
Health care revenue bonds............................. 2,587 1,594 1,718 1,359
Tax-supported bonds (non-general obligation).......... 7,090 3,482 1,741 1,201
Transportation revenue bonds.......................... 1,365 720 293 253
Other municipal bonds................................. 3,589 1,952 955 676
------- ------- ------ ------
Total municipal obligations................. $28,916 $15,348 $8,263 $6,141
======= ======= ====== ======
</TABLE>
A-19
<PAGE> 83
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
In its asset-backed business, the Company considers geographic
concentration as a factor in underwriting insurance covering securitizations of
pools of such assets as residential mortgages or consumer receivables. However,
after the initial issuance of an insurance policy relating to such
securitization, the geographic concentration of the underlying assets may not
remain fixed over the life of the policy. In addition, in writing insurance for
other types of asset-backed obligations, such as securities primarily backed by
government or corporate debt, geographic concentration is not deemed by the
Company to be significant given other more relevant measures of diversification
such as issuer or industry.
The Company seeks to maintain a diversified portfolio of insured municipal
obligations designed to spread its risk across a number of geographic areas. The
following table sets forth, by state, those states in which municipalities
located therein issued an aggregate of 2% or more of the Company's net par
amount outstanding of insured municipal securities as of December 31, 1995:
<TABLE>
<CAPTION>
CEDED PAR
PERCENT OF TOTAL AMOUNT
NUMBER MUNICIPAL NET PAR OUTSTANDING
STATE OF ISSUES AMOUNT OUTSTANDING -------------
---------------------------------- --------- NET PAR ------------------ (IN MILLIONS)
AMOUNT
OUTSTANDING
-------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
California........................ 437 $ 4,692 16.2% $ 762
Florida........................... 167 1,981 6.8 779
New York.......................... 245 2,743 9.5 1,197
Pennsylvania...................... 212 1,641 5.7 511
New Jersey........................ 228 1,345 4.7 370
Louisiana......................... 116 882 3.1 395
Michigan.......................... 139 897 3.1 330
Minnesota......................... 131 866 3.0 33
Massachusetts..................... 98 777 2.7 280
Illinois.......................... 209 775 2.7 100
Texas............................. 276 1,449 5.0 329
All Other States.................. 1,344 8,722 30.1 2,095
Non-U.S........................... 38 2,146 7.4 1,082
----- ------- ---- ------
Total................... 3,640 $28,916 100.0% $ 8,263
===== ======= ==== ======
</TABLE>
14. RELATED PARTY TRANSACTIONS
Allocable expenses are shared by the Company and its Parent on a basis
determined principally by estimates of respective usage as stated in an expense
sharing agreement. The agreement is subject to the provisions of the New York
Insurance Law. Amounts included in other assets at December 31, 1995 and 1994
are $3,322,000 and $2,750,000, respectively, for unsettled expense allocations
due from the Parent.
The Company ceded premiums of $13,061,000, $6,609,000 and $14,152,000 to
Tokio Marine for the years ended December 31, 1995, 1994 and 1993, respectively.
The amounts included in prepaid reinsurance premiums at December 31, 1995 and
1994, for reinsurance ceded to Tokio Marine were $33,382,000 and
$29,920,000,respectively. Reinsurance recoverable on unpaid losses ceded to
Tokio Marine was $323,000 and $86,000 at December 31, 1995 and 1994,
respectively.
The Company ceded premiums of $7,522,000, $9,390,000 and $28,389,000 on a
quota share basis to affiliates of U S WEST for the years ended December
31,1995, 1994 and 1993, respectively, of which $629,000, $1,838,000 and
$18,360,000, respectively, were ceded to Commercial Reinsurance Company
A-20
<PAGE> 84
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Commercial Re) (see Note 15). The amounts included in prepaid reinsurance
premiums for reinsurance ceded to these affiliates were $39,918,000 and
$46,215,000 at December 31, 1995 and 1994, respectively, of which $10,720,000
and $14,382,000, respectively, were ceded to Commercial Re. The amounts of
reinsurance recoverable on unpaid losses ceded to these affiliates at December
31, 1995 and 1994 were $55,024,000 and $49,953,000, respectively, of which
$42,918,000 and $39,725,000, respectively, were ceded to Commercial Re. The
Commercial Re reinsurance agreement was subject to, and received, the
non-disapproval of the State of New York Insurance Department due to its nature
as an affiliate transaction. The Company has taken credit for the reinsurance
ceded to Commercial Re.
On November 25, 1992, U S WEST executed a $100,000,000 ten-year irrevocable
letter of credit (the LOC) in favor of the Company. To the extent that losses
and loss adjustment expenses incurred by the Company after December 31, 1992,
exceeded by $25,000,000 in the aggregate the case basis reserves, if any,
established as of December 31, 1992, for any insurance policies covered by the
terms of the letter of credit, the Company could draw under the LOC to cover
such excess losses and loss adjustment expenses.
In the second quarter of 1993, the LOC was amended to eliminate the
$25,000,000 deductible and to provide for the reinstatement of the initial
$38,000,000 of drawings thereunder. The LOC could be drawn upon when losses and
loss adjustment expenses paid by the Company on commercial mortgage transactions
exceeded the case basis reserves at December 31, 1992.
In the second quarter of 1993, the Company incurred losses of approximately
$63,000,000 for claims on certain commercial mortgage transactions insured by
the Company. In the third quarter of 1993, the Company increased its general
reserve by $18,400,000 to reflect the potential for loss in the commercial
mortgage portfolio and recorded a reinsurance recoverable due to the protection
against loss provided by the LOC. While these losses were charged to the
Company's results of operations, the Company's capital position was unaffected
since such losses were covered by the LOC, drawings against which have been
accounted for as a capital contribution and a non-cash financing activity, net
of the related tax effect, under generally accepted accounting principles. In
late June and early July 1993, the insured commercial mortgage transactions for
which case basis reserves had been established were refinanced with
Company-insured obligations. In connection with such refinancings, the Company
paid losses of approximately $34,800,000 and U S WEST paid losses of
approximately $63,000,000 through drawings under the LOC. After giving effect to
such drawings, the amount available for future drawing under the LOC was
reinstated to $75,000,000. In December 1993, the Company completed the
Restructuring (see Note 15) and terminated the LOC; therefore, the $18,400,000
reinsurance recoverable, recorded to offset the $18,400,000 increase in the
general reserve at such date, and the related capital contribution ($11,960,000
net of tax) were written off.
15. INITIAL PUBLIC OFFERING AND RESTRUCTURING
In the second quarter of 1993, U S WEST announced its intention to divest
itself of its non-telecommunications businesses in order to redeploy its capital
into its telecommunications businesses. U S WEST implemented the initial stage
of the divestiture of its interest in the Parent through the initial public
offering of Parent shares on May 13, 1994.
In December 1993, in anticipation of such initial public offering, the
Parent took certain steps (the Restructuring) to reduce its risk of loss from
commercial mortgage transactions previously insured by the Company. As part of
the Restructuring, in December 1993 U S WEST purchased an additional 3,000,000
shares of the Parent's common stock at $19.68 per share, the GAAP book value per
share as of November 30,
A-21
<PAGE> 85
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1993, as adjusted for the Restructuring. Pursuant to the Restructuring, (i) the
Company and U S WEST terminated the LOC (see Note 14); (ii) the Company
redeemed, for approximately $78,500,000, shares of their common stock held by
the Parent; (iii) the Parent contributed the proceeds of the stock redemption to
Commercial Re, a newly formed reinsurance company; (iv) the Parent distributed
all of the outstanding shares of Commercial Re to the existing shareholders of
the Parent in proportion to their ownership interests in the Parent at the time;
and (v) the Company paid approximately $103,308,000, less a ceding commission of
approximately $5,370,000, as a premium to Commercial Re to assume approximately
64.4% of the Company's exposure, on a weighted average basis, on commercial
mortgage transactions previously insured by the Company. In addition, the
Company cedes to Commercial Re a percentage of the future installments (less a
ceding commission) on such transactions.
In connection with the Restructuring, in 1993 the Company recognized a
pre-tax loss of approximately $85,409,000 (approximately $55,516,000 after
taxes) due to the amount by which the reinsurance premium paid to Commercial Re
exceeded the carrying amount of the related unearned premium reserve. The tax
benefit of $29,893,000 was paid by U S WEST to the Company at the date of the
Restructuring. The tax-sharing and tax-deconsolidation agreements require the
Company to repay U S WEST the tax benefit relating to the pre-tax loss as it is
utilized by the Company.
16. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair values have been determined by the Company
using available market information and appropriate valuation methodologies.
However, considerable judgment is necessary to interpret the data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amount the Company could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
Long-term bonds -- The carrying amount of long-term bonds represents fair
value. The fair value of long-term bonds is based upon quoted market price.
Short-term investments -- The carrying amount is fair value, which
approximates cost due to the short maturity of these instruments.
Cash and cash equivalents, receivable for investments sold and payable for
investments purchased -- The carrying amount approximates fair value because of
the short maturity of these instruments.
Unearned premiums, net of prepaid reinsurance premiums -- The carrying
amount of unearned premiums, net of prepaid reinsurance premiums, represents the
Company's future premium revenue, net of reinsurance, on policies where the
premium was received at the inception of the insurance contract. The fair value
of unearned premiums net of prepaid reinsurance premiums is an estimate of the
premiums that would be paid under a reinsurance agreement with a third party to
transfer the Company's financial guaranty risk, net of that portion of the
premium retained by the Company to compensate it for originating and servicing
the insurance contract.
Installment premiums -- Consistent with industry practice, there is no
carrying amount for installment premiums since the Company will receive premiums
on an installment basis over the term of the insurance contract. Similar to
unearned premiums, the fair value of installment premiums is the estimated
present value of the future contractual premium revenues that would be paid
under a reinsurance agreement with a third party to transfer the Company's
financial guaranty risk, net of that portion of the premium retained by the
Company to compensate it for originating and servicing the insurance contract.
A-22
<PAGE> 86
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Losses and loss adjustment expenses, net of reinsurance recoverable on
unpaid losses -- The carrying amount is fair value, which is the present value
of the expected cash flows for specifically identified claims and potential
losses in the Company's insured portfolio.
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------------- -----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets:
Long-term bonds............................ $1,036,382 $1,036,382 $627,026 $ 627,026
Short-term investments..................... 14,568 14,568 88,951 88,951
Cash and cash equivalents.................. 35,832 35,832 16,120 16,120
Receivable for securities sold............. 2,326 2,326 17,592 17,592
Liabilities:
Unearned premiums, net of prepaid
reinsurance premiums.................... 330,349 263,618 212,901 169,954
Losses and loss adjustment expenses, net of
reinsurance recoverable on unpaid
losses.................................. 50,227 50,227 35,639 35,639
Payable for investments purchased.......... 9,516 9,516 56,112 56,112
Off-balance-sheet instruments:
Installment premiums....................... 82,212 68,952
</TABLE>
17. LIABILITY FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
The Company's liability for losses and loss adjustment expenses consists of
the case basis and general reserves. Activity in the liability for losses and
loss adjustment expenses is summarized as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Balance at January 1......................... $ 91,130 $36,094 $72,430
Less reinsurance recoverable................. 55,491 79 13,750
-------- ------- -------
Net balance at January 1..................... 35,639 36,015 58,680
Incurred losses and loss adjustment expenses:
Current year............................... 3,000 3,024 2,368
Prior years................................ 3,258
Related to contribution.................... 15,400 18,360
Paid losses and loss adjustment expenses:
Current year............................... (3,397)
Prior years................................ (7,070) (3) (43,393)
-------- ------- -------
Net balance December 31...................... 50,227 35,639 36,015
Plus reinsurance recoverable................. 61,532 55,491 79
-------- ------- -------
Balance at December 31.................. $111,759 $91,130 $36,094
======== ======= =======
</TABLE>
In 1992, the Company set up initial case basis reserves on certain
commercial mortgage transactions and established a general reserve. During 1993,
losses of $84,054,000 were incurred, of which $63,699,000 were
A-23
<PAGE> 87
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
incurred in commercial real estate transactions, $63,326,000 of which were paid
directly by U S WEST under the LOC (see Note 14). During 1993, FSA also
increased its general reserve by $20,355,000 primarily in recognition of the
potential for loss in the commercial mortgage portfolio it retained after the
Restructuring (see Note 15). In 1994, the Company increased its general reserve
by $3,024,000 for origination of new business and transferred $16,932,000 of the
general reserve to its case basis reserves for projected losses on certain
transactions, the majority of which are in its discontinued commercial mortgage
portfolio. Giving effect to this transfer, the Company's unallocated general
reserve totaled $20,928,000 at December 31, 1994.
During 1995, the Company increased its general reserve by $6,300,000, of
which $3,000,000 was for originations of new business and $3,300,000 was to
reestablish the general reserve for transfers from general reserves to case
basis reserves. In December 1995, the Company transferred $9,700,000 from its
general reserve to case basis reserves associated predominantly with certain
residential mortgage and timeshare receivables transactions. Also in December
1995, the Company recognized a one-time increase of $15,400,000 to the general
reserve to provide for the insured portfolio it had assumed as a result of the
Contribution in a manner consistent with the Company's reserving methodology.
Prior to the Merger, CGIC did not maintain a general reserve. Giving effect to
all the 1995 events, the unallocated general reserve totaled $31,798,000 at
December 31, 1995.
Reserves for losses and loss adjustment expenses are discounted at
risk-free rates. The amount of discount taken was approximately $15,276,000,
$14,588,000 and $8,963,000 at December 31, 1995, 1994 and 1993, respectively.
18. NON-RECURRING CHARGES
As a result of certain events that occurred in the fourth quarter of 1993,
the Company recognized a non-recurring charge of approximately $9,970,000 before
taxes ($6,481,000 after taxes) against 1993 fourth quarter operations. This
charge primarily related to (i) a $2,812,000 write-down to net realizable value
of the Company's interest, received as additional consideration in connection
with an insured transaction, in the residual cash flow of the assets
collateralizing the insured transaction; (ii) the acceleration of the
amortization of deferred general liquidity facility fees of $2,105,000 and legal
fees of $203,000; (iii) a $2,900,000 accrual for salary and related benefits
primarily due to a settlement for terminated employees in the Company's Profit
Participation Plan; and (iv) $1,950,000 primarily relating to the acceleration
of deferred acquisition expenses (net of amortization) as a result of the
non-recurring charges.
A-24
<PAGE> 88
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
---------- ------------
<S> <C> <C>
Bonds at market value (amortized cost of $1,045,913 and
$1,006,084)...................................................... $1,044,779 $1,036,382
Short-term investments............................................. 74,315 49,845
---------- ------------
Total investments........................................ 1,119,094 1,086,227
Cash............................................................... 1,876 555
Deferred acquisition costs......................................... 131,404 132,951
Prepaid reinsurance premiums....................................... 139,014 133,548
Reinsurance recoverable on unpaid losses........................... 62,126 61,532
Receivable for securities sold..................................... 2,298 2,326
Other assets....................................................... 76,418 59,499
---------- ------------
TOTAL ASSETS............................................. $1,532,230 $1,476,638
========= ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Unearned premiums.................................................. $ 479,240 $ 463,897
Losses and loss adjustment expenses................................ 114,024 111,759
Deferred federal income taxes...................................... 31,879 43,205
Ceded reinsurance balances payable................................. 13,575 13,664
Payable for securities purchased................................... 70,021 9,516
Accrued expenses and other liabilities............................. 44,314 44,611
---------- ------------
TOTAL LIABILITIES........................................ 753,053 686,652
---------- ------------
Common stock (1,000 shares authorized; 750 shares issued and
outstanding; par value of $20,000 per share)..................... 15,000 15,000
Additional paid-in capital......................................... 681,470 681,470
Unrealized gain (loss) on investments (net of deferred income tax
provision (benefit) of ($397) and $10,604)....................... (737) 19,694
Accumulated earnings............................................... 83,444 73,822
---------- ------------
TOTAL SHAREHOLDER'S EQUITY............................... 779,177 789,986
---------- ------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY......................... $1,532,230 $1,476,638
========= ==========
</TABLE>
See notes to condensed consolidated financial statements.
A-25
<PAGE> 89
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1996 1995
-------- -------
<S> <C> <C>
Revenues:
Net premiums written (net of premiums ceded of $18,441 and $7,236).... $ 34,139 $19,557
Increase in unearned premiums......................................... (11,405) (4,342)
Premiums earned (net of premiums ceded of $12,979 and $7,893)......... 22,734 15,215
Net investment income................................................. 15,224 11,918
Net realized gains (losses)........................................... 1,534 (4,801)
Other income.......................................................... 1 177
-------- -------
TOTAL REVENUES................................................ 39,493 22,509
-------- -------
Expenses:
Losses and loss adjustment expenses (net of reinsurance recoveries of
$560 and $999)..................................................... 1,625 1,700
Policy acquisition costs.............................................. 7,655 3,601
Other operating expenses.............................................. 3,660 2,922
-------- -------
TOTAL EXPENSES................................................ 12,940 8,223
-------- -------
INCOME BEFORE INCOME TAXES.............................................. 26,553 14,286
Provision for income taxes.............................................. 6,931 3,611
-------- -------
NET INCOME.................................................... $ 19,622 $10,675
======== =======
</TABLE>
See notes to condensed consolidated financial statements.
A-26
<PAGE> 90
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Premiums received, net............................................. $ 35,371 $ 15,755
Policy acquisition and other operating expenses paid, net.......... (33,104) (13,084)
Recoverable advances paid.......................................... (8,100) (4,159)
Loss and LAE recovered (paid), net................................. 105 (291)
Net investment income received..................................... 16,613 11,937
Federal income taxes paid.......................................... (1,799)
Interest paid...................................................... (339) (407)
Other, net......................................................... 5,044 (2,054)
--------- ---------
Net cash provided by operating activities.................. 13,791 7,697
--------- ---------
Cash flows from investing activities:
Proceeds from sales of bonds....................................... 179,715 145,776
Purchases of bonds................................................. (157,486) (31,720)
Purchases of property and equipment................................ (540) (330)
Net decrease in short-term securities.............................. (24,159) (119,805)
--------- ---------
Net cash used for investing activities..................... (2,470) (6,079)
--------- ---------
Cash flows from financing activities:
Dividends paid..................................................... (10,000) (4,000)
--------- ---------
Net cash used for financing activities..................... (10,000) (4,000)
--------- ---------
Net increase (decrease) in cash...................................... 1,321 (2,382)
Cash at beginning of period.......................................... 555 2,663
--------- ---------
Cash at end of period................................................ $ 1,876 $ 281
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
A-27
<PAGE> 91
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
1. ORGANIZATION AND OWNERSHIP
Financial Security Assurance Inc. (the Company), a wholly owned subsidiary
of Financial Security Assurance Holdings Ltd. (the Parent), is an insurance
company domiciled in the State of New York. The Company is primarily engaged in
the business of providing financial guaranty insurance on asset-backed
financings and municipal obligations.
2. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared by the Company and are unaudited. In the opinion of management, all
adjustments, which include only normal recurring adjustments, necessary to
present fairly the financial position, results of operations and cash flows at
March 31, 1996 and for all periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These statements should be read in conjunction
with the Company's December 31, 1995 consolidated financial statements and notes
thereto. The year-end condensed balance sheet was derived from audited financial
statements, but does not include all disclosures required by generally accepted
accounting principles. The results of operations for the periods ended March 31,
1996 and 1995 are not necessarily indicative of the operating results for the
full year.
Certain amounts in the 1995 financial statements have been reclassed to
conform to the 1996 presentation.
In the first quarter of 1996, the Company has recharacterized its cash
equivalents as short term investments. The amount of cash equivalents
recharacterized were $22.3 million and $35.3 million, as of March 31, 1996 and
December, 31, 1995, respectively.
3. SUBSEQUENT EVENT
FSA on April 30, 1996, entered into an agreement with a AAA/Aaa rated
international bank for a $125.0 million credit facility which expires on January
31, 2003. This facility is a seven-year stand-by irrevocable limited recourse
line-of-credit which will provide liquidity to FSA in the event claims from
municipal obligations exceed specified limits. Repayment of any amounts drawn
under the line will be limited primarily to the amount of recoveries of losses
related to policy obligations.
A-28
<PAGE> 92
INDEX OF PRINCIPAL DEFINITIONS
Set forth below is a list of certain of the more significant capitalized
terms used in this Prospectus and the pages on which the definitions of such
terms may be found.
<TABLE>
<CAPTION>
TERM PAGE
- -------------------------------------------------------------------------------------- ----
<S> <C>
Accelerated Principal Distributable Amount............................................ 26
Advance............................................................................... 44
Aggregate Scheduled Balance........................................................... 26
Aggregate Scheduled Balance Decline................................................... 26
Bank.................................................................................. 3
Business Day.......................................................................... 4
Calculation Day....................................................................... 8
Certificate Balance................................................................... 6
Certificate Distributable Amount...................................................... 26
Certificate Distribution Account...................................................... 24
Certificate Final Distribution Date................................................... 5
Certificate Interest Carryover Shortfall.............................................. 26
Certificate Interest Distributable Amount............................................. 26
Certificate Percentage................................................................ 26
Certificate Policy.................................................................... 1,4
Certificate Pool Factor............................................................... 17
Certificate Principal Carryover Shortfall............................................. 26
Certificate Principal Distributable Amount............................................ 26
Certificate Quarterly Interest Distributable Amount................................... 27
Certificate Quarterly Principal Distributable Amount.................................. 27
Certificates.......................................................................... 1,3
Class A-1 Final Distribution Date..................................................... 5
Class A-1 Notes....................................................................... 1,3
Class A-1 Rate........................................................................ 5
Class A-2 Final Distribution Date..................................................... 5
Class A-2 Notes....................................................................... 1,3
Class A-2 Rate........................................................................ 5
Class A-3 Final Distribution Date..................................................... 5
Class A-3 Notes....................................................................... 1,3
Class A-3 Rate........................................................................ 5
Class A-4 Final Distribution Date..................................................... 5
Class A-4 Notes....................................................................... 1,3
Class A-4 Rate........................................................................ 5
Closing Date.......................................................................... 6
Code.................................................................................. 52
Collection Account.................................................................... 24
Commission............................................................................ 2
Contracts............................................................................. 1,4
Cut-Off Date.......................................................................... 4
Cut-Off Date Aggregate Scheduled Balance.............................................. 7
Defaulted Contract.................................................................... 27
Determination Date.................................................................... 24
Distribution Date..................................................................... 4
DTC................................................................................... 1
Due Date.............................................................................. 28
Due Period............................................................................ 27
Eligible Investments.................................................................. 24
ERISA................................................................................. 9,58
Event of Default...................................................................... 18
</TABLE>
B-1
<PAGE> 93
<TABLE>
<CAPTION>
TERM PAGE
- -------------------------------------------------------------------------------------- ----
<S> <C>
Excess Amounts........................................................................ 8,25
Final Distribution Dates.............................................................. 5
Financed Vehicles..................................................................... 4
Financial Security.................................................................... 1,3
Funded Amount......................................................................... 30
Guaranteed Distributions.............................................................. 40
Holding Account....................................................................... 24
Indenture............................................................................. 3
Indenture Trustee..................................................................... 3
Insolvency Event...................................................................... 33
Insurance Agreement................................................................... 9
Insurer Default....................................................................... 19
Interest Period....................................................................... 5
Interest Rates........................................................................ 5
Liquidated Contracts.................................................................. 27
Master Servicer....................................................................... 1,3
Minimum Funded Amount................................................................. 30
Money Market Notes.................................................................... 3
Monthly P&I........................................................................... 28
Moody's............................................................................... 1,9
Net Collections....................................................................... 23
Nonrecoverable Advance................................................................ 44
Note Distributable Amount............................................................. 27
Note Distribution Account............................................................. 24
Note Final Distribution Date.......................................................... 5
Note Interest Carryover Shortfall..................................................... 27
Note Interest Distributable Amount.................................................... 27
Note Percentage....................................................................... 27
Note Policy........................................................................... 1,4
Note Pool Factor...................................................................... 17
Note Principal Carryover Shortfall.................................................... 28
Note Principal Distributable Amount................................................... 28
Note Quarterly Interest Distributable Amount.......................................... 28
Note Quarterly Principal Distributable Amount......................................... 28
Noteholders........................................................................... 21
Notes................................................................................. 1,3
Obligors.............................................................................. 4
Optional Purchase..................................................................... 9
Original Certificate Balance.......................................................... 6
Overcollateralization Amount.......................................................... 30
Owner Trustee......................................................................... 4
Pass-Through Rate..................................................................... 6
Paying Agent.......................................................................... 6
Policies.............................................................................. 1,4
Principal Distributable Amount........................................................ 28
Rating Agency......................................................................... 1,9
Record Date........................................................................... 4
Repurchase Amount..................................................................... 45
</TABLE>
B-2
<PAGE> 94
<TABLE>
<CAPTION>
TERM PAGE
- -------------------------------------------------------------------------------------- ----
<S> <C>
Rule of 78's.............. Contract that provides for the payment by the Obligor of a
specified total amount of payments, payable in equal
monthly installments, which total represents the principal
amount financed plus add-on interest in an amount of 78's,
the amount of a payment allocable to interest on a
Contract is determined by multiplying the total amount of
add-on interest payable over the term of the Contract by a
fraction derived as described below. The fraction used in
the calculation of add-on interest earned each month under
a Rule of 78's Contract has as its denominator a number
equal to the sum of a series of numbers representing the
number of each monthly payment due under the Contract. For
example, with a Contract providing for 12 payments, the
denominator of each month's fraction will be 78, the sum
of a series of numbers from 1 to 12. The numerator of the
fraction for a given month is the number of payments
remaining before giving effect to the payment to which the
fraction is being applied. Accordingly, in the example of
a twelve payment Contract, the fraction for the first
payment is 12/78, for the second payment 11/78, for the
third payment 10/78, and so on through the final payment,
for which the fraction is 1/78. The applicable fraction is
then multiplied by the total add-on interest payment over
the entire term of the Contract, and the resulting amount
is the amount of add-on interest earned that month. The
difference between the amount of the monthly payment by
the Obligor and the amount of earned add-on interest
calculated for the month is applied to principal
reduction. Under the law of Texas, a similar procedure is
permitted for calculating the amount of add-on interest
earned, except the fraction is derived by using the sum of
the monthly payments rather than the sum of the number of
months (the "sum of the balances"). As a Contract using
either the Rule of 78's or the sum of the balances method
to compute interest earned is payable in equal monthly
payments, the mathematical result is substantially
identical under either system. Accordingly, for purposes
of convenience, the term "Rule of 78's" is used herein in
referring to Contracts with add-on interest regardless of
which system is used to calculated interest earned.
S&P................................................................................... 1,9
Sale and Servicing Agreement.......................................................... 4
Scheduled Balance..................................................................... 28
Scheduled Payments.................................................................... 40
Securities............................................................................ 1,3
Seller................................................................................ 1,3
Servicer Default...................................................................... 33
Servicing Fee......................................................................... 46
Simple Interest Contract .. A Contract as to which interest is calculated each day on
the basis of the actual principal balance of such
Contract on such day.
Specified Spread Account Balance...................................................... 29
Spread Account........................................................................ 8
Spread Account Initial Deposit........................................................ 8
Statement to Securityholders.......................................................... 31
Trust................................................................................. 1,3
Trust Agreement....................................................................... 3
Trust Fees and Expenses............................................................... 17
Trustees.............................................................................. 4
UCC....................................................................................21,46
Unreimbursed Insurer Amounts.......................................................... 25
Voting Interests...................................................................... 34
WFS................................................................................... 1,3
WII................................................................................... 3
</TABLE>
B-3
<PAGE> 95
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE SELLER,
THE UNDERWRITER OR ANY OTHER PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN
THOSE TO WHICH IT RELATES OR AN OFFER TO OR SOLICITATION OF ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION SET
FORTH HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information.................. 2
Reports to Securityholders............. 2
Summary of Prospectus.................. 3
Formation of the Trust................. 11
The Contracts Pool..................... 12
Delinquency and Loan Loss
Information.......................... 16
Pool Factors and Trading Information... 17
Use of Proceeds........................ 17
The Notes.............................. 17
The Certificates....................... 19
Certain Information Regarding the
Securities........................... 21
The Policies........................... 40
Financial Security Assurance Inc....... 42
The Master Servicer.................... 43
Certain Legal Aspects of the
Contracts............................ 46
The Seller............................. 50
WFS.................................... 50
WII.................................... 51
The Bank............................... 51
Certain Federal Income Tax
Consequences......................... 52
Certain California Income Tax
Consequences......................... 57
ERISA Considerations................... 58
Underwriting........................... 59
Ratings of the Securities.............. 59
Legal Matters.......................... 60
Experts................................ 60
Index to Consolidated Financial
Statements........................... 61
Report of Independent Accountants...... A-1
Index of Principal Definitions......... B-1
- ---------------------------------------------
- ---------------------------------------------
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
$525,000,000
WFS FINANCIAL
1996-B OWNER TRUST
$81,500,000
5.52% MONEY MARKET
AUTO RECEIVABLE BACKED
NOTES, CLASS A-1
$170,000,000
6.20% AUTO RECEIVABLE
BACKED NOTES, CLASS A-2
$155,000,000
6.65% AUTO RECEIVABLE
BACKED NOTES, CLASS A-3
$76,500,000
6.95% AUTO RECEIVABLE
BACKED NOTES, CLASS A-4
$42,000,000
7.05% AUTO RECEIVABLE
BACKED CERTIFICATES
--------------------
PROSPECTUS
--------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
JUNE 14, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 96
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Expenses in connection with the offering of the Securities being registered
hereby are estimated as follows:
<TABLE>
<S> <C>
Registration Fee.................................................. $181,034
Printing and Engraving............................................ 50,000
Trustees' Fees.................................................... 12,500
Accounting Fees................................................... 35,000
Legal Fees and Expenses........................................... 80,000
Blue Sky Fees and Expenses........................................ 20,000
Rating Agency Fees................................................ 60,000
Miscellaneous Fees................................................ 11,466
--------
Total................................................... $450,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 317(b) of the California Corporations Code (the "Corporations
Code") provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any "proceeding" (as defined in
Section 317(a) of the Corporations Code), other than an action by or in the
right of the corporation to procure a judgment in its favor, by reason of the
fact that such person is or was a director, officer, employee or other agent of
the corporation (collectively, an "Agent"), against expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with such proceeding if the Agent acted in good faith and in a manner the Agent
reasonably believed to be in the best interest of the corporation and, in the
case of a criminal proceeding, had no reasonable cause to believe the conduct
was unlawful.
Section 317(c) of the Corporations Code provides that a corporation shall
have power to indemnify any Agent who was or is a party or is threatened to be
made a party to any threatened, pending or completed action by or in the right
of the corporation to procure a judgment in its favor by reason of the fact that
such person is or was an Agent, against expenses actually and reasonably
incurred by the Agent in connection with the defense or settlement of such
action if the Agent acted in good faith and in a manner such Agent believed to
be in the best interest of the corporation and its shareholders.
Section 317(c) further provides that no indemnification may be made
thereunder for any of the following: (i) in respect of any matter as to which an
Agent shall have been adjudged to be liable to the corporation, unless the court
in which such proceeding is or was pending shall determine that such Agent is
fairly and reasonably entitled to indemnity for expenses, (ii) of amounts paid
in settling or otherwise disposing of a pending action without court approval
and (iii) of expenses incurred in defending a pending action which is settled or
otherwise disposed of without court approval.
Section 317(d) of the Corporations Code requires that an Agent be
indemnified against expenses actually and reasonably incurred to the extent the
Agent has been successful on the merits in the defense of proceedings referred
to in subdivisions (b) or (c) of Section 317.
Except as provided in Section 317(d), and pursuant to Section 317(e),
indemnification under Section 317 shall be made by the corporation only if
specifically authorized and upon a determination that indemnification is proper
in the circumstances because the Agent has met the applicable standard of
conduct, by any of the following: (i) a majority vote of a quorum consisting of
directors who are not parties to the proceeding, (ii) if such a quorum of
directors is not obtainable, by independent legal counsel in a written
II-1
<PAGE> 97
opinion, (iii) approval of the shareholders, provided that any shares owned by
the Agent may not vote thereon, or (iv) the court in which such proceeding is or
was pending.
Pursuant to Section 317(f) of the Corporations Code, the corporation may
advance expenses incurred in defending any proceeding upon receipt of an
undertaking by the Agent to repay such amount if it is ultimately determined
that the Agent is not entitled to be indemnified.
Section 317(h) provides, with certain exceptions, that no indemnification
shall be made under Section 317 where it appears that it would be inconsistent
with a provision of the corporation's articles, bylaws, a shareholder resolution
or an agreement which prohibits or otherwise limits indemnification, or where it
would be inconsistent with any condition expressly imposed by a court in
approving a settlement.
Section 317(i) authorizes a corporation to purchase and maintain insurance
on behalf of an Agent for liabilities arising by reason of the Agent's status,
whether or not the corporation would have the power to indemnify the Agent
against such liability under the provisions of Section 317.
Registrant's Bylaws (the "Bylaws") provide for the indemnification of
officers and directors of the Registrant, to the maximum extent permitted by the
Corporations Code, against expenses, judgments, fines, settlements, and other
amounts actually and reasonably incurred in connection with any proceeding
arising by reason of the fact that such person is or was an officer or director
of the Registrant, and further provides for the advance to such officer or
director of expenses incurred by such officer or director in any such proceeding
to the maximum extent permitted by law. The Bylaws also provide that
Registrant's Board of Directors may provide for the indemnification of, or
advancement of expenses to, other Agents. Registrant's Articles of Incorporation
provide that the liability of directors of the Registrant shall be eliminated to
the fullest extent permissible under California law, but contain no specific
provisions with respect to the indemnification of, or advancement of expenses
to, Agents.
Reference is also made to Section 7 of the Underwriting Agreement among
Donaldson, Lufkin & Jenrette Securities Corporation, the Registrant and WFS (see
Exhibit 1.1), which provides for indemnification of the Registrant under certain
circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Not applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
A. EXHIBITS
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement*
3.1 Articles of Incorporation of WFS Financial Auto Loans, Inc.*
3.2 Bylaws of WFS Financial Auto Loans, Inc.*
4.1 Form of Trust Agreement among WFS Financial Auto Loans, Inc., as Seller,
Westcorp Investments, Inc., Financial Security Assurance Inc. and The Chase
Manhattan Bank (USA), as Owner Trustee (including form of Certificates)*
4.2 Form of Indenture among WFS Financial 1996-B Owner Trust, Financial Security
Assurance Inc. and Bankers Trust Company, as Indenture Trustee (including
forms of Notes)*
5.1 Opinion of Mitchell, Silberberg & Knupp LLP with respect to legality
8.1 Opinion of Mitchell, Silberberg & Knupp LLP with respect to tax matters
10.1 Form of Reinvestment Contract*
10.2 Form of Sale and Servicing Agreement
10.3 Form of Insurance Agreement*
10.4 Form of Financial Guaranty Insurance Policy (Notes)*
</TABLE>
II-2
<PAGE> 98
<TABLE>
<C> <S>
10.5 Form of Financial Guaranty Insurance Policy (Certificates)*
10.6 Form of Indemnification Agreement*
10.7 Form of Administration Agreement among WFS Financial 1996-B Owner Trust,
Western Financial Savings Bank, F.S.B., and Bankers Trust Company, as
Indenture Trustee*
23.1 Consent of Mitchell, Silberberg & Knupp LLP (included as part of Exhibit 5.1)
23.2 Consent of Mitchell, Silberberg & Knupp LLP (included as part of Exhibit 8.1)
23.3 Consent of Coopers & Lybrand, L.L.P.
24.1 Power of Attorney*
25.1 Statement of Eligibility and Qualification of Indenture Trustee*
</TABLE>
- ---------------
* Previously filed.
B. FINANCIAL STATEMENT SCHEDULES
Not applicable.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes as follows:
(a) To provide to the Underwriter at the closing date specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriter to provide prompt delivery to
each purchaser.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore
unenforceable. In the event that a claim for indemnification against such
liabilities (other than payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of such Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(c) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act will be deemed to be part of this registration
statement as of the time it was declared effective.
(d) For purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus will be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time will be deemed to
be the initial bona fide offering thereof.
II-3
<PAGE> 99
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Irvine
and State of California, on the 13th day of June, 1996.
WFS FINANCIAL AUTO LOANS, INC.,
as originator of
WFS FINANCIAL 1996-B OWNER TRUST
By: /s/ JAMES R. DOWLAN
-------------------------------------
James R. Dowlan
President
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 3 to Registration Statement on Form S-1 has been signed by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- -------------------------------- --------------
<S> <C> <C>
/s/ JAMES R. DOWLAN President and Chief Executive June 13, 1996
- -------------------------------------------- Officer, Director (Principal
James R. Dowlan Executive Officer)
/s/ LEE A. WHATCOTT Chief Financial Officer June 13, 1996
- --------------------------------------------
Lee A. Whatcott (Principal Financial and
Accounting Officer)
/s/ W. LEE THYER Director June 13, 1996
- --------------------------------------------
W. Lee Thyer
/s/ JOY SCHAEFER Director June 13, 1996
- --------------------------------------------
Joy Schaefer
* Director June 13, 1996
- --------------------------------------------
James R. May
* Director June 13, 1996
- --------------------------------------------
Jeffrey B. Davis
*By: /s/ JAMES R. DOWLAN
----------------------------------------
James R. Dowlan
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 100
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT DESCRIPTION PAGE
- ------------- --------------------------------------------------------------------------- -----
<C> <S> <C>
1.1 Form of Underwriting Agreement*............................................
3.1 Articles of Incorporation of WFS Financial Auto Loans, Inc.*...............
3.2 Bylaws of WFS Financial Auto Loans, Inc.*..................................
4.1 Form of Trust Agreement among WFS Financial Auto Loans, Inc., as Seller,
Westcorp Investments, Inc., Financial Security Assurance Inc. and The Chase
Manhattan Bank (USA), as Owner Trustee (including form of Certificates)*...
4.2 Form of Indenture among WFS Financial 1996-B Owner Trust, Financial
Security Assurance Inc. and Bankers Trust Company, as Indenture Trustee
(including forms of Notes)*................................................
5.1 Opinion of Mitchell, Silberberg & Knupp LLP with respect to legality.......
8.1 Opinion of Mitchell, Silberberg & Knupp LLP with respect to tax matters....
10.1 Form of Reinvestment Contract*.............................................
10.2 Form of Sale and Servicing Agreement.......................................
10.3 Form of Insurance Agreement*...............................................
10.4 Form of Financial Guaranty Insurance Policy (Notes)*.......................
10.5 Form of Financial Guaranty Insurance Policy (Certificates)*................
10.6 Form of Indemnification Agreement*.........................................
10.7 Form of Administration Agreement among WFS Financial 1996-B Owner Trust,
Western Financial Savings Bank, F.S.B., and Bankers Trust Company, as
Indenture Trustee*.........................................................
23.1 Consent of Mitchell, Silberberg & Knupp LLP (included as part of Exhibit
5.1).......................................................................
23.2 Consent of Mitchell, Silberberg & Knupp LLP (included as part of Exhibit
8.1).......................................................................
23.3 Consent of Coopers & Lybrand, L.L.P........................................
24.1 Power of Attorney*.........................................................
25.1 Statement of Eligibility and Qualification of Indenture Trustee*...........
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
Exhibit 5.1
[MITCHELL, SILBERBERG & KNUPP LLP Letterhead]
June 13, 1996
WFS Financial Auto Loans, Inc.
23 Pasteur Road
Irvine, California 92718
Securities and Exchange Commission
450 5th Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
Re: WFS Financial 1996-B Owner Trust
Registration Statement on Form S-1, File Number 33-99422
Ladies and Gentlemen:
We are counsel for WFS Financial Auto Loans, Inc. (the
"Company") in connection with the proposed offering of $525,000,000 principal
amount of Auto Receivable Backed Securities consisting of four classes of Notes
and one class of Certificates (the Notes and Certificates together, the
"Securities") as identified in the above referenced Registration Statement to be
issued by the WFS Financial 1996-B Owner Trust (the "Trust") originated by the
Company. The Notes are obligations of the Trust secured by the assets of the
Trust and the Certificates represent undivided interests in the assets of the
Trust. The Notes are to be issued pursuant to an indenture to be dated as of
June 1, 1996 between the Trust and Bankers Trust Company as the Trustee (the
"Indenture"). The Certificates are to be issued pursuant to a trust agreement to
be dated as of June 1, 1996 (the "Agreement") among the Company, WFS
Investments, Inc., Financial Security Assurance Inc. and The Chase Manhattan
Bank (USA), as Owner Trustee. The Securities are to be registered for sale
pursuant to the accompanying Form S-1 Registration Statement.
In our capacity as counsel for the Company and for purposes of
this opinion, we have made those examinations and investigations of the legal
and factual matters we deemed advisable, and have examined the originals, or
copies identified to our satisfaction as being true copies of the originals, of
the certificates, documents, corporate records, and other instruments which we,
in our judgment, have considered necessary or appropriate to enable us to render
the opinion expressed below. We have relied,
<PAGE> 2
WFS Financial Auto Loans, Inc.
Securities and Exchange Commission
June 13, 1996
Page 2
without independent investigation or confirmation, upon certificates provided by
public officials and officers of the Company as to certain factual matters. In
the course of our examinations and investigations, we have assumed the
genuineness of all signatures on original documents, and the due execution and
delivery of all documents requiring due execution and delivery for the
effectiveness thereof.
Based upon and subject to the foregoing and in reliance
thereon, and subject to the assumptions, exceptions and qualifications set forth
herein, it is our opinion that:
The Notes, when executed and authenticated as specified in the
Indenture and delivered to and paid for by Donaldson, Lufkin & Jenrette
Securities Corporation (the "Underwriter") pursuant to the underwriting
agreement between the Underwriter, the Company and WFS Financial Inc (the
"Underwriting Agreement"), will constitute legal, valid and binding obligations
of the Trust, entitled to the benefits of the Indenture, and enforceable in
accordance with their terms, except as enforceability thereof may be limited by
bankruptcy, insolvency, reorganization or other laws, provisions or principles
now or hereafter in effect affecting the enforcement of creditors' rights
generally and except that no opinion is expressed as to the availability of
remedies of specific performance, injunction or other forms of equitable relief,
all of which may be subject to certain tests of equity jurisdiction, equitable
defenses and the discretion of the court before which any such proceeding may be
brought.
The Certificates have been duly authorized, and when executed
and authenticated as specified in the Agreement and delivered to and paid for by
the Underwriter pursuant to the Underwriting Agreement, will be legally issued,
fully paid and non-assessable, and will be binding obligations of the Trust and
entitled to the benefits of the Agreement.
We consent to the filing of this opinion with, and to the
reference to our firm under the caption "Legal Matters" in the Registration
Statement. In giving our consent, we do not hereby admit that we come within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the rules and regulations thereunder. This opinion
is given as of the date hereof and we assume no obligation to advise you of
changes that may hereafter be brought to our attention.
Very truly yours,
/s/ MITCHELL, SILBERBERG & KNUPP LLP
-------------------------------------
MITCHELL, SILBERBERG & KNUPP LLP
<PAGE> 1
LAW OFFICES
[MITCHELL, SILBERBERG & KNUPP LLP Letterhead]
Exhibit 8.1
June 13, 1996
WFS Financial Auto Loans, Inc.
23 Pasteur Road
Irvine, California 92718
Re: WFS Financial 1996-B Owner Trust
Registration Statement on Form S-1
Dear Sirs and Madams:
We have acted as legal counsel for WFS Financial Auto Loans,
Inc., a California corporation (the "Company"), in connection with the
preparation of the Company's Registration Statement, as amended, on Form S-1
under the Securities Act of 1933, as amended (the "Registration Statement"),
filed with the Securities and Exchange Commission relating to the issuance of
certain certificates (the "Certificates") representing undivided interests in
the WFS Financial 1996-B Owner Trust (the "Trust") and certain notes (the
"Notes" and together with the Certificates the "Securities") secured by the
assets of the Trust.
In rendering the opinion set forth below, we have examined the
Registration Statement dated as filed on June 14, 1996 (the "Form S-1") and such
exhibits to the Form S-1 as we have considered necessary or appropriate for the
purposes of this opinion. In rendering this opinion, we have assumed that a
final version of the Form S-1 will become the effective Registration Statement
of the Company without material change in the facts stated, and that the
issuance of the Securities will be duly authorized by all necessary action and
duly executed substantially in the manner described in the Form S-1. In
rendering this opinion, we have relied upon certain representations regarding
the underlying facts set forth in the Form S-1, including the existence, nature
and sufficiency of the installment contracts which shall be held as assets of
the Trust, as set forth in certain certificates provided by officers of the
Company and by officers of Western Financial Savings Bank, F.S.B. and WFS
Financial Inc. The opinion set forth herein is expressly based upon such
assumptions and representations and upon the accuracy of those facts so assumed
or represented. With respect to the underlying facts, we have made only such
factual inquiries as we have deemed appropriate and have not independently
verified any facts.
<PAGE> 2
WFS Financial Auto Loans, Inc.
June 13, 1996
Page 2
Based upon and subject to the foregoing, and in reliance
thereon and subject to the assumptions, exceptions and qualifications set forth
herein, it is our opinion that the information contained in the Form S-1 under
the caption "Certain Federal Income Tax Consequences" and the caption "Certain
California Income Tax Consequences", to the extent that such information
constitutes matters of law or legal conclusions, is correct.
The opinions expressed in this letter are based upon relevant
provisions of the Internal Revenue Code of 1986, as amended, the California
Revenue and Taxation Code, federal and state income tax regulations, and current
interpretations thereof as expressed in court decisions and administrative
determinations in effect on this date. All of these provisions, regulations and
interpretations are subject to changes which might result in substantial
modifications of our opinions, and we do not undertake to advise you of any such
modification. We caution that although the opinions expressed in this letter
represents our best legal judgment as to such matter, our opinions have no
binding effect on the Internal Revenue Service, the California Franchise Tax
Board or the courts.
We have expressed no opinion as to other tax issues affecting
the Company, the purchasers of the Securities or any other participant to the
transactions described in the Form S-1. We expressly refrain from rendering any
opinion as to the tax laws of any state (or subdivision thereof) other than
California or any foreign country.
We consent to the filing of this opinion with, and to the
reference to our firm under the caption "Legal Matters" in the Registration
Statement. In giving our consent, we do not hereby admit that we come within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the rules and regulations thereunder. This opinion
is given as of the date hereof and we assume no obligation to advise you of
changes that may hereafter be brought to our attention.
Very truly yours,
/s/ MITCHELL, SILBERBERG & KNUPP LLP
-------------------------------------
MITCHELL, SILBERBERG & KNUPP LLP
<PAGE> 1
EXHIBIT 10.2
Brown & Wood
Draft of
6/12/96
================================================================================
SALE AND SERVICING AGREEMENT
among
WFS FINANCIAL 1996-B OWNER TRUST,
as Issuer,
WFS FINANCIAL AUTO LOANS, INC.,
as Seller,
and
WFS FINANCIAL INC,
as Master Servicer
Dated as of June 1, 1996
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE ONE
DEFINITIONS
Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02. Usage of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 1.03. Section References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 1.04. Calculations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 1.05. Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE TWO
CONVEYANCE OF CONTRACTS
Section 2.01. Conveyance of Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE THREE
THE CONTRACTS
Section 3.01. Representations and Warranties of the Seller . . . . . . . . . . . . . . . . . . . . 29
Section 3.02. Purchase of Certain Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 3.03. Custody of Contract Files . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 3.04. Duties of Master Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 3.05. Instructions; Authority to Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 3.06. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 3.07. Effective Period and Termination . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 3.08. Nonpetition Covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 3.09. Collecting Title Documents Not Delivered at the Closing Date . . . . . . . . . . . . 38
ARTICLE FOUR
ADMINISTRATION AND SERVICING OF CONTRACTS
Section 4.01. Duties of Master Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 4.02. Collection of Contract Payments . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 4.03. Realization upon Defaulted Contracts . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 4.04. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 4.05. Maintenance of Security Interests in Financed Vehicles . . . . . . . . . . . . . . . 44
Section 4.06. Covenants, Representations and Warranties of Master Servicer . . . . . . . . . . . . 44
Section 4.07. Repurchase of Contracts upon Breach . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 4.08. Servicing Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 4.09. Reporting by the Master Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 4.10. Annual Statement as to Compliance . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 4.11. Annual Independent Certified Public Accountants' Report . . . . . . . . . . . . . . 50
Section 4.12. Access to Certain Documentation and Information Regarding Contracts . . . . . . . . 51
Section 4.13. Fidelity Bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 4.14. Indemnification; Third Party Claims . . . . . . . . . . . . . . . . . . . . . . . . 51
ARTICLE FIVE
DISTRIBUTIONS; SPREAD ACCOUNT;
STATEMENTS TO SECURITYHOLDERS
Section 5.01. Establishment of Trust Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 5.02. Collections; Realization Upon Policies; Net Deposits . . . . . . . . . . . . . . . . 55
Section 5.03. Application of Collections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 5.04. Advances and Nonrecoverable Advances; Repurchase Amounts . . . . . . . . . . . . . . 56
Section 5.05. Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 5.06. Spread Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 5.07. Statements to Securityholders . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
ARTICLE SIX
THE SELLER
Section 6.01. Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 6.02. Liability of Seller; Indemnities . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 6.03. Merger or Consolidation of, or Assumption of the Obligations of, Seller;
Certain Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 6.04. Limitation on Liability of Seller and Others . . . . . . . . . . . . . . . . . . . . 64
Section 6.05. Seller Not to Resign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
ARTICLE SEVEN
THE MASTER SERVICER
Section 7.01. Liability of Master Servicer; Indemnities . . . . . . . . . . . . . . . . . . . . . 66
Section 7.02. Corporate Existence; Status as Master Servicer; Merger . . . . . . . . . . . . . . . 67
Section 7.03. Performance of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 7.04. Master Servicer Not to Resign; Assignment . . . . . . . . . . . . . . . . . . . . . 67
Section 7.05. Limitation on Liability of Master Servicer and Others . . . . . . . . . . . . . . . 68
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE EIGHT
DEFAULT
Section 8.01. Servicer Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 8.02. Trustee to Act; Appointment of Successor . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 8.03. Repayment of Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 8.04. Notification to Noteholders and Certificateholders . . . . . . . . . . . . . . . . . . . . 72
Section 8.05. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 8.06. Insurer Direction of Insolvency Proceedings . . . . . . . . . . . . . . . . . . . . . . . 73
ARTICLE NINE
TERMINATION
Section 9.01. Optional Purchase of All Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Section 9.02. Transfer to the Insurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
ARTICLE TEN
MISCELLANEOUS
Section 10.01. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Section 10.02. Protection of Title to Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Section 10.03. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Section 10.04. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Section 10.05. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Section 10.06. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 10.07. Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 10.08. Insurer Default or Insolvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 10.09. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 10.10. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 10.11. Assignment by Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 10.12. Limitation of Liability of Owner Trustee . . . . . . . . . . . . . . . . . . . . . . . . 80
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C>
SCHEDULES
Schedule A Schedule of Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SA-1
Schedule B Location of Contract Files . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SB-1
EXHIBITS
Exhibit A Form of Certificate Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Exhibit B Form of Insurance Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
Exhibit C Form of Note Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
Exhibit D Form of RIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1
Exhibit E Form of Subservicing Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-1
Exhibit F Form of Distribution Date Statement . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
iv
<PAGE> 6
This SALE AND SERVICING AGREEMENT, dated as of June 1, 1996, is among
WFS Financial 1996-B Owner Trust (the "Issuer"), WFS Financial Auto Loans, Inc.
(the "Seller") and WFS Financial Inc ("WFS" or, in its capacity as Master
Servicer, the "Master Servicer").
WHEREAS the Issuer desires to purchase from the Seller a portfolio of
receivables arising in connection with automobile retail installment sales
contracts and installment loans (collectively, the "Contracts") primarily
originated by new or used motor vehicle dealers and purchased by WFS, which
Contracts were subsequently sold by WFS to the Seller;
WHEREAS the Seller is willing to sell the Contracts to the Issuer
pursuant to the terms hereof; and
WHEREAS the Master Servicer is willing to service the Contracts
pursuant to the terms hereof;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE ONE
DEFINITIONS
Section 1.01. Definitions. Whenever used in this Agreement, the
following words and phrases, unless the context otherwise requires, shall have
the following meanings:
"Accelerated Principal Distributable Amount" means, with respect to any
Distribution Date, an amount equal to the sum of one-twelfth of 2.00% of the
Aggregate Scheduled Balance as of the first day of each month of the Due Period
relating to such Distribution Date, after giving effect to the distributions
pursuant to Section 5.05(a) without regard to the inclusion of such amount as
part of the Note Principal Distributable Amount or the Certificate Principal
Distributable Amount, as the case may be. The Accelerated Principal
Distributable Amount shall be allocated as follows: (i) On each Distribution
Date to but excluding the Distribution Date on which the principal amount of the
Class A-4 Notes has been reduced to zero, the Accelerated Principal
Distributable Amount shall be distributed to the Note Distribution Account; (ii)
on the Distribution Date on which the principal amount of the Class A-4 Notes is
reduced to zero, (A) any portion of the Accelerated Principal Distributable
Amount necessary to reduce the principal amount of the Class A-4 Notes to zero
shall be deposited into the Note Distribution Account and (B) any remaining
portion of the Accelerated Principal Distributable Amount shall be deposited in
the Certificate Distribution Account; and (ii) on each Distribution Date
thereafter, to and including the Distribution Date on which the principal amount
of the Certificates is reduced to zero, the Accelerated Principal Distributable
Amount shall be deposited in the Certificate Distribution Account.
<PAGE> 7
"Advance" means the aggregate amount, as of a Master Servicer Report
Date, that the Master Servicer is required to advance in respect of the
Contracts pursuant to Section 5.04(a).
"Affiliate" of any specified Person means 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 specified
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" or "controlled" have meanings
correlative to the foregoing.
"Aggregate Net Liquidation Losses" means, with respect to any Due
Period, the aggregate of the amounts by which (i) the principal amount of each
Contract that became a Liquidated Contract pursuant to clause (ii) or (iv) of
the definition of the term "Liquidated Contract" during such Due Period plus
accrued and unpaid interest thereon (adjusted to the Net Contract Rate) to the
last Due Date in such Due Period exceeds (ii) the Net Liquidation Proceeds for
such Contract.
"Aggregate Scheduled Balance" means, with respect to any Distribution
Date and the Outstanding Contracts, the aggregate of the Scheduled Balances of
such Contracts as of the end of the Due Period immediately preceding such
Distribution Date.
"Aggregate Scheduled Balance Decline" means, with respect to any
Distribution Date, the amount by which the Aggregate Scheduled Balance as of the
immediately preceding Distribution Date (or the Cut-Off Date Aggregate Scheduled
Balance in the case of the first Distribution Date) exceeds the Aggregate
Scheduled Balance as of such Distribution Date.
"Amount Financed" means, with respect to a Contract, the amount
advanced under the Contract toward the purchase price of the related Financed
Vehicle and any related costs, exclusive of any amount allocable to the premium
of force-placed physical damage insurance covering such Financed Vehicle.
"APR" of a Contract means annual percentage rate and is the annual rate
of finance charges specified in such Contract.
"Assignments" means, collectively, (i) the original instrument of
assignment of a Contract and all other documents securing such Contract made by
the Seller to the Owner Trustee (or in the case of any Contract acquired by the
Seller from another Person, from such other Person to the Seller and from the
Seller to the Owner Trustee), and (ii) the original instrument granting a
security interest in such Contract and other documents made by the Owner Trustee
to the Insurer, which, in the case of clause (i) above, is in a form sufficient
under the laws of the jurisdiction under which the security interest in the
related Financed Vehicle arises to permit the assignee to exercise all rights
granted by the Obligor under such Contract and such other documents and all
rights available under applicable law to the Obligee under such Contract and
such other documents and, in the case of clause (ii) above, is in a form
sufficient under the laws of the jurisdiction under which the security interest
in the related Financed Vehicle arises to permit the Insurer, as a secured
party, to exercise, upon
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<PAGE> 8
default, all rights granted by the Obligor under such Contract and such other
documents and all rights available under applicable law to the Obligee under
such Contract and which, in the case of either clause (i) or (ii) above, may, to
the extent permitted by the laws of such jurisdiction, be a blanket instrument
of assignment covering other Contracts as well and which may also, to the extent
permitted by the laws of the jurisdiction governing such Contract, be an
instrument of assignment running directly from the Seller to the Owner Trustee
and the Insurer.
"Bank" means Western Financial Savings Bank, F.S.B., and its
successors.
"Basic Documents" shall have the meaning specified in the Indenture.
"Business Day" means any day that is not a Saturday, Sunday or other
day on which banking institutions in Los Angeles, California, Wilmington,
Delaware or New York, New York are authorized or obligated by law, executive
order or government decree to remain closed.
"Calculation Day" means the last day of each calendar month.
"Certificate Balance" equals $__________ on the Closing Date, and, on
any date thereafter, equals the Original Certificate Balance, reduced by all
amounts allocable to principal previously distributed to Certificateholders.
"Certificate Deficiency Claim Amount" means, with respect to each
Distribution Date, the amount, if any, by which the Certificate Distributable
Amount for such Distribution Date exceeds the amount of Net Collections actually
deposited in the Certificate Distribution Account on such Distribution Date in
accordance with Section 5.05.
"Certificate Distributable Amount" means, with respect to any
Distribution Date, the sum of the Certificate Principal Distributable Amount and
the Certificate Interest Distributable Amount for such Distribution Date.
"Certificate Distribution Account" shall have the meaning specified in
the Trust Agreement.
"Certificate Final Distribution Date" means the __________ 20__
Distribution Date.
"Certificate Interest Carryover Shortfall" means, with respect to any
Distribution Date, the excess of the sum of the Certificate Quarterly Interest
Distributable Amount for the immediately preceding Distribution Date and any
outstanding Certificate Interest Carryover Shortfall on such preceding
Distribution Date, over the amount in respect of interest on the Certificates
that is actually deposited in the Certificate Distribution Account on such
preceding Distribution Date, plus interest on such excess, to the extent
permitted by law, at the Pass-Through Rate for the related Interest Period.
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<PAGE> 9
"Certificate Interest Distributable Amount" means, with respect to any
Distribution Date, the sum of the Certificate Quarterly Interest Distributable
Amount for such Distribution Date and the Certificate Interest Carryover
Shortfall for such Distribution Date. Interest with respect to the Certificates
shall be computed on the basis of a 360-day year consisting of twelve 30-day
months for all purposes of this Agreement and the other Basic Documents.
"Certificate Percentage" means (i) for each Distribution Date to but
excluding the Distribution Date on which the principal amount of the Class A-3
Notes is reduced to zero, zero, and (ii) for each Distribution Date on and after
the Distribution Date on which the principal amount of the Class A-3 Notes is
reduced to zero, a percentage equal to 100% minus the Note Percentage for such
Distribution Date.
"Certificate Policy" means the financial guaranty insurance policy
issued by the Insurer to the Owner Trustee on behalf of the Certificateholders,
the form of which is attached as Exhibit A hereto.
"Certificate Policy Claim Amount" means, with respect to each
Distribution Date, the amount, if any, by which the Certificate Distributable
Amount for such Distribution Date exceeds the sum of (i) the amount of Net
Collections actually deposited in the Certificate Distribution Account on such
Distribution Date in accordance with Section 5.05 plus (ii) the amount of the
Certificate Deficiency Claim Amount, if any, paid to the Certificate
Distribution Account from the Spread Account pursuant to a Deficiency Notice
delivered for such Distribution Date.
"Certificate Pool Factor" means, as of any Distribution Date, a
six-digit decimal figure equal to the Certificate Balance (after giving effect
to any reductions therein to be made on such Distribution Date) divided by the
Original Certificate Balance.
"Certificate Principal Carryover Shortfall" means, as of any
Distribution Date, the excess of the sum of the Certificate Quarterly Principal
Distributable Amount and any outstanding Certificate Principal Carryover
Shortfall from the immediately preceding Distribution Date, over the amount in
respect of principal that is actually deposited in the Certificate Distribution
Account on such Distribution Date.
"Certificate Principal Distributable Amount" means, with respect to any
Distribution Date, the sum of the Certificate Quarterly Principal Distributable
Amount for such Distribution Date and any outstanding Certificate Principal
Carryover Shortfall from the immediately preceding Distribution Date; provided,
however, that the Certificate Principal Distributable Amount shall not exceed
the Certificate Balance. In addition, on the Distribution Date on which the
principal amount of the Class A-4 Notes has been reduced to zero, any
Accelerated Principal Distributable Amounts remaining after such reduction shall
be included in the Certificate Principal Distributable Amount, and on each
Distribution Date thereafter, to and including the Distribution Date on which
the Certificate Balance is reduced to zero, the Accelerated Principal
Distributable Amount will be included in the Certificate Principal Distributable
Amount. Further, on the Certificate Final Distribution Date, the
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<PAGE> 10
amount required to be deposited into the Certificate Distribution Account will
include the amount necessary to reduce the Certificate Balance to zero.
"Certificate Quarterly Interest Distributable Amount" means, with
respect to any Distribution Date, 90 days of interest (or, in the case of the
first Distribution Date, interest accrued from and including the Cut-Off Date to
but excluding such Distribution Date) at the Pass-Through Rate on the
Certificate Balance on the immediately preceding Distribution Date, after giving
effect to all payments of principal on such preceding Distribution Date (or, in
the case of the first Distribution Date, the Original Certificate Balance).
"Certificate Quarterly Principal Distributable Amount" means, with
respect to any Distribution Date, the Certificate Percentage of the Principal
Distributable Amount for such Distribution Date.
"Certificate Register" shall have the meaning specified in the Trust
Agreement.
"Certificateholders" shall have the meaning specified in the Trust
Agreement.
"Certificates" means the Trust Certificates (as such term is defined in
the Trust Agreement).
"Charge-Off Percentage" means, with respect to any three calendar month
period, the annualized percentage equivalent of the average of the percentages
of charged-off Contracts for each month in such period. For each month, the
percentage of charged-off Contracts shall be the percentage equivalent of a
fraction, the numerator of which is the aggregate Scheduled Balance for such
month of all Contracts that became Liquidated Contracts pursuant to clauses (ii)
or (iv) of the definition of the term "Liquidated Contract" during such month,
less any Net Liquidation Proceeds received during such month (and not reflected
in prior periods) with respect to such Contracts or from any Contracts
charged-off in prior periods, and the denominator of which is the aggregate
Scheduled Balances of all Outstanding Contracts as of the end of the immediately
preceding month.
"Class" means all Notes whose form is identical except for variation in
denomination, principal amount or owner.
"Class A-1 Final Distribution Date" means the __________, 1997
Distribution Date.
"Class A-1 Noteholder" means the Person in whose name a Class A-1 Note
is registered in the Note Register, as such term is defined in the Indenture.
"Class A-1 Rate" means _____% per annum.
"Class A-2 Final Distribution Date" means the __________ Distribution
Date.
"Class A-2 Noteholder" means the Person in whose name a Class A-2 Note
is registered in the Note Register.
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"Class A-2 Rate" means _____% per annum.
"Class A-3 Final Distribution Date" means the __________ Distribution
Date.
"Class A-3 Noteholder" means the Person in whose name a Class A-3 Note
is registered in the Note Register.
"Class A-3 Rate" means _____% per annum.
"Class A-4 Final Distribution Date" means the __________ Distribution
Date.
"Class A-4 Noteholder" means the Person in whose name a Class A-4 Note
is registered in the Note Register.
"Class A-4 Rate" means _____% per annum.
"Clearing Agency" means an organization registered as a "clearing
agency" pursuant to Section 17A of the Exchange Act.
"Clearing Agency Participant" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with the
Clearing Agency.
"Closing Date" means June __, 1996.
"Collateral Agent" means Bankers Trust Company, in its capacity as
collateral agent for the Insurer under the Insurance Agreement, and each
successor thereto.
"Collection Account" means the account established and maintained as
such pursuant to Section 5.01.
"Company" means WFS Investments, Inc., and its successors.
"Contract" means each retail installment sales contract and security
agreement or installment loan agreement and security agreement which has been
executed by an Obligor and pursuant to which such Obligor purchased, financed or
pledged the Financed Vehicle described therein, agreed to pay the deferred
purchase price (i.e., the purchase price net of any down payment) or amount
borrowed, together with interest, as therein provided in connection with such
purchase or loan, granted a security interest in such Financed Vehicle, and
undertook to perform certain other obligations as specified in such Contract and
which has been conveyed to the Trust pursuant to this Agreement.
"Contract Documents" means, with respect to each Contract, (i) the
Contract; (ii) either the original Title Document for the related Financed
Vehicle or a duplicate copy thereof issued or certified by the Registrar of
Titles which issued the original thereof, together with evidence of perfection
of the security interest in the related Financed Vehicle granted by such
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<PAGE> 12
Contract, as determined by the Master Servicer to be permitted or required to
perfect such security interest under the laws of the applicable jurisdiction
(or, in the case of a Contract listed on the Schedule of Contracts, written
evidence from the Dealer selling such Financed Vehicle that the Title Document
for such Financed Vehicle showing the Seller as first lienholder has been
applied for); (iii) the related Assignments; (iv) any agreement(s) modifying the
Contract (including, without limitation, any extension agreement(s)); and (v)
documents evidencing the existence of physical damage insurance covering such
Financed Vehicle.
"Contract Files" means the Contract Documents and all other papers and
computerized records customarily kept by the Master Servicer and all
Subservicers, as the case may be, in servicing contracts and loans comparable to
the Contracts.
"Contract Number" means, with respect to any Contract included in the
Trust, the number assigned to such Contract by the Master Servicer, which number
is set forth in the related Schedule of Contracts.
"Contract Rate" means, with respect to a Contract that is a (i) Simple
Interest Contract, the interest rate borne by such Contract as determined by the
terms thereof, and (ii) Rule of 78's Contract, the discount rate used in
accordance with the definition of the term "Scheduled Balance" to derive the
Scheduled Balance of such Contract.
"Corporate Trust Office" means the principal office of the Indenture
Trustee at which at any particular time its corporate trust business shall be
administered, which office at the date of the execution of this Agreement is
located at Four Albany Street - 10th Floor, New York, New York 10006, Attention:
Corporate Trust Department - Asset Backed Group; or at such other address as the
Indenture Trustee may designate from time to time by notice to the
Certificateholders, the Insurer, the Master Servicer and the Seller.
"Cut-Off Date" means June 1, 1996.
"Cut-Off Date Aggregate Scheduled Balance" means $525,000,000.00, the
aggregate Scheduled Balance of the Contracts as of the Cut-Off Date.
"Dealer" means the seller of a Financed Vehicle, which seller
originated and assigned the related Contract, including the Bank.
"Defaulted Contract" means, with respect to any Due Period, a Contract
(i) which is, at the end of such Due Period, delinquent in the amount of at
least two monthly payments or (ii) with respect to which the related Financed
Vehicle has been repossessed or repossession efforts have been commenced.
"Deficiency Claim Date" means, with respect to any Distribution Date,
the fourth Business Day immediately preceding such Distribution Date.
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<PAGE> 13
"Deficiency Notice" means, with respect to any Distribution Date, the
notice delivered pursuant to Section 5.02(c) by the Master Servicer to the
Indenture Trustee, with a copy to the Insurer and the Owner Trustee.
"Delinquency Percentage" means, with respect to any three calendar
month period, the average of the percentages of delinquent Contracts for each
month in such period. For each month the percentage of delinquent Contracts
shall be the percentage equivalent of a fraction, the numerator of which is the
sum of (i) the aggregate Scheduled Balance of all Outstanding Contracts 61 days
or more delinquent (after taking into account permitted extensions), plus (ii)
the aggregate Scheduled Balance of all Contracts in respect of which the related
Financed Vehicles have been repossessed but have not been liquidated (to the
extent the related Contract is not otherwise reflected in clause (i) above), and
the denominator of which is the aggregate Scheduled Balance of all outstanding
Contracts, in each case, on the last day of such calendar month.
"Delivery" means, when used with respect to Trust Account Property:
(i) with respect to certificated securities, 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
(collectively, "Physical Property") and transfer thereof to the
Indenture Trustee or the Owner Trustee, as the case may be, in
accordance with Sections 8-313(1)(a), 8-313(d)(i) or 8-313(1)(g) of the
UCC, evidence that any such Physical Property that is in registrable
form has been registered in the name of the Indenture Trustee or the
Owner Trustee, as the case may be, its custodian or its nominee and
that any other procedures have occurred that are necessary under such
Sections (as applicable) or otherwise under the UCC to effect complete
transfer of ownership of any such Trust Account Property to the
Indenture Trustee or the Owner Trustee, as the case may be, consistent
with changes in applicable laws or regulations or the interpretation
thereof;
(ii) with respect to any Trust Account Property 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: (A) book-entry
registration of such property to an appropriate book-entry account
maintained with a Federal Reserve Bank by the Indenture Trustee or the
Owner Trustee, as the case may be, of a deposit advice or other written
confirmation of such book-entry registration, (B) the making by any
such custodian of entries in its books and records identifying such
book-entry security held through the Federal Reserve System pursuant to
federal book-entry regulations as belonging to the Indenture Trustee or
the Owner Trustee, as the case may be, and indicating that such
custodian holds such Trust Account Property solely as agent for the
Indenture Trustee or the Owner Trustee, as the case may be, and the
making by the Indenture Trustee or the Owner Trustee, as the case may
be, of entries in its books and records establishing that it holds such
Trust Account Property solely as trustee pursuant to Section 5.01, and
(C) such additional or alternative procedures as
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<PAGE> 14
may hereafter become necessary to effect complete transfer of ownership
of any such Trust Account Property to the Indenture Trustee or the
Owner Trustee, as the case may be, consistent with changes in
applicable law or regulations or the interpretation thereof; and
(iii) with respect to any Trust Account Property that is an
uncertificated security under Article 8 of the UCC and that is not
governed by clause (ii) above, registration of the transfer to, and
ownership of such Trust Account Property by, the Indenture Trustee or
the Owner Trustee, as the case may be, its custodian or its nominee by
the issuer of such Trust Account Property.
"Depositor" means the Seller in its capacity as Depositor under the
Trust Agreement, and its successors.
"Distribution Date" means each February 20, May 20, August 20 and
November 20 or, if any such date shall not be a Business Day, the next
succeeding Business Day, commencing August 20, 1996.
"Distribution Date Outstanding Principal Balance" means, with respect
to any Contract which has been the subject of a Partial Prepayment and under
which payments are applied on the basis of the Rule of 78's, the amount equal to
the total of all Monthly P&I due after the Distribution Date next succeeding the
Due Period during which such Partial Prepayment was received, less any unearned
finance charge as of the Due Date next preceding such Distribution Date computed
in accordance with the Rule of 78's.
"Distribution Date Statement" shall have the meaning specified in
Section 4.09(a).
"DTC" means The Depository Trust Company, and its successors.
"Due Date" means, as to any Contract, the date upon which an
installment of Monthly P&I is due.
"Due Period" means, with respect to any Distribution Date, the three
month period commencing on the first day of the third month preceding the month
in which such Distribution Date occurs (or from the Cut-Off Date in the case of
the first Distribution Date) to the last day of the month immediately preceding
the month in which such Distribution Date occurs.
"Eligible Account" means (i) a segregated trust account in the
corporate trust department that is maintained with a depository institution or
trust company the commercial paper or other short-term debt obligations of which
have credit ratings from Standard & Poor's at least equal to "A-1" and from
Moody's equal to "P-1", which account is fully insured up to applicable limits
by the FDIC or (ii) a general ledger account or deposit account that is (a)
guaranteed by an entity the long-term unsecured debt obligations of which are
rated "Aa2" by Moody's and "AAA" by Standard & Poor's or the commercial paper or
other short-term debt obligations of which have credit ratings from Standard &
Poor's at least equal to
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<PAGE> 15
"A-1+" and from Moody's equal to "P-1" or (b) that otherwise will not result in
the qualification, reduction or withdrawal by any Rating Agency of its
then-applicable rating on any Class of Notes or the Certificates (without giving
effect to the guaranty under either Policy of payments owing to
Securityholders). If any Eligible Account falls below the ratings specified in
(i) or (ii) above, all monies in such Eligible Account will be moved within 15
days to an account meeting the requirements of an Eligible Account.
"Eligible Investments" means any one or more of the following
obligations or securities, all of which shall be denominated in United States
dollars:
(i) direct obligations of, and obligations fully guaranteed as
to timely payment of principal and interest by, the United States or
any agency or instrumentality of the United States the obligations of
which are backed by the full faith and credit of the United States;
(ii) general obligations of or obligations guaranteed as to
timely payment of principal and interest by FNMA, FHLMC or any state of
the United States, the District of Columbia or the Commonwealth of
Puerto Rico then rated the highest available credit rating of each
Rating Agency for such obligations;
(iii) demand and time deposits in, certificates of deposit of,
banker's acceptances issued by, or federal funds sold by any depository
institution or trust company (including the Indenture Trustee or the
Owner Trustee) incorporated under the laws of the United States or any
state and subject to supervision and examination by federal and/or
state banking authorities, so long as at the time of such investment or
contractual commitment providing for such investment either (a) the
long-term, unsecured debt obligations of such depository institution or
trust company have credit ratings from Moody's at least equal to "Aa2"
and shall have commercial paper or other short-term debt obligations
rated at least "A-1+" by Standard & Poor's and "P-1" by Moody's or (b)
the investment is guaranteed by an entity the long-term, unsecured debt
obligations of which have been rated "AAA" by Standard & Poor's and at
least "Aa2" by Moody's or otherwise will not result in the
qualification, reduction or withdrawal by Moody's or Standard & Poor's
of its then-applicable rating on any Class of Notes or the Certificates
(without giving effect to the guaranty under either Policy of payments
owing to Securityholders); if the investments in this paragraph (iii)
fall below the specified ratings, the invested monies shall be moved to
Eligible Investments as soon as the investment matures; however, no new
monies may be invested in any instrument that is not currently an
Eligible Investment;
(iv) repurchase obligations with respect to (a) any security
described in clause (i) above or (b) any other security issued or
guaranteed as to timely payment of principal and interest by an agency
or instrumentality of the United States, in either case entered into
with a depository institution or trust company (including the Indenture
Trustee or the Owner Trustee), acting as principal and the
counterparty, the long-term unsecured debt obligations of which are
rated "AAA" by Standard & Poor's
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<PAGE> 16
and at least "Aa2" by Moody's and commercial paper or other short-term
debt obligations are rated at least "A-1+" by Standard & Poor's and
"P-1" by Moody's;
(v) securities bearing interest or sold at a discount issued by
any corporation incorporated under the laws of the United States or any
state thereof which at the time of such investment or contractual
commitment providing for such investment have long-term, unsecured debt
obligations rated "AAA" by Standard & Poor's and at least "Aa2" by
Moody's or better and shall have commercial paper or other short-term
debt obligations rated at least "A-1+" by Standard & Poor's and "P-1"
by Moody's; provided, however, that securities issued by any
corporation will not be Eligible Investments to the extent that
investment therein will cause the then outstanding principal amount of
securities issued by such corporation and held as part of the Trust to
exceed 10% of the sum of the aggregate Outstanding Principal Balances
of the Contracts and all Eligible Investments held as part of the
Trust;
(vi) commercial paper given the highest rating by each Rating
Agency at the time of such investment; provided that the issuer of such
commercial paper must have a long-term unsecured debt rating of at
least A1 from Moody's and A+ from Standard & Poor's;
(vii) the RIC, if guaranteed by an entity which has long-term,
unsecured debt obligations rated "AAA" by Standard & Poor's and at
least "Aa2" by Moody's or otherwise will not result in a qualification,
reduction or withdrawal by Moody's or Standard & Poor's of its
then-applicable rating on any Class of Notes or the Certificates
(without giving effect to the guaranty under either Policy of payments
owing to Securityholders); if the investments in this paragraph (vii)
fall below the specified ratings, the invested monies shall be moved to
Eligible Investments on the fifth Business Day preceding the next
succeeding Distribution Date; however, no new monies may be invested in
the RIC until the RIC once again becomes an Eligible Investment; and
(viii) any other investments which meet the criteria of each
Rating Agency as being consistent with their then-current rating of
each Class of Notes and the Certificates.
"Excess Amounts" shall have the meaning specified in Section 5.05(b).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"FDIC" means the Federal Deposit Insurance Corporation, and its
successors.
"FHLMC" means the Federal Home Loan Mortgage Corporation, and its
successors.
"FNMA" means the Federal National Mortgage Association, and its
successors.
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"Final Distribution Date" means with respect to (i) the Notes, the
Class A-1 Final Distribution Date, the Class A-2 Final Distribution Date, the
Class A-3 Final Distribution Date or the Class A-4 Final Distribution Date, as
the case may be, and (ii) the Certificates, the Certificate Final Distribution
Date.
"Financed Vehicle" means, as to any Contract, an automobile or
light-duty truck, together with all accessions thereto, securing the related
Obligor's indebtedness under such Contract.
"Fiscal Agent" shall have the meaning set forth in the Policies.
"Full Prepayment" means any of the following: (i) payment to the Master
Servicer of 100% of the outstanding principal balance of a Contract, exclusive
of any Contract referred to in clause (ii), (iii) or (iv) of the definition of
the term "Liquidated Contract," together with all accrued and unpaid interest
thereon to the date of such payment, or (ii) payment by the Seller or the Master
Servicer, as the case may be, of the purchase price of a Contract in connection
with the purchase of a Contract pursuant to Section 3.02 or 4.07 or payment by
the Seller of the purchase price of a Contract in connection with the purchase
of all Contracts pursuant to Section 9.01.
"Funded Amount" means the cash amount on deposit in the Spread Account.
"Holder" means, with respect to a (i) Certificate, the Person in whose
name such Certificate is registered in the Certificate Register and (ii) Note,
the Person in whose name such Note is registered in the Note Register.
"Holding Account" means the account established and maintained as such
pursuant to Section 5.01.
"Indenture" means the Indenture, dated as of the date hereof, among the
Issuer and the Indenture Trustee.
"Indenture Trustee" means the Person acting as Indenture Trustee under
the Indenture, its successors in interest and any successor trustee under the
Indenture.
"Independent", when used with respect to any specified Person, means
such a Person who (i) is in fact independent of the Issuer, the Seller or WFS,
(ii) is not a director, officer or employee of any Affiliate of the Issuer, the
Seller or WFS, (iii) is not a person related to any officer or director of the
Issuer, the Seller, WFS or any of their respective Affiliates, (iv) is not a
holder (directly or indirectly) of more than 10% of any voting securities of
Issuer, the Seller, WFS or any of their respective Affiliates, and (v) is not
connected with the Issuer, the Seller or WFS as an officer, employee, promoter,
underwriter, trustee, partner, director or person performing similar functions.
"Insolvency Event" means, with respect to a specified Person, (i) the
entry of a decree or order for relief by a court or regulatory authority having
jurisdiction in respect of such
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<PAGE> 18
Person in an involuntary 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 appointing a receiver, liquidator,
assignee, custodian, trustee, sequestrator or other similar official for such
Person or for any substantial part of its property, or ordering the winding-up
or liquidation of such Person's affairs, and the continuance of any such decree
or order unstayed and in effect for a period of 60 consecutive days; (ii) the
commencement of an involuntary case under the federal bankruptcy laws, as now or
hereinafter in effect, or any other present or future federal or state
bankruptcy, insolvency or similar law and such case is not dismissed within 60
days; or (iii) the commencement by such Person of a voluntary case under the
federal bankruptcy laws, as now or hereinafter in effect, or any other present
or future federal or state, bankruptcy, insolvency or similar law, or the
consent by such Person to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or other similar official
for such Person or for any substantial part of its property, or the making by
such Person of an assignment for the benefit of creditors or the failure by such
Person generally to pay its debts as such debts become due or the taking of
corporate action by such Person in furtherance of any the foregoing.
"Insolvency Proceeding" shall have the meaning specified in Section
8.06.
"Insolvency Proceeds" shall have the meaning specified in Section
9.01(b).
"Insurance Agreement" means the Insurance, Indemnity and Pledge
Agreement, dated as of the date hereof, among the Insurer, the Issuer, the
Seller, the Master Servicer, the Company and the Indenture Trustee, the form of
which is attached hereto as Exhibit B.
"Insurance Agreement Obligations" means, as of any date, the aggregate
of amounts owing to the Insurer under the Insurance Agreement as of such date,
other than amounts representing payments made under the Policies for which the
Insurer has not yet been reimbursed.
"Insurance Policy" means, with respect to a Financed Vehicle, the
policies of comprehensive and collision insurance and the LDI Policy.
"Insurance Proceeds" means proceeds paid pursuant to any Insurance
Policy and amounts (exclusive of rebated premiums) paid by any insurer under any
other insurance policy related to a Financed Vehicle, a Contract or an Obligor.
"Insurer" means Financial Security Assurance Inc., and its successors.
"Insurer Insolvency" means (i) the entry of a decree or order for
relief by a court or regulatory authority having jurisdiction in respect of the
Insurer in an involuntary case under the federal bankruptcy laws, as now or
hereafter in effect, or any other present or future federal or state bankruptcy,
insolvency, rehabilitation or similar law, or appointing a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar official of the
Insurer or of any substantial part of its property, or ordering the winding up
or liquidation of the affairs of the Insurer and the continuance of any such
decree or order unstayed and in effect for a
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period of 60 consecutive days, or (ii) the commencement by the Insurer 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,
rehabilitation or similar law, or the consent by the Insurer to the appointment
of or taking possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Insurer or of any substantial part
of its property or the making by the Insurer of an assignment for the benefit of
creditors or the failure by the Insurer generally to pay its debts as such debts
become due or the taking of corporate action by the Insurer in furtherance of
any of the foregoing.
"Interest Period" means, with respect to any Distribution Date, the
period from and including the Distribution Date immediately preceding such
Distribution Date (or, in the case of the first Distribution Date, from and
including the Cutoff Date) to but excluding such Distribution Date.
"Interest Rate" means the Class A-1 Rate, the Class A-2 Rate, the Class
A-3 Rate or the Class A-4 Rate, as the case may be.
"Investment Earnings" means, with respect to any Distribution Date, the
investment earnings (net of losses and investment expenses) on amounts on
deposit in the Trust Accounts, other than the Holding Account, to be deposited
into the Collection Account on such Distribution Date pursuant to Section
5.01(b).
"Issuer" means the WFS Financial 1996-B Owner Trust.
"LDI Policy" means the limited dual interest policy providing coverage
for physical damage to, or loss of, a Financed Vehicle.
"Lien" means a security interest, lien, charge, pledge, equity or
encumbrance of any kind, other than tax liens, mechanics' liens and any liens
that attach to the respective Contract by operation of law.
"Liquidated Contract" means a Contract which (i) has been the subject
of a Full Prepayment; (ii) was a Defaulted Contract and with respect to which
the related Financed Vehicle was repossessed and, after any cure period required
by law has expired, the Master Servicer has charged-off any losses prior to the
end of the four-month period referred to in clause (iv); (iii) has been paid in
full on or after its Maturity Date; or (iv) has become delinquent as to all or
part of four or more payments of Monthly P&I.
"Liquidation Expenses" means reasonable out-of-pocket expenses (not to
exceed Liquidation Proceeds), other than any overhead expenses, incurred by the
Master Servicer in connection with the realization of the full amounts due under
any Contract (including the attempted liquidation of a Contract which is brought
current and is no longer in default during such attempted liquidation) and the
sale of any property acquired in respect thereof which are not recoverable under
any Insurance Policy.
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<PAGE> 20
"Liquidation Proceeds" means amounts received by the Master Servicer
(before reimbursement for Liquidation Expenses) in connection with the
realization of the amounts due and to become due under any Defaulted Contract
and the sale of any property acquired in respect thereof.
"Master Servicer" means WFS in its capacity as the master servicer of
the Contracts under Section 4.01, and, in each case upon succession in
accordance herewith, each successor servicer in the same capacity pursuant to
Section 4.01 and each successor master servicer pursuant to Section 8.02.
"Master Servicer Report Date" means, with respect to any Distribution
Date, the fifth Business Day prior to such Distribution Date.
"Maturity Date" means, with respect to any Contract, the date on which
the last scheduled payment of such Contract shall be due and payable (after
giving effect to all Prepayments received prior to the date of determination) as
such date may be extended pursuant to Section 4.02.
"Minimum Funded Amount" means, with respect to the amount of cash on
deposit in the Spread Account as of any Calculation Day or Distribution Date, an
amount equal to the greater of (i) 3% of the Aggregate Scheduled Balance as of
such Calculation Day or Distribution Date, as the case may be, or (ii) 1% of the
Cut-Off Date Aggregate Scheduled Balance.
"Money Market Notes" means the Class A-1 Notes.
"Money Market Period" means the period of time from the Closing Date up
to and including the Distribution Date on which the principal amount of the
Class A-1 Notes is reduced to zero.
"Monthly P&I" means, with respect to any Contract, the amount of each
monthly installment of principal and interest payable to the Obligee of such
Contract in accordance with the terms thereof, exclusive of any charges
allocable to the financing of any insurance premium and charges which represent
late payment charges or extension fees.
"Moody's" means Moody's Investors Service, Inc., and its successors.
"Net Collections" means, with respect to any Distribution Date and the
related Due Period, the sum of (i) all amounts of principal and interest
collected on or in respect of the Contracts during such Due Period (in the case
of principal and interest that are part of any Liquidation Proceeds or Insurance
Proceeds, only to the extent of the related Net Liquidation Proceeds or Net
Insurance Proceeds), less (a) the Retained Yield, if any, (b) any late payments
of interest retained by the Master Servicer as reimbursement for Advances
pursuant to Section 5.04, (c) any installments of Monthly P&I or Prepayments
retained by the Master Servicer as reimbursement for Nonrecoverable Advances
pursuant to Section 5.04 and (d) any Prepayments and related interest included
in clause (iii) in respect of the immediately
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<PAGE> 21
preceding Distribution Date; (ii) the Advance for such Due Period to the extent
actually made; (iii) the investment earnings on funds in the Collection Account
for such Distribution Date (which, except as otherwise provided in Section 5.01,
shall be the RIC Reinvestment Earnings); (iv) amounts withdrawn from the Holding
Account and deposited in the Collection Account in such Due Period pursuant to
Section 5.02; and (v) the aggregate Repurchase Amount for Repurchased Contracts
deposited in or credited to the Collection Account pursuant to Section 5.04(c)
on the related Master Servicer Report Date.
"Net Contract Rate" means, with respect to any Contract, its Contract
Rate less the sum of the Servicing Fee Percent and the Retained Yield Percent.
"Net Insurance Proceeds" means, with respect to any Contract, Insurance
Proceeds net of any such amount applied to the repair of the related Financed
Vehicle, released to the related Obligor in accordance with the normal servicing
procedures of the Master Servicer or representing expenses incurred by the
Master Servicer and recoverable hereunder.
"Net Liquidation Proceeds" means the amount derived by subtracting from
the Liquidation Proceeds of a Contract the related Liquidation Expenses.
"Nonrecoverable Advance" means any Advance proposed to be made or
previously made by the Master Servicer which, in its good faith judgment, would
not be or will not be ultimately recoverable by the Master Servicer from late
payments, Insurance Proceeds or Liquidation Proceeds.
"Note Deficiency Claim Amount" means, with respect to each Distribution
Date, the amount, if any, by which the Note Distributable Amount for such
Distribution Date exceeds the amount of Net Collections actually deposited in
the Note Distribution Account on such Distribution Date in accordance with
Section 5.05.
"Note Distributable Amount" means, with respect to any Distribution
Date, the sum of the Note Principal Distributable Amount and the Note Interest
Distributable Amount for such Distribution Date.
"Note Distribution Account" means the account established and
maintained as such pursuant to Section 5.01.
"Note Final Distribution Date" means the Class A-1 Final Distribution
Date, the Class A-2 Final Distribution Date, the Class A-3 Final Distribution
Date or the Class A-4 Final Distribution Date, as the case may be.
"Note Interest Carryover Shortfall" means, with respect to any
Distribution Date and a Class of Notes, the excess, if any, of the sum of the
Note Interest Distributable Amount for such Class for the immediately preceding
Distribution Date plus any outstanding Note Interest Carryover Shortfall for
such Class on such preceding Distribution Date, over the amount in respect of
interest that is actually deposited in the Note Distribution Account with
respect to such Class on such preceding Distribution Date, plus, to the extent
permitted by applicable
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<PAGE> 22
law, interest on the amount of interest due but not paid to Noteholders of such
Class on the preceding Distribution Date at the related Interest Rate for the
related Interest Period.
"Note Interest Distributable Amount" means, with respect to any
Distribution Date and a Class of Notes, the sum of the Note Quarterly Interest
Distributable Amount for such Class of Notes for such Distribution Date and the
Note Interest Carryover Shortfall for such Class of Notes for such Distribution
Date. For all purposes of this Agreement and the other Basic Documents, interest
with respect to the Notes shall be computed on the basis of a 360-day year
consisting of twelve 30-day months.
"Note Percentage" means, (i) for each Distribution Date to but
excluding the Distribution Date on which the principal amount of the Class A-3
Notes is reduced to zero, 100%; (ii) for the Distribution Date on which the
principal amount of the Class A- 3 Notes is reduced to zero, (A) 100% of the
Principal Distributable Amount until the principal amount of the Class A-3 Notes
has been reduced to zero and (B) with respect to any remaining portion of the
Principal Distributable Amount, the percentage calculated as set forth in clause
(iii); (iii) for each Distribution Date after the Distribution Date on which the
principal amount of the Class A-3 Notes is reduced to zero, a percentage,
expressed as a fraction the numerator of which is the aggregate principal amount
of the Class A-4 Notes as of the immediately preceding Distribution Date and the
denominator of which is the sum of the aggregate principal amount of the Class
A-4 Notes and the principal amount of the Certificates as of the immediately
preceding Distribution Date, in each instance after giving effect to all
payments of principal on such preceding Distribution Date; and (iv) for any
Distribution Date thereafter, zero.
"Note Policy" means the financial guaranty insurance policy issued by
the Insurer to the Indenture Trustee on behalf of the Noteholders, the form of
which is attached as Exhibit C hereto.
"Note Policy Claim Amount" means, with respect to each Distribution
Date, the amount, if any, by which the Note Distributable Amount for such
Distribution Date exceeds the sum of (i) the amount of Net Collections actually
deposited in the Note Distribution Account on such Distribution Date in
accordance with Section 5.05 and (ii) the amount of the Note Deficiency Claim
Amount, if any, paid to the Note Distribution Account from the Spread Account
pursuant to a Deficiency Notice delivered for such Distribution Date.
"Note Pool Factor" means, with respect to any Class of Notes as of any
Distribution Date, a six-digit decimal figure equal to the outstanding principal
amount of such Class of Notes (after giving effect to any reductions thereof to
be made on such Distribution Date) divided by the original outstanding principal
amount of such Class of Notes.
"Note Principal Carryover Shortfall" means, as of any Distribution
Date, the excess of the sum of the Note Quarterly Principal Distributable Amount
and any outstanding Note Principal Carryover Shortfall from the immediately
preceding Distribution Date over the amount in respect of principal that is
actually deposited in the Note Distribution Account on such Distribution Date.
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"Note Principal Distributable Amount" means, with respect to any
Distribution Date, the sum of the Note Quarterly Principal Distributable Amount
and any Accelerated Principal Distributable Amount for such Distribution Date
and the Note Principal Carryover Shortfall as of the close of the immediately
preceding Distribution Date; provided, however, that the Note Principal
Distributable Amount with respect to a Class of Notes shall not exceed the
outstanding principal amount of such Class of Notes; and provided, further, that
the Note Principal Distributable Amount on each Note Final Distribution Date
shall not be less than the amount that is necessary (after giving effect to
other amounts to be deposited in the Note Distribution Account on such
Distribution Date and allocable to principal) to reduce the outstanding
principal amount of the related Class of Notes to zero.
"Note Quarterly Interest Distributable Amount" means, with respect to
any Distribution Date, interest accrued for the related Interest Period on each
Class of Notes at the related Interest Rate for such Class on the outstanding
principal amount of the Notes of such Class on the immediately preceding
Distribution Date, after giving effect to all payments of principal to the
Noteholders of such Class on or prior to such Distribution Date (or, in the case
of the first Distribution Date, on the original principal amount of such Class
of Notes).
"Note Quarterly Principal Distributable Amount" means, with respect to
any Distribution Date, the Note Percentage of the Principal Distributable Amount
for such Distribution Date.
"Note Register" shall have the meaning specified in the Indenture.
"Obligee" means the Person to whom an Obligor is indebted under a
Contract.
"Obligor" on a Contract means the purchaser or co-purchasers of
the Financed Vehicle and any other Person who owes payments under the Contract.
"Offered Securities" shall have the meaning specified in Section
6.03(b)(ii).
"Officers' Certificate" means a certificate signed by the Chairman, the
President or a Vice President, and by the Treasurer, an Assistant Treasurer, the
Controller, an Assistant Controller, the Secretary or an Assistant Secretary of
any Person delivering such certificate and delivered to the Person to whom such
certificate is required to be delivered. In the case of an Officers' Certificate
of the Master Servicer, at least one of the signing officers must be a Servicing
Officer. Unless otherwise specified, any reference herein to an Officers'
Certificate shall be to an Officers' Certificate of the Master Servicer.
"Opinion of Counsel" means a written opinion of counsel (who may be
counsel to the Seller or the Master Servicer) acceptable to the Indenture
Trustee or the Owner Trustee, as the case may be, and the Insurer.
"Original Certificate Balance" means $__________.
"Original Class A-1 Note Balance" means $__________.
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"Original Class A-2 Note Balance" means $__________.
"Original Class A-3 Note Balance" means $__________.
"Original Class A-4 Note Balance" means $__________.
"Original Pool Balance" means $525,000,000.00.
"Outstanding" means,
(i) with respect to a Contract and as of time of reference thereto, a
Contract that has not reached its Maturity Date, has not been fully prepaid, has
not become a Liquidated Contract and has not been repurchased pursuant to
Section 3.02, 4.07 or 9.01; and
(ii) with respect to Securities, as of the date of determination, all
Notes of one Class or of all Classes, all Certificates or all Notes and
Certificates, as the case may be, theretofore authenticated and delivered
except:
(a) Securities theretofore cancelled by the applicable
Registrar or delivered to the applicable Registrar for cancellation;
(b) Securities or portions thereof the payment for which money
in the necessary amount has been theretofore deposited with the
applicable Trustee or any Paying Agent, as the case may be, in trust
for the Holders of such Securities (provided, however, that if such
Securities are to be redeemed or repurchased, notice of such redemption
or repurchase has been duly given or provision for such notice has been
made, satisfactory to the applicable Trustee); and
(c) Securities in exchange for or in lieu of other Securities
which have been authenticated and delivered unless proof satisfactory
to the applicable Trustee is presented that any such Securities are
held by a bona fide purchaser;
provided, however, that Securities which have been paid with proceeds of the
Note Policy or the Certificate Policy, as the case may be, shall continue to
remain Outstanding until the Insurer has been paid as subrogee hereunder or
reimbursed pursuant to the Insurance Agreement as evidenced by a written notice
from the Insurer delivered to the applicable Trustee, and the Insurer shall be
deemed to be the Holder thereof to the extent of any payments thereon made by
the Insurer; provided, further, that in determining whether the Holders of a
specified Outstanding Amount of Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder or under any other
Basic Document, Securities owned by the Issuer, any other obligor upon the
Securities, the Seller, WFS or any of their respective Affiliates shall be
disregarded and deemed not to be Outstanding, except that, in determining
whether the applicable Trustee shall be protected in relying upon any such
request, demand, authorization, direction, notice, consent or waiver, only
Securities that the applicable Trustee knows to be so owned shall be so
disregarded. Securities so owned that have been pledged in good faith may be
regarded as Outstanding if
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the pledgee establishes to the satisfaction of the applicable Trustee the
pledgee's right so to act with respect to such Securities and that the pledgee
is not the Issuer, any other obligor upon the Securities, the Seller, WFS or any
of their respective Affiliates.
"Outstanding Amount" means the aggregate principal amount of all Notes
of one Class or of all Classes, of all Certificates or of all Securities, as the
case may be, Outstanding at the date of determination.
"Outstanding Principal Balance" means, with respect to a Contract that
is a (i) Rule of 78's Contract, the amount set forth as the Outstanding
Principal Balance of such Contract on the Schedule of Contracts, such amount
being the total of all Monthly P&I due after the Cut-Off Date less any unearned
interest as of the Due Date for such Contract next preceding the Cut-Off Date
computed in accordance with the Rule of 78's, and (ii) Simple Interest Contract,
the actual principal balance under the terms thereof.
"Overcollateralization Amount" means, with respect to any Calculation
Day or Distribution Date, the amount by which (i) the sum of (A) the Aggregate
Scheduled Balance as of such date of calculation plus (B) the portion of Net
Collections constituting principal payments on or in respect of the Contracts on
deposit in the Collection Account on such date of calculation plus (C) amounts
on deposit in the Holding Account constituting principal payments as of such
date of calculation exceeds (ii) the Outstanding Amount of the Securities as of
such date of calculation.
"Owner Trustee" means the Person acting as Owner Trustee under the
Trust Agreement, its successors in interest and any successor owner trustee
under the Trust Agreement.
"Owner Trustee Corporate Trust Office" shall have the meaning specified
in the Trust Agreement.
"Partial Prepayment" means, as to any Rule of 78's Contract, any
partial prepayment received by the Master Servicer that (i) is not accompanied
by an amount specified by the related Obligor to be interest representing
scheduled interest due on any date or dates in any month or months subsequent to
the month of such prepayment and (ii) is required by the terms of such Contract
to be applied to the payment of principal thereunder on or prior to the Due Date
next succeeding the date of receipt.
"Pass-Through Rate" means _____% per annum.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Physical Property" shall have the meaning specified in the definition
of the term "Delivery".
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"Policies" means the Note Policy and the Certificate Policy.
"Pool Balance" as of the time of determination means the Aggregate
Scheduled Balance, exclusive of the Scheduled Balances of all Contracts that are
not Outstanding at the end of the Due Period ending immediately prior to such
time of determination.
"Preference Claim" shall have the meaning specified in Section 8.06.
"Preferential Transfer" shall have the meaning specified for the term
"Preference" in the Insurance Agreement.
"Prepayment" means a Full Prepayment or a Partial Prepayment.
"Principal Distributable Amount" means, with respect to any
Distribution Date, the sum of (a) the Aggregate Scheduled Balance Decline for
such Distribution Date, (b) the aggregate Scheduled Balances as of such
Distribution Date of all Rule of 78's Contracts that became Liquidated Contracts
pursuant to clause (i), (ii) or (iv) of the definition of the term "Liquidated
Contract" during the related Due Period.
"Proprietary Fund" means money market mutual funds having a rating from
each Rating Agency in the highest investment category granted by each Rating
Agency, including funds for which the Indenture Trustee or the Owner Trustee or
any of their respective Affiliates is investment manager or advisor.
"Rating Agency" means Moody's and Standard & Poor's.
"Record Date" means, with respect to a Class of Notes or the
Certificates and any Distribution Date, the Business Day immediately preceding
such Distribution Date or, if Definitive Securities are issued, the 15th day of
the month preceding the month in which such Distribution Date occurs.
"Registrar of Titles" means the agency, department or office having the
responsibility for maintaining records of titles to motor vehicles and issuing
documents evidencing such titles in the jurisdiction in which a particular
Financed Vehicle is registered.
"Repurchase Amount" means, with respect to any Contract, the amount, as
of the date of repurchase, required to prepay in full the principal of and
accrued interest on such Contract to the last Due Date in the Due Period in
which such repurchase occurs.
"Repurchased Contract" means a Contract repurchased as of the related
Master Servicer Report Date by the Master Servicer pursuant to Section 4.07 or
by the Seller pursuant to Section 3.02.
"Responsible Officer" means any officer within the Corporate Trust and
Agency Group (or any successor group of the Indenture Trustee) including any
Vice President, assistant secretary or any other officer or assistant officer of
the Indenture Trustee customarily
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performing functions similar to those performed by the persons who at the time
shall be such officers, respectively, or to whom any corporate trust matter is
referred at the Indenture Trustee's Corporate Trust Office because of his
knowledge of and familiarity with the particular subject.
"Retained Yield" shall mean the amount, if any, stripped off from the
interest portion of Monthly P&I by the Servicer and paid to the Seller on a
monthly basis. Such monthly payment shall be equal to (i) with respect to each
Rule of 78's Contract, an amount equal to the product of the Retained Yield
Percent and the Scheduled Balance of such Contract (as specified in the Schedule
of Contracts) for such month, but only to the extent that the Monthly P&I for
such Contract for such month has been collected and (ii) with respect to each
Simple Interest Contract, out of each payment of Monthly P&I collected on such
Contract, an amount equal to interest at the Retained Yield Percent of the
Scheduled Balance of such Contract on which, and for the period for which, the
interest portion of such payment of Monthly P&I was calculated.
"Retained Yield Percent" means, with respect to any Contract, the
lesser of (i) 0.00% per annum or (ii) a percent per annum equal to the APR of
such Contract less the sum of (A) 1% and (B) the Pass-Through Rate.
"RIC" means the reinvestment contract provided by the Bank or, with the
prior written consent of the Insurer, a subsidiary thereof, substantially in the
form of Exhibit D hereto, in consideration of the right to direct the investment
of the funds on deposit in all Trust Accounts other than the Holding Account.
"RIC Reinvestment Earnings" means, with respect to any Distribution
Date, the related Due Period and the Contracts that were Outstanding at the
beginning of such Due Period, the amount by which the sum of the Note Quarterly
Interest Distributable Amount and the Certificate Quarterly Interest
Distributable Amount for such Distribution Date exceeds the sum of (i) the
aggregate amount of interest on the Contracts (adjusted with respect to each
Contract to the Pass-Through Rate and exclusive of such collections that have
been paid to the Master Servicer in reimbursement of a previous Advance) that is
part of Net Collections for such Distribution Date and (ii) the amount of the
Advance as to interest for such Distribution Date (assuming for this purpose
that an Advance was made in respect of each delinquent Contract).
"Rule of 78's Contract" means a Contract as to which payments
thereunder are applied on the basis of the Rule of 78's.
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"Schedule of Contracts" means the list or lists of Contracts attached
as Schedule A to this Agreement, which Contracts are being transferred to the
Owner Trustee as part of the Trust Estate, which list or lists shall set forth
the following information with respect to each such Contract in numbered
columns:
<TABLE>
<CAPTION>
Information Column Number
----------- -------------
<S> <C>
Contract Number ("ACCT NBR") . . . . . . . . . . . . . . . . . . . 2
Date of Origination ("ORG DT") . . . . . . . . . . . . . . . . . . 9
Maturity Date ("MAT DT") . . . . . . . . . . . . . . . . . . . . . 15
Monthly P&I ("P&I") . . . . . . . . . . . . . . . . . . . . . . . . 10
Original Principal Balance ("ORIG AMT") . . . . . . . . . . . . . . 16 Top
Outstanding Principal Balance ("PRIN BAL") . . . . . . . . . . . . 16 Bottom
Discount Rate ("APR") . . . . . . . . . . . . . . . . . . . . . . . 7
</TABLE>
In addition, the Scheduled Balance of each Rule of 78's Contract for each Due
Date after the Cut-Off Date, computed in accordance with the definition of the
term "Scheduled Balance," shall be contained on a computer disk or tape (the
"Disk") that shall be delivered by the Company to the Master Servicer not later
than the fifth Business Day following the Closing Date. The Disk shall be a part
of the Schedule of Contracts and shall be made available by the Master Servicer
to the Indenture Trustee and the Owner Trustee upon reasonable request. In
calculating the outstanding principal balance of each Rule of 78's Contract to
be set forth in Column 16 Bottom, it shall be assumed that all payments of
principal and interest due on or before the Cut-Off Date were received and
applied. The Schedule of Contracts or the Disk shall also set forth the Original
Pool Balance and the Retained Yield Percent (if the Retained Yield Percent is
not the same for all the Contracts).
"Scheduled Balance" means, with respect to any Rule of 78's Contract
for each month and as of the Cut-Off Date, the amount set forth as the
"Scheduled Balance" of such Contract for such month or the Cut-Off Date on the
Schedule of Contracts. Each such amount shall be the present value (determined
as provided below) for the applicable month of all payments of Monthly P&I on
the Contract due after such month (due during or after the first Due Period in
the case of a Scheduled Balance at the Cut-Off Date). Such present value as of a
Distribution Date shall be determined by discounting, on a monthly basis, each
such payment of Monthly P&I from the last day of the month in which such payment
of Monthly P&I is due back to the first day of the month during which such
Distribution Date occurs, using the applicable discount rate specified below.
Such present value as of the Cut-Off Date shall be determined by discounting, on
a monthly basis, each such payment of Monthly P&I back from the last day of the
month in which such payment of Monthly P&I is due to the Cut-Off Date, using the
applicable discount rate specified below. The applicable discount rate (the
"Discount Rate") shall be the discount rate that will produce a present value at
the Cut-Off Date equal to the Outstanding Principal Balance of the Contract. The
Scheduled Balance of a Rule of 78's Contract that becomes a Liquidated Contract
or a Repurchased Contract shall be reduced to zero as of the Distribution Date
following the Due Period in which such Contract became a Liquidated Contract. In
the case of a Simple Interest Contract, the Scheduled Balance thereof is its
actual principal balance. The principal balance of a Simple Interest
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Contract that becomes a Repurchased Contract shall be deemed to be reduced to
zero upon the related repurchase thereof and the principal balance of a Simple
Interest Contract that becomes a Liquidated Contract shall be deemed to be
reduced to zero as of the date on which such Contract becomes a Liquidated
Contract. If a Partial Prepayment is received on any Rule of 78's Contract at
any time after the Cut-Off Date, the Schedule of Contracts shall be revised to
reflect the new Scheduled Balance of such Contract for each Due Date after the
date of such Partial Prepayment, any such recalculations being made in the
manner described above, except that "Outstanding Principal Balance" shall be
read to mean "Distribution Date Outstanding Principal Balance" and "Cut-Off
Date" shall be read to mean the Due Date next succeeding the Due Date after
which such Partial Prepayment was received. As used herein, reference to the
Scheduled Balance of a Contract for a Distribution Date shall mean (i) in the
case of a Rule of 78's Contract, the Scheduled Balance of such Contract on the
last day for such Contract in the Due Period ending immediately prior to such
Distribution Date, and (ii) in the case of a Simple Interest Contract, the
Scheduled Balance of such Contract at the close of business of the last day in
such Due Period, and reference to the Scheduled Balance of a Contract in a month
shall mean (i) in the case of a Rule of 78's Contract, the Scheduled Balance of
such Contract for the last day of such month and (ii) in the case of a Simple
Interest Contract, the Scheduled Balance of such Contract at the close of
business on the last day of such month.
"Securities" means the Notes and the Certificates.
"Securityholders" means the Holders of the Notes and the Certificates.
"Seller" means WFS Financial Auto Loans, Inc., in its capacity as the
Seller of the Contracts under this Agreement, and each successor thereto (in the
same capacity) pursuant to Section 6.03.
"Servicer Default" means an event specified in Section 8.01.
"Servicing Fee" means, as to any Distribution Date, the fee payable to
the Master Servicer for services rendered during the related Due Period, which
shall equal with respect to each Contract that is a (i) Rule of 78's Contract,
the amount equal to, for each month in such Due Period, the product of the
Servicing Fee Percent and the Scheduled Balance of such Contract (as specified
in the Schedule of Contracts) for such month in the related Due Period, but only
to the extent that the Monthly P&I for such Contract for such month has been
collected or advanced by the Master Servicer pursuant to Section 5.04 and (ii)
Simple Interest Contract, out of each payment of Monthly P&I collected or
advanced on such Contract an amount equal to interest at the Servicing Fee
Percent on the Scheduled Balance of such Contract on which, and for the period
for which, the interest portion of such payment of Monthly P&I was calculated.
"Servicing Fee Percent" means one-twelfth of 1.00% per annum.
"Servicing Officer" means any officer of the Master Servicer involved
in, or responsible for, the administration and servicing of the Contracts whose
name appears on a
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list of servicing officers furnished to the Indenture Trustee and the Owner
Trustee by the Master Servicer pursuant to Section 4.01.
"Simple Interest Contract" means a Contract as to which interest is
calculated each day on the basis of the actual principal balance of such
Contract on such day.
"Specified Spread Account Balance" means, with respect to any
Calculation Day or Distribution Date, _____% of the Aggregate Scheduled Balance
on such date of calculation, except that if on any date of calculation (i) the
Charge-Off Percentage for the three calendar month period ending on such date of
calculation exceeds _____% or (ii) the Delinquency Percentage for the three
calendar month period ending on such date of calculation exceeds _____%, then
the Specified Spread Account Balance shall equal _____% of the Aggregate
Scheduled Balance on such date of calculation (but only for so long as such
Charge-Off Percentage or Delinquency Percentage thresholds continue to be
exceeded on any subsequent date of calculation). Notwithstanding the foregoing,
in no event shall the Specified Spread Account Balance be greater than
$__________ or less than $__________; provided, however, the Specified Spread
Account Balance shall not be greater than the Outstanding Amount of the
Securities if such amount is less than $__________.
"Spread Account" means the account established and maintained as such
pursuant to Section 5.01. The Spread Account will be comprised of the Funded
Amount and the Overcollateralization Amount.
"Spread Account Initial Deposit" means $__________, 100% of which will
be cash.
"Standard & Poor's" means Standard & Poor's Ratings Services, a
division of McGraw-Hill Corporation, Inc., and its successors in interest.
"Subservicer" means any subservicer engaged by the Master Servicer to
subservice a Contract pursuant to Section 4.01.
"Subservicing Agreement" means an agreement between the Master Servicer
and a Subservicer relating to the servicing of one or more Contracts,
substantially in the form of Exhibit E hereto.
"Title Document" means, with respect to any Financed Vehicle, the
certificate of title for, or other evidence of ownership of, such Financed
Vehicle issued by the Registrar of Titles in the jurisdiction in which such
Financed Vehicle is registered.
"Trust" means the Issuer.
"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), including the Spread Account Initial Deposit, and all
proceeds of the foregoing.
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"Trust Accounts" shall have the meaning specified in Section 5.01(a).
"Trust Agreement" means the Trust Agreement, dated as of the date
hereof, among the Depositor, the Company, the Insurer and the Owner Trustee.
"Trust Estate" shall have the meaning specified in the Trust Agreement.
"UCC" means the Uniform Commercial Code as in effect in the applicable
jurisdiction.
"United States" means the United States of America.
"Unreimbursed Insurer Amounts" means, on any date, the amount that is
the sum of (i) all payments (if any) made under the Policies for which the
Insurer has not yet been reimbursed as of such date, plus (ii) all Insurance
Agreement Obligations as of such date.
"Vehicle Receivables" shall have the meaning specified in Section
6.03(b)(ii).
"Vice President" of any Person means any vice president of such Person,
whether or not designated by a number or words before or after the title "Vice
President," who is a duly elected officer of such Person.
"WFS" means WFS Financial Inc, a majority owned, operating subsidiary
of the Bank, and its successors and assigns.
Section 1.02. Usage of Terms. With respect to all terms in this
Agreement, the singular includes the plural and the plural the singular; words
importing any gender include the other genders; 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
amendments, modifications and supplements thereto or any 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;
and the term "including" means "including without limitation."
Section 1.03. Section References. All section references, unless
otherwise indicated, shall be to Sections in this Agreement.
Section 1.04. Calculations. Except as otherwise provided herein, all
interest rate and basis point calculations hereunder will be made on the basis
of a 360-day year and twelve 30-day months and will be carried out to at least
six decimal places. Collections of interest on Rule of 78's Contracts shall be
calculated as if such Contracts were actuarial contracts the scheduled principal
balances of which are the Scheduled Balances thereof, and collections of
interest on Simple Interest Contracts will be calculated in accordance with the
terms thereof.
Section 1.05. Accounting Terms. All accounting terms used but not
specifically defined herein shall be construed in accordance with generally
accepted accounting principles in the United States.
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ARTICLE TWO
CONVEYANCE OF CONTRACTS
Section 2.01. Conveyance of Contracts.
(a) In consideration of the Issuer's delivery to or upon the order of
the Seller of $____________, less the Spread Account Initial Deposit, effective
upon the Closing Date, the Seller hereby sells, grants, transfers, assigns and
otherwise conveys to the Issuer, without recourse (subject to the obligations
herein), all of the right, title and interest of the Seller (exclusive of (i)
the Retained Yield in respect of the Contracts, and (ii) the amount, if any,
allocable to any rebatable insurance premium financed by any Contract) in, to
and under the Contracts (which Contracts shall be listed in the Schedule of
Contracts), including, without limitation, all payments of Monthly P&I
(exclusive of the Retained Yield, which shall be paid directly to the Seller as
provided in Section 5.02(b)) due after the Cut-Off Date (excluding the amount
allocable to principal and interest due on or prior to the Cut-Off Date); all
Net Liquidation Proceeds and Net Insurance Proceeds with respect to any Financed
Vehicle to which a Contract relates received on or after the Cut-Off Date and
all other proceeds received on or in respect of such Contracts (other than
payments of Monthly P&I due prior to the Cut-Off Date), and any and all security
interests in the Financed Vehicles; the Contract Documents relating to the
Contracts (except the Contract Documents for Contracts which have been the
subject of a Full Prepayment received on or after the Cut-Off Date but no later
than one Business Day prior to the Closing Date, in lieu of which the Seller
shall have deposited in or credited to the Collection Account on or prior to the
Closing Date an amount equal to such Full Prepayment); and all proceeds in any
way delivered with respect to the foregoing, all rights to payments with respect
to the foregoing and all rights to enforce the foregoing, provided that
$__________ of the principal amount of Contract number __________ is retained by
the Seller.
(b) The Bank has filed or caused to be filed UCC-1 financing
statements, executed by the Bank as debtor, naming WFS as secured party and
describing the Contracts originated by the Bank and transferred to WFS on or
prior to the Closing Date as collateral with the Office of the Secretary of
State of the State of California . WFS has filed or caused to be filed UCC-1
financing statements executed by WFS as debtor, naming the Seller as secured
party and describing the Contracts as collateral with the office of the
Secretary of State of the State of California. The Seller has filed or caused to
be filed UCC-1 financing statements, executed by the Seller as debtor, naming
the Collateral Agent, on behalf of the Insurer, as secured party and describing
the Contracts as collateral, with the Office of the Secretary of State of the
State of California. The grant of a security interest to the Collateral Agent on
behalf of the Insurer and the rights of the Collateral Agent and the Insurer in
respect of such security interest shall be governed by the Insurance Agreement.
The Seller has filed or caused to be filed UCC-1 financing statements, executed
by the Seller as debtor, naming the Owner Trust as secured party and describing
the Contracts being sold by it to the Owner Trust as collateral, with the Office
of the Secretary of State of the State of California. The Owner Trust has filed
or caused to be filed UCC-1 financing statements, executed by the Owner Trust as
debtor, naming the Indenture Trustee, on behalf of the Noteholders, as
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secured party and describing the Contracts as collateral, with the office of the
Secretary of State of the States of Delaware and California. The grant of a
security interest to the Indenture Trustee and the rights of the Indenture
Trustee in the Contracts shall be governed by the Indenture. From time to time,
the Master Servicer shall cause to be taken such actions as are necessary to
continue the perfection of the respective interests of the Indenture Trustee,
the Owner Trust and the Collateral Agent on behalf of the Insurer in the
Contracts and to continue the first priority security interest of the Indenture
Trustee (subject to the security interest of the Insurer pursuant to the
Insurance Agreement) in the Financed Vehicles and their proceeds (other than, as
to such priority, any statutory lien arising by operation of law after the
Closing Date which is prior to such interest), including, without limitation,
the filing of financing statements, amendments thereto or continuation
statements and the making of notations on records or documents of title.
If any change in the name, identity or corporate structure of the
Seller or WFS or the relocation of the chief executive office of any of them
would make any financing or continuation statement or notice of lien filed under
this Agreement or the other Basic Documents seriously misleading within the
meaning of applicable provisions of the UCC or any title statute, the Master
Servicer, within the time period required by applicable law, shall file such
financing statements or amendments as may be required to preserve and protect
the interests of the Indenture Trustee, the Owner Trustee, the Securityholders
and the Insurer in the Contracts, Financed Vehicles and the proceeds thereof.
Promptly thereafter, the Master Servicer shall deliver to the Indenture Trustee,
the Owner Trustee and the Insurer an Opinion of Counsel stating that, in the
opinion of such counsel, all financing statements or amendments necessary fully
to preserve and protect the interests of the Indenture Trustee, the Owner
Trustee, Securityholders and the Insurer in the Contracts, Financed Vehicles and
the proceeds thereof have been filed, and reciting the details of such filings.
During the term of this Agreement, the Seller and WFS shall each
maintain its chief executive office in one of the states of the United States,
other than Louisiana or Tennessee.
The Master Servicer shall pay all reasonable costs and disbursements in
connection with the perfection and the maintenance of perfection, as against all
third parties, of the Indenture Trustee's right, title and interest in and to
the Contracts and in connection with maintaining the first priority security
interest (subject to the security interest of the Insurer pursuant to the
Insurance Agreement) in the Financed Vehicles and the proceeds thereof.
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ARTICLE THREE
THE CONTRACTS
Section 3.01. Representations and Warranties of the Seller. The Seller
hereby makes the following representations and warranties on which (i) the
Issuer is deemed to have relied in acquiring the Contracts and (ii) the Insurer
is deemed to have relied in issuing the Policies. Such representations and
warranties speak as of the execution and delivery of this Agreement and as of
the Closing Date, but shall survive the sale, transfer and assignment of the
Contracts to the Issuer and the pledge thereof to the Indenture Trustee pursuant
to the Indenture.
(a) As to the Seller:
(i) Organization and Good Standing. The Seller is duly
organized and validly existing as a corporation in good standing under
the laws of the State of California, with power and authority to own
its properties and to conduct its business, and has the corporate
power, authority and legal right to acquire and own the Contracts.
(ii) Due Qualification. The Seller is duly qualified to do
business as a foreign corporation in good standing, and shall have
obtained all necessary licenses and approvals, in all jurisdictions in
which the ownership or lease of property or the conduct of its business
shall require such qualifications.
(iii) Power and Authority. The Seller has the corporate power
and authority to execute and deliver this Agreement and to carry out
its terms; the Seller has full power and authority to sell and assign
the property to be sold and assigned to and deposited with the Issuer,
and has duly authorized such sale and assignment to the Issuer by all
necessary corporate action; and the execution, delivery and performance
of this Agreement has been duly authorized by the Seller by all
necessary corporate action.
(iv) Binding Obligation. This Agreement constitutes (A) a
valid sale, transfer and assignment of the Contracts, enforceable
against creditors of and purchasers from the Seller and (B) a legal,
valid and binding obligation of the Seller enforceable in accordance
with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization or other similar laws affecting
the enforcement of creditors' rights in general and by general
principles of equity, regardless of whether such enforceability shall
be considered in a proceeding in equity or at law.
(v) No Violation. The consummation of the transactions
contemplated by this Agreement and the fulfillment of the terms hereof
do not conflict with, result in any breach of any of the terms and
provisions of, or constitute (with or without notice or lapse of time)
a default under, the articles of incorporation or bylaws of the Seller,
or any indenture, agreement or other instrument to which the Seller is
a party or by which it is bound; nor result in the creation or
imposition of any Lien upon any of its
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properties pursuant to the terms of any such indenture, agreement or
other instrument (other than pursuant to the Basic Documents to which
the Seller is a party); nor violate any law or, to the best of the
Seller's knowledge, any order, rule or regulation applicable to the
Seller of any court or of any federal or state regulatory body,
administrative agency or other governmental instrumentality having
jurisdiction over the Seller or its properties.
(vi) No Proceedings. There are no proceedings or
investigations pending, or to the Seller's best knowledge, threatened,
before any court, regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the Seller or its
properties: (A) asserting the invalidity of this Agreement or any of
the other Basic Documents, the Notes or the Certificates, (B) seeking
to prevent the issuance of the Notes or the Certificates or the
consummation of any of the transactions contemplated by this Agreement
or any of the other Basic Documents, (C) 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, any of the other Basic Documents, the Notes or the
Certificates or (D) which might adversely affect the federal or state
income tax attributes of the Notes or the Certificates.
(b) As to each Contract or all of the Contracts, as the case may be:
(i) Schedule of Contracts. The information pertaining to such
Contract set forth in the related Schedule of Contracts was true and
correct in all material respects at the Closing Date and the
calculations of the Scheduled Balances appearing in such Schedule of
Contracts for each such Contract at the Closing Date and at each
Distribution Date thereafter prior to the related Maturity Date have
been performed in accordance with this Agreement and are accurate.
(ii) Security Interests. As of the Closing Date, such Contract
granted a valid and enforceable first priority security interest in
favor of WFS (or to the Bank, which security interest has been assigned
to WFS) in the related Financed Vehicle, and such security interest has
been duly perfected and is prior to all other liens upon and security
interests in such Financed Vehicle which now exist or may hereafter
arise or be created (except, as to priority, for any lien for unpaid
taxes or unpaid storage or repair charges which may arise after the
Closing Date).
(iii) Title Documents. (A) If the related Financed Vehicle was
originated in a state in which notation of a security interest on the
Title Document is required or permitted to perfect such security
interest, the Title Document for such Financed Vehicle shows, or if a
new or replacement Title Document is being applied for with respect to
such Financed Vehicle the Title Document will be received within 180
days of the Closing Date and will show WFS named as the original
secured party under the related Contract as the holder of a first
priority security interest in such Financed Vehicle, and (B) if the
related Financed Vehicle was originated in a state in which the filing
of a financing statement under the UCC is required to perfect a
security interest
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in motor vehicles, such filings or recordings have been duly made and
show WFS named as the original secured party under the related
Contract, and in either case, the Indenture Trustee and the Owner
Trustee have the same rights as such secured party has or would have
(if such secured party were still the owner of the Contract) against
all parties claiming an interest in such Financed Vehicle. With respect
to each Contract for which the Title Document has not yet been returned
from the Registrar of Titles, WFS has received written evidence from
the related Dealer that such Title Document showing WFS as first
lienholder has been applied for.
(iv) Title to the Contracts. Immediately prior to the issuance
of the Notes and the Certificates, the Seller had good and indefeasible
title to and was the sole owner of each Contract to be transferred to
the Issuer pursuant to Section 2.01 free of liens, claims, encumbrances
and rights of others and, upon transfer of such Contract to the Issuer
pursuant to Section 2.01, the Issuer will have good and indefeasible
title to and will be the sole owner of such Contract free of liens,
encumbrances and rights of others, except for the Lien of the Indenture
Trustee under the Indenture and the security interest granted to the
Insurer under the Insurance Agreement.
(v) Current in Payment. As of the Cut-Off Date, such Contract
is no more than 30 days delinquent in payment as to all or any portion
of any installment of Monthly P&I.
(vi) Tax Liens. As of the Closing Date, there is no lien
against the related Financed Vehicle for delinquent taxes.
(vii) Rescission, Offset, Etc. As of the Closing Date, there
is no right of rescission, offset, defense or counterclaim to the
obligation of the Obligor to pay the unpaid principal or interest due
under such Contract; the operation of the terms of such Contract or the
exercise of any right thereunder will not render such Contract
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.
(viii) Mechanics' Liens. As of the Closing Date, there are no
liens or claims for work, labor, material or storage affecting the
related Financed Vehicle which are or may become a lien prior to or
equal with the security interest granted by such Contract.
(ix) Compliance with Laws. Such Contract, and the sale of the
Financed Vehicle sold thereunder, complied, at the time it was made, in
all material respects with all applicable state and federal laws (and
regulations thereunder), including without limitation usury, equal
credit opportunity, fair credit reporting, truth-in-lending or other
similar laws, the Federal Trade Commission Act, and applicable state
laws regulating retail installment sales contracts and loans in general
and motor vehicle retail installment contracts and loans in particular;
and the consummation of the transactions herein contemplated,
including, without limitation, the transfer of
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ownership of the Contracts to the Issuer and the receipt of interest by
the Securityholders, will not involve the violation of any applicable
state or federal law.
(x) Valid and Binding. Such Contract is the legal, valid and
binding obligation of the Obligor thereunder and is enforceable in
accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency or similar laws affecting the enforcement of
creditors' rights generally; all parties to such Contract had full
legal capacity to execute and deliver such Contract and all other
documents related thereto and to grant the security interest purported
to be granted thereby; and the terms of such Contract have not been
waived or modified in any respect, except by instruments that are part
of the Contract Documents.
(xi) Enforceability. Such Contract contains customary and
enforceable provisions such as to render the rights and remedies of the
holder or assignee thereof adequate for the realization against the
collateral of the benefits of the security, subject, as to
enforceability, to bankruptcy, insolvency, reorganization or similar
laws affecting the enforcement of creditors' rights generally.
(xii) No Default. As of the Cut-Off Date, there was no
default, breach, violation or event permitting acceleration existing
under such Contract (except payment delinquencies permitted by
subparagraph (v) above) and no event which, with notice and the
expiration of any grace or cure period, would constitute such a
default, breach, violation or event permitting acceleration under such
Contract, and the Seller has not waived any such default, breach,
violation or event permitting acceleration except payment delinquencies
permitted by subparagraph (v) above.
(xiii) Insurance. At the Closing Date, the related Financed
Vehicle will be covered by (A) a comprehensive and collision insurance
policy (i) in an amount at least equal to the lesser of (a) its maximum
insurable value or (b) the principal amount due from the Obligor under
the related Contract, (ii) naming WFS as a loss payee and (iii)
insuring against loss and damage due to fire, theft, transportation,
collision and other risks generally covered by comprehensive and
collision coverage and (B) an LDI Policy; provided, however, that if
such Financed Vehicle has an unpaid principal balance of less than
$4,000 it will not be required to be covered by the insurance described
in this subparagraph. Each of the Seller, WFS and the Master Servicer
shall at all times comply with all of the provisions of such insurance
policies and the LDI Policy applicable to such Financed Vehicle.
(xiv) Acquisition of Contract. Such Contract was either
acquired by WFS (or its predecessor in interest) from a Dealer with
which it ordinarily does business or originated directly by WFS in the
ordinary course of its business, and no adverse selection procedures
have been utilized in selecting such Contract from all other similar
contracts purchased by the Seller.
(xv) Scheduled Payments. As of the Cut-Off Date, scheduled
payments under such Contract are applied in accordance with the Rule of
78's method or the
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simple interest method and are due monthly in level payments through
its Maturity Date sufficient to fully amortize the principal balance of
such Contract by its Maturity Date, assuming timely payment by Obligors
on Simple Interest Contracts, except that the payment in the first or
last month in the life of the Contract may be minimally different from
the level payment.
(xvi) One Original. There is only one original of such
Contract and such original, together with all other Contract Documents,
is being held by the Master Servicer pursuant to Section 3.04. Each
original Contract has been segregated and marked to show the Issuer as
owner thereof, unless the Insurer has waived the requirement for such
segregation and marking by notice in writing to the Owner Trustee, the
Indenture Trustee and the Master Servicer.
(xvii) Characteristics. At the Cut-Off Date such Contract had
(i) an Outstanding Principal Balance of not less than $1,000.00 nor
more than $72,820.00, (ii) an original term not less than 6 months nor
greater than 84 months, (iii) a remaining maturity of not less than 3
months nor greater than 84 months, (iv) a Contract Rate at least equal
to the Pass-Through Rate plus the sum of the Servicing Fee Percent and
the Retained Yield Percent and (v) an APR of not less than 7.75%.
(xviii) Identification. The Master Servicer and WFS have
clearly marked their electronic records to indicate that such Contract
is owned by the Issuer.
(xix) Maturity. At the Cut-Off Date such Contract did not have
a Maturity Date later than the 90th day prior to the end of the Due
Period immediately preceding the Certificate Final Distribution Date.
(xx) Scheduled Balance. At the Cut-Off Date the initial
Scheduled Balance of such Contract was not greater than the purchase
price of the related vehicle.
(xxi) Location of Contract Files. The Contract Files are kept
at one or more of the locations listed in Schedule B hereto.
(xxii) Finance Charge. Such Contract provides for the payment
of a finance charge calculated at its APR based on the Rule of 78's or
the simple interest method and such APR shall be equal to or greater
than 7.75% for Rule of 78's Contracts and equal to or greater than
7.75% for Simple Interest Contracts.
(xxiii) Bank Originations. The aggregate Scheduled Balance as
of the Cut-Off Date of Contracts purchased or originated by the Bank is
not more than approximately 2.00% of the aggregate Scheduled Balance of
all Contracts as of such date.
(xxiv) Simple Interest Contracts. As of the Cut-Off Date,
approximately 51.4% of the aggregate Scheduled Balances of the
Contracts shall be Simple Interest Contracts and approximately 48.6% of
the aggregate Scheduled Balances of the Contracts shall be Rule of 78's
Contracts.
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(xxv) New or Used Vehicles. Approximately 22.5% of the
Contracts by Cut- Off Date Aggregate Scheduled Balance shall be new
vehicles and approximately 77.5% shall be used vehicles.
(xxvi) States of Origination. Except as otherwise provided in
the immediately succeeding sentence, all Simple Interest Contracts were
originated by new and used motor vehicle dealers located in California,
Oregon, Texas, Arizona, Nevada, New Mexico, Washington, Idaho, Utah,
Oklahoma, Kansas, Missouri, Florida, Georgia, Iowa, Wisconsin, North
Carolina, Illinois, Indiana, Hawaii and Colorado. No more than 55.1% of
the Contracts by Cut-Off Date Aggregate Scheduled Balance were
originated by WFS or the Bank in California, and not more than 9.50% of
the Contracts by Cut-Off Date Aggregate Scheduled Balance were
originated in a state other than California. All Contracts originated
in Arizona, Colorado, Florida, Georgia, Hawaii, Idaho, Kansas, North
Carolina, Oregon, Utah or Washington are Simple Interest Contracts.
(xxvii) No Government Entity Obligors. Each Contract shall
have an Obligor that is not a local, state or federal governmental
entity.
Section 3.02. Purchase of Certain Contracts.
The representations and warranties of the Seller set forth in Section
3.01 shall survive delivery of the Contract Documents to the Owner Trustee and
shall continue until the termination of this Agreement. Upon discovery by the
Seller, the Master Servicer or the Owner Trustee, as the case may be, that any
of such representations and warranties was incorrect as of the time made or that
any of the Contract Documents relating to any such Contract has not been
properly executed by the Obligor or contains a material defect or has not been
received by the Owner Trustee, such Person making such discovery shall give
prompt notice to the other such Persons. If any such defect, incorrectness or
omission materially and adversely affects the interest of the Noteholders, the
Certificateholders, the Indenture Trustee, the Owner Trustee, the Issuer or the
Insurer, the Seller shall, within 90 days after discovery thereof or receipt of
notice thereof, cure the defect or eliminate or otherwise cure the circumstances
or condition in respect of which such representation or warranty was incorrect
as of the time made. If the Seller is unable to do so, it shall purchase such
Contract on the Master Servicer Report Date next succeeding the end of such
90-day period from the Issuer for an amount equal to the related Repurchase
Amount in the manner set forth in Section 5.04. Upon any such purchase, the
Owner Trustee shall execute and deliver such instruments of transfer or
assignment, in each case without recourse, as shall be necessary to vest in the
Seller any Contract purchased hereunder. The sole remedy of the Issuer, the
Owner Trustee, the Indenture Trustee or the Securityholders with respect to a
breach of the Seller's representations and warranties pursuant to Section 3.01
shall be to require the Seller to enforce the Master Servicer's obligation to
repurchase Contracts pursuant to Section 4.07; provided, however, that the
Seller shall indemnify the Owner Trustee, the Indenture Trustee, the Insurer,
the Issuer and the Securityholders against all costs, expenses, losses, damages,
claims and liabilities, including reasonable fees and expenses of counsel,
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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 such
breach.
Section 3.03. Custody of Contract Files. Subject to Sections 3.07, 7.04
and 8.01, the Owner Trustee hereby irrevocably appoints the Master Servicer, and
the Master Servicer hereby accepts such appointment, to act as the agent of the
Owner Trustee as custodian of the Contract Documents and any and all other
documents that the Master Servicer shall keep on file, in accordance with its
customary procedures, relating to a Contract, Obligor or Financed Vehicle, which
are hereby constructively delivered to the Owner Trustee with respect to each
Contract:
(i) the original of the Contract;
(ii) documents evidencing the existence of physical damage
insurance covering the Financed Vehicles;
(iii) the original credit application fully executed by the
Obligor; and
(iv) the original certificate of title or such documents that
the Master Servicer shall keep on file, in accordance with its
customary procedures, evidencing the security interest of the Master
Servicer in the Financed Vehicle.
The Master Servicer shall maintain the Contract Documents held by it
(by itself or through one or more Subservicers) in a file area physically
separate from the other installment sales contracts and installment loans owned
or serviced by it or any of its Affiliates, which area shall be clearly marked
to indicate the Trust as the owner of, and the security interest of the
Indenture Trustee and the Insurer in, the Contract Documents and shall mark the
Contracts in the same manner; except that if the Indenture Trustee and the
Insurer have waived the requirement for such segregation and marking by notice
in writing to the Owner Trustee, the Indenture Trustee and the Master Servicer,
such file area may contain contract documents for other motor vehicle retail
installment sales contracts and installment loans owned or serviced by the
Master Servicer.
The Master Servicer shall cause the electronic record of the Contracts
maintained by it to be clearly marked to indicate that the Contracts have been
sold to the Trust and shall not in any way assert or claim an ownership interest
in the Contracts. It is intended by the Master Servicer's and the Seller's
agreement pursuant to this Section that the Owner Trustee shall be deemed to
have possession of the Contract Documents for purposes of Section 9-305 of the
UCC of the state in which the Contract Documents are located.
Section 3.04. Duties of Master Servicer as Custodian.
(a) Safekeeping. The Master Servicer shall hold the Contract Files on
behalf of the Owner Trustee, the Indenture Trustee and the Insurer for the use
and benefit of all present and future Securityholders, and maintain such
accurate and complete accounts, records and computer systems pertaining to each
Contract File as shall enable the Issuer to comply with
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this Agreement. In performing its duties as custodian the Master Servicer shall
act with reasonable care, using that degree of skill and attention that the
Master Servicer exercises with respect to the files relating to all comparable
automobile contracts that the Master Servicer owns or services for itself or
others. The Master Servicer shall conduct, or cause to be conducted, periodic
physical inspections of the Contract Files held by it under this Agreement and
of the related accounts, records and computer systems, and shall maintain them
in such a manner as shall enable the Owner Trustee, the Indenture Trustee and
the Insurer to verify the accuracy of the Master Servicer's record keeping. The
Master Servicer shall promptly report to the Owner Trustee, the Indenture
Trustee and the Insurer any failure on its part to hold the Contract Files and
maintain its accounts, records and computer systems as herein provided and shall
promptly take appropriate action to remedy any such failure.
(b) Maintenance of and Access to Records. The Master Servicer shall
maintain each Contract File at one of its offices specified in Schedule B hereto
or at such other location as shall be specified to the Owner Trustee, the
Indenture Trustee and the Insurer by 30 days' prior written notice. The Master
Servicer shall permit the Owner Trustee, the Indenture Trustee and the Insurer
or their respective duly authorized representatives, attorneys or auditors to
inspect the Contract Files and the related accounts, records and computer
systems maintained by the Master Servicer at such times as such Persons may
request.
(c) Release of Documents. Upon instruction from the Indenture Trustee
(a copy of which shall be furnished to the Owner Trustee and the Insurer), the
Master Servicer shall release any Contract File to the Indenture Trustee, the
Indenture Trustee's agent, or the Indenture Trustee's designee, as the case may
be, at such place or places as the Indenture Trustee may designate, as soon as
practicable.
(d) Monthly Reports. On the tenth Business Day of each month, other
than a month in which a Distribution Date occurs, commencing with the month next
succeeding the month of the Closing Date, the Master Servicer shall mail to the
Indenture Trustee and the Owner Trustee, by first class mail, a certificate of a
Servicing Officer stating (i) the Contract Number and outstanding principal
balance of each Contract that has become a Liquidated Contract since the
Business Day next preceding the date of the last certificate delivered pursuant
to this subsection (or since the Closing Date in the case of the first such
certificate); (ii) that all proceeds received in respect of such Contract have
been deposited in or credited to the Collection Account or Holding Account as
required by Section 5.02; (iii) that, if such Contract has been the subject of a
Full Prepayment pursuant to clause (i) of the definition of the term "Full
Prepayment" or is a Liquidated Contract pursuant to clause (iii) of the
definition of the term "Liquidated Contract," all proceeds received in respect
thereof have been deposited in or credited to the Collection Account or Holding
Account in accordance with Section 5.02; (iv) that, if such Contract has been
the subject of a Full Prepayment pursuant to clause (ii) of the definition of
the term "Full Prepayment," the correct Repurchase Amount has been deposited in
or credited to the Collection Account in accordance with Section 4.07 or 5.04;
(v) that, if such Contract is a Liquidated Contract pursuant to clause (ii) of
the definition of the term "Liquidated Contract," there have been deposited in
or credited to the Collection Account or Holding Account the related Net
Liquidation Proceeds in accordance with Section 5.02; (vi) the current Aggregate
Scheduled Balance; (vii) the total
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dollar amount of charged-off Contracts; (viii) the total dollar amount of
delinquent Contracts; (ix) the total dollar amount of all Contracts in respect
of which the related Financed Vehicles have been repossessed but have not been
liquidated; (x) the current Charge-off Percentage; and (xi) the current
Delinquency Percentage. The information called for in clauses (vi) through (xi)
above shall be presented as of the Business Day next preceding the date of the
last certificate so delivered.
(e) Title Documents. The Master Servicer shall deliver to the Indenture
Trustee, the Owner Trustee and the Insurer (i) within 120 days of the Closing
Date, a schedule of Title Documents for Financed Vehicles which, as of the
Closing Date did not show the Master Servicer as first lienholder and (ii)
within 180 days of the Closing Date, a schedule of Title Documents for Financed
Vehicles which as of the date prior to such delivery do not show the Master
Servicer as first lienholder and as to which the Seller is obligated to
repurchase pursuant to the provisions hereof.
Section 3.05. Instructions; Authority to Act. The Master Servicer shall
be deemed to have received proper instructions (a copy of which shall be
furnished to the Owner Trustee and the Insurer) with respect to the Contract
Files upon its receipt of written instructions signed by a Responsible Officer
of the Indenture Trustee.
Section 3.06. Indemnification. Subject to Section 8.02, the Master
Servicer shall indemnify the Trust, the Owner Trustee, the Indenture Trustee,
the Insurer and the Securityholders for any and all liabilities, obligations,
losses, compensatory damages, payments, costs or expenses of any kind whatsoever
(including the reasonable fees and expenses of counsel) that may be imposed on,
incurred by or asserted against the Trust, the Owner Trustee, the Indenture
Trustee, the Insurer, the Noteholders or the Certificateholders as the result of
any improper act or omission in any way relating to the maintenance and custody
by the Master Servicer of the Contract Files, or the failure of the Master
Servicer to perform its duties and service the Contracts in compliance with the
terms of this Agreement; provided, however, that the Master Servicer shall not
be liable to the Owner Trustee for any portion of any such amount resulting from
the willful misfeasance, bad faith or negligence of the Owner Trustee and the
Master Servicer shall not be liable to the Indenture Trustee for any portion of
any such amount resulting from the willful misfeasance, bad faith or negligence
of the Indenture Trustee. The Master Servicer shall also indemnify and hold
harmless the Trust, the Trust Estate and the Securityholders against any taxes
that may be asserted at any time against any of them with respect to the
Contracts, including any sales, gross receipts, general corporation, personal
property, privilege or license taxes (but exclusive of federal or other income
taxes arising out of payments on the Contracts) and the costs and expenses in
defending against such taxes. The Master Servicer shall immediately notify the
Owner Trustee and the Indenture Trustee if a claim is made by a third party with
respect to the Contracts, shall assume, with the consent of the Owner Trustee
and the Indenture Trustee, the defense of any such claim, pay all expenses in
connection therewith, including counsel fees, and shall promptly pay, discharge
and satisfy any judgment or decree which may be entered against it or the Trust.
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Section 3.07. Effective Period and Termination. The Master Servicer's
appointment as custodian shall become effective as of the Cut-Off Date and shall
continue in full force and effect until terminated under to this Section or
until the Certificate Final Distribution Date. If the Master Servicer shall
resign in accordance with the provisions of this Agreement or if all of the
rights and obligations of the Master Servicer shall have been terminated
pursuant to Section 8.01, the appointment of the Master Servicer as custodian
shall be terminated by the Indenture Trustee, by the Holders of Notes evidencing
not less than 51% of the Outstanding Amount of the Notes, by the Owner Trustee,
by Certificateholders evidencing not less than 51% of the Certificate Balance,
or by the Insurer, in the same manner as the Indenture Trustee, the Owner
Trustee, the Insurer or such Holders may terminate the rights and obligations of
the Master Servicer pursuant to Section 8.01. As soon as practicable after any
termination of such appointment, the Master Servicer shall, at its own expense,
deliver the Contract Files to the Owner Trustee or its agent at such place or
places as the Owner Trustee may reasonably designate and shall cooperate in good
faith to effect such delivery.
Section 3.08. Nonpetition Covenant.
(a) Neither the Seller nor the Master Servicer shall petition or
otherwise invoke the process of any court or government authority for the
purpose of commencing or sustaining a case against the Trust 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 Trust or any substantial part of its property, or ordering the winding up
or liquidation of the affairs of the Trust.
(b) The Master Servicer shall not, nor cause the Seller to, petition or
otherwise 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 or 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 3.09. Collecting Title Documents Not Delivered at the Closing
Date. In the case of any Contract in respect of which written evidence from the
Dealer selling or transferring the related Financed Vehicle that the Title
Document for such Financed Vehicle showing the Master Servicer as first
lienholder has been applied for from the Registrar of Titles was delivered to
the Owner Trustee on the Closing Date in lieu of a Title Document, the Master
Servicer shall use its best efforts to collect such Title Document from the
Registrar of Titles as promptly as possible. If such Title Document showing the
Master Servicer as first lienholder is not received by the Master Servicer or
the related Subservicer within 180 days after the Closing Date, then the
representation and warranty in Section 3.01(b)(iii) in respect of such Contract
shall be deemed to have been incorrect in a manner that materially and adversely
affects the Certificateholders.
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ARTICLE FOUR
ADMINISTRATION AND SERVICING OF CONTRACTS
Section 4.01. Duties of Master Servicer. The Master Servicer, acting
alone and/or through one or more Subservicers as provided in this Section,
shall, as agent for the Indenture Trustee, the Owner Trustee and the Insurer,
manage, service, administer and make collections on the Contracts. The Master
Servicer agrees that its servicing of the Contracts shall be carried out in
accordance with customary and usual procedures of financial institutions which
service motor vehicle retail installment sales contracts and installment loans
and, to the extent more exacting, the procedures used by the Master Servicer in
respect of such contracts serviced by it for its own account. In accordance with
the foregoing, the Master Servicer may, whenever an Obligor has become
delinquent or the Master Servicer believes an Obligor may become delinquent, in
order to preserve the ultimate collectability of amounts due on a Contract,
modify the payment schedule on any Contract by reducing the APR on such Contract
without the consent of the Insurer or any Rating Agency; provided, however, that
the new APR shall not be less than the sum of (i) the Class A-4 Interest Rate,
(ii) the Servicing Fee Percent and (iii) the Retained Yield Percent. In
addition, in order to preserve the Trust Estate, the Master Servicer may,
without the consent of any Rating Agency or the Insurer, reduce the principal
amount of a Contract (i.e., write-down a portion of the principal amount due on
such Contract and, accordingly, lower the Monthly P&I on such Contract) to the
extent funds are available in the Spread Account to cover such reduction;
provided however, the total amount of such modifications pursuant to the
immediately preceding sentence and this sentence and reductions (i) may not
affect more than 1% of the Original Pool Balance through the Certificate Final
Distribution Date and (ii) during each three-month period between Distribution
Dates (or in the case of the first Distribution Date, from the Cut-Off Date to
such Distribution Date) shall not affect Contracts having an aggregate Scheduled
Balance greater than 10/100 of one percent of the Pool Balance at the beginning
of such period. Any such modifications or reductions exceeding such limits may
be made only with the consent of the Insurer and each Rating Agency. The Master
Servicer may also extend the Maturity Date on a Contract in accordance with
Section 4.02. The Master Servicer's duties shall include collection and posting
of all payments, responding to inquiries of Obligors on the Contracts,
investigating delinquencies, sending payment coupons to Obligors, reporting tax
information to Obligors, accounting for collections, furnishing monthly and
annual statements to the Indenture Trustee, the Owner Trustee and the Insurer
with respect to distributions and filing applicable U.S. tax returns for the
Trust on an annual basis, based on a tax year for the Trust that is the calendar
year. The Master Servicer shall have, subject to the terms hereof, full power
and authority, acting alone, and subject only to the specific requirements and
prohibitions of this Agreement, to do any and all things in connection with such
managing, servicing, administration and collection that it may deem necessary or
desirable; provided, however, that the Master Servicer shall commence
repossession efforts in respect of any Financed Vehicle respecting which the
related Contract is four or more months delinquent. Without limiting the
generality of the foregoing, but subject to the provisions of this Agreement,
the Master Servicer is authorized and empowered by the Indenture Trustee and the
Owner Trustee to execute and deliver, on behalf of itself, the Trust, the
Insurer, the Noteholders, the Certificateholders, the Indenture Trustee, the
Owner Trustee or any of them,
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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
Contracts or to the Financed Vehicles. The Owner Trustee shall furnish the
Master Servicer all documents necessary or appropriate to enable the Master
Servicer to carry out its servicing and administrative duties hereunder.
On the Closing Date, the Master Servicer shall deliver to the Insurer,
the Indenture Trustee and the Owner Trustee a list of Servicing Officers
involved in, or responsible for, the administration and servicing of the
Contracts, which list shall from time to time be updated by the Master Servicer
on request of the Owner Trustee, the Indenture Trustee or the Insurer.
The Master Servicer may enter into Subservicing Agreements with one or
more Subservicers approved by the Insurer for the servicing and administration
of certain of the Contracts (including holding the related Contract Files as
custodian). The Master Servicer shall notify each Rating Agency promptly if a
Subservicer is hired. References herein to actions taken or to be taken by the
Master Servicer in servicing the Contracts include actions taken or to be taken
by a Subservicer on behalf of the Master Servicer and the Insurer. Each
Subservicing Agreement will be upon such terms and conditions as are not
inconsistent with this Agreement and as the Master Servicer and the Subservicer
have agreed. With the approval of the Master Servicer and the Insurer, a
Subservicer may delegate its servicing obligations to third-party servicers, but
such Subservicer will remain obligated under the related Subservicing Agreement.
The Master Servicer and a Subservicer may enter into amendments thereto or
different forms of Subservicing Agreements and the form attached as Exhibit E
hereto is merely provided for information and shall not be deemed to limit in
any respect the discretion of the Master Servicer to modify or enter into
different Subservicing Agreements; provided, however, that any such amendments
or different forms shall be consistent with and not violate the provisions of
this Agreement or materially adversely affect the rights of Noteholders,
Certificateholders or the Insurer hereunder.
The Master Servicer shall be entitled to terminate any Subservicing
Agreement that may exist in accordance with the terms and conditions of such
Subservicing Agreement and without any limitation by virtue of this Agreement;
provided, however, that in the event of termination of any Subservicing
Agreement by the Master Servicer or the related Subservicer, the Master Servicer
shall either act directly as servicer of the related Contract or enter into a
Subservicing Agreement with a successor Subservicer approved by the Insurer
which will be bound by the terms of the related Subservicing Agreement.
Notwithstanding any Subservicing Agreement, any of the provisions of
this Agreement relating to agreements or arrangements between the Master
Servicer or a Subservicer or reference to actions taken through such Persons or
otherwise, the Master Servicer shall remain obligated and liable to the
Indenture Trustee, the Owner Trustee and the Securityholders for the servicing
and administering of the Contracts in accordance with the provisions of this
Agreement without diminution of such obligation or liability by virtue of such
Subservicing Agreements or arrangements or by virtue of indemnification from a
Subservicer and to the same extent and under the same terms and conditions as if
the Master Servicer alone were servicing and administering the Contracts. The
Master Servicer shall be entitled to enter into
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an agreement with a Subservicer for indemnification of the Master Servicer and
nothing contained in this Agreement shall be deemed to limit or modify such
indemnification.
Any Subservicing Agreement that may be entered into and any other
transactions or servicing arrangements relating to the Contracts involving a
Subservicer or other Affiliate of the Master Servicer in its capacity as such
and not as an originator shall be deemed to be between the Subservicer or such
other Affiliate, as the case may be, and the Master Servicer alone, and none of
the Indenture Trustee, the Owner Trustee, the Noteholders nor the
Certificateholders shall be deemed parties thereto and shall have no claims,
rights, obligations, duties or liabilities with respect to the Subservicer
except as set forth in the immediately succeeding paragraph; provided that the
Insurer may rely upon the representations and warranties of the Subservicer
contained therein.
In the event the Master Servicer shall for any reason no longer be a
servicer (including, but not limited to, by reason of an Event of Default), the
Indenture Trustee or its designee may, at the sole discretion of the Indenture
Trustee, thereupon assume all of the rights and obligations of such Master
Servicer under each Subservicing Agreement selected by the Indenture Trustee in
its sole discretion. In such event, the Indenture Trustee, its designee or the
successor servicer for the Indenture Trustee shall be deemed to have assumed all
of the Master Servicer's interest therein and to have replaced the Master
Servicer as a party to each such Subservicing Agreement to the same extent as if
such Subservicing Agreement had been assigned to the assuming party except that
the Master Servicer shall not thereby be relieved of any liability or
obligations under the Subservicing Agreement. The Master Servicer shall, upon
request of the Indenture Trustee but at the expense of the Master Servicer,
deliver to the assuming party all documents and records relating to each such
Subservicing Agreement and the Contracts then being serviced and an accounting
of amounts collected and held by it and otherwise use its best efforts to effect
the orderly and efficient transfer of the Subservicing Agreement to the assuming
party.
On the Closing Date, the Master Servicer shall deposit in the
Collection Account (i) all installments of Monthly P&I due on or after the
Cut-Off Date and received by the Master Servicer at least two Business Days
prior to the Closing Date; (ii) the proceeds of each Prepayment (excluding any
portion allocable to principal and interest due before the Cut-Off Date) of any
such Contract received by the Master Servicer after the Cut-Off Date but no
later than two Business Days prior to the Closing Date; and (iii) all Net
Liquidation Proceeds and Net Insurance Proceeds realized in respect of a
Financed Vehicle at least two Business Days prior to the Closing Date.
Subject to Section 5.02 respecting deposits in the Holding Account, the
Master Servicer shall deposit in or credit to the Collection Account within two
Business Days of receipt all collections of Monthly P&I due after the Cut-Off
Date received by it on or in respect of the Contracts together with the proceeds
of all Prepayments and any accompanying interest; provided, however, that, to
the extent any such installment of Monthly P&I or any such Prepayment proceeds
are received in respect of a Contract as to which there is an outstanding and
unreimbursed Advance or Advances, such installment or proceeds shall, to the
extent of any such unreimbursed Advance or Advances, be retained by the Master
Servicer in
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reimbursement of itself. The Master Servicer shall likewise deposit in the
Collection Account within two Business Days of receipt all Net Liquidation
Proceeds and Net Insurance Proceeds after deducting therefrom the amount of any
outstanding and unreimbursed Advances made by it in respect of such Contract.
The foregoing notwithstanding, the Master Servicer may, in the event it
determines that it has made a Nonrecoverable Advance or Advances, reimburse
itself from unrelated installments of Monthly P&I or Prepayment proceeds to the
extent it shall, concurrently with the withholding of any such installment or
proceeds from deposit in or credit to the Collection Account as required above,
furnish to the Indenture Trustee, the Owner Trustee and the Insurer a
certificate of a Servicing Officer setting forth the basis for the Master
Servicer's determination, the amount of and Contract with respect to which such
Nonrecoverable Advance was made and the installment or installments or other
proceeds respecting which reimbursement has been taken. The foregoing
requirements for deposit in the Collection Account are exclusive, it being
understood that collections in the nature of late payment charges or extension
fees or collections allocable to payments to be made by the Master Servicer on
behalf of Obligors for payment of insurance premiums or similar items need not
be deposited in the Collection Account and may be retained by the Master
Servicer as additional servicing compensation or for application on behalf of
Obligors, as the case may be.
Amounts otherwise required to be deposited in the Collection Account
pursuant to the immediately preceding paragraph shall instead be deposited by
the Master Servicer in the Holding Account to the extent such amounts are
payments of Monthly P&I due in one or more months subsequent to the end of the
Due Period during which such payments are received.
With respect to payments of Monthly P&I made by Obligors to the Master
Servicer's lock box, the Master Servicer shall direct the Person maintaining the
lock box to deposit the amount collected on or in respect of the Contracts to
the Collection Account.
In those cases where a Subservicer is servicing a Contract pursuant to
a Subservicing Agreement, the Master Servicer shall cause the Subservicer to
remit to the Master Servicer for deposit in the Collection Account, on a daily
basis, within two Business Days after receipt by the Subservicer, all proceeds
of Contracts and all Net Liquidation Proceeds and Net Insurance Proceeds
received by the Subservicer.
In order to facilitate the servicing of the Contracts by the Master
Servicer, the Master Servicer shall retain, subject to and only to the extent
permitted by the provisions of this Agreement, all collections on or in respect
of the Contracts prior to the time they are remitted or credited, in accordance
with such provisions, to the Collection Account or the Holding Account, as the
case may be. The Master Servicer acknowledges that the unremitted collections on
the Contracts are part of the Trust Estate and the Master Servicer agrees to act
as custodian and bailee of the Indenture Trustee, the Owner Trustee and the
Insurer in holding such monies and collections. The Master Servicer agrees, for
the benefit of the Indenture Trustee, the Owner Trustee, the Securityholders and
the Insurer, to act as such custodian and bailee, and to hold and deal with such
monies and such collections, as custodian and bailee
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for the Indenture Trustee, the Owner Trustee and the Insurer, in accordance with
the provisions of this Agreement.
The Master Servicer shall retain all data (including, without
limitation, computerized records) relating directly to or maintained in
connection with the servicing of the Contracts at the address of the Master
Servicer set forth as Schedule B to this Agreement, at the office of any
Subservicer or, upon 15 days' notice to the Insurer, the Indenture Trustee and
the Owner Trustee, at such other place where the servicing offices of the Master
Servicer are located, and shall give the Indenture Trustee, the Owner Trustee
and the Insurer access to all data at all reasonable times. While a Servicer
Default shall be continuing, the Master Servicer shall, on demand of the
Indenture Trustee, the Owner Trustee or the Insurer, deliver or cause to be
delivered to the Indenture Trustee, the Owner Trustee or the Insurer, as the
case may be, all data (including, without limitation, computerized records and,
to the extent transferable, related operating software) necessary for the
servicing of the Contracts and all monies collected by it and required to be
deposited in or credited to the Collection Account or the Holding Account, as
the case may be.
Section 4.02. Collection of Contract Payments. The Master Servicer
shall use its best efforts to collect all payments called for under the terms
and provisions of the Contracts as and when the same shall become due and shall
use its best efforts to cause each Obligor to make all payments in respect of
his or her Contract to the Master Servicer. Consistent with the foregoing, the
Master Servicer may in its discretion (i) waive any late payment charges in
connection with delinquent payments on a Contract or prepayment charges and (ii)
in order to work out a default or an impending default due to the financial
condition of the Obligor, modify the payment schedule of a delinquent Contract
(subject to the next sentence) or extend the Maturity Date of a delinquent
Contract by up to 90 days in the aggregate past the originally scheduled date of
the last payment on such Contract; provided that in the case of any extension
granted pursuant to clause (ii) the Master Servicer makes an Advance in respect
of such extension and in no event can the last payment on such Contract be
extended beyond the last day of the Due Period ending immediately prior to the
Certificate Final Distribution Date. The Master Servicer shall not extend the
Maturity Date of a Contract except as provided in clause (ii) of the preceding
sentence and shall not modify any Contracts except in accordance with the
criteria and limitations specified in Section 4.01.
Section 4.03. Realization upon Defaulted Contracts. The Master Servicer
shall use its best efforts, consistent with the servicing standard specified in
Section 4.01, to repossess or otherwise convert the ownership of the Financed
Vehicle securing any Contract as to which no satisfactory arrangements can be
made for collection of delinquent payments. Such servicing procedures may
include reasonable efforts to realize upon any recourse to Dealers and selling
the Financed Vehicle at public or private sale. In connection with such
repossession or other conversion, the Master Servicer shall follow such
practices and procedures as it shall deem necessary or advisable and as shall be
normal and usual for prudent holders of motor vehicle retail installment sales
contracts and installment loans and as shall be in compliance with all
applicable laws, and, in connection with the repossession of any Financed
Vehicle or any Contract in default, may commence and prosecute any proceedings
in respect of such Contract in its own name or, if the Master Servicer deems it
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necessary, in the name of the Owner Trustee or on behalf of the Owner Trustee.
The Master Servicer's obligations under this Section are subject to the
provision that, in the case of damage to a Financed Vehicle from an uninsured
cause, the Master Servicer shall not be required to expend its own funds in
repairing such Financed Vehicle unless it shall determine (i) that such
restoration will increase the proceeds of liquidation of the related Contract,
after reimbursement to itself for such expenses, and (ii) that such expenses
will be recoverable by it either as Liquidation Expenses or as expenses
recoverable under an applicable Insurance Policy. The Master Servicer shall be
responsible for all other costs and expenses incurred by it in connection with
any action taken in respect of a defaulted Contract; provided, however, that it
shall be entitled to reimbursement of such costs and expenses to the extent they
constitute Liquidation Expenses or expenses recoverable under an applicable
Insurance Policy. All Net Liquidation Proceeds and Net Insurance Proceeds shall
be deposited directly in or credited to the Collection Account (without deposit
in any intervening account) to the extent required by Section 5.02.
Section 4.04. Insurance. The Master Servicer shall cause the LDI Policy
to be maintained in respect of each Financed Vehicle; provided, however, that
the Master Servicer shall not be required to maintain such insurance in respect
of any Financed Vehicle as to which the related Contract has an unpaid principal
balance of less than $4,000.
Section 4.05. Maintenance of Security Interests in Financed Vehicles.
The Master Servicer shall take such steps as are necessary to maintain
continuous perfection and priority of the security interest created by each
Contract in the related Financed Vehicle, including but not limited to,
obtaining the execution by the Obligors and the recording, registering, filing,
re-recording, re-registering and refiling of all security agreements, financing
statements, continuation statements or other instruments as are necessary to
maintain the security interest granted by Obligors under the respective
Contracts. The Owner Trustee and the Indenture Trustee each hereby authorizes
the Master Servicer to take such steps as are necessary to re-perfect such
security interest on behalf of the Trust in the event of the relocation of a
Financed Vehicle or for any other reason.
Section 4.06. Covenants, Representations and Warranties of Master
Servicer. The Master Servicer hereby makes the following covenants,
representations and warranties on which (i) the Issuer is deemed to have relied
in acquiring the Contracts and (ii) the Insurer is deemed to have relied in
issuing the Policies. Such covenants, representations and warranties speak as of
the execution and delivery of this Agreement and as of the Closing Date, but
shall survive the sale, transfer and assignment of the Contracts to the Issuer
and the pledge thereof to the Indenture Trustee pursuant to the Indenture.
(a) The Master Servicer covenants as to the Contracts:
(i) Lien in Force. The Financed Vehicle securing each Contract
shall not be released from the lien granted by the Contract in whole or
in part, except as contemplated herein.
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(ii) Impairment. The Master Servicer shall not impair the
rights of the Noteholders and Certificateholders in the Contracts.
(iii) Amendments. The Master Servicer shall not amend the
terms of any Contract, except that extensions or modifications may be
granted in accordance with Section 4.02.
(iv) Transfers. The Master Servicer may consent to the sale or
transfer by an Obligor of any Financed Vehicle if the original Obligor
under the related Contract remains liable under such Contract and the
transferee assumes all of the Obligor's obligations thereunder.
(b) The Master Servicer represents, warrants, and covenants:
(i) Organization and Good Standing. The Master Servicer (A)
has been duly organized and is validly existing as a corporation in
good standing under the laws of the State of California, (B) has
qualified to do business as a foreign corporation and is in good
standing in each jurisdiction where the character of its properties or
the nature of its activities makes such qualification necessary, and
(C) has full power, authority and legal right to own its property, to
carry on its business as presently conducted and to enter into and
perform its obligations under this Agreement
(ii) Power and Authority. The execution and delivery by the
Master Servicer of this Agreement are within the corporate power of the
Master Servicer and have been duly authorized by all necessary
corporate action on the part of the Master Servicer. Neither the
execution and delivery of this Agreement, nor the consummation of the
transactions herein contemplated, nor compliance with the provisions
hereof, will conflict with or result in a breach of, or constitute a
default under, any of the provisions of any law, governmental rule,
regulation, judgment, decree or order binding on the Master Servicer or
its properties or the articles of incorporation or bylaws of the Master
Servicer, or any of the provisions of any indenture, mortgage, contract
or other instrument to which the Master Servicer is a party or by which
it is bound or result in the creation or imposition of any lien, charge
or encumbrance upon any of its property pursuant to the terms of any
such indenture, mortgage, contract or other instrument.
(iii) Governmental Consents. The Master Servicer is not
required to obtain the consent of any other party or consent, license,
approval or authorization, or registration or declaration with, any
governmental authority, bureau or agency in connection with the
execution, delivery, performance, validity or enforceability of this
Agreement, except (in each case) such as have been obtained and are in
full force and effect.
(iv) Binding Obligation. This Agreement has been duly executed
and delivered by the Master Servicer and, assuming the due
authorization, execution and delivery thereof by the Owner Trustee and
the Indenture Trustee, constitutes a legal,
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valid and binding instrument enforceable against the Master Servicer in
accordance with its terms (subject to applicable bankruptcy and
insolvency laws and other similar laws affecting the enforcement of
creditors' rights generally).
(v) No Proceedings. There are no actions, suits or proceedings
pending or, to the knowledge of the Master Servicer, threatened against
or affecting the Master Servicer, before or by any court,
administrative agency, arbitrator or governmental body with respect to
any of the transactions contemplated by this Agreement, or which will,
if determined adversely to the Master Servicer, materially and
adversely affect it or its business, assets, operations or condition,
financial or otherwise, or adversely affect the Master Servicer's
ability to perform its obligations hereunder. The Master Servicer is
not in default with respect to any order of any court, administrative
agency, arbitrator or governmental body so as to materially and
adversely affect the transactions contemplated by the above-mentioned
documents.
(vi) Other Consents. The Master Servicer has obtained or made
all necessary consents, approvals, waivers and notifications of
creditors, lessors and other nongovernmental persons, in each case in
connection with the execution and delivery of, and the consummation of
the transactions contemplated by, this Agreement.
Section 4.07. Repurchase of Contracts upon Breach of Covenant. The
Master Servicer or the Owner Trustee shall inform the other party and the
Indenture Trustee and the Insurer promptly, in writing, upon the discovery of
any breach pursuant to Section 4.02, 4.05 or 4.06. Unless the breach shall have
been cured within 30 days following such discovery, the Master Servicer shall
purchase any Contract materially and adversely affected by such breach. In
consideration of the purchase of such Contract, the Master Servicer shall remit
the Repurchase Amount in the manner specified in Section 5.04. The sole remedy
of the Issuer, the Owner Trustee, the Indenture Trustee, the Certificateholders
or the Noteholders with respect to a breach pursuant to Section 4.02, 4.05 or
4.06 shall be to require the Master Servicer to purchase Contracts pursuant to
this Section; provided, however, that the Master Servicer shall indemnify the
Owner Trustee, the Indenture Trustee, the Insurer, the Issuer and the
Securityholders 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 such breach. The Owner Trustee
shall have no duty to conduct any affirmative investigation as to the occurrence
of any condition requiring the repurchase of any Contract pursuant to this
Section.
Section 4.08. Servicing Compensation. As compensation for the
performance of its obligations under this Agreement and subject to the terms of
this Section, the Master Servicer shall be entitled to receive on each
Distribution Date the Servicing Fee in respect of each Contract that was
Outstanding at the beginning of the Due Period ending immediately prior to such
Distribution Date, to the extent the related payment of Monthly P&I has been
collected or advanced pursuant to Section 5.04. As servicing compensation in
addition to the Servicing Fee, the Master Servicer shall be entitled (i) to
retain all late payment charges, extension fees and similar items paid in
respect of Contracts, and (ii) to receive, in respect of each Rule of
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78's Contract that is prepaid in full prior to its Maturity Date, the amount by
which the outstanding principal balance of such Contract exceeds the Scheduled
Balance of such Contract at the time of such prepayment; provided, however, that
the Master Servicer agrees that each amount payable to it pursuant to clause
(ii) above shall be deposited in the Spread Account and applied in accordance
with Article Five and the Insurance Agreement. The Master Servicer shall pay all
expenses incurred by it in connection with its servicing activities hereunder
and shall not be entitled to reimbursement of such expenses except to the extent
provided in Section 4.03.
Section 4.09. Reporting by the Master Servicer.
(a) On each Master Servicer Report Date, the Master Servicer shall
transmit to the Owner Trustee, the Indenture Trustee, each Rating Agency and the
Insurer a statement, substantially in the form of Exhibit F hereto (the
"Distribution Date Statement"), setting forth with respect to the next
succeeding Distribution Date:
(i) the Certificate Interest Distributable Amount and the Note
Interest Distributable Amount for such Distribution Date;
(ii) the Certificate Principal Distributable Amount and the
Note Principal Distributable Amount for such Distribution Date and the
portion thereof constituting Accelerated Principal Distributable
Amounts;
(iii) the Net Collections, the Note Percentage and the
Certificate Percentage for such Distribution Date;
(iv) the amount otherwise distributable to each Class of
Noteholders and the Certificateholders that will be distributed to a
different Class of Noteholders on such Distribution Date;
(v) the amount to be on deposit in the Spread Account on such
Distribution Date, before and after giving effect to deposits thereto
and withdrawals therefrom to be made in respect of such Distribution
Date;
(vi) the Servicing Fee with respect to the related Due Period;
(vii) the amount of any Note Interest Carryover Shortfall,
Note Principal Carryover Shortfall, Certificate Interest Carryover
Shortfall and Certificate Principal Carryover Shortfall on such
Distribution Date and the change in such amounts from those with
respect to the immediately preceding Distribution Date;
(viii) the aggregate amount of Monthly P&I which was due on
the Contracts during the related Due Period and was delinquent as of
the end of the related Due Period (any such payment of Monthly P&I
being presumed to be delinquent to the extent that it was not deposited
in or credited to the Collection Account during such Due Period);
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(ix) the amount set forth in clause (viii) above which is
being advanced concurrently with such Distribution Date Statement by
the Master Servicer pursuant to Section 5.04, the amount of any such
Advance being deposited in or credited to the Collection Account on
such Master Servicer Report Date;
(x) the aggregate amount of any Nonrecoverable Advances
deducted by the Master Servicer from amounts otherwise required to be
deposited by the Master Servicer in the Collection Account during the
related Due Period;
(xi) the aggregate amount of Retained Yield for the related
Due Period;
(xii) the Aggregate Net Liquidation Losses for the related Due
Period;
(xiii) the Delinquency Percentage and the Charge-Off
Percentage for the most recent Calculation Day;
(xiv) the amount of Contracts which have had their APR or
principal amount modified pursuant to Section 4.01 and the percentage
that amount constitutes of the Original Principal Balance on a
cumulative basis; in addition the aggregate Scheduled Balance of
Contracts so modified as a percentage of the Pool Balance for the most
recent Distribution Date;
(xv) the Certificate Deficiency Claim Amount, if any, for such
Distribution Date;
(xvi) the Certificate Policy Claim Amount, if any, for such
Distribution Date;
(xvii) the Note Deficiency Claim Amount, if any, for such
Distribution Date, separately setting forth the amount thereof payable
in respect of each Class of Notes;
(xviii) the Note Policy Claim Amount, if any, for such
Distribution Date, separately setting forth the amount thereof payable
in respect of each Class of Notes; and
(xix) if the data becomes available, the principal amount of
Contracts originated by WFS in respect of clauses (viii) and (xii)
above.
Each such Distribution Date Statement shall be accompanied by an Officers'
Certificate of the Master Servicer stating that the computations reflected in
such statement were made in conformity with the requirements of this Agreement.
(b) On each Master Servicer Report Date, the Master Servicer shall
deliver to the Owner Trustee, the Indenture Trustee, each Rating Agency and the
Insurer a report, in respect of the immediately preceding Due Period, setting
forth the following:
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(i) the aggregate amount, if any, paid by or due from it for
the purchase of Contracts which the Seller or the Master Servicer has
become obligated to purchase pursuant to Section 3.02 or 4.07 or the
Seller has elected to purchase pursuant to Section 9.01;
(ii) the net amount of funds which have been deposited in or
credited to the Collection Account or the Holding Account in respect of
such Due Period (including amounts, if any, collected during the
immediately preceding Due Period and deposited in the Holding Account
pursuant to Section 5.02) after giving effect to all permitted
deductions therefrom pursuant to Section 5.02;
(iii) with respect to each Contract that became a Liquidated
Contract during such Due Period, the following information:
(A) its Contract Number;
(B) the effective date as of which such Contract
became a Liquidated Contract;
(C) its Monthly P&I and Scheduled Balance as of the
immediately preceding Distribution Date (or as of the Cut-Off
Date in the case of the first Distribution Date); and
(D) if less than 100% of the outstanding principal
balance of and accrued and unpaid interest was recovered on
such Liquidated Contract, the amount of the Net Liquidation
Proceeds or Net Insurance Proceeds;
(iv) with respect to each Contract which was the subject of a
Partial Prepayment during such Due Period, the following information:
(A) its Contract Number;
(B) the date of such Partial Prepayment;
(C) its new Maturity Date;
(D) the total amount received with respect to
such Partial Prepayment; and
(E) its Scheduled Balance as of the prior
Distribution Date (or as of the Cut-Off Date in the case of
the first Distribution Date) and its Scheduled Balance for
each Distribution Date having a Due Period prior to the Due
Period of its Maturity Date, computed on the basis set forth
under the definition of the term "Scheduled Balance";
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(v) the Contract Numbers, Monthly P&I, Scheduled Balances and
Maturity Dates of all Contracts which became Defaulted Contracts during
such Due Period;
(vi) any other information relating to the Contracts
reasonably requested by the Owner Trustee, the Indenture Trustee, each
Rating Agency or the Insurer; and
(vii) the amount of Net Liquidation Proceeds and Net Insurance
Proceeds which have been deposited in or credited to the Collection
Account or the Holding Account in respect of the Due Period ending
immediately prior to such Master Servicer Report Date and the
cumulative amount of Net Liquidation Proceeds and Net Insurance
Proceeds deposited in or credited to the Collection Account or the
Holding Account during the preceding Due Periods.
Section 4.10. Annual Statement as to Compliance. The Master Servicer
shall deliver to the Owner Trustee, the Indenture Trustee, each Rating Agency
and the Insurer, on or before 90 days after the end of each fiscal year of the
Master Servicer, beginning with the fiscal year ended December 31, 1996, an
Officers' Certificate of the Master Servicer stating that (i) a review of the
activities of the Master Servicer during the preceding fiscal year (or since the
Closing Date in the case of the first such Officers' Certificate) and of its
performance under this Agreement has been made under such officers' supervision
and (ii) to the best of such officers' knowledge, based on such review, the
Master Servicer has fulfilled all its obligations under this Agreement
throughout such year and that no default under this Agreement has occurred and
is continuing, 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. A copy of such certificate and the report referred to in
Section 4.11 may be obtained by any Certificateholder, Certificate Owner,
Noteholder or Note Owner by a request in writing to the Owner Trustee addressed
to the Owner Trustee Corporate Trust Office. Upon the telephone request of the
Owner Trustee, the Indenture Trustee will promptly furnish the Owner Trustee a
list of Noteholders as of the date specified by the Owner Trustee.
Section 4.11. Annual Independent Certified Public Accountants' Report.
On or before 90 days after the end of the first fiscal year of the Master
Servicer which ends more than three months after the Closing Date and each
fiscal year thereafter, the Master Servicer at its expense shall cause a firm of
nationally-recognized independent certified public accountants (who may also
render other services to the Master Servicer) to furnish a report to the
Indenture Trustee, the Owner Trustee, each Rating Agency and the Insurer to the
effect that (i) they have audited the balance sheet of the Master Servicer as of
the last day of said fiscal year and the related statements of operations,
retained earnings and cash flows for such fiscal year and have issued an opinion
thereon, specifying the date thereof, (ii) they have also audited certain
documents and the records relating to the servicing of the Contracts and the
distributions on the Notes and the Certificates hereunder, (iii) their audit as
described under clauses (i) and (ii) above was made in accordance with generally
accepted auditing standards and accordingly included such tests of the
accounting records and such other auditing procedures as they considered
necessary in the circumstances, and (iv) their audits described under clauses
(i) and (ii) above disclosed no exceptions which, in their opinion, were
material, relating to the servicing of such Contracts in accordance with this
Agreement and the making
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of distributions on the Notes and Certificates in accordance with this
Agreement, or, if any such exceptions were disclosed thereby, setting forth such
exceptions which, in their opinion, were material.
Section 4.12. Access to Certain Documentation and Information Regarding
Contracts. The Master Servicer shall provide to the Insurer, the Indenture
Trustee and the Securityholders access to the Contract Files in such cases where
the Certificateholders or Noteholders shall be required by applicable statutes
or regulations to review such documentation. Access shall be afforded without
charge, but only upon reasonable request and during the normal business hours at
the designated offices of the Master Servicer and each related Subservicer, if
any. Nothing in this Section shall affect the obligation of the Master Servicer
to observe any applicable law prohibiting disclosure of information regarding
the Obligors and the failure of the Master Servicer to provide access to
information as a result of such obligation shall not constitute a breach of this
Section.
Section 4.13. Fidelity Bond. The Master Servicer shall maintain a
fidelity bond in such form and amount as is customary for banks acting as
custodian of funds and documents in respect of mortgage loans or consumer
contracts on behalf of institutional investors.
Section 4.14. Indemnification; Third Party Claims. Subject to Section
8.02, the Master Servicer agrees to indemnify and hold the Indenture Trustee,
the Owner Trustee and the Securityholders harmless against any and all claims,
losses, penalties, fines, forfeitures, reasonable legal fees and related costs,
judgments and any reasonable other costs, fees and expenses that the Indenture
Trustee, the Owner Trustee, the Noteholders or the Certificateholders may
sustain because of the failure of the Master Servicer to perform its duties and
service the Contracts in compliance with the terms of this Agreement. The Master
Servicer shall immediately notify the Indenture Trustee and the Owner Trustee if
a claim is made by a third party with respect to the Contracts, assume, with the
consent of the Indenture Trustee and the Owner Trustee, the defense of any such
claim and pay all expenses in connection therewith, including counsel fees, and
promptly pay, discharge and satisfy any judgment or decree which may be entered
against it or Indenture Trustee, the Owner Trustee, the Noteholders or the
Certificateholders.
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ARTICLE FIVE
DISTRIBUTIONS; SPREAD ACCOUNT;
STATEMENTS TO SECURITYHOLDERS
Section 5.01. Establishment of Trust Accounts.
(a) Prior to the Closing Date, the Master Servicer shall open, at a
depository institution (which may be the Indenture Trustee, the Bank or the
Master Servicer), the following accounts (the "Trust Accounts"):
(i) an account in the name of the Indenture Trustee (the
"Collection Account"), bearing a designation clearly indicating that
the funds deposited therein are held for the benefit of the
Securityholders;
(ii) an account in the name of the Indenture Trustee (the
"Holding Account"), bearing a designation clearly indicating that the
funds deposited therein are held for the benefit of the
Securityholders;
(iii) an account in the name of the Indenture Trustee (the
"Spread Account"), bearing a designation clearly indicating that the
funds deposited therein are held for the benefit of the
Securityholders;
(iv) an account in the name of the Indenture Trustee (the
"Note Distribution Account") bearing a designation clearly indicating
that the funds deposited therein are held for the benefit of the
Noteholders; and
(v) an account in the name of the Owner Trustee (the
"Certificate Distribution Account") bearing a designation clearly
indicating that the funds deposited therein are held for the benefit of
the Certificateholders.
The Trust Accounts shall be Eligible Accounts and relate solely to the
Securities and to the Contracts and Eligible Investments. The Master Servicer
shall give the Indenture Trustee, the Owner Trustee and the Insurer at least
five Business Days' written notice of any change in the location of any Trust
Account and any related account identification information. All monies
(exclusive of the Retained Yield) deposited in or credited to, from time to
time, the Trust Accounts shall be part of the Trust Estate and all monies
deposited in or credited to, from time to time, the Collection Account, the
Spread Account, the Certificate Distribution Account and the Note Distribution
Account shall be invested by the Indenture Trustee in Eligible Investments
pursuant to Section 5.01(b). On the Business Day following each Distribution
Date, all amounts, if any, on deposit in or credited to the Holding Account
(excluding any installments of Monthly P&I that are due in one or more Due
Periods ending subsequent to the Distribution Date immediately succeeding such
Distribution Date) shall be transferred to the Collection Account.
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(b) All funds in the Collection Account, the Spread Account, the Note
Distribution Account and the Certificate Distribution Account shall be invested
by the Indenture Trustee in Eligible Investments and/or Proprietary Funds.
Unless and until the RIC is no longer an Eligible Investment, all funds in such
Trust Accounts, in each case that are available for investment in Eligible
Investments or in Proprietary Funds, shall be invested in the RIC or in
Proprietary Funds. If the RIC is no longer an Eligible Investment then, subject
to the limitations set forth herein, the Master Servicer may direct the
Indenture Trustee in writing to invest funds in the foregoing Trust Accounts in
Eligible Investments or Proprietary Funds other than the RIC; provided that in
the absence of such directions from the Master Servicer, the Insurer may so
direct the Indenture Trustee. All such investments shall be in the name of the
Indenture Trustee for the benefit of the Noteholders and the Certificateholders,
as applicable. All income or other gain from investment of monies deposited in
or credited to the Collection Account (including without limitation the RIC
Reinvestment Earnings) shall be deposited in or credited to the Collection
Account immediately upon receipt, and any loss resulting from such investment
shall be charged to the Collection Account. All income or other gain from
investment of monies deposited in or credited to the Spread Account (including
without limitation the RIC Reinvestment Earnings) shall be deposited in or
credited to the Spread Account immediately upon receipt, and any loss resulting
from such investment shall be charged to the Spread Account. All income or other
gain from investment of monies deposited in or credited to the Note Distribution
Account (including without limitation the RIC Reinvestment Earnings) shall be
deposited in or credited to the Note Distribution Account immediately upon
receipt, and any loss resulting from such investment shall be charged to the
Note Distribution Account. All income or other gain from investment of monies
deposited in or credited to the Certificate Distribution Account (including
without limitation the RIC Reinvestment Earnings) shall be deposited in or
credited to the Certificate Distribution Account immediately upon receipt, and
any loss resulting from such investment shall be charged to the Certificate
Distribution Account. The maximum permissible maturities of any investments of
funds in the Collection Account, the Spread Account, the Note Distribution
Account and the Certificate Distribution Account on any date shall not be later
than the fifth Business Day immediately preceding the Distribution Date next
succeeding the date of such investment; provided, however, that such funds may
be invested by the Indenture Trustee in Eligible Investments (other than the
RIC) that mature on the Business Day before the Distribution Date or in
Proprietary Funds for a period not to exceed one Business Day. No investment in
Eligible Investments may be sold prior to its maturity and all investments in
Proprietary Funds shall be for a period not to exceed one Business Day.
(c) Funds in the Holding Account shall not be invested.
(d) (i) The Indenture Trustee shall possess all right, title and
interest in all funds on deposit from time to time in the Trust Accounts
(exclusive of Retained Yield, if any) and in all proceeds thereof (including all
income thereon) and all such funds, investments, proceeds and income shall be
part of the Trust Estate. The Trust Accounts, other than the Certificate
Distribution Account, shall be under the sole dominion and control of the
Indenture Trustee for the benefit of the Noteholders and the Certificateholders,
as the case may be. The Certificate Distribution Account shall be in the name of
the Owner Trustee for the benefit of the Certificateholders. If, at any time,
any of the Trust Accounts ceases to be an Eligible
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Account, the Indenture Trustee (or the Master Servicer on its behalf) shall
within ten Business Days (or such longer period, not to exceed 30 calendar days,
as to which each Rating Agency may consent) establish a new Trust Account as an
Eligible Account and shall transfer any cash and/or any investments to such new
Trust Account.
(ii) With respect to the Trust Account Property, the Indenture
Trustee agrees, by its acceptance hereof, that:
(A) any Trust Account Property that is held in
deposit accounts shall be held solely in the Eligible
Accounts, subject to the last sentence of Section 5.01(d)(i);
and each such Eligible Account shall be subject to the
exclusive custody and control of the Indenture Trustee, and
the Indenture Trustee shall have sole signature authority with
respect thereto;
(B) any Trust Account Property that constitutes
Physical Property shall be delivered to the Indenture Trustee
in accordance with paragraph (i) of the definition of the term
"Delivery" and shall be held, pending maturity or disposition,
solely by the Indenture Trustee or a financial intermediary
(as such term is defined in Section 8-313(4) of the UCC)
acting solely for the Indenture Trustee;
(C) 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 (ii) of the definition of the term
"Delivery" and shall be maintained by the Indenture Trustee,
pending maturity or disposition, through continued book-entry
registration of such Trust Account Property as described in
such paragraph; and
(D) any Trust Account Property that is an
"uncertificated security" under Article Eight of the UCC and
that is not governed by clause (C) above shall be delivered to
the Indenture Trustee in accordance with paragraph (iii) of
the definition of the term "Delivery" and shall be maintained
by the Indenture Trustee, pending maturity or disposition,
through continued registration of the Indenture Trustee's (or
its nominee's) ownership of such security.
(iii) The Master Servicer shall have the power, revocable by
the Indenture Trustee or by the Owner Trustee with the consent of the
Indenture Trustee, to instruct the Indenture Trustee to make
withdrawals and payments from the Trust Accounts for the purpose of
permitting the Master Servicer or the Owner Trustee to carry out its
respective duties hereunder or permitting the Indenture Trustee to
carry out its duties under the Indenture.
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Section 5.02. Collections; Realization Upon Policies; Net Deposits.
(a) Subject to Section 5.03 and subsections (d) and (e) hereof, the
Master Servicer shall remit or credit all payments by the Obligors on the
Contracts, all payments on behalf of Obligors on the Contracts, and all Net
Liquidation Proceeds and Net Insurance Proceeds to the Collection Account
(within two Business Days as specified in Section 4.01); provided that the
Master Servicer shall retain from collection of late payments and Net
Liquidation Proceeds or Net Insurance Proceeds in respect of a Contract an
amount equal to previously unreimbursed Advances in respect of such Contract
made pursuant to Section 5.04. Amounts otherwise required to be deposited in or
credited to the Collection Account pursuant to the immediately preceding
sentence shall instead be deposited in or credited to the Holding Account to the
extent that such amounts are installments of Monthly P&I which are due in a Due
Period for a Distribution Date subsequent to the Distribution Date immediately
succeeding the date of receipt.
(b) Notwithstanding anything in this Agreement to the contrary, the
Retained Yield will be collected by the Master Servicer and paid out on a
monthly basis to the Seller without ever becoming part of the Trust's assets.
(c) Not later than 12:00 p.m., New York City time, on the fifth
Business Day prior to each Distribution Date, based on the information set forth
in the related Distribution Date Statement to the extent that there are
insufficient funds to make the distributions required to be made to each Class
of Notes and the Certificates as described in Sections 5.05 and 5.06, the Master
Servicer shall deliver to the Indenture Trustee, with a copy to the Insurer, the
Owner Trustee and the Fiscal Agent, if any, by hand delivery, telex or facsimile
transmission, a written notice (a "Deficiency Notice") specifying the
Certificate Deficiency Claim Amount or the Note Deficiency Claim Amount, if any,
for such Distribution Date, separately identifying the amount of the applicable
Deficiency Claim Amount payable in respect of each Class of Notes and the
Certificates. Such Deficiency Notice shall direct the Indenture Trustee to remit
such Deficiency Claim Amount (to the extent of funds then on deposit in the
Spread Account) (i) with respect to any Certificate Deficiency Claim Amount, to
the Owner Trustee for deposit in the Certificate Distribution Account and (ii)
with respect to any Note Deficiency Claim Amount, to the Indenture Trustee for
deposit in the Note Distribution Account.
(d) Not later than 12:00 p.m., New York City time, on the fourth
Business Day prior to each Distribution Date, (i) the Owner Trustee shall make a
claim under the Certificate Policy for any Certificate Policy Claim Amount for
such Distribution Date and/or (ii) the Indenture Trustee shall make a claim
under the Note Policy for any Note Policy Claim Amount for such Distribution
Date, in each case by delivering to the Insurer and the Fiscal Agent, if any,
with a copy to the Master Servicer, by hand delivery, telex or facsimile
transmission, a claim for the related Certificate Policy Claim Amount or Note
Policy Claim Amount, as the case may be. In making any such claim, the Owner
Trustee or the Indenture Trustee, as the case may be, shall comply with all the
terms and conditions of the related Policy. The notice of such claim shall
direct the Insurer to remit such Certificate Policy Claim Amount or Note Policy
Claim Amount, as the case may be, to the Owner Trustee or
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the Indenture Trustee for deposit in the Certificate Distribution Account or the
Note Distribution Account, as the case may be.
(e) So long as the Master Servicer is WFS, the Master Servicer shall
have the right, on a basis not more frequently than once per month (although
deposits shall be made into the Collection Account within two Business Days
pursuant to Section 4.01), to deduct from amounts received that are otherwise
required to be deposited in or credited to the Collection Account and, to the
extent such amounts are insufficient, to require that the Indenture Trustee
withdraw and deliver to it from the Collection Account, amounts due to be paid
hereunder to the Master Servicer or to the Seller after giving effect to
application of the payment priorities specified in this Article for the month
(or other applicable period), and to pay such amounts to itself as Master
Servicer or to the Seller, as the case may be. Notwithstanding the foregoing,
the Master Servicer shall maintain the records and accounts for such deposits
and credits on a gross basis.
Section 5.03. Application of Collections. As of each Record Date, all
collections for the related Due Period shall be applied by the Master Servicer
as follows: with respect to each Contract (including a Defaulted Contract),
payments by or on behalf of an Obligor shall be applied first to late payment
and extension fees, second to interest accrued on the Contract, third to
principal due on the Contract and fourth to administrative charges, if any. Any
excess shall be applied to prepay the principal balance of the Contract.
Section 5.04. Advances and Nonrecoverable Advances; Repurchase
Amounts.
(a) If, as of the end of any Due Period, one or more payments of
Monthly P&I due under any Contract (other than a Liquidated Contract)
Outstanding at the end of such Due Period shall not have been received by the
Master Servicer and deposited in or credited to the Collection Account pursuant
to Section 5.02(a), the Master Servicer shall make, concurrently with the
furnishing of the related Distribution Date Statement to the Indenture Trustee
and the Owner Trustee, the Advance for such Due Period by depositing in or
crediting to the Collection Account (i) with respect to a Rule of 78's Contract,
the amount of delinquent Monthly P&I and (ii) with respect to a Simple Interest
Contract, 30 days of interest on the Outstanding Principal Balance of such
Contract at a rate equal to the sum of (A) the Pass- Through Rate and (B) the
Servicing Fee Percent for each month that the related Monthly P&I is delinquent
at the end of such Due Period. The Master Servicer shall account for such
deposit or credit in accordance with Section 4.01. The foregoing
notwithstanding, the Master Servicer shall not make an Advance in respect of a
Contract if the Master Servicer shall have determined that any such Advance, if
made, would constitute a Nonrecoverable Advance. Any such determination shall be
evidenced by an Officers' Certificate furnished to the Indenture Trustee, the
Owner Trustee and the Insurer setting forth the basis for such determination.
(b) If the Master Servicer determines that it has made a Nonrecoverable
Advance or Advances, the Master Servicer shall reimburse itself, without
interest, from unrelated installments of Monthly P&I or Prepayment proceeds to
the extent it shall, concurrently with the withholding of any such installment
or proceeds from deposit in or credit to the Collection
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Account as required by Section 5.02, furnish to the Indenture Trustee, the Owner
Trustee and the Insurer a certificate of a Servicing Officer setting forth the
basis for the Master Servicer's determination, the amount of, and Contract with
respect to which, such Nonrecoverable Advance was made and the installment or
installments or other proceeds respecting which reimbursement has been taken.
(c) The Master Servicer or the Seller, as the case may be, shall remit
or credit to the Collection Account the aggregate Repurchase Amount with respect
to Repurchased Contracts on the Master Servicer Report Date next succeeding the
last day of the related cure period specified in Section 3.02 or 4.07, as the
case may be. In addition, the Master Servicer and the Seller shall deposit or
cause to be deposited in the Collection Account the aggregate Repurchase Amount
with respect to Repurchased Contracts and the Master Servicer shall deposit
therein all amounts to be paid under Section 9.01.
Section 5.05. Distributions.
(a) On each Distribution Date, the Master Servicer shall instruct the
Indenture Trustee (based on the information contained in the Servicer's
Certificate delivered on the related Master Servicer Report Date pursuant to
Section 4.09) to make the following deposits and distributions for receipt by
the Master Servicer or deposit in the applicable account by 11:00 a.m. (New York
time), to the extent of the Net Collections for such Distribution Date, in the
following order of priority:
(i) to the Master Servicer, the Servicing Fee, including any
unpaid Servicing Fees with respect to one or more prior Due Periods;
(ii) to the Indenture Trustee and the Owner Trustee, any
accrued and unpaid Trustees' fees, in each case to the extent such fees
have not been previously paid by the Master Servicer;
(iii) to the Note Distribution Account, from Net Collections
(after giving effect to the reduction in Net Collections described in
clauses (i) and (ii) above), the Note Interest Distributable Amount;
(iv) to the Note Distribution Account, from Net Collections
(after giving effect to the reduction in Net Collections described in
clauses (i) through (iii) above), the Note Principal Distributable
Amount to the holders of the Class A-1 Notes until the principal amount
of the Class A-1 Notes has been reduced to zero, second to the holders
of the Class A-2 Notes until the principal amount of the Class A-2
Notes has been reduced to zero, third to the holders of the Class A-3
Notes until the principal amount of the Class A-3 Notes has been
reduced to zero, and fourth to the holders of the Class A-4 Notes until
the principal amount of the Class A-4 Notes has been reduced to zero;
(v) to the Note Distribution Account, if such Distribution
Date is a Note Final Distribution Date, the remaining principal amount
of the related Class of Notes
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from Net Collections (after giving effect to the reduction in Net
Collections described in clauses (i) through (iv) above);
(vi) to the Certificate Distribution Account, from Net
Collections (after giving effect to the reduction in Net Collections
described in clauses (i) through (v) above), the Certificate Interest
Distributable Amount;
(vii) to the Certificate Distribution Account, from Net
Collections (after giving effect to the reduction in Net Collections
described in clauses (i) through (vi) above), the Certificate Principal
Distributable Amount;
(viii) to the Certificate Distribution Account, if such
Distribution Date is the Certificate Final Distribution Date, from Net
Collections (after giving effect to the reduction in Net Collections
described in clauses (i) through (vii) above), the Certificate Balance,
as such balance has been reduced by payments thereon in respect of such
Distribution Date; and
(ix) to the Insurer, from Net Collections (after giving effect
to the reduction in Net Collections described in clauses (i) through
(viii) above), any Unreimbursed Insurer Amounts.
(b) On each Distribution Date, the Master Servicer shall instruct the
Indenture Trustee (based on the information contained in the Servicer's
Certificate delivered on the related Master Servicer Report Date pursuant to
Section 4.09), to distribute any excess amounts remaining from Net Collections
after making the distributions described in Section 5.05(a) ("Excess Amounts")
to the Spread Account. On any Distribution Date on which both (i) the Funded
Amount (after giving effect to all deposits to, and withdrawals from, the Spread
Account on such Distribution Date) equals or exceeds the Minimum Funded Amount
and (ii) the sum of the Funded Amount and the Overcollateralization Amount
equals or exceeds than the Specified Spread Account Balance, the Master Servicer
shall instruct the Indenture Trustee to distribute an amount in cash equal to
the lesser of (A) the amount by which the Funded Amount exceeds the Minimum
Funded Amount and (B) the amount by which the sum of the Funded Amount and the
Overcollateralization Amount exceeds the Specified Spread Account Balance,
first, to the Insurer, to the extent of any Unreimbursed Insurer Amounts,
second, to the Seller until the Seller has received an aggregate amount equal to
the Spread Account Initial Deposit and third, to the Seller and the Company, in
the proportions of 99% and 1%, respectively.
Notwithstanding that the Notes have been paid in full, the Indenture Trustee
shall continue to maintain the Collection Account hereunder until the
Certificate Balance is reduced to zero.
(c) To the extent that on any Distribution Date:
(i) the amount on deposit in the Note Distribution Account
(after giving effect to any deposits thereto on such Distribution Date)
is less than the Note Distributable Amount, Noteholders shall be
entitled to receive distributions in respect
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of such deficiency first, from amounts on deposit in the Spread Account
pursuant to a Deficiency Notice; second, if such amounts are
insufficient, from amounts otherwise payable to Certificateholders in
respect of the Certificate Distributable Amount and third, if such
amounts are still insufficient, from a claim made under the Note Policy
for the Note Policy Claim Amount pursuant to Section 5.02(d); and
(ii) the amount on deposit in the Certificate Distribution
Account (after giving effect to any deposits thereto on such
Distribution Date) is less than the Certificate Distributable Amount,
Certificateholders shall be entitled to receive distributions in
respect of such deficiency, first, from amounts on deposit in the
Spread Account, to the extent that such amounts remain available after
giving effect to the immediately preceding paragraph, pursuant to a
Deficiency Notice and second, if such amounts are insufficient, from a
claim made under the Certificate Policy for the Certificate Policy
Claim Amount pursuant to Section 5.02(d).
Section 5.06. Spread Account.
(a) On or prior to the Closing Date, the Owner Trustee, on behalf of
the Seller, shall deposit the Spread Account Initial Deposit into the Spread
Account from the net proceeds of the sale of the Notes and the Certificates. The
Spread Account will be held for the benefit of the Securityholders and the
Insurer in order to effectuate the subordination of the rights of the
Securityholders to the extent described above.
(b) On each Calculation Day or Distribution Date on which both (i) the
Funded Amount (after giving effect to all deposits to, and withdrawals from, the
Spread Account on such Distribution Date) equals or exceeds the Minimum Funded
Amount and (ii) the sum of the Funded Amount and the Overcollateralization
Amount equals or exceeds than the Specified Spread Account Balance, the Master
Servicer shall instruct the Indenture Trustee to distribute an amount in cash
equal to the lesser of (A) the amount by which the Funded Amount exceeds the
Minimum Funded Amount and (B) the amount by which the sum of the Funded Amount
and the Overcollateralization Amount exceeds the Specified Spread Account
Balance, first, to the Insurer, to the extent of any Unreimbursed Insurer
Amounts, second, to the Seller until the Seller has received an amount equal to
the Spread Account Initial Deposit and third, to the Seller and the Company in
the proportions of 99% and 1%, respectively. Upon any such distribution to the
Insurer, the Seller or the Company, Securityholders will have no further rights
in, or claims to, such amounts.
(c) Amounts held in the Spread Account shall be invested in the manner
specified in Section 5.01(b), and such investments shall be made in accordance
with written instructions from the Master Servicer; provided that, if the
Indenture Trustee does not receive any such written instructions prior to any
date on which an investment decision must be made, the Indenture Trustee shall
invest such amounts held in the Spread Account in Eligible Investments
consisting of commercial paper given the highest rating by each Rating Agency at
the time of such investment. All such investments shall be made in the name of
the Indenture Trustee or its nominee and such investments shall not be sold or
disposed of prior to their maturity.
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(d) Upon termination of the Trust pursuant to Section 9.01, any amounts
on deposit in the Spread Account, after payments of amounts due to the
Securityholders or the Insurer (if there exists any Unreimbursed Insurer
Amounts), will be paid to the Seller.
Section 5.07. Statements to Securityholders.
(a) On each Distribution Date, (i) the Indenture Trustee shall include
with each distribution to each Noteholder of record as of the related Record
Date, and (ii) the Owner Trustee shall include with each distribution to each
Certificateholder of record as of the related Record Date, a statement, prepared
by the Master Servicer, based on the information in the Distribution Date
Statement furnished pursuant to Section 4.09, setting forth for such
Distribution Date the following information as of the related Record Date or
such Distribution Date, as the case may be:
(i) the amount of such distribution allocable to principal
(stated separately for each Class of Notes and the Certificates);
(ii) the amount of such distribution allocable to interest
(stated separately for each Class of Notes and the Certificates);
(iii) the Note Percentage and the Certificate Percentage as of
the close of business on the last day of such Due Period;
(iv) the Aggregate Scheduled Balance as of the close of
business on the last day of such Due Period;
(v) the amount of the Servicing Fee paid to the Master
Servicer with respect to the related Due Period;
(vi) the amount of any Certificate Interest Carryover
Shortfall, Certificate Principal Carryover Shortfall, Note Interest
Carryover Shortfall and Note Principal Carryover Shortfall on such
Distribution Date and the change in such amounts from those with
respect to the immediately preceding Distribution Date;
(vii) the Note Pool Factor for each Class of Notes and the
Certificate Pool Factor as of such Distribution Date, after giving
effect to payments allocated to principal reported under clause (i)
above; and
(viii) the amount on deposit in the Spread Account on such
Distribution Date, after giving effect to distributions made on such
Distribution Date, and the change in such balance from the immediately
preceding Distribution Date.
Each amount set forth pursuant to subclauses (i), (ii), (iv) or (v) above shall
be expressed as a dollar amount per $1,000 of original principal amount of a
Note or original Certificate Balance, as the case may be.
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(b) Within a reasonable period of time after the end of each calendar
year, but not later than the latest date permitted by law, the Owner Trustee and
the Indenture Trustee, as the case may be, shall mail to each Person who at any
time during such calendar year shall have been a Holder of a Note or a
Certificate, respectively, a statement or statements, prepared by the Master
Servicer, which in the aggregate contain the sum of the amounts set forth in
clauses (i), (ii), (iv) and (v) above for such calendar year or, in the event
such Person shall have been a Holder of a Note or a Certificate during a portion
of such calendar year, for the applicable portion of such year, for the purposes
of such Noteholder's or Certificateholder's preparation of federal income tax
returns. In addition, the Master Servicer shall furnish to the Owner Trustee and
the Indenture Trustee for distribution to such Person at such time any other
information necessary under applicable law for the preparation of such income
tax returns.
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ARTICLE SIX
THE SELLER
Section 6.01. Corporate Existence. During the term of this Agreement, the
Seller will keep in full force and effect its existence, rights and franchises
as a corporation under the laws of the jurisdiction of its incorporation 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 other Basic Documents and each other
instrument or agreement necessary or appropriate to the proper administration of
this Agreement and the transactions contemplated hereby. In addition, all
transactions and dealings between the Seller and its Affiliates will be
conducted on an arm's-length basis.
Section 6.02. Liability of Seller; Indemnities. The Seller shall be liable
in accordance herewith only to the extent of the obligations specifically
undertaken by the Seller under this Agreement.
The Seller shall indemnify, defend and hold harmless the Issuer, the Owner
Trustee, the Indenture Trustee and the Master Servicer from and against any
taxes that may at any time be asserted against any such Person with respect to
the transactions contemplated herein and in the other Basic Documents, 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, and as of the date of, the sale of the Contracts
to the Issuer or the issuance and original sale of the Securities, or asserted
with respect to ownership of the Contracts, or federal or other income taxes
arising out of distributions on the Certificates or the Notes) and costs and
expenses in defending against the same.
The Seller shall indemnify, defend and hold harmless the Issuer, the Owner
Trustee, the Indenture Trustee and the Securityholders from and against any
loss, liability or expense incurred by reason of the Seller's willful
misfeasance, bad faith or negligence (other than errors in judgment) in the
performance of its duties under this Agreement, or by reason of reckless
disregard of its obligations and duties under this Agreement.
The Seller shall indemnify, defend and hold harmless the Issuer, the Owner
Trustee and the Indenture Trustee from and against 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 herein and, in the case
of the Owner Trustee, in the Trust Agreement and, in the case of the Indenture
Trustee, in the Indenture, except to the extent that such cost, expense, loss,
claim, damage or liability, in the case of (i) the Owner Trustee, shall be due
to the willful misfeasance, bad faith or negligence of the Owner Trustee or
shall arise from the breach by the Owner Trustee of any of its representations
or warranties set forth in Section 7.03 of the Trust Agreement, or (ii) the
Indenture Trustee, shall be due to the willful misfeasance, bad faith or
negligence of the Indenture Trustee.
Indemnification under this Section shall include, without limitation,
reasonable fees and expenses of counsel and expenses of litigation. If the
Seller shall have made any
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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 6.03. Merger or Consolidation of, or Assumption of the Obligations
of, Seller; Certain Limitations.
(a) The Seller shall not consolidate with or merge into any other
corporation or convey, transfer or lease substantially all of its assets as an
entirety to any Person unless the corporation formed by such consolidation or
into which the Seller has merged or the Person which acquires by conveyance,
transfer or lease substantially all the assets of the Seller as an entirety, can
lawfully perform the obligations of the Seller hereunder and executes and
delivers to the Insurer, the Owner Trustee and the Indenture Trustee an
agreement in form and substance reasonably satisfactory to the Owner Trustee,
the Indenture Trustee and the Insurer, which contains an assumption by such
successor entity of the due and punctual performance and observance of each
covenant and condition to be performed or observed by the Seller under this
Agreement. The Seller shall provide notice of any merger, consolidation or
succession pursuant to this Section to each Rating Agency and will deliver to
the Insurer, the Owner Trustee and the Indenture Trustee a letter from each
Rating Agency to the effect that such merger, consolidation or succession will
not result in a qualification, downgrading or withdrawal of its then-current
ratings of each Class of Notes or the Certificates. The Seller and WFS shall
maintain separate corporate offices.
(b) (i) Subject to paragraph (ii) below, the purpose of the Seller shall
be to engage in any lawful activity for which a corporation may be organized
under the General Corporation Law of California and which is permitted for
operating subsidiaries of federally chartered savings associations other than
the banking business, the trust company business or the practice of a profession
permitted to be incorporated by the California Corporations Code.
(ii) Notwithstanding paragraph (b)(i) above, the actual business
activities of the Seller shall be limited to those activities permitted an
operating subsidiary of a federally chartered savings association pursuant to 12
CFR Section 545.81 including the following purposes, and activities incident to
and necessary or convenient to accomplish the following purposes: (A) to
acquire, own, hold, sell, transfer, assign, pledge, finance, refinance and
otherwise deal with, retail installment sales contracts and installment loans
secured by automobiles and light duty trucks (the "Vehicle Receivables"); (B) to
authorize, issue, sell and deliver one or more series of obligations, consisting
of one or more classes of notes, certificates or other securities (the "Offered
Securities") that are collateralized by or evidence an interest in Vehicle
Receivables and are rated in the highest available category by at least one
nationally recognized statistical rating agency; and (C) to negotiate,
authorize, execute, deliver and assume the obligations of any agreement relating
to the activities set forth in clauses (A) and (B) above, including but not
limited to any pooling and servicing agreement, indenture, reimbursement
agreement, credit support agreement, receivables purchase agreement or
underwriting agreement or to engage in any lawful activity which is incidental
to the activities contemplated by any such agreement. So long as any outstanding
debt of the Seller or Offered Securities are rated by any nationally recognized
statistical rating organization, the
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Seller shall not issue notes or otherwise incur debt unless (I) the Seller has
made a written request to the related nationally recognized statistical rating
organization to issue notes or incur borrowings which notes or borrowings are
rated by the related nationally recognized statistical rating organization the
same as or higher than the rating afforded such debt or securities, or (II) such
notes or borrowings (X) are fully subordinated (and which shall provide for
payment only after payment in respect of all outstanding rated debt and/or
Offered Securities) or are nonrecourse against any assets of the Seller other
than the assets pledged to secure such notes or borrowings, (Y) do not
constitute a claim against the Seller in the event such assets are insufficient
to pay such notes or borrowings, and (Z) where such notes or borrowings are
secured by the rated debt or Offered Certificates, are fully subordinated (and
which shall provide for payment only after payment in respect of all outstanding
rated debt and/or Offered Securities) to such rated debt or Offered Securities.
(c) Notwithstanding any other provision of this Section and any provision
of law, the Seller shall not do any of the following:
(i) engage in any business or activity other than as set forth in
clause (b) above;
(ii) without the affirmative vote of a majority of the members of the
Board of Directors of the Seller (which must include the affirmative vote of at
least two duly appointed Independent directors) (A) dissolve or liquidate, in
whole or in part, or institute proceedings to be adjudicated bankrupt or
insolvent, (B) consent to the institution of bankruptcy or insolvency
proceedings against it, (C) file a petition seeking or consent to reorganization
or relief under any applicable federal or state law relating to bankruptcy, (D)
consent to the appointment of a receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of the corporation or a substantial
part of its property, (E) make a general assignment for the benefit of
creditors, (F) admit in writing its inability to pay its debts generally as they
become due, or (G) take any corporate action in furtherance of the actions set
forth in clauses (A) through (F) above; provided, however, that no director may
be required by any shareholder of the Seller to consent to the institution of
bankruptcy or insolvency proceedings against the Seller so long as it is
solvent; or
(iii) merge or consolidate with any other corporation, company or
entity or sell all or substantially all of its assets or acquire all or
substantially all of the assets or capital stock or other ownership interest of
any other corporation, company or entity (except for the acquisition of Vehicle
Receivables and the sale of Vehicle Receivables to one or more trusts in
accordance with the terms of clause (b)(ii) above, which shall not be otherwise
restricted by this Section 6.03(c)).
Section 6.04. 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 any document of any kind, prima facie properly executed and submitted
by any Person respecting any matters arising hereunder. The Seller and any
director or officer or employee or agent of the Seller shall be reimbursed by
the Owner Trustee or the Indenture Trustee, as the case may be,
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for any contractual damages, liability or expense incurred by reason of the
Owner Trustee's or the Indenture Trustee's willful misfeasance, bad faith or
negligence (except for errors in judgment) in the performance of their
respective duties hereunder, or by reason of reckless disregard of their
respective obligations and duties hereunder. 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 6.05. Seller Not to Resign. Subject to the provisions of Section
6.03, the Seller shall not resign from the obligations and duties hereby imposed
on it as Seller hereunder.
Section 6.06. Seller May Own Securities. The Seller and any Affiliate
thereof may in its individual or any other capacity become the owner or pledgee
of Securities 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 Basic
Document. Securities so owned by or pledged to the Seller or such Affiliate
shall have an equal and proportionate benefit under the provisions of this
Agreement, without preference, priority or distinction as among all of the Notes
or Certificates, as the case may be.
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ARTICLE SEVEN
THE MASTER SERVICER
Section 7.01. Liability of Master Servicer; Indemnities. Subject to
Section 8.02, the Master Servicer shall be liable in accordance herewith only to
the extent of the obligations specifically undertaken by the Master Servicer
under this Agreement. Such obligations shall include the following:
(a) The Master Servicer shall indemnify, defend and hold harmless
the Issuer, the Owner Trustee, the Indenture Trustee, the Securityholders
and the Insurer from and against any and all costs, expenses, losses,
damages, claims and liabilities, arising out of or resulting from the use,
ownership or operation by the Master Servicer, any Subservicer or any of
their respective Affiliates of a Financed Vehicle.
(b) The Master Servicer shall indemnify, defend and hold harmless
the Issuer, the Owner Trustee, the Indenture Trustee and the Insurer from
and against any taxes that may at any time be asserted against the Owner
Trustee, the Indenture Trustee or the Issuer with respect to the
transactions contemplated herein, including, without limitation, any
sales, gross receipts, general corporation, tangible personal property,
privilege or license taxes (but not including any taxes asserted with
respect to, and as of the date of, the sale of the Contracts to the Issuer
or the issuance and original sale of the Securities, or asserted with
respect to ownership of the Contracts, or federal or other income taxes
arising out of distributions on the Securities) and costs and expenses in
defending against the same.
(c) The Master Servicer shall indemnify, defend and hold harmless
the Issuer, the Owner Trustee, the Indenture Trustee, the Insurer and the
Securityholders 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 any
such Person through, the negligence, willful misfeasance or bad faith of
the Master Servicer in the performance of its duties under this Agreement
or by reason of reckless disregard of its obligations and duties under
this Agreement.
(d) The Master Servicer shall indemnify, defend and hold harmless
the Owner Trustee, the Indenture Trustee and the Insurer 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 herein contained, except to the
extent that such cost, expense, loss, claim, damage or liability (i) shall
be due to the willful misfeasance, bad faith or negligence (except for
errors in judgment) of the Owner Trustee or the Indenture Trustee, as the
case may be; (ii) relates to any tax other than the taxes with respect to
which either the Seller or Master Servicer shall be required to indemnify
the Owner Trustee and the Indenture Trustee; (iii) shall arise from the
Owner Trustee's or the Indenture Trustee's breach of any of their
respective representations or warranties set forth herein, in the Trust
Agreement
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or in the Indenture; or (iv) shall be one as to which the Seller is
required to indemnify the Owner Trustee or the Indenture Trustee, as the
case may be.
Indemnification under this Section shall survive the resignation or
removal of the Owner Trustee or the Indenture Trustee or the termination of this
Agreement and shall include, without limitation, reasonable fees and expenses of
counsel and expenses of litigation. If the Master Servicer shall have made any
indemnity payments pursuant to this Section and the Person to or on behalf of
whom such payments are made thereafter collects any of such amounts from others,
such Person shall promptly repay such amounts to the Master Servicer, without
interest.
Section 7.02. Corporate Existence; Status as Master Servicer; Merger. The
Master Servicer shall not consolidate with or merge into any other corporation
or convey, transfer or lease all or substantially all of its assets as an
entirety to any Person unless the corporation formed by such consolidation or
into which the Master Servicer has merged or the Person which acquires by
conveyance, transfer or lease substantially all the assets of the Master
Servicer as an entirety can lawfully perform the obligations of the Master
Servicer hereunder and executes and delivers to the Indenture Trustee and the
Owner Trustee an agreement in form and substance reasonably satisfactory to the
Indenture Trustee, the Owner Trustee and the Insurer, which contains an
assumption by such successor entity of the due and punctual performance or
observance of each covenant and condition to be performed or observed by the
Master Servicer under this Agreement. Notice shall be sent to each Rating Agency
by the Master Servicer of any consolidation, merger or succession pursuant to
this Section.
Section 7.03. Performance of Obligations.
(a) The Master Servicer shall punctually perform and observe all of its
obligations and agreements contained in this Agreement.
(b) The Master Servicer shall not take any action, or permit any action to
be taken by others, which would excuse any person from any of its covenants or
obligations under any of the Contract Documents or under any other instrument
included in the Trust Estate, or which would result in the amendment,
hypothecation, subordination, termination or discharge of, or impair the
validity or effectiveness of, any of the Contract Documents or any such
instrument, except as expressly provided herein and therein.
Section 7.04. Master Servicer Not to Resign; Assignment.
(a) The Master Servicer shall not resign from the duties and obligations
hereby imposed on it except upon determination by its Board of Directors that by
reason of change in applicable legal requirements the continued performance by
the Master Servicer of its duties hereunder would cause it to be in violation of
such legal requirements in a manner which would result in a material adverse
effect on the Master Servicer or its financial condition, said determination to
be evidenced by a resolution of its Board of Directors to such effect
accompanied by an Opinion of Counsel, satisfactory to the Owner Trustee and the
Indenture Trustee, to such effect. No such resignation shall become effective
unless and until (i) a new
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servicer acceptable to the Owner Trustee, the Indenture Trustee and the Insurer
is willing to service the Contracts and enters into a servicing agreement with
the Trust and the Insurer in form and substance substantially similar to this
Agreement and satisfactory to the Owner Trustee, the Indenture Trustee and the
Insurer and (ii) each Rating Agency confirms that the selection of such new
servicer will not result in the qualification, reduction or withdrawal of its
then-current rating of each Class of Notes and the Certificates assigned by such
Rating Agency. No such resignation shall affect the obligation of the Master
Servicer to repurchase Contracts pursuant to Section 4.07.
(b) Except as specifically permitted in this Agreement, the Master
Servicer may not assign this Agreement or any of its rights, powers, duties or
obligations hereunder; provided that (i) the Master Servicer may assign this
Agreement in connection with a consolidation, merger, conveyance, transfer or
lease made in compliance with Section 7.02.
(c) Except as provided in Sections 7.04(a) and (b), the duties and
obligations of the Master Servicer under this Agreement shall continue until
this Agreement shall have been terminated as provided in Section 9.01 or the
Trust shall have been terminated as provided by the terms of the Trust
Agreement, and shall survive the exercise by the Owner Trustee, the Indenture
Trustee or the Insurer of any right or remedy under this Agreement, or the
enforcement by the Owner Trustee, the Indenture Trustee, any Certificateholder
or Noteholder, or the Insurer of any provision of the Notes, the Certificates,
the Insurance Agreement or this Agreement.
(d) The resignation of the Master Servicer in accordance with this Section
shall not affect the rights of the Seller hereunder. If the Master Servicer
resigns pursuant to this Section, its appointment as custodian can be terminated
pursuant to Section 3.07.
Section 7.05. Limitation on Liability of Master Servicer and Others.
(a) Neither the Master Servicer nor any of the directors, officers,
employees or agents of the Master Servicer shall be under any liability to the
Issuer, the Noteholders or the Certificateholders, except as provided under this
Agreement, for any action taken or for refraining from the taking of any action
pursuant to this Agreement or for errors in judgment; provided, however, that
this provision shall not protect the Master Servicer or any such person against
any liability that would otherwise be imposed by reason of willful misfeasance,
bad faith or negligence (except errors in judgment) in the performance of duties
or by reason of reckless disregard of obligations and duties under this
Agreement. The Master Servicer and any director, officer, employee or agent of
the Master 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 under this Agreement.
(b) The Master Servicer and any director or officer or employee or agent
of the Master Servicer shall be reimbursed by the Owner Trustee or the Indenture
Trustee, as the case may be, for any contractual damages, liability or expense
incurred by reason of such Trustee's willful misfeasance, bad faith or
negligence (except errors in judgment) in the
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performance of such Trustee's duties under this Agreement or by reason of
reckless disregard of its obligations and duties under this Agreement.
Except as provided in this Agreement, the Master Servicer shall not be
under any obligation to appear in, prosecute or defend any legal action that
shall not be incidental to its duties to service the Contracts in accordance
with this Agreement, and that in its opinion may involve it in any expense or
liability; provided, however, that the Master Servicer may undertake any
reasonable action that it may deem necessary or desirable in respect of this
Agreement and the other Basic Documents and the rights and duties of the parties
to this Agreement and the other Basic Documents and the interests of the
Securityholders under the Basic Documents.
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ARTICLE EIGHT
DEFAULT
Section 8.01. Servicer Default. If any one of the following events (a
"Servicer Default") shall occur and be continuing:
(a) A claim being made under either the Note Policy or the
Certificate Policy;
(b) Any failure by the Master Servicer or the Issuer to deposit or
credit, or to deliver to the Indenture Trustee for deposit, in any of the
Trust Accounts any amount required hereunder to be as deposited, credited
or delivered or to direct the Indenture Trustee to make any required
distributions therefrom, that shall continue unremedied for a period of
three Business Days after written notice of such failure is received from
the Owner Trustee, the Indenture Trustee or the Insurer or after discovery
of such failure by an officer of the Master Servicer;
(c) Any failure by the Master Servicer to deliver to the Insurer,
the Indenture Trustee or the Owner Trustee a report in accordance with
Section 4.09 and/or Section 4.10 by the fourth Business Day prior to the
Distribution Date with respect to which such report is due, or the Master
Servicer shall have defaulted in the due observance of any provision of
Section 7.02 (other than failure to enter into an assumption agreement
under Section 7.02, which is a Servicer Default only if such failure
continues for ten Business Days);
(d) Failure on the part of the Seller, the Issuer or the Master
Servicer duly to observe or to perform in any material respect any other
covenants or agreements of the Master Servicer or the Seller set forth in
this Agreement or any other Basic Document, which failure shall (i)
materially and adversely affect the rights of the Insurer, the Owner
Trustee, the Indenture Trustee, the Certificateholders or Noteholders and
(ii) continue unremedied for a period of 30 days after the date on which
written notice of such failure, requiring the same to be remedied, shall
have been given (A) to the Master Servicer or the Seller (as the case may
be) by the Insurer, the Owner Trustee or the Indenture Trustee or (B) to
the Master Servicer or the Seller (as the case may be), and to the Owner
Trustee and the Indenture Trustee by the Holders of Notes evidencing not
less than 25% of the Outstanding Amount of the Notes or, if the Notes have
been paid in full, by Certificateholders evidencing not less than 25% of
the Certificate Balance, or, so long as no default under either Policy has
occurred and is continuing and no insolvency of the Insurer has occurred,
by the Insurer;
(e) The occurrence of an Insolvency Event with respect to the
Seller, the Issuer or the Master Servicer; or
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(f) Any representation, warranty or statement of the Master
Servicer, the Issuer or the Seller 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 (excluding, however, any representation or warranty to
which Section 3.01 or 4.06 shall be applicable so long as the Master
Servicer or the Seller shall be in compliance with Section 3.02 or 4.07,
as the case may be), and the incorrectness of such representation,
warranty or statement has a material adverse effect on the Noteholders or
the Certificateholders and, within 30 days after written notice thereof
shall have been given to the Master Servicer or the Seller by the
Indenture Trustee or the Owner Trustee or by the Holders of Notes
evidencing not less than 25% of the Outstanding Amount of the Notes, or
Certificateholders evidencing not less than 25% of the Certificate Balance
or, so long as no default has occurred under either Policy and is
continuing and no Insurer Insolvency has occurred, by the Insurer, the
circumstance or condition in respect of which such representation,
warranty or statement was incorrect shall not have been eliminated or
otherwise cured;
then, and in each and every case, so long as such Servicer Default shall not
have been remedied and subject to the limitations set forth in Section 6.07 of
the Insurance Agreement, either the Indenture Trustee, the Insurer, the Holders
of Notes evidencing not less than 25% of the Outstanding Amount of the Notes
(or, if the Notes have been paid in full and the Indenture has been discharged
in accordance with its terms, by the Owner Trustee or by Certificateholders
evidencing not less than 25% of the Certificate Balance), by notice then given
in writing to the Master Servicer (and to the Insurer, the Indenture Trustee and
the Owner Trustee if given by the Noteholders or the Certificateholders) may
terminate all the rights and obligations of the Master Servicer under this
Agreement. Upon such termination, termination of the Master Servicer as
custodian can be made pursuant to Section 3.07. On or after the receipt by the
Master Servicer of such written notice, all authority and power of the Master
Servicer under this Agreement, whether with respect to the Notes, the
Certificates, the Contracts or otherwise, shall, without further action, pass to
and be vested in the Indenture Trustee or such successor Master Servicer as may
be appointed under Section 8.02; and, without limitation, the Indenture Trustee
and the Owner Trustee are hereby authorized and empowered to execute and
deliver, for the benefit of the predecessor Master 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 Contracts and related documents, or otherwise. The Master
Servicer shall cooperate with the Indenture Trustee and the Owner Trustee in
effecting the termination of the responsibilities and rights of the predecessor
Master Servicer under this Agreement, including the transfer to the Indenture
Trustee for administration by it of all cash amounts that shall at the time be
held by the predecessor Master Servicer for deposit, or shall thereafter be
received by it with respect to any Contract.
Section 8.02. Trustee to Act; Appointment of Successor. Upon the Master
Servicer's receipt of notice of termination pursuant to Section 8.01 or
resignation pursuant to Section 7.04, the Indenture Trustee shall be the
successor to the Master Servicer in its
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capacity as servicer under this Agreement, and shall be subject to all the
responsibilities, duties and liabilities relating thereto placed on the Master
Servicer by the terms and provisions of this Agreement, except that the
Indenture Trustee shall not be obligated to purchase Contracts pursuant to
Section 4.07 unless the obligation to repurchase arose after the date of the
notice of termination given to the Master Servicer pursuant to Section 8.01 or
be subject to any obligation of the Master Servicer to indemnify or hold
harmless any Person as set forth in this Agreement arising from the acts or
omissions of the previous Master Servicer. As compensation therefor, the
Indenture Trustee shall be entitled to such compensation (whether payable out of
the Collection Account or otherwise) as the Master Servicer would have been
entitled to under this Agreement if no such notice of termination shall have
been given. If, however, a bankruptcy trustee or similar official has been
appointed for the Master Servicer, and no Servicer Default other than such
appointment has occurred, such trustee or official may have the power to prevent
the Indenture Trustee, Insurer or the Noteholders (or Certificateholders) from
effecting a transfer of servicing. Notwithstanding the above, the Indenture
Trustee may, if it shall be unwilling to act, or shall, if it shall be legally
unable so to act, appoint, or petition a court of competent jurisdiction to
appoint, any established financial institution, having a net worth of not less
than $50,000,000 and whose regular business shall include the servicing of motor
vehicle retail installment sales contracts, as the successor to the Master
Servicer under this Agreement. Pending appointment of any such successor Master
Servicer, the Indenture Trustee shall act in such capacity as provided above. In
connection with such appointment, the Indenture Trustee may make such
arrangements for the compensation of such successor out of payments on Contracts
it and such successor shall agree; provided, however, that no such compensation
shall be in excess of that permitted the Master Servicer under this Agreement
without the consent of the Insurer. The Indenture Trustee and such successor
shall take such action, consistent with this Agreement, as shall be necessary to
effectuate any such succession.
Section 8.03. Repayment of Advances. If the identity of the Master
Servicer shall change, the predecessor Master Servicer shall be entitled to
receive reimbursement for outstanding Advances pursuant to Section 5.04 with
respect to all Advances made by the predecessor Master Servicer.
Section 8.04. Notification to Noteholders and Certificateholders. Upon any
termination of, or appointment of a successor to, the Master Servicer pursuant
to this Article, the Owner Trustee shall give prompt written notice thereof to
Certificateholders at their respective addresses appearing in the Certificate
Register, and the Indenture Trustee shall give prompt written notice thereof to
Noteholders at their respective addresses appearing in the Note Register and to
each Rating Agency.
Section 8.05. Waiver of Past Defaults. The Holders of Notes evidencing not
less than 51% of the Outstanding Amount of the Notes, or, if all the Notes have
been paid in full and the Indenture has been discharged in accordance with its
terms, Certificateholders evidencing not less than 51% of the Certificate
Balance (in the case of any default which does not adversely affect the
Indenture Trustee or the Noteholders) may, on behalf of all Securityholders,
with the consent of the Insurer, waive in writing any default by the Master
Servicer in the performance of its obligations hereunder and its consequences,
except a default
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in making any required deposits to or payments from any of the Trust Accounts in
accordance with this Agreement or in respect of a covenant or provisions hereof
which cannot be modified without the consent of each Securityholder. Upon any
such waiver of a past default, such default shall cease to exist, and any
Servicer Default 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.
Section 8.06. Insurer Direction of Insolvency Proceedings. Upon receipt of
actual knowledge thereof by a Responsible Officer, the Indenture Trustee shall
promptly notify the Insurer of (i) the commencement of any of the events or
proceedings (individually, an "Insolvency Proceeding") described in the
definition of the term "Insolvency Event" or any such event or proceeding
applicable to an Obligor under a Contract and (ii) the making of any claim in
connection with any Insolvency Proceeding seeking the avoidance as a
preferential transfer (a "Preference Claim") of any payment of principal of, or
interest on, a Contract or any Notes or Certificates. Each Noteholder and Note
Owner, by its purchase of Notes or a beneficial interest therein, each
Certificateholder and Certificate Owner, by its purchase of Certificates or a
beneficial interest therein, the Owner Trustee and the Indenture Trustee hereby
agree that, so long as neither a default under the Policies nor an Insurer
Insolvency has occurred and is continuing, the Insurer may at any time during
the continuation of an Insolvency Proceeding direct all matters relating to such
Insolvency Proceeding, including, without limitation, (i) all matters relating
to any Preference Claim, (ii) the direction of any appeal of any order relating
to any Preference Claim and (iii) the posting of any surety, supersedes or
performance bond pending any such appeal. The Insurer shall be subrogated to the
rights of the Indenture Trustee, the Owner Trustee and each Securityholder in
the conduct of any Insolvency Proceeding, 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 Insolvency Proceeding. In addition, for
so long as the Insurer guarantees amounts owing under the RIC and has not
defaulted in the making of any payment required to be made by it pursuant to
such guaranty, the Insurer shall have the right to initiate and control a
proceeding against the obligor under the RIC but only to the extent such
proceeding relates to the amounts so guaranteed and no settlement of any other
proceeding or claim that would adversely affect the Insurer's rights to recover
such amounts shall be effected without the prior written consent of the Insurer.
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ARTICLE NINE
TERMINATION
Section 9.01. Optional Purchase of All Contracts.
(a) On each Distribution Date as of which (i) the Outstanding Amount is
less than 10% of the Outstanding Amount on the Closing Date and (ii) the
Aggregate Scheduled Balance is less than 5% of the Cut-Off Date Aggregate
Scheduled Balance, the Seller shall have the option to purchase the remaining
Contracts from the Trust. Notice of the exercise of such option shall be given
by the Seller to the Owner Trustee, the Indenture Trustee and the Insurer not
later than the 25th day of the month immediately preceding the month of such
Distribution Date. To exercise such option, the Seller shall pay to the
Indenture Trustee for the benefit of the Securityholders, by deposit in the
Collection Account on the Business Day immediately preceding the related
Distribution Date, the aggregate Repurchase Amount of all Contracts that were
Outstanding at the beginning of the Due Period ending immediately prior to such
Distribution Date, and shall succeed to all interests in and to the Trust. Such
purchase shall be deemed to have occurred on the last day of such Due Period.
Notwithstanding the foregoing, the Seller shall not be permitted to exercise
such option unless the amount to be deposited in the Collection Account pursuant
to the preceding sentence is greater than or equal to the sum of the outstanding
principal amount of the Notes and the Certificate Balance and all accrued but
unpaid interest (including any overdue interest) thereon. In addition, if the
Master Servicer or the Seller has outstanding senior debt and such debt is not
rated "investment grade" by Moody's at the time of exercising the option
pursuant to this Section, then the Master Servicer or the Seller shall deliver
to the Owner Trustee, the Indenture Trustee and Moody's, an Opinion of Counsel
to the effect that such optional purchase is not a fraudulent conveyance.
(b) Upon any sale of the assets of the Trust pursuant to Section 9.02 of
the Trust Agreement, the Master Servicer shall instruct the Indenture Trustee to
deposit the proceeds from such sale after all payments and reserves therefrom
have been made (the "Insolvency Proceeds") in the Collection Account. On the
Distribution Date on which the Insolvency Proceeds are deposited in the
Collection Account (or, if such proceeds are not so deposited on a Distribution
Date, on the Distribution Date immediately following such deposit), the Master
Servicer shall instruct the Indenture Trustee to make the following deposits
(after the application on such Distribution Date of Net Collections and funds on
deposit in the Spread Account pursuant to Sections 5.05 and 5.06) from the
Insolvency Proceeds and any funds remaining on deposit in the Spread Account
(including the proceeds of any sale of investments therein as described in the
following sentence):
(i) to the Note Distribution Account, any portion of the Note
Interest Distributable Amount not otherwise deposited into the Note
Distribution Account on such Distribution Date;
(ii) to the Note Distribution Account, the outstanding principal
amount of the Notes (after giving effect to the reduction in the
outstanding principal amount of
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the Notes to result from the deposits made in the Note Distribution
Account on such Distribution Date and on prior Distribution Dates);
(iii) to the Certificate Distribution Account, any portion of the
Certificate Interest Distributable Amount not otherwise deposited into the
Certificate Distribution Account on such Distribution Date; and
(iv) to the Certificate Distribution Account, the Certificate
Balance (after giving effect to the reduction in the Certificate Balance
to result from the deposits made in the Certificate Distribution Account
on such Distribution Date).
(c) As described in Article Nine of the Trust Agreement, notice of any
termination of the Trust shall be given by the Master Servicer to the Owner
Trustee, the Insurer and the Indenture Trustee as soon as practicable after the
Master Servicer has received notice thereof.
(d) Following the satisfaction and discharge of the Indenture and the
payment in full of the principal of and interest on the Notes, the
Certificateholders will succeed to the rights of the Noteholders hereunder and
the Owner Trustee will succeed to the rights of, and assume the obligations of,
the Indenture Trustee pursuant to this Agreement.
Section 9.02. Transfer to the Insurer. If (i) there is one or more
Outstanding Contracts at the end of the Due Period ending immediately prior to
the Certificate Final Distribution Date and (ii) an amount sufficient to pay the
Certificate Distributable Amount on the Certificate Final Distribution Date has
been deposited with the Indenture Trustee by the Insurer for the benefit of the
Certificateholders, then on the Certificate Final Distribution Date the
Certificates shall be deemed to be transferred by the Certificateholders to the
Insurer or its designee as purchaser thereof at the opening of business on the
Certificate Final Distribution Date and the Owner Trustee, on behalf of the
Trust, shall execute, and the Owner Trustee shall authenticate and deliver to
the Insurer or its designee, in the name of the Insurer or its designee, as the
case may be, a new Certificate evidencing the entire Certificate Balance. Such
new Certificate shall have the same terms as the Certificates deemed transferred
by the Certificateholders. No service charge shall be made for the issuance of
such Certificate to the Insurer or its designee, but the Owner Trustee may
require payment of a sum sufficient to cover any tax or other governmental
charge imposed in connection therewith. Such transfer shall not diminish or
restrict the Insurer's rights hereunder or under the Insurance Agreement.
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ARTICLE TEN
MISCELLANEOUS
Section 10.01. Amendment.
(a) This Agreement may be amended by the Seller, the Master Servicer and
the Owner Trustee on behalf of the Issuer, collectively, without the consent of
any Securityholders, (i) to cure any ambiguity, to correct or supplement any
provisions in this Agreement which are inconsistent with the provisions herein,
or to add any other provisions with respect to matters or questions arising
under this Agreement that shall not be inconsistent with the provisions of this
Agreement, (ii) to add or provide any credit enhancement for any Class of Notes
or the Certificates and (iii) to change any provision applicable for determining
the Specified Spread Account Balance, the Minimum Funded Amount, the
Overcollateralization Amount or the manner in which the Spread Account is funded
(in each case with the approval of the Insurer); provided, however, that any
such action shall not, as evidenced by an Opinion of Counsel, adversely affect
in any material respect the interests of any Securityholder and provided,
further, that in connection with any amendment pursuant to clause (iii) above,
the Master Servicer shall deliver to the Owner Trustee, the Indenture Trustee
and the Insurer a letter from Standard & Poor's to the effect that such
amendment will not cause its then-current rating on any Class of Notes or the
Certificates to be qualified, reduced or withdrawn, without giving any
consideration to the effect of the guaranty under either Policy of payments
owing to Noteholders or to Certificateholders, and the Master Servicer shall
provide Moody's notice of such amendment; and provided, further, that this
Agreement may not be amended to alter the rights or obligations of the Indenture
Trustee without the prior consent of the Indenture Trustee.
(b) This Agreement may also be amended from time to time by the Seller,
the Master Servicer and the Owner Trustee on behalf of the Issuer, with the
consent of the Holders of Notes evidencing not less than 51% of the Outstanding
Amount of the Notes, and the consent of Certificateholders evidencing not less
than 51% of the Certificate Balance, 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 or the
Certificateholders; provided, however, that no such amendment shall increase or
reduce in any manner the amount of, or accelerate or delay the timing of (i)(a)
collections of payments on the Contracts or distributions that shall be required
to be made on any Note or Certificate or any Interest Rate or the Pass-Through
Rate, (b) except as otherwise provided in Section 10.01(a), the Specified Spread
Account Balance, the Minimum Funded Amount, the Overcollateralization Amount or
the manner in which the Spread Account is funded or (ii) reduce the aforesaid
percentage of the Outstanding Amount of the Notes and the Certificate Balance,
the Holders of which are required to consent to any such amendment, without the
consent of the Insurer and the Holders of all Notes and Certificates of the
relevant Class then outstanding.
(c) Prior to the execution of any such amendment or consent, the Indenture
Trustee shall furnish written notification of the substance of such amendment or
consent, as prepared
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by the Seller, the Master Servicer and the Owner Trustee on behalf of the
Issuer, at the expense of the such party, together with a copy thereof, to each
Rating Agency and the Insurer.
(d) Promptly after the execution of any such amendment or consent, the
Owner Trustee and the Indenture Trustee, as the case may be, shall furnish the
written notification of the substance of the amendment or consent described in
paragraph (c) above, at the expense of the Seller, the Master Servicer or the
Owner Trustee on behalf of the Issuer, as the case may be, to each
Certificateholder and Noteholder, respectively. It shall not be necessary for
the consent of Noteholders and Certificateholders pursuant to Section 10.01(b)
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 of evidencing the authorization by
Noteholders and Certificateholders of the execution thereof shall be subject to
such reasonable requirements as the Owner Trustee or the Indenture Trustee may
prescribe.
(e) Prior to the execution of any amendment to this Agreement, the Owner
Trustee shall be entitled to receive and rely upon an Opinion of Counsel stating
that the execution of such amendment is authorized or permitted by this
Agreement. The Owner Trustee may, but shall not be obligated to, enter into any
such amendment which affects the Owner Trustee's own rights, duties or
immunities under this Agreement or otherwise.
Section 10.02. Protection of Title to Trust.
(a) The Master Servicer 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, the Securityholders, the Indenture
Trustee, the Owner Trustee and the Insurer in the Contracts and in the proceeds
thereof. The Master Servicer shall deliver (or cause to be delivered) to the
Owner Trustee and the Indenture Trustee file-stamped copies of, or filing
receipts for, any document filed as provided above, as soon as available
following such filing.
(b) Neither the WFS, the Seller nor the Master 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
Section 10.02(a) seriously misleading within the meaning of Section 9-402(7) of
the UCC, unless it shall have given the Insurer, the Owner Trustee and the
Indenture Trustee at least 60 days' prior written notice thereof and shall have
promptly filed appropriate amendments to all previously filed financing
statements or continuation statements.
(c) WFS, the Seller and the Master Servicer shall give the Insurer, the
Owner Trustee and the Indenture Trustee at least 60 days' prior written notice
of any relocation of the principal executive office of WFS or the Seller and the
Master Servicer or the Subservicers (in the case of notice provided by the
Master Servicer) 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
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and shall promptly file any such amendment or new financing statement. The
Master Servicer shall at all times maintain each office from which it shall
service Contracts, and its principal executive office, within the United States.
(d) The Master Servicer shall maintain or cause to be maintained accounts
and records as to each Contract accurately and in sufficient detail to permit
(i) the reader thereof to know at any time the status of such Contract,
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 Contract and the amounts from time to time deposited in or credited to
the Collection Account and the Holding Account in respect of such Contract.
(e) The Master Servicer shall maintain or cause to be maintained its
computer systems and those of Subservicers so that, from and after the time of
sale under this Agreement of the Contracts, the Master Servicer's and
Subservicer's master computer records (including any backup archives) that shall
refer to a Contract indicate clearly the interest of the Issuer and the
Indenture Trustee in such Contract and that such Contract is owned by the Issuer
and has been pledged to the Indenture Trustee. Indication of the Issuer's
ownership of and the Indenture Trustee's interest in a Contract shall be deleted
from or modified on the Master Servicer's computer systems when, and only when,
the related Contract shall have been paid in full or repurchased or shall have
become a Liquidated Contract.
(f) If at any time the Seller, the Master Servicer or a Subservicer shall
propose to sell, grant a security interest in, or otherwise transfer any
interest in automotive retail installment sales contracts to any prospective
purchaser, lender or other transferee, the Master Servicer shall give or cause
to be given to such prospective purchaser, lender or other transferee computer
tapes, records or print-outs (including any restored from back-up archives)
that, if they shall refer in any manner whatsoever to any Contract, shall
indicate clearly that such Contract has been sold and is owned by the Issuer and
has been pledged to the Indenture Trustee.
(g) The Master Servicer shall permit the Owner Trustee, the Indenture
Trustee and the Insurer and its agents, at any time during normal business
hours, to inspect, audit and make copies of and abstracts from the Master
Servicer's records regarding any Contract.
(h) Upon request, the Master Servicer shall furnish to the Owner Trustee,
the Indenture Trustee and the Insurer, within five Business Days, a list of all
Contracts then held as part of the Trust Estate, together with a reconciliation
of such list to the Schedule of Contracts and to each of the Distribution Date
Statements furnished before such request indicating removal of Contracts from
the Trust.
(i) The Master Servicer shall deliver to the Owner Trustee, the Indenture
Trustee, each Rating Agency and the Insurer:
(1) promptly after the execution and delivery of this Agreement and
of each amendment hereto, an Opinion of Counsel stating that, in the
opinion of such counsel, the Indenture Trustee holds a perfected security
interest in the Contracts, that the Trust
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holds title to the Contracts subject to the security interest of the
Indenture Trustee and the lien of the Insurer pursuant to the Insurance
Agreement, and that the Insurer holds a lien on the Contracts under the
Insurance Agreement, subject to applicable subordination; and
(2) 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, either (A) stating that, in the opinion of such
counsel, all financing statements and continuation statements have been
executed and filed that are necessary fully to preserve and protect the
interest of the Owner Trustee and the Indenture Trustee in the Contracts,
and reciting the details of such filings or referring to prior Opinions of
Counsel in which such details are given, or (B) stating that, in the
opinion of such counsel, no such action shall be necessary to preserve and
protect such interest.
Section 10.03. Governing Law. This Agreement shall be construed in
accordance with the laws of the State of California and the obligations, rights,
and remedies of the parties under the Agreement shall be determined in
accordance with such laws, except that the duties of the Owner Trustee and the
Indenture Trustee shall be governed by the laws of the State of New York.
Section 10.04. Notices. All demands, notices and communications upon or to
the Seller, the Master Servicer, the Owner Trustee, the Indenture Trustee, the
Insurer or the Rating Agencies under this Agreement shall be in writing,
personally delivered or mailed by certified mail, return receipt requested, and
shall be deemed to have been duly given upon receipt in the case of (a) the
Seller, at 23 Pasteur Road, Irvine, California 92718, (b) the Master Servicer,
23 Pasteur Road, Irvine, California 92718, Attention: Legal Department, (c) the
Issuer or the Owner Trustee, at the Corporate Trust Office (with, in the case of
the Issuer, a copy to the Seller), (d) the Indenture Trustee, at Four Albany
Street - 10th Floor, New York, New York 10006, Attention: Corporate Trust
Department - Asset Backed Group, (e) Moody's, to Moody's Investors Service,
Inc., ABS Monitoring Department, 99 Church Street, New York, New York 10007, (f)
Standard & Poor's, to Standard & Poor's Ratings Services, 26 Broadway (15th
Floor), New York, New York 10004, Attention of Asset Backed Surveillance
Department and (g) the Insurer, at 350 Park Avenue, New York, New York 10022,
Attention: Surveillance Department, with a copy to the Senior Vice President
- -Surveillance; or, as to each of the foregoing, at such other address as shall
be designated by written notice to the other parties. Any notice required or
permitted to be to be mailed to a Securityholder shall be given by first class
mail, postage prepaid, at the address of such Holder as shown in the Note
Register or the Certificate Register, as the case may be. Any notice so mailed
within the time prescribed herein shall be conclusively presumed to have been
duly given, whether or not such Securityholder shall receive such notice.
Section 10.05. Severability of Provisions. If one or more of the
covenants, agreements, provisions or terms of this Agreement shall be for any
reason whatsoever held invalid, then such covenants, agreements, provisions or
terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no
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way affect the validity or enforceability of the other provisions of this
Agreement or of the Notes or Certificates or the rights of the Holders thereof.
Section 10.06. Assignment. Notwithstanding anything to the contrary
contained herein, as provided in Sections 6.03 and 7.02, this Agreement may not
be assigned by the Seller or the Master Servicer without the prior written
consent of Holders of Notes of each Class evidencing not less than 66 2/3% of
the Outstanding Amount of Notes of such Class and Certificateholders evidencing
not less than 66 2/3% of the Certificate Balance.
Section 10.07. Third Party Beneficiaries. Except as otherwise specifically
provided herein, the parties hereto hereby manifest their intent that no third
party other than the Insurer shall be deemed a third party beneficiary of this
Agreement, and specifically that the Obligors are not third party beneficiaries
of this Agreement.
Section 10.08. Insurer Default or Insolvency. If a default under either
Policy has occurred and is continuing or a Insurer Insolvency has occurred, 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 default or the period from and after such Insurer Insolvency and
such consent or approval shall be deemed to have been given for the purpose of
such provisions.
Section 10.09. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original and all of which shall together
constitute but one and the same instrument.
Section 10.10. 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 10.11. Assignment by Issuer. The Seller hereby acknowledges and
consents to any mortgage, pledge, assignment and grant of a security interest by
the Issuer to the Indenture Trustee pursuant to the Indenture for the benefit of
the Noteholders of all right, title and interest of the Issuer in, to and under
the Contracts and/or the assignment of any or all of the Issuer's rights and
obligations hereunder to the Indenture Trustee.
Section 10.12. Limitation of Liability of Owner Trustee. Notwithstanding
anything contained herein to the contrary, this instrument has been
countersigned by The Chase Manhattan Bank (USA) not in its individual capacity
but solely in its capacity as Owner Trustee of the Issuer and in no event shall
The Chase Manhattan Bank (USA) in its individual capacity or any beneficial
owner of the Issuer have any liability for the representations, warranties,
covenants, agreements or other obligations of the Issuer hereunder, 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 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 Six, Seven and Eight of the Trust
Agreement. Notwithstanding anything herein to the contrary, Section 2.07(a) of
the Trust Agreement shall remain in full force and effect.
80
<PAGE> 86
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers as of the day and year first above
written.
WFS FINANCIAL 1996-B OWNER
TRUST
By: THE CHASE MANHATTAN BANK
(USA), not in its individual capacity
but solely as Owner Trustee on
behalf of the Trust
By: _____________________________________
Name:
Title:
WFS FINANCIAL AUTO LOANS, INC.,
as Seller
By: _____________________________________
Name:
Title:
WFS FINANCIAL INC,
as Master Servicer
By: _____________________________________
Name:
Title:
Acknowledged and accepted as of the day
and year first above written:
BANKERS TRUST COMPANY, not in its
individual capacity but solely as Indenture
Trustee
By: _______________________________________
Name:
Title:
81
<PAGE> 87
SCHEDULE A
SCHEDULE OF CONTRACTS
[Omitted--Schedule of Contracts on file at the
offices of the Seller, the Master Servicer, the
Owner Trustee and the Indenture Trustee.]
SA-1
<PAGE> 88
SCHEDULE B
LOCATION OF CONTRACT FILES
WFS Financial Inc WFS Financial Inc
2710 W. Bell Road, No. 1223 2900 E. Broadway Blvd., Suite 134
Phoenix, AZ 85023 Tucson, AZ 85716
602-866-3660 520-318-3333
Western Financial Savings Bank WFS Financial Inc
F.S.B. 2400 Wible Road, Suite 12 & 13
23 Pasteur Rd. Bakersfield, CA 93304
Irvine, CA 92718 805-835-5833
714-727-1000
WFS Financial Inc
WFS Financial Inc 1855 Gateway Bl., Suite 180
2588 El Camino Real, Suite J Concord, CA 94520
Carlsbad, CA 92008 510-682-4100
619-434-2401
WFS Financial Inc
WFS Financial Inc 9470 Firestone Bl.
2000 Harbor Bl., Suite B-102 Downey, CA 90241
Costa Mesa, CA 92627 310-803-0664
714-642-8636
WFS Financial Inc
WFS Financial Inc 39111 Paseo Padre Pkwy., Suite 111
2500 N. Texas Street, Suite H Fremont, CA 94538
Fairfield, CA 94533 510-797-1331
707-426-1992
WFS Financial Inc
WFS Financial Inc 425 W. Broadway, Suite 112
3099 W. Shaw, Suite 101 & 102 Glendale, CA 91204
Fresno, CA 93711 818-548-6110
209-222-4992
WFS Financial Inc
WFS Financial Inc 3600 Sisk Road, Suite 4J
707 W. Lancaster Blvd. Modesto, CA 95356
Lancaster, CA 93534 209-543-9248
805-945-7751
WFS Financial Inc
WFS Financial Inc 2083 N. Oxnard Bl.
1111 E. Katella, Suite 120 Oxnard, CA 93030
Orange, CA 92667 805-988-9944
714-538-4499
SB-1
<PAGE> 89
WFS Financial Inc WFS Financial Inc
71511 Highway 111, Suite A 1890 Park Marina Drive, Suite 101
Rancho Mirage, CA 92270 Redding, CA 96001
619-773-1101 916-243-8661
WFS Financial Inc WFS Financial Inc
363 Main Street, Suite A 10020 Indiana, Suite 3
Redwood City, CA 94063 Riverside, CA 92503
415-363-8965 909-353-1144
WFS Financial Inc WFS Financial Inc
151 N. Sunrise Avenue, Suite 703 1565 Exposition Blvd., Suite 80
Roseville, CA 95661 Sacramento, CA 95815
916-782-4755 916-649-0100
WFS Financial Inc WFS Financial Inc
506 E. Laurel Drive 1995 S. Diners Ct.
Salinas, CA 93906 San Bernardino, CA 92408
408-758-0800 909-888-6648
WFS Financial Inc WFS Financial Inc
5531 Clairemont Mesa Blvd. 4300 Stevens Creek Blvd., Suite 175
San Diego, CA 92117 San Jose, CA 95129
619-268-9303 408-241-7755
WFS Financial Inc WFS Financial Inc
1954 S. Broadway, Suite L 3082 Marlow Road, Suite B-1
Santa Maria, CA 93454 Santa Rosa, CA 95403
805-346-2881 707-578-1001
WFS Financial Inc WFS Financial Inc
3158 Auto Center Circle, Suite C 18455 Burbank Blvd., Suite 102
Stockton, CA 95212 Tarzana, CA 91356
209-476-0770 818-609-7622
WFS Financial Inc WFS Financial Inc
22753 Hawthorne Blvd. 312 N. Mountain Avenue
Torrance, CA 90505 Upland, CA 91786
310-375-0078 909-946-8669
WFS Financial Inc WFS Financial Inc
1515 S. Mooney Blvd. 415 N. Azusa
Visalia, CA 93277 West Covina, CA 91791
209-739-7503 818-331-8211
SB-2
<PAGE> 90
WFS Financial Inc WFS Financial Inc
8660 W. Emerald 4770 Montgomery NE, Suite B-111
Boise, ID 83704 Albuquerque, NM 87109
208-375-1404 505-881-6116
WFS Financial Inc WFS Financial Inc
3300 E. Flamingo Road, Suite 23 394 E. Moana Lane, Suite C-3
Las Vegas, NV 89121 Reno, NV 89502
702-436-5555 702-827-5800
WFS Financial Inc WFS Financial Inc
2790 S.W. Cedar Hills Blvd. 1883 NE 7th Street, Suite H
Beaverton, OR 97005 Grants Pass, OR 97526
503-646-0953 503-955-1402
WFS Financial Inc WFS Financial Inc
1724 NE 122nd 3872 Center Street N.E.
Portland, OR 97230 Salem, OR 97301
503-251-7660 503-581-9977
WFS Financial Inc WFS Financial Inc
4614 S. 14th Street 1619 Kentucky C-330
Abilene, TX 79065 Amarillo, TX 79102
915-695-9939 806-351-1980
WFS Financial Inc WFS Financial Inc
8015 Shoal Creek Boulevard, Suite 113 4310 Dowlen, Suite 5
Austin, TX 78757 Beaumont, TX 77706
512-302-3410 409-899-1222
WFS Financial Inc WFS Financial Inc
1805 W. Airport Fwy. 6601 Everhart, Suite D
Bedford, TX 76021 Corpus Christi, TX 78413
817-355-6250 512-857-2650
WFS Financial Inc WFS Financial Inc
1201 Airway, Suite B-2B 4116 S. Carrier Pkwy., Suite 120
El Paso, TX 79925 Grand Prairie, TX 75052
915-771-0015 214-642-9769
WFS Financial Inc WFS Financial Inc
211 H West F.M. 1960 4506 B Highway 6 North
Houston, TX 77090 Houston, TX 77084
713-580-1775 713-855-4414
SB-3
<PAGE> 91
WFS Financial Inc WFS Financial Inc
12875 Gulf Freeway 4505 82nd Street, Suite 8
Houston, TX 77034 Lubbock, TX 79424
713-481-1894 806-794-4787
WFS Financial Inc WFS Financial Inc
3205 West Cuthbert Suite B-4 3055 W. 15th Street
Midland, TX 79701 Plano, TX 75075
915-694-0014 214-612-4200
WFS Financial Inc WFS Financial Inc
5819 N.W. Loop 410, Suite 170 4501 Troup Highway
San Antonio, TX 78238 Tyler, TX 75703
210-520-8480 903-534-9100
WFS Financial Inc WFS Financial Inc
601 N. Valley Mills Drive 3916 Kemp, Suite E
Waco, TX 76710 Wichita Falls, TX 76308
817-741-9991 817-691-2271
WFS Financial Inc WFS Financial Inc
705 E. Fort Union Blvd. 15913 Westminister Way, Suite B-7
Midvale, UT 84047 Seattle, WA 98133
801-568-1552 206-365-9910
WFS Financial Inc WFS Financial Inc
E. 13817 Sprague, Suite 5 1901 S. 72nd Street
Spokane, WA 99216 Tacoma, WA 98408
509-922-9950 206-475-5585
WFS Financial Inc WFS Financial Inc
24435 S. Colorado Blvd., Ste. 107 2250 N. University Pkwy., Suite B-28
Denver, CO 80222 Provo, UT 84604
303-639-9299 801-373-4373
WFS Financial Inc WFS Financial Inc
950 Indian Trail Road, Suite 3A 2209 Roswell Rd, NE Suite 100
Liburn, GA 30247 Marietta, GA 30062
707-931-2121 800-511-2886
WFS Financial Inc WFS Financial Inc
5033-O South Boulevard 14-B Oak Branch Drive
Charlotte, NC 28217 Greensboro, NC 28217
800-705-5567 910-858-1145
SB-4
<PAGE> 92
WFS Financial Inc WFS Financial Inc
6444 N.W. Expressway, Suite 460-D 9435 A East 51st St.
Oklahoma City, OK 73132 Tulsa, OK 74145
705-728-8486 918-622-0027
WFS Financial Inc WFS Financial Inc
1099 Beltline Road 6919 Lake Plaza Drive
Collinsville, IL 62234 Indianapolis, IN 46220
618-346-2544 317-570-0192
WFS Financial Inc WFS Financial Inc
4201 South Noland Rd. Suite H 12637 Olive Boulevard
Independence, MO 64055 St. Louis, MO 63141
816-478-8870 314-205-2525
FS Financial Inc WFS Financial Inc
7565 South Lindbergh Boulevard 10610 N. 56th Street
St. Louis, MO 63125 Tampa, FL 33617
314-894-1676 800-746-4667
WFS Financial Inc WFS Financial Inc
1271 Semoran Blvd. Suite 101 9965 San Jose Blvd. Suite A-2
Casselberry, FL 32707 Jacksonville, FL 32257
800-694-8887 800-507-2886
WFS Financial Inc WFS Financial Inc
937 E. Broadway, Suite 5 16111 San Pedro, Suite 113
Tempe, AZ 85282 San Antonio, TX 78232
602-921-9294 210-499-4422
WFS Financial Inc WFS Financial Inc
21675 Longview Dr. Ste. 102 7815 N. Knoxville Ave., Ste 5
Waukesha, WI 53186 Peoria, IL 61614
414-798-9822 309-693-2991
WFS Financial Inc WFS Financial Inc
560 S. Perryville Road Twin Oaks Center
Rockford, IL 61107 2001 Fifth Street, Ste. 33
815-227-9472 Silvis, IL 61282
309-792-4400
SB-5
<PAGE> 93
EXHIBIT A
[FORM OF CERTIFICATE POLICY]
A-1
<PAGE> 94
EXHIBIT B
[FORM OF INSURANCE AGREEMENT]
B-1
<PAGE> 95
EXHIBIT C
[FORM OF NOTE POLICY]
C-1
<PAGE> 96
EXHIBIT D
[FORM OF RIC]
D-1
<PAGE> 97
EXHIBIT E
[FORM OF SUBSERVICING AGREEMENT]
E-1
<PAGE> 98
EXHIBIT F
[FORM OF DISTRIBUTION DATE STATEMENT]
F-1
<PAGE> 1
Exhibit 23.3
[COOPERS & LYBRAND LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
-----------
We consent to the inclusion in Amendment No. 3 to Form S-1 of WFS Financial
Auto Loans, Inc. relating to the Auto Receivable Backed Securities, Series
1996-B of the WFS Financial 1996-B Owner Trust (Registration No. 33-99422) of
our report dated January 17, 1996 on our audits of the consolidated financial
statements of Financial Security Assurance Inc. and Subsidiaries. We also
consent to the reference to our Firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
New York, New York
June 13, 1996
