<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1998
REGISTRATION NO. 333-59293
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
WFS FINANCIAL 1998-C 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 92618
(949) 727-1000
(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 92618
(949) 727-1000
(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 LLP
11377 W. OLYMPIC BOULEVARD 555 CALIFORNIA STREET
LOS ANGELES, CALIFORNIA 90064-1683 SAN FRANCISCO, CALIFORNIA 94104-1715
(310) 312-2000 (415) 772-1200
</TABLE>
------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, 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*
- --------------------------------------------------------------------------------------------------------------------------------
Auto Receivable Backed Notes, Class A-1..... $130,000,000 100% $130,000,000 $36,143
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Auto Receivable Backed Notes, Class A-2..... $180,000,000 100% $180,000,000 $50,044
- --------------------------------------------------------------------------------------------------------------------------------
Auto Receivable Backed Notes, Class A-3..... $210,000,000 100% $210,000,000 $58,385
- --------------------------------------------------------------------------------------------------------------------------------
Auto Receivable Backed Notes, Class A-4..... $103,000,000 100% $103,000,000 $28,637
- --------------------------------------------------------------------------------------------------------------------------------
Auto Receivable Backed Certificates......... $ 77,000,000 100% $ 77,000,000 $21,408
================================================================================================================================
</TABLE>
* Estimated, pursuant to Rule 457(a) under the Securities Act, solely for the
purpose of calculating the registration fee on the basis of the proposed
maximum offering price per unit. Of this amount, $295.00 has been previously
paid.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE AS MAY
BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED NOVEMBER 12, 1998
$700,000,000
WFS FINANCIAL 1998-C OWNER TRUST
$130,000,000 % AUTO RECEIVABLE BACKED NOTES, CLASS A-1
$180,000,000 % AUTO RECEIVABLE BACKED NOTES, CLASS A-2
$210,000,000 % AUTO RECEIVABLE BACKED NOTES, CLASS A-3
$103,000,000 % AUTO RECEIVABLE BACKED NOTES, CLASS A-4
$77,000,000 % AUTO RECEIVABLE BACKED CERTIFICATES
WFS FINANCIAL AUTO LOANS, INC. (SELLER)
WFS FINANCIAL INC (MASTER SERVICER)
The WFS Financial 1998-C 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 February 20, 1999. 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
payment priority of the Securities shall be in the order the Securities are
listed above.
The WFS Financial 1998-C 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 Chase Manhattan Bank Delaware, 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 material property of the Trust will include (i) a pool of retail
installment sales contracts and a limited number of installment loans (the
"Contracts") secured in both instances by new or used automobiles and light duty
trucks (the "Financed Vehicles"), (ii) the Policies and (iii) the funds in a
segregated trust account in the name of the Indenture Trustee (the "Spread
Account"). The Contracts were primarily originated by motor vehicle dealers and
purchased by WFS. At least 70.00% of the Contracts, based upon the Cut-Off Date
Aggregate Scheduled Balance, will have been originally underwritten as prime
Contracts and the remainder of the Contracts will have been originally
underwritten as non-prime Contracts. WFS will act as Master Servicer of the
Contracts. 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, a division of The McGraw-Hill Companies, 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 FINANCIAL GUARANTY INSURANCE POLICIES ARE NOT COVERED BY THE PROPERTY/
CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK
INSURANCE LAW.
Securityholders will not have recourse against that fund. See "The
Policies -- Other Terms of the Policies".
SEE "RISK FACTORS" COMMENCING ON PAGE 11 FOR A DISCUSSION OF THE MATERIAL
RISK FACTORS RELEVANT TO AN INVESTMENT IN THE SECURITIES.
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 BANK, 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>
Per Class A-1 Note.......................................... % % %
Per Class A-2 Note.......................................... % % %
Per Class A-3 Note.......................................... % % %
Per Class A-4 Note.......................................... % % %
Per Certificate............................................. % % %
Total....................................................... $ $ $
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</TABLE>
(1) Plus accrued interest, if any, from November 1, 1998.
(2) See "Underwriting" for indemnification arrangements with the Underwriters.
(3) Before deducting expenses payable by the Seller estimated at $470,000.00.
The Securities are offered by the Underwriters subject to prior sale, when,
as and if delivered to and accepted by the Underwriters, and subject to various
prior conditions, including their 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
, 1998.
DONALDSON, LUFKIN & JENRETTE
MORGAN STANLEY DEAN WITTER
NATIONSBANC MONTGOMERY SECURITIES LLC
<PAGE> 3
Certain persons participating in this offering may engage in transactions
that stabilize, maintain or otherwise affect the price of any Class of
Securities. Specifically, the Underwriters may overallot in connection with the
offering and may bid for and purchase the Securities in the open market. For a
description of these activities, see "Underwriting."
AVAILABLE INFORMATION
The Seller, as originator of the Trust, has filed a registration statement
on Form S-3 (together with all amendments and exhibits thereto and documents
incorporated by reference herein, 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. The
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission at http://www.sec.gov. 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."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All reports and other documents filed by WFS, as Master Servicer, on behalf
of the Seller, or on behalf of the Trust, and the financial statements of
Financial Security Assurance, Inc. and Subsidiaries included in, or as exhibits
to, documents filed by Financial Security Assurance Holdings Ltd. (including
specifically the Annual Report on Form 10-K for the year ended December 31, 1997
and the Quarterly Report on Form 10-Q for the quarterly period ended September
30, 1998), as filed in each case pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
those filed subsequent to the date of this Prospectus and prior to the
termination of the offering of the Securities offered hereby shall be deemed to
be incorporated by reference into this Prospectus and to be a part hereof from
the respective dates of filing of such documents. Any statement contained herein
or in a document all or a portion of which is incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
WFS, as Master Servicer, will provide without charge to each person,
including any beneficial owner of Securities, to whom a copy of this Prospectus
is delivered, on the written or oral request of any such person, a copy of any
or all of the documents incorporated herein by reference, except the exhibits to
such documents (unless such exhibits are specifically incorporated by reference
in such documents). Requests for such copies should be directed to Secretary,
WFS Financial Inc, 23 Pasteur Road, Irvine, California 92618 or by calling (949)
727-1000.
UNTIL , 1999, 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> 4
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
Definitions commencing on A-1 for the location herein of capitalized terms.
Issuer..................... WFS Financial 1998-C 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 92618 and its telephone
number is (949) 727-1000. 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
Bank (the "Bank"), a federally chartered savings
association. The principal offices of WFS are
located at 23 Pasteur Road, Irvine, California
92618 and its telephone number is (949) 727-1000.
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 92618 and its telephone
number is (949) 727-1000. See "WII."
Securities Offered......... The securities offered are as follows:
A. General................. The WFS Financial 1998-C 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 1998-C 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 November 1, 1998
(the "Indenture"), between the Trust and Bankers
Trust Company, as trustee (the "Indenture
Trustee"), as follows: (i) $130,000,000 aggregate
principal amount of % Auto Receivable Backed
Notes, Class A-1 (the "Class A-1 Notes"), (ii)
$180,000,000 aggregate principal amount of %
Auto Receivable Backed Notes, Class A-2 (the "Class
A-2 Notes"), (iii) $210,000,000 aggregate principal
amount of % Auto Receivable Backed Notes,
Class A-3 (the "Class A-3 Notes") and (iv)
$103,000,000 aggregate principal amount of %
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 $77,000,000 aggregate
principal amount of % Auto Receivable Backed
Certificates pursuant to an amended and restated
trust agreement (the "Trust Agreement") to be dated
as of the date of initial issuance of the
Securities (the "Closing Date"), among the Seller,
Financial Security Assurance Inc. ("Financial
Security"), WII and Chase Manhattan Bank Delaware,
as trustee (the "Owner
3
<PAGE> 5
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 material property of
the Trust will include (i) a pool of retail
installment sales contracts and a limited number,
not to exceed 2% of the Cut-Off Date Aggregate
Scheduled Balance, of installment loans originated
by branch offices of WFS (collectively, the
"Contracts") secured in both instances by new or
used automobiles and light duty trucks (the
"Financed Vehicles"), (ii) the Policies and (iii)
the funds in a segregated trust account in the name
of the Indenture Trustee (the "Spread Account").
See "Formation of the Trust -- General."
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 February 20, 1999. 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,
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 November 20,
1999 (the "Class A-1 Final Distribution Date"),
(ii) the Class A-2 Notes will be payable on August
20, 2001 (the "Class A-2 Final Distribution Date"),
(iii) the Class A-3 Notes will be payable on
November 20, 2002 (the "Class A-3 Final
Distribution Date") and (iv) the Class A-4 Notes
will be payable on August 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 February 20,
2006 (the "Certificate Final Distribution Date"
and, together with the Note Final Distribution
Dates, the "Final Distribution Dates"). The Final
Distribution Dates represent the last day on which
the outstanding principal amount for the respective
Note or Certificate will be paid.
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 % per annum (the "Class A-1
Rate"), (ii) the Class A-2 Notes at the rate of
% per annum (the "Class A-2 Rate"), (iii) the
Class A-3 Notes
4
<PAGE> 6
at the rate of % per annum (the "Class A-3
Rate") and (iv) the Class A-4 Notes at the rate of
% per annum (the "Class A-4 Rate" and,
together with the Class A-1 Rate, the Class A-2
Rate and the Class A-3 Rate, the "Interest Rates").
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 Class A-1 and
the Class A-2 Notes will be calculated on the basis
of the actual number of days elapsed in an Interest
Period and a 360-day year. Interest on the Class
A-3 and Class A-4 Notes will be calculated on the
basis of a 360-day year consisting of twelve 30-day
months. 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." On each
Distribution Date, the Note Principal Distributable
Amount will be applied in the following priority:
first to reduce the principal amount of the Class
A-1 Notes; second, after the principal amount of
the Class A-1 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 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.... The Notes may be accelerated if an Event of Default
has occurred and is continuing under the Indenture
so long as no Insurer Default has occurred and is
continuing. If an Insurer Default has occurred and
is continuing and an Event of Default has occurred
and is continuing, the Trustee may, or if so
requested in writing by Holders of Notes represent-
5
<PAGE> 7
ing at least 66 2/3% of the aggregate Outstanding
Amount, upon prior written notice to each Rating
Agency, accelerate the Notes. 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 % per annum (the "Pass-Through
Rate") on the Certificate Balance, as defined
below, 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, on 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 $77,000,000
(the "Original Certificate Balance") on 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 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, Class A-3 and Class
A-4 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." 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
6
<PAGE> 8
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 Contracts if
(a) (i) any defect in the documentation as to a
Contract exists or the documentation has not been
received by the Owner Trustee, (ii) the Contract
has not been executed by its Obligor or (iii) any
representation or warranty of the Seller was
incorrect when made and that defect, omission or
incorrectness is not cured within 90 days and (b)
that defect, omission or incorrectness 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. The Contracts were originated in
California and 40 other states by new and used car
dealers not affiliated with WFS, except for a
limited number of Contracts originated directly
from consumers by WFS. The Contracts will be
selected by WFS from its portfolio of retail
installment sales 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
$700,000,000 (the "Cut-Off Date Aggregate Scheduled
Balance") and the Contracts will have an expected
weighted average annual percentage rate of
approximately 14.68% and an expected weighted
average remaining maturity of approximately 58
months. See "The Contracts Pool."
Approximately 26.36% of the aggregate principal
amount of the Contracts will be "Rule of 78's
Contracts" and approximately 73.64% will be "Simple
Interest Contracts," based upon the anticipated
Scheduled Balances of the Contracts as of the
Cut-Off Date. See "Index of Definitions" for the
definition of "Rule of 78's Contract" and "Simple
Interest Contract."
All net collections received by the Master Servicer
on or in respect of the Contracts and any Advances
made by the Master Servicer will be deposited in or
credited to the Collection Account or, in certain
limited instances, the Holding Account. All amounts
paid under the Policies will be solely deposited in
or credited to the Collection 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 limited
protection 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
7
<PAGE> 9
part of the Trust. 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, to the extent of the funds
therein, before giving effect to any claim under
the Policies.
The Spread Account will be created with an initial
deposit by the Seller of $21,000,000 (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 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 will be either 7% or 10% of the
Aggregate Scheduled Balance of the Contracts, based
upon fluctuations in the Charge-Off Percentage and
the Delinquency Percentage of the Contracts. The
Specified Spread Account Balance will not exceed
$70,000,000 or be reduced below $12,600,000;
provided, however, it shall not be greater than the
outstanding principal amount of the Securities if
that amount is less than $12,600,000. See "Certain
Information Regarding the Securities -- Payment
Priorities of the Notes and the Certificates; The
Spread Account -- Calculation of Specified Spread
Account Balance."
If on the last day of any month (each, a
"Calculation Day") or on any Distribution Date the
amount on deposit in the Spread Account is greater
than the Specified Spread Account Balance, 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 as of November 1, 1998 (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 fully,
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
the Aggregate Scheduled Balance is 5% or less of
the Cut-Off Date Aggregate Scheduled Balance (an
"Optional Purchase"). See "Certain Information
Regarding the Securities -- Termination."
8
<PAGE> 10
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 Contracts if any
representations and warranties made by WFS are
incorrect or if (i) WFS, as Master Servicer,
breaches its obligations under the Sale and
Servicing Agreement regarding collection of
payments on the Contracts or the maintenance of a
first priority perfected security interest in each
Contract, (ii) such incorrectness or breach is not
cured within 30 days and (iii) that incorrectness
or breach 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, a
division of The McGraw-Hill Companies, 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. The ratings to be received
from a Rating Agency will be an assessment by that
Rating Agency of the likelihood of full repayment
of principal and interest on the related Securities
by the Final Payment Date and does not reflect an
assessment of whether or to what extent the related
Securities will be subject to prepayment. In
addition, a rating is not a recommendation to buy,
sell or hold the Securities and any rating assigned
may be revised or withdrawn by the assigning Rating
Agency. See "Risk Factors -- Ratings of the
Securities."
Tax Status................. In the opinion of Mitchell Silberberg & Knupp LLP,
special tax 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."
Legal Investment........... The Class A-1 Notes have been structured to be
eligible securities for purchase by money market
funds under Rule 2a-7 under the Investment Company
Act of 1940, as amended. A money market fund should
consult its legal advisors regarding the
eligibility of the Class A-1 Notes under Rule 2a-7,
the fund's investment policies and objectives and
an investment in the Class A-1 Notes.
Risk Factors............... The Securities offered hereby are subject to
several risk factors. The ratings of the Securities
may be changed or withdrawn and do not
9
<PAGE> 11
include any assessment as to the prepayment of the
Securities. Approximately 50.06% of the Contracts,
based upon the Cut-Off Date Aggregate Balance will
have been originated in California. Accordingly,
adverse economic conditions in California may have
a disproportionate effect on the losses on the
Contracts. There is no secondary market for the
Securities, and none may develop or be maintained,
thereby making the Securities illiquid. See "Risk
Factors" for a more detailed discussion of such
risks.
10
<PAGE> 12
RISK FACTORS
Prospective investors should consider the following risk factors in
considering the purchase of the Securities.
RATINGS OF THE SECURITIES ARE SUBJECT TO REVISION OR WITHDRAWAL
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 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. The ratings to be received from a Rating Agency
will be an assessment by that Rating Agency of the likelihood of full repayment
of principal and interest on the related Securities by the Fixed Payment Date
and does not reflect an assessment of whether or to what extent the related
Securities will be subject to prepayment.
GEOGRAPHIC CONCENTRATION OF CONTRACTS IN CALIFORNIA INCREASES POTENTIAL ADVERSE
EFFECT OF CHANGES IN CALIFORNIA ECONOMY
Based upon the Cut-Off Date Aggregate Scheduled Balance of the Contracts,
approximately 50.06% of the Contracts will have been originated in the State of
California, and not more than 5.91% of the Contracts will have been originated
in any other individual state. See "The Contracts Pool." Because of this
geographic concentration, losses on the Contracts may be affected
disproportionately by reason of general economic conditions in California, to
the extent those conditions differ significantly and adversely to those in the
other states in which Contracts have been originated.
LIMITED LIQUIDITY MAY RESTRICT RESALE OF SECURITIES
There is currently no secondary market for the Securities offered hereby.
The Underwriters currently intend to make a market in the Securities offered
hereby, but neither of them is under any obligation to do so. There can be no
assurance that a secondary market will develop or, if a secondary market does
develop, that it will provide the Securityholders with liquidity of investment
or that any such secondary market will continue for the life of the Securities
offered hereby.
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.
11
<PAGE> 13
On the Closing Date, the Seller will establish the Trust by selling and
assigning the Contracts 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 Trust's interest in the Contracts will be perfected by the
Seller, filing 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."
On and after the Closing Date, the property of the Trust will consist of
(i) Contracts secured by the Financed Vehicles; (ii) principal and interest due
under the Contracts on and after November 1, 1998 (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 fully, 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) rights as
a third party beneficiary under the sale and servicing agreement to be dated as
of November 1, 1998 (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.
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 repurchasing Contracts if(a)(i) any representations
and warranties made by WFS are incorrect, (ii) WFS, as Master Servicer, breaches
its obligations under the Sale and Servicing Agreement regarding collection of
payments on the Contracts or (iii) WFS, as Master Servicer fails to maintain a
first priority perfected security interest in each Contract and (b) such
incorrectness or breach is not cured within 30 days and (c) that incorrectness
or breach materially and adversely affects such Contracts. See "The Master
Servicer."
The Trust's principal offices will be in Wilmington, Delaware, in care of
Chase Manhattan Bank Delaware, as Owner Trustee, at the address listed below
under "The Owner Trustee."
12
<PAGE> 14
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.
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............................................. $130,000,000
Class A-2 Notes............................................. 180,000,000
Class A-3 Notes............................................. 210,000,000
Class A-4 Notes............................................. 103,000,000
Certificates................................................ 77,000,000
------------
Total............................................. $700,000,000
============
</TABLE>
THE OWNER TRUSTEE
Chase Manhattan Bank Delaware will be the Owner Trustee under the Trust
Agreement. Chase Manhattan Bank Delaware is a Delaware corporation and its
Corporate Trust Office is located at 1201 Market Street, 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 40 states listed below
and purchased by WFS (except for a limited number of Contracts, not to exceed 2%
of the Cut-Off Date Aggregate Scheduled Balance, in the form of installment
loans originated by branch offices of WFS directly to consumers). Each Contract
is secured by a Financed Vehicle. Except as otherwise noted, all references to
contracts include installment loans.
WFS will select the Contracts from its portfolio of fixed-interest rate
retail installment sales contracts which are secured by new and used automobiles
or light-duty trucks. The Contracts were underwritten and purchased by WFS in
the ordinary course of its business operations. It is currently anticipated,
based on the Cut-Off Date Aggregate Scheduled Balance, that not less than
approximately 70.00% of the Contracts will have been originally underwritten as
prime contracts. Approximately 50.06% of the aggregate principal amount of the
Contracts will have been originated in California and approximately 49.94% of
the aggregate principal amount of the Contracts will have been originated 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. 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.
For purposes of the Trust, all Rule of 78's Contracts are amortized on an
actuarial basis to prevent shortfalls of principal payments on the Securities.
As amortization on an actuarial basis produces a faster amortization than does
application of the Rule of 78's, there will not be a shortfall of principal in
any event, including as a result of prepayments or timely payment to maturity of
a Rule of 78's Contract.
The aggregate outstanding principal amount of the Contracts will be
$700,000,000. Based on the anticipated Cut-Off Date Aggregate Scheduled Balance,
approximately 26.36% of the Contracts will be Rule of 78's Contracts and
approximately 73.64% 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 October 31, 1998. 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, not more than 5% of the
Contracts that will be sold to the Trust will have characteristics that vary
from the information concerning the Contracts presented.
13
<PAGE> 15
For Contracts originated through October 31, 1998, approximately 21.53% of
the aggregate principal amount of the Contracts relate to the purchase of new
vehicles and approximately 78.47% of the Contracts relate to the purchase of
used vehicles. Approximately 55.16% of the aggregate principal amount of these
Contracts consists of contracts secured by automobiles and approximately 44.84%
of the aggregate principal amount consists of contracts secured by light-duty
trucks. These Contracts have an annual percentage rate ("APR") of at least 6.90%
and not more than 30.0%, and the weighted average APR of these Contracts is
approximately 14.68%. These Contracts have remaining maturities of at least 4
months but not more than 84 months and original maturities of at least 12 months
but not more than 84 months. The weighted average original maturity of these
Contracts was 60 months and the weighted average remaining maturity of these
Contracts as of October 31, 1998 was 58 months. It is currently anticipated that
not more than 30.05% 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
October 31, 1998 was $12,434.06 and the outstanding principal balance of these
Contracts as of October 31, 1998 ranged from $1,001.04 to $62,194.22.
DISTRIBUTION OF CONTRACTS BY APR(1)
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
APR RANGE CONTRACTS BALANCE BALANCE(2)
--------- ---------- --------------- --------------
<S> <C> <C> <C>
6.00% to 6.99% 5 $ 81,434.10 0.01%
7.00% to 7.99% 263 4,437,396.28 0.63
8.00% to 8.99% 1,435 22,506,062.81 3.22
9.00% to 9.99% 2,879 44,970,672.37 6.42
10.00% to 10.99% 3,873 60,158,590.87 8.59
11.00% to 11.99% 3,882 58,331,383.95 8.33
12.00% to 12.99% 5,347 76,050,843.24 10.86
13.00% to 13.99% 4,465 62,521,517.89 8.93
14.00% to 14.99% 4,877 64,908,474.31 9.27
15.00% to 15.99% 4,866 61,769,721.70 8.82
16.00% to 16.99% 4,282 53,233,188.76 7.60
17.00% to 17.99% 3,764 43,877,180.39 6.27
18.00% to 18.99% 3,810 41,061,700.67 5.87
19.00% to 19.99% 2,404 24,522,547.40 3.50
20.00% to 20.99% 5,264 49,530,987.68 7.08
21.00% to 21.99% 3,179 21,203,941.38 3.03
22.00% to 22.99% 322 2,719,361.04 0.39
23.00% to 23.99% 250 1,939,369.82 0.28
24.00% to 24.99% 433 2,667,355.35 0.38
25.00% to 25.99% 262 1,516,304.01 0.22
26.00% to 26.99% 106 597,251.88 0.09
27.00% to 27.99% 50 232,853.98 0.03
28.00% to 28.99% 23 122,984.17 0.02
29.00% to 29.99% 251 1,017,802.74 0.15
30.00% and over 5 21,083.39 0.00
------ --------------- ------
Total 56,297 $700,000,010.18 100.00%
====== =============== ======
</TABLE>
- ---------------
(1) Information as of October 31, 1998 for Contracts originated through October
31, 1998. Contracts having Cut-Off Date Aggregate Scheduled Balances of
$700,000,000 will be included in the Trust.
(2) Percentages may not add to 100.00% due to rounding.
14
<PAGE> 16
GEOGRAPHIC CONCENTRATION OF THE CONTRACTS(1)
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
STATE(2) CONTRACTS BALANCE BALANCE(3)
-------- ---------- --------------- --------------
<S> <C> <C> <C>
California......................................... 28,917 $350,396,232.24 50.06%
Arizona............................................ 3,195 41,403,592.77 5.91
Washington......................................... 2,977 33,120,876.92 4.73
Texas.............................................. 2,535 32,280,339.48 4.61
Oregon............................................. 2,300 23,994,752.75 3.43
Colorado........................................... 1,706 22,887,718.90 3.27
Nevada............................................. 1,361 19,857,625.23 2.84
Florida............................................ 1,112 14,787,437.03 2.11
Ohio............................................... 1,251 14,776,514.60 2.11
North Carolina..................................... 989 14,352,755.76 2.05
Illinois........................................... 869 11,487,592.63 1.64
Virginia........................................... 725 10,600,913.09 1.51
Tennessee.......................................... 650 9,858,167.08 1.41
Idaho.............................................. 795 9,332,395.42 1.33
South Carolina..................................... 583 8,023,758.02 1.15
Pennsylvania....................................... 591 7,155,905.30 1.02
Alabama............................................ 485 7,138,053.12 1.02
Missouri........................................... 419 6,272,999.78 0.90
Utah............................................... 473 6,239,435.80 0.89
Georgia............................................ 425 6,058,042.50 0.87
Wisconsin.......................................... 531 5,897,848.29 0.84
Maryland........................................... 388 5,176,776.20 0.74
Kentucky........................................... 367 4,654,198.06 0.66
Iowa............................................... 341 4,584,799.19 0.65
Indiana............................................ 331 4,340,505.53 0.62
Kansas............................................. 243 3,799,920.66 0.54
Massachusetts...................................... 304 3,470,073.41 0.50
New Mexico......................................... 238 2,784,551.99 0.40
Oklahoma........................................... 193 2,559,183.01 0.37
West Virginia...................................... 145 2,261,633.65 0.32
Michigan........................................... 165 2,099,385.16 0.30
Mississippi........................................ 127 1,868,948.24 0.27
Hawaii............................................. 153 1,627,365.84 0.23
New Hampshire...................................... 152 1,560,117.54 0.22
New Jersey......................................... 100 1,226,317.32 0.18
Rhode Island....................................... 67 791,888.53 0.11
Wyoming............................................ 57 791,699.27 0.11
Nebraska........................................... 21 248,821.96 0.04
Delaware........................................... 11 169,676.35 0.02
New York........................................... 3 32,487.27 0.00
Connecticut........................................ 2 28,704.29 0.00
------ --------------- ------
Total......................................... 56,297 $700,000,010.18 100.00%
====== =============== ======
</TABLE>
- ---------------
(1) Information as of October 31, 1998 for Contracts originated through October
31, 1998. Contracts having Cut-Off Date Aggregate Scheduled Balances of
$700,000,000.00 will be included in the Trust.
(2) Based upon the state in which the new or used car dealer which originated a
Contract is located, or in the case of an installment loan made by WFS, the
state in which the office of WFS which originated the loan is located.
(3) Percentages may not add to 100.00% due to rounding.
UNDERWRITING PROCEDURES RELATING TO THE CONTRACTS
WFS and its predecessors and affiliates have underwritten and purchased
motor vehicle installment sales contracts and installment loans (collectively,
"contracts") since 1973. The discussion herein regarding contracts is applicable
to the Contracts and none of the Contracts included in the Contracts Pool will
have been underwritten under special financing programs. WFS purchases contracts
across the full spectrum of the prime and non-prime credit quality market. It
offers competitive rates commensurate with the risks inherent in its obligors'
ability to make payments under their contracts.
15
<PAGE> 17
Substantially all contracts are nonrecourse to the originating dealer. In
the case of new vehicle 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 used vehicles, the amount financed does
not exceed the wholesale "blue book" value for the vehicle plus the related
expenses and the over-advances just described. WFS does not have a fixed maximum
amount financed as a percentage of the wholesale or retail value of the financed
vehicle. Any amount financed in excess of the wholesale value of the financed
vehicle is dependent upon the creditworthiness of the applicant. WFS believes
that, with respect to substantially all contracts, the total amount financed,
including any over-advance, does not exceed the retail value of the financed
vehicle.
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. WFS does not have minimum
maturity requirements; however, contracts of less than three years maturity are
seldom purchased or made due to low customer demand.
WFS relies primarily on the judgment of its trained credit analysts who
evaluate the applicant's credit and stability, including income, employment and
housing, within the context of WFS' underwriting guidelines. WFS' credit
analysts are closely monitored by management and internal quality control
professionals to insure adherence to WFS' underwriting guidelines. The goal in
underwriting contracts is to correctly determine whether an applicant has the
ability and intention to perform on his or her obligations under the contract.
The formal underwriting process for either prime or non-prime contracts
begins when an application is received. Applications are faxed to one of two
processing centers where the system will collect credit data on applicants and
other information used in the underwriting process. The front-end application
processing system will arrange that information for review and analysis by
either a prime or non-prime credit analyst to whom the information will be
automatically queued.
Due to the credit history of some applicants, the credit analyst may
request that the data verification department verify information or seek
clarification of information learned during the review of the applicant's credit
history. Often, items in a credit history which may seem significant to another
financing source will not, upon investigation, preclude the applicant from
possessing the requisite ability and intent to perform on his or her
obligations. The application, credit history, and other relevant information are
then reviewed by the credit analyst for approval or denial. If the contract
amount or terms exceeds the credit analysts's approval authority, a senior
official with the requisite credit approval authority then reviews the
application. In order to maintain its competitive position in the marketplace,
WFS emphasizes a fast approval process and, under normal circumstances, an
approval or declination is given on the same day that the application is
received. When an application is approved, the submitting Dealer is notified.
Upon the Dealer's acceptance of WFS' approval, the contract is purchased.
Approximately one-third of all contracts purchased are reviewed by a senior
credit analyst, the quality control department of WFS or the reunderwriting
department of WFS to insure adherence to established lending guidelines and
compliance with proper documentation requirements.
16
<PAGE> 18
DELINQUENCY AND CONTRACT LOSS INFORMATION
The following tables set forth (i) the delinquency experience in regard to
contracts originated 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, 1993 through 1997 and for the
nine months ended September 30, 1998 and (ii) the loss experience for such
contracts originated 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, 1993 through 1997 and for the
nine months ended September 30, 1998. There is no assurance that the future
delinquency and loss experience of the Contracts will be similar to that set
forth below. WFS defines delinquency as being past due based on the contractual
due date of the underlying contract.
CONTRACT DELINQUENCY EXPERIENCE(1)
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31, AT DECEMBER 31,
1998 1997 1996
------------------------ ------------------------ ------------------------
NUMBER NUMBER NUMBER
OF AMOUNT OF AMOUNT OF AMOUNT
CONTRACTS (2) CONTRACTS (2) CONTRACTS (2)
----------- ---------- ----------- ---------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Portfolio............................. 456,353 $4,246,814 408,958 $3,680,817 341,486 $3,046,585
======= ========== ======= ========== ======= ==========
Period of delinquency(3)
31-59 days........................... 12,916 $ 106,810 6,605 $ 54,450 4,511 $ 38,173
60-89 days........................... 4,069 33,986 2,161 18,652 1,305 11,470
90 days or more...................... 1,775 15,233 918 7,762 567 5,144
------- ---------- ------- ---------- ------- ----------
Total contracts delinquent............ 18,760 $ 156,029 9,684 $ 80,864 6,383 $ 54,787
======= ========== ======= ========== ======= ==========
Delinquencies as a percentage of
number and amount of contracts
outstanding.......................... 4.11% 3.67% 2.37% 2.20% 1.87% 1.80%
======= ========== ======= ========== ======= ==========
<CAPTION>
AT DECEMBER 31, AT DECEMBER 31, AT DECEMBER 31,
1995 1994 1993
------------------------ ------------------------ ------------------------
NUMBER NUMBER NUMBER
OF AMOUNT OF AMOUNT OF AMOUNT
CONTRACTS (2) CONTRACTS (2) CONTRACTS (2)
----------- ---------- ----------- ---------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Portfolio............................. 258,665 $2,209,594 201,957 $1,633,177 164,516 $1,233,732
======= ========== ======= ========== ======= ==========
Period of delinquency(3)
31-59 days........................... 2,180 $ 18,557 1,136 $ 8,510 818 $ 5,239
60-89 days........................... 690 6,143 336 2,616 254 1,849
90 days or more...................... 308 2,701 145 998 138 983
------- ---------- ------- ---------- ------- ----------
Total contracts delinquent............ 3,178 $ 27,401 1,617 $ 12,124 1,210 $ 8,071
======= ========== ======= ========== ======= ==========
Delinquencies as a percentage of
number and amount of contracts
outstanding.......................... 1.23% 1.24% 0.80% 0.74% 0.74% 0.65%
======= ========== ======= ========== ======= ==========
</TABLE>
- ---------------
(1) Includes delinquency information relating to those contracts that are owned
by WFS and contracts that were sold to a grantor or owner trust but which
are serviced by WFS.
(2) This amount is net of unearned add-on interest.
(3) The period of delinquency is based on the number of days payments are
contractually past due.
CONTRACT LOSS EXPERIENCE(1)
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
------------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Portfolio
At end of period (net of unearned add-on
interest).............................. $4,246,814 $3,680,817 $3,046,585 $2,209,594 $1,633,177 $1,233,732
========== ========== ========== ========== ========== ==========
Average during period (net of unearned
add-on interest)....................... $3,935,742 $3,383,570 $2,627,622 $1,886,359 $1,438,582 $1,132,538
========== ========== ========== ========== ========== ==========
Gross chargeoffs of contracts during
period................................. $ 124,901 $ 136,773 $ 86,464 $ 48,999 $ 27,620 $ 24,612
Recoveries during period of contracts
charged off............................ 26,196 34,634 25,946 18,715 11,927 7,308
---------- ---------- ---------- ---------- ---------- ----------
Net chargeoffs........................... $ 98,705 $ 102,139 $ 60,518 $ 30,284 $ 15,693 $ 17,304
========== ========== ========== ========== ========== ==========
Net chargeoffs as a percentage of
contracts outstanding during period.... 3.34% 3.02% 2.30% 1.61% 1.09% 1.53%
</TABLE>
- ---------------
(1) Includes loss information for contracts that are owned by WFS and contracts
that were sold to a grantor or owner trust but which are serviced by WFS. It
is the policy of WFS to charge-off all contracts when they become 120 days
delinquent, whether such contract is owned by WFS or serviced by WFS for
others. WFS believes that its charge-off policy is consistent with that
customarily used in the automobile finance industry.
Net charge-offs as a percentage of contracts outstanding for contracts
originated and serviced by WFS increased in 1997 to 3.02%, a 31.3% increase over
the 2.30% experienced in 1996 following a 42.9% increase over the 1.61% net
charge-off level experienced in 1995. Delinquencies increased during the same
periods as a percentage of contracts outstanding from 1.24% at year end 1995 to
1.80% and 2.20% at year end 1996 and 1997, respectively, an increase of 45.16%
and 22.22%, respectively. Net chargeoffs and delinquencies increased from year
end 1997 to September 30, 1998 to 3.34% and 3.67%, respectively, increases of
10.60% and 66.82%, respectively. Loss and delinquency for contracts originated
and serviced by WFS was impacted by a variety of factors including an increase
in the percentage of the outstanding contracts which were originally
underwritten as non-prime contracts, an increase in the number of personal
bankruptcy filings and general economic conditions. Loss and delinquency
experience in the third quarter of 1998 were also impacted by a disruption of
collection efforts arising from WFS' restructuring of its offices. As the
characteristics of the Contracts may be different than that of the entire
portfolio of contracts originated and serviced by WFS, no assurances can be
given that the performance of the Contracts will be similar.
17
<PAGE> 19
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 the provisions of the Notes and the Indenture;
provided, however, the following summary, together with the information
contained herein under the caption "Certain Information Regarding the
Securities," describes the material terms of the Indenture and the Notes. 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 on the Class A-1 and Class A-2
Notes will be calculated on the basis of the actual days elapsed in an Interest
Period and a 360-day year. Interest on the Class A-3 and Class A-4 Notes will be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
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")
18
<PAGE> 20
have been paid. See "Certain Information Regarding the
Securities -- Distributions on the Securities -- Deposits to the Distribution
Accounts; Priority of Payments."
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. No amount of principal will be paid on
the Certificates until the principal amount of each Class of Notes has been
reduced to zero. See "Certain Information Regarding the Securities -- Deposits
to the Distribution Accounts; Priority of Payments."
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 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
19
<PAGE> 21
(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 (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 the material
20
<PAGE> 22
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, Class A-3 and Class
A-4 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 have been
distributed. 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 (i) the Seller's right or obligation to repurchase the
Contracts (a) on any Distribution Date as of which the Aggregate Scheduled
Balance is less than 5% of the Cut-Off Date Aggregate Scheduled Balance, or (b)
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, or (ii) 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. Any such repurchase or purchase may reduce the average
life of the Contracts. See "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), Financial Security will have the right, but not the
obligation, to cause the property of the Trust to be sold or liquidated in whole
or in
21
<PAGE> 23
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 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
Underwriters), 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.
22
<PAGE> 24
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.
DTC'S YEAR 2000 EFFORTS
DTC management is aware that some computer applications, systems, and the
like for processing data ("Systems") that are dependent upon calendar dates,
including dates before, on, and after January 1, 2000, may encounter "Year 2000
problems." DTC has informed its Participants and other members of the financial
community (the "Industry") that it has developed and is implementing a program
so that its Systems, as the same relate to the timely payment of distributions
(including principal and income payments) to securityholders, book-entry
deliveries, and settlement of trades within DTC ("DTC Services"), continue to
function appropriately. This program includes a technical assessment and a
remediation plan, each of which is complete. Additionally, DTC's plan includes a
testing phase, which is expected to be completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to issuers and their agents, as
well as third party vendors from whom DTC licenses software and hardware, and
third party vendors on whom DTC relies for information of the provision of
services, including telecommunication and electrical utility service providers,
among others. DTC has informed the Industry that it is contacting (and will
continue to contact) third party vendors from whom DTC acquires services to: (i)
impress upon them the importance of such services being Year 2000 compliant; and
(ii) determine the extent of their efforts for Year 2000 remediation (and, as
appropriate, testing) of their services. In additional, DTC is in the process of
developing such contingency plans as it deems appropriate.
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According to DTC, the foregoing information with respect to DTC has been
provided to the Industry for informational purposes only and is not intended to
serve as a representation, warranty, or contract modification of any kind.
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 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
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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 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)
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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 for
which the Master Servicer is entitled to be reimbursed for 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;
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(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 ("Excess Amounts"), will be deposited into the
Spread Account, until the amount on deposit therein equals the Specified
Spread 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 "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-4 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-4 Notes
is reduced to zero, a percentage equal to 100% minus the Note Percentage for
such Distribution Date.
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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;
provided, however, that the Certificate Principal 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-4
Notes is reduced to zero, 100%; (ii) on the Distribution Date on which the
principal amount of the Class A-4 Notes is reduced to zero, (a) 100% until the
principal amount of the Class A-4 Notes has been reduced to zero and (b) with
respect to any remaining portion of the
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Principal Distributable Amount, 0%; and (iii) for each Distribution Date after
the principal amount of the Class A-4 Notes is reduced to zero, 0%.
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
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, or in the case of the Class A-1 Notes and the
Class A-2 Notes, interest for the actual number of days in the applicable
Interest Period, based on a 360-day year) 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
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other entities (to the extent the Trustees and such other entities have not
received all Trust Fees and Expenses 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 7%
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% or (ii) the Delinquency
Percentage for the three calendar month period ending on such Calculation Day
exceeds 2%, then the Specified Spread Account Balance shall equal 10% 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 $70,000,000
(10% of the Cut-off Date Aggregate Scheduled Balance) or less than $12,600,000
(the amount required by the Rating Agencies and Financial Security); provided,
however, it shall not be greater than the outstanding aggregate principal amount
of the Securities if such amount is less than $12,600,000. 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 "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 Balance 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
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denominator of which is the aggregate Scheduled Balance of all outstanding
Contracts, in each case on the last day of such calendar month.
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
that is different from that described above and would result in a decrease in
the amount of the Specified Spread Account Balance 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 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."
If the amount on deposit in the Spread Account on any Calculation Day or
any Distribution Date (after giving effect to all deposits thereto or
withdrawals therefrom on such Distribution Date) is greater than the Specified
Spread Account Balance, the Indenture Trustee will distribute any excess 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 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 the 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.
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)
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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 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, 1998, 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, 1998, 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
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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 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, 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 the Master Servicer's
obligations 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
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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 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
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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; 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 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 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 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, to 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. (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
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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 the Indenture
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
Noteholder or result in the creation of a new security; and further provided
that any action specified in clause (viii) shall not, as evidenced by an opinion
of counsel, adversely affect in any material respect the interests of any
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 obligor on the 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 of 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; and further provided, that any
such action will not, in the opinion of counsel satisfactory to the related
Trustee, result in the creation of a new security. (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
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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 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.
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 the Aggregate Scheduled Balance is less than 5% of the Cut-Off
Date Aggregate Scheduled Balance 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 at least 20 days prior to such
termination. 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 at least 18 months after the date of termination and
after such Trustee has attempted 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)
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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)
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
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<PAGE> 40
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.
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 and not from the
proceeds of the Contracts or other assets of the Trust.
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 and the sale or liquidation of the property of the Trust under
certain conditions following the occurrence of an Event of 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
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<PAGE> 41
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.
THE POLICIES
The following summary of the terms of the Policies does not purport to be
complete and is qualified by reference to the Note Policy and the Certificate
Policy included as exhibits to the Registration Statement; provided, however,
the following summary describes the material terms of the Policies.
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
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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. 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
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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 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 cancelled 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. As a result, if a claim is made on the Note Policy for
the benefit of the Noteholders, or a claim is made on the Certificate Policy for
the benefit of the Certificateholders and Financial Security is insolvent and
unable to pay the amount then due under that policy, the Noteholders or
Certificateholders would not be permitted to file a claim against the Property/
Casualty Insurance Fund specified in Article 76 of the New York Insurance Law.
In that circumstance, the Noteholders or Certificateholders would have recourse
against the estate of Financial Security only, as any other general creditor of
Financial Security.
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 MediaOne Capital Corporation, Fund
American Enterprises Holdings, Inc., The Tokio Marine and Fire Insurance Co.,
Ltd. and EXEL Limited. No shareholder of Holdings is obligated to pay any debt
of
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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 agency requirements; it does not alter or limit Financial Security's
obligations under any financial guaranty insurance policy.
RATINGS
Financial Security's insurance financial strength is rated "Aaa" by
Moody's. Financial Security's insurer financial strength is rated "AAA" by S&P
and Standard & Poor's (Australia) Pty. Ltd. Financial Security's claims-paying
ability is rated "AAA" by Fitch IBCA, Inc. and Japan Rating and Investment
Information, Inc. 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 "Risk
Factors -- 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 September 30, 1998, as well as such capitalization as adjusted
to give effect to certain transactions entered into during November 1998 (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
----------------------------
AS
ACTUAL ADJUSTED(1)
---------- --------------
(UNAUDITED)
<S> <C> <C>
Deferred Premium Revenue (net of prepaid reinsurance
premiums)................................................. $ 480,089 $ 480,089
---------- ----------
Surplus Notes............................................... 50,000 130,000
---------- ----------
Minority Interest........................................... -- 20,000
---------- ----------
Shareholder's Equity:
Common Stock.............................................. 15,000 15,000
Additional Paid-In Capital................................ 614,787 684,787
Accumulated Other Comprehensive Income (net of deferred
income taxes)........................................... 41,923 41,923
Accumulated Earnings...................................... 326,145 326,145
---------- ----------
Total Shareholder's Equity.................................. 997,855 1,067,855
---------- ----------
Total Deferred Premium Revenue, Surplus Notes, Minority
Interest and Shareholder's Equity......................... $1,527,944 $1,697,944
========== ==========
</TABLE>
- ---------------
(1) Adjusted to give effect to (a) the purchase by Holdings of $80 million of
surplus notes from Financial Security, in connection with the formation of a
new indirect Bermuda subsidiary of Financial Security, initially capitalized
with $100 million, including a $20 million minority interest owned by EXEL
Limited, and (b) the contribution by Holdings to Financial Security of
approximately $70 million, representing a portion of the proceeds from the
sale by Holdings of $100 million of 6.95% Senior Quarterly Income Debt
Securities due 2098 and callable without premium or penalty commencing
November 1, 2003 or at any time following certain tax events.
For further information concerning Financial Security, see the Consolidated
Financial Statements of Financial Security and Subsidiaries, and the notes
thereto, incorporated by reference into 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
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<PAGE> 45
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
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
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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 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 actual cash 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 or there are six or fewer months remaining to its Maturity Date. 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 obtain 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 if the Obligor fails to maintain the required insurance;
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 or there are six or
fewer months remaining to its Maturity Date. (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 when the Contract relating to such Financed
Vehicle has an unpaid principal balance of less than $4,000 or there are six or
fewer months remaining to its Maturity Date, 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 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
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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 the Aggregate Scheduled Balance is less than 5% of the Cut-Off Date
Aggregate Scheduled Balance. 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)
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 1.25% 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)
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YEAR 2000 COMPLIANCE
Many computer systems process transactions involving dates by using only
two digits to represent the year of the transaction (i.e., "98" for 1998),
rather than the full four digits of the year involved. These computer systems
could fail or produce erroneous results during the transition from 1999 to 2000.
This problem could affect a wide variety of automated information management
systems, the most critical of these functions from the perspective of the Trust
are the billing and collection systems used by the Master Servicer.
The Master Servicer has advised the Seller that the Master Servicer
initiated the process of preparing its computer systems and applications to be
year 2000 compliant in 1997, including in particular those systems used in
connection with the billing and collection of Obligors as to the Contracts to be
sold to the Trust. This process involves modifying or replacing certain hardware
and software maintained by the Master Servicer, as well as communicating with
external service providers to ensure that they are taking the necessary actions
to remedy their year 2000 compliance issues. The Master Servicer has advised the
Seller that it expects to have substantially modified all of its information
management systems and applications, both hardware and software, by the end of
1998 and to have completed testing during the third quarter of 1999. The Seller
believes, based upon its discussions with the Master Servicer, that the Master
Servicer and the Master Servicer's external service providers will be year 2000
compliant with respect to the systems and applications relevant to the Master
Servicer's activities for the Trust in advance of January 1, 2000. The Master
Servicer, as an operating subsidiary of Western Financial Bank, is subject to
regulation by the Office of Thrift Supervision (the "OTS"). The OTS is providing
vigorous oversight to the year 2000 compliance activities of the thrift
institutions and their subsidiaries for which the OTS is the primary federal
supervisory agency.
Based upon the information currently available to the Seller, the Seller
does not anticipate that there will be any cost to the Trust to address year
2000 issues or that such issues will have a material adverse effect upon the
cash flows due the Trust from which payments to its Securityholders will be
made. If the Master Servicer, Financial Security, the Indenture Trustee or the
Owner Trustee do not have computerized systems that are year 2000 compliant by
the year 2000, the ability to service the Contracts (in the case of the Master
Servicer), to respond to a claim (in the case of Financial Security), to make
distributions to the Noteholders (in the case of the Indenture Trustee) and to
make distributions to the Certificateholders (in the case of the Owner Trustee)
may be materially and adversely affected.
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 (the "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 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
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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. California and
some other states permit the required documents to perfect a security interest
to be filed electronically as well as physically. 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 name WFS 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 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
on the certificates of title or in the electronic records of the state officials
where electronic titles are permitted, 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 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.
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
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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, absent clerical errors or fraud, would receive notice of surrender of the
certificate of title if WFS' lien is noted thereon. Accordingly, WFS 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 including in many of
those states their version of the Uniform Consumer Credit Code. 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.
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.
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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 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
92618.
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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. 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.
WFS purchases contracts in both the prime and non-prime credit quality
segments of the auto finance market. During 1997, WFS purchased approximately
55% of its contracts from the prime credit quality segment and 45% from the
non-prime segment. WFS purchases the majority of its contracts from franchised
dealers and to a lesser extent from independent dealers. During that same
period, contracts for new and used vehicles represented 18% and 82%,
respectively, of WFS' volume of contracts purchased.
WFS is an operating subsidiary of the Bank. As an operating subsidiary, WFS
is subject to regulation and supervision by the OTS and the Federal Deposit
Insurance Corporation ("FDIC"). At September 30, 1998, WFS had total assets of
$1,505.6 million, total liabilities of $1,341.3 million and stockholders' equity
of $164.2 million. As of September 30, 1998, WFS' net portfolio of contracts
totalled approximately $998.2 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
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fees, documentation fees and other fees, interest charged on its portfolio of
contracts 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 92618.
BUSINESS ACTIVITIES
WFS is engaged principally in the business of originating contracts secured
by automobiles and light duty trucks from new and used car dealers and the
public. WFS currently conducts its operations through its principal office and
47 production offices serving 41 states.
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 92618 and its telephone number is (949) 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 September 30, 1998, the Bank
had total assets of $4.1 billion, total deposits of $2.1 billion and
stockholder's equity of $333 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 16485 Laguna
Canyon Road, Irvine, California 92618 and its telephone number is (949)
727-1100.
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 has offices
in 10 states, including 26 retail banking offices in California. Funds for
lending are obtained from deposits, borrowings, payments on existing loans and
contracts and sales of loans and contracts.
FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material 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 contained within the Internal Revenue Code
of 1986, as amended (the "Code"), and regulations promulgated thereunder.
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
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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.
This summary does not purport to deal with all aspects of federal income
taxation that may be relevant to investors in light of their individual
investment circumstances (e.g., financial institutions, broker-dealers, life
insurance companies and tax-exempt organizations).
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 is 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
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, has rendered an opinion that the Notes will be classified
as debt for federal income tax purposes. All of 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.
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
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<PAGE> 55
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.
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
treated as a publicly traded partnership 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
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<PAGE> 56
Certificateholders and the Seller, 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, the
Trust may be treated as a trust rather than a partnership for federal tax
purposes. Or, 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 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
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<PAGE> 57
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. Pursuant to final Treasury regulations issued May
9, 1997, under Section 708 of the Code, a sale or exchange of 50 percent or more
of the capital and profits in the Trust would cause a deemed contribution of the
assets of the Trust (the "Old Partnership") to a new partnership (the "New
Partnership") in exchange for interests in the New Partnership. Such interests
would be deemed distributed to the partners of the Old Partnership in
liquidation thereof.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
A Certificateholder's tax basis in a Certificate will generally equal the
holder's cost increased by the holder's share of Trust income (includible in
income) and decreased by any distributions received with respect to such
Certificate. In addition, both the tax basis in the Certificates and the amount
realized on a sale of a Certificate would include the holder's share of the
Notes and other liabilities of the Trust. A holder acquiring Certificates at
different prices may be required to maintain a single aggregate adjusted tax
basis in such Certificates, and, upon sale or other disposition of some of the
Certificates, allocate a portion of such aggregate tax basis to the Certificates
sold (rather than maintaining a separate tax basis in each Certificate for
purposes of computing gain or loss on a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the holder's share of
unrecognized accrued market discount on the 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 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 Certificate-
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<PAGE> 58
holder 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. 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 future 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.
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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.
SECURITYHOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER
TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
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. Mitchell, Silberberg & Knupp LLP has rendered 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.
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.
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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 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, 510 U.S. 86 (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.
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UNDERWRITING
Subject to certain conditions contained in an underwriting agreement (the
"Underwriting Agreement"), Donaldson, Lufkin & Jenrette Securities Corporation,
Morgan Stanley & Co. Incorporated and NationsBanc Montgomery Securities LLC (the
"Underwriters") have agreed to severally purchase from the Trust, and the Trust
has agreed to sell to the Underwriters, the respective principal amounts of each
Class of Notes and the Certificates as set forth opposite their names below:
CLASS A-1, A-2 AND A-3 NOTES
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT PRINCIPAL AMOUNT PRINCIPAL AMOUNT
UNDERWRITER OF CLASS A-1 NOTES OF CLASS A-2 NOTES OF CLASS A-3 NOTES
----------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
Donaldson, Lufkin & Jenrette
Securities Corporation................ $ $ $
Morgan Stanley & Co. Incorporated.........
NationsBanc Montgomery Securities LLC ....
------------ ------------ ------------
Total........................... $ $ $
============ ============ ============
</TABLE>
CLASS A-4 NOTES AND CERTIFICATES
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT PRINCIPAL AMOUNT
UNDERWRITER OF CLASS A-4 NOTES OF CERTIFICATES
----------- ------------------ ----------------
<S> <C> <C>
Donaldson, Lufkin & Jenrette
Securities Corporation.................................. $ $
Morgan Stanley & Co. Incorporated...........................
NationsBanc Montgomery Securities LLC ......................
------------ -----------
Total............................................. $ $
============ ===========
</TABLE>
The Seller has been advised by the Underwriters that they propose 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 % of the principal amount of the Class
A-1 Notes, % of the principal amount of the Class A-2 Notes, % of the
principal amount of the Class A-3 Notes and % of the principal amount of
the Class A-4 Notes. The Underwriters may allow, and such dealers may reallow, a
discount not in excess of % of the principal amount of the Class A-1 Notes,
% of the principal amount of the Class A-2 Notes, % of the principal
amount of the Class A-3 Notes and % 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 Underwriters that they propose 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 % of the principal amount thereof. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of % 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 Underwriters' obligations
thereunder are subject to approval of certain legal matters by counsel and to
various other conditions.
The Seller and WFS have agreed to jointly and severally indemnify the
Underwriters against certain liabilities, including liabilities under applicable
securities laws, or contribute to payments the Underwriters may be required to
make in respect thereof.
In connection with the offering of the Securities, the Underwriters may
engage in transactions that stabilize, maintain or otherwise affect the price of
any Class of Securities. Specifically, the Underwriters may overallot the
offering, creating a syndicate short position. The Underwriters may bid for and
purchase the Securities in the open market to cover syndicate short positions.
In addition, the Underwriters may bid for and purchase the Securities in the
open market to stabilize the price of the Securities. These activities may
stabilize or maintain the market price of the Securities above independent
market levels. The Underwriters are not required to engage in these activities,
and may end these activities at any time.
60
<PAGE> 62
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 LLP, San
Francisco, California will act as counsel for the Underwriters. 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, 1997 and 1996 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, 1997, incorporated by reference
in this Prospectus, have been incorporated herein in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain "forward-looking" statements within the
meaning of the Private Securities Litigation Reform Act of 1995 which provides a
new "safe harbor" for these types of statements. This Prospectus contains
forward-looking statements which reflect the Seller's current views with respect
to future events and financial performance. These forward-looking statements are
subject to certain risks and uncertainties, including those identified below,
which could cause actual results to differ materially from historical results or
those anticipated. The forward-looking terminology such as "believe," "expect,"
"may," "will," "should," "continue," and/or the negative thereof or other
comparable expressions which indicate future events and trends identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of their dates. The Seller
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
The level of demand for contracts, which is affected by such external factors as
the level of interest rates, the strength of the various segments of the
economy, debt burden held by the consumer and demographics of WFS' lending
markets could cause actual results to differ materially from historical results
or those anticipated.
61
<PAGE> 63
INDEX OF DEFINITIONS
Set forth below is a list of the defined 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>
Administration Agreement.................................... 39
Administration Fee.......................................... 39
Administrator............................................... 39
Advance..................................................... 45
Aggregate Scheduled Balance................................. 27
Aggregate Scheduled Balance Decline......................... 27
APR......................................................... 14
Backup Withholding.......................................... 58
Bank........................................................ 3
Business Day................................................ 4
Calculation Day............................................. 8
Cede........................................................ 22
Certificate Balance......................................... 6
Certificate Distributable Amount............................ 27
Certificate Distribution Account............................ 26
Certificate Final Distribution Date......................... 4
Certificateholders.......................................... 22
Certificate Interest Carryover Shortfall.................... 27
Certificate Interest Distributable Amount................... 27
Certificate Percentage...................................... 27
Certificate Policy.......................................... 1,12
Certificate Pool Factor..................................... 18
Certificate Principal Carryover Shortfall................... 28
Certificate Principal Distributable Amount.................. 28
Certificate Quarterly Interest Distributable Amount......... 28
Certificate Quarterly Principal Distributable Amount........ 28
Certificates................................................ 1,3
Charge-Off Percentage....................................... 30
Class A-1 Final Distribution Date........................... 4
Class A-1 Notes............................................. 1,3
Class A-1 Rate.............................................. 4
Class A-2 Final Distribution Date........................... 4
Class A-2 Notes............................................. 1,3
Class A-2 Rate.............................................. 4
Class A-3 Final Distribution Date........................... 4
Class A-3 Notes............................................. 1,3
Class A-3 Rate.............................................. 5
Class A-4 Final Distribution Date........................... 4
Class A-4 Notes............................................. 1,3
Class A-4 Rate.............................................. 5
Closing Date................................................ 3
Code........................................................ 52
Collection Account.......................................... 25
Commission.................................................. 2
Contracts................................................... 1,4
Cut-Off Date................................................ 12
Cut-Off Date Aggregate Scheduled Balance.................... 7
</TABLE>
A-1
<PAGE> 64
<TABLE>
<CAPTION>
TERM PAGE
---- ----
<S> <C>
Defaulted Contract.......................................... 28
Delinquency Percentage...................................... 30
Determination Date.......................................... 26
Distribution Accounts....................................... 26
Distribution Date........................................... 4
Distribution Date Statement................................. 26
DTC......................................................... 1
DTC Services................................................ 23
Due Date.................................................... 29
Due Period.................................................. 28
Eligible Investments........................................ 25
ERISA....................................................... 9,58
Events of Default........................................... 19
Excess Amounts................................................ 8,27
Exchange Act................................................ 22
FDIC........................................................ 51
Final Distribution Dates.................................... 4
Financed Vehicles........................................... 1,4
Financial Security.......................................... 1,3
Guaranteed Distributions.................................... 41
Holdings.................................................... 42
Holding Account............................................. 26
Indenture................................................... 3
Indenture Trustee........................................... 3
Indirect Participants....................................... 22
Industry.................................................... 23
Insolvency Event............................................ 34
Insurance Agreement......................................... 8
Insurer Default............................................. 20
Interest Period............................................. 5
Interest Rates.............................................. 5
Issuer...................................................... 3
IRS......................................................... 52
Liquidated Contract......................................... 28
Liquidation Expenses........................................ 25
Master Servicer............................................. 3
Monthly P&I................................................. 29
Moody's..................................................... 1,9
Net Collections............................................. 24
Net Insurance Proceeds...................................... 25
Net Liquidation Proceeds.................................... 25
New Partnership............................................. 56
Nonrecoverable Advance...................................... 45
Note Distributable Amount................................... 28
Note Distribution Account................................... 26
Note Final Distribution Dates............................... 4
Note Interest Carryover Shortfall........................... 28
Note Interest Distributable Amount.......................... 28
Note Percentage............................................. 28
Note Policy................................................. 1,12
Note Pool Factor............................................ 18
Note Principal Carryover Shortfall.......................... 29
Note Principal Distributable Amount......................... 29
</TABLE>
A-2
<PAGE> 65
<TABLE>
<CAPTION>
TERM PAGE
---- ----
<S> <C>
Note Quarterly Interest Distributable Amount................ 29
Note Quarterly Principal Distributable Amount............... 29
Noteholders................................................. 22
Notes....................................................... 1,3
Obligors.................................................... 12
OID......................................................... 53
Old Partnerships............................................ 56
Omnibus Proxy............................................... 23
Optional Purchase........................................... 8
Order....................................................... 41
Original Certificate Balance................................ 6
OTS......................................................... 47
Owner Trustee............................................... 3,4
Participants................................................ 22
Pass-Through Rate........................................... 6
Paying Agent................................................ 6
Plans....................................................... 58
Policies.................................................... 1,12
Principal Distributable Amount.............................. 29
PTCE........................................................ 59
Rating Agencies............................................. 1,9
Record Date................................................. 4
Rees-Levering Act........................................... 49
Receipt..................................................... 41
Received.................................................... 41
Reinvestment Contract....................................... 25
Repurchase Amount........................................... 46
</TABLE>
A-3
<PAGE> 66
<TABLE>
<CAPTION>
TERM PAGE
---- ----
<S> <C>
Rule of 78's Contract..............A Contract that provides
for the payment by the
Obligor of a specified
total number of payments,
payable in equal monthly
installments, which total
represents the principal
amount financed plus
add-on interest in an
amount calculated by
using the Rule of 78's.
Under the Rule of 78's,
the amount of a monthly
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
the denominator of which
is a number equal to the
sum of a series of
numbers representing the
number of each monthly
payment due under the
Contract and the
numerator of which for a
given month is the number
of payments remaining
before the maturity of
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. 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................................ 12
Scheduled Balance........................................... 29
Scheduled Payments.......................................... 40
Securities.................................................. 1,3
Seller...................................................... 1,3
Servicer Defaults........................................... 33
Servicing Fee............................................... 46
Servicing Fee Percent....................................... 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............................ 30
Spread Account.............................................. 7
Spread Account Initial Deposit.............................. 8
Statement to Securityholders................................ 32
Subservicer................................................. 44
Systems..................................................... 23
Trust....................................................... 1,3
Trust Agreement............................................. 3
Trust Fees and Expenses..................................... 18
Trustees.................................................... 4
Trust Insolvency............................................ 20
UCC......................................................... 47
Underwriters................................................ 60
</TABLE>
A-4
<PAGE> 67
<TABLE>
<CAPTION>
TERM PAGE
---- ----
<S> <C>
Underwriting Agreement...................................... 60
Unreimbursed Insurer Amounts................................ 27
voting interests............................................ 35
WFS......................................................... 1,3
WII......................................................... 3
</TABLE>
A-5
<PAGE> 68
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN OR INCORPORATED BY REFERENCE INTO
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 UNDERWRITERS 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
Incorporation of Certain Documents by
Reference............................ 2
Summary of Prospectus.................. 3
Risk Factors........................... 11
Formation of the Trust................. 11
The Contracts Pool..................... 13
Delinquency and Contract Loss
Information.......................... 17
Pool Factors and Trading Information... 18
Use of Proceeds........................ 18
The Notes.............................. 18
The Certificates....................... 20
Certain Information Regarding the
Securities........................... 22
The Policies........................... 40
Financial Security Assurance Inc. ..... 42
The Master Servicer.................... 44
Certain Legal Aspects of the
Contracts............................ 47
The Seller............................. 50
WFS.................................... 51
WII.................................... 52
The Bank............................... 52
Federal Income Tax Consequences........ 52
California Income Tax Consequences..... 58
ERISA Considerations................... 58
Underwriting........................... 60
Legal Matters.......................... 61
Experts................................ 61
Forward-Looking Statements............. 61
Index of Definitions................... A-1
- ----------------------------------------------
- ----------------------------------------------
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
$700,000,000
WFS FINANCIAL
1998-C OWNER TRUST
$130,000,000
% AUTO RECEIVABLE
BACKED NOTES, CLASS A-1
$180,000,000
% AUTO RECEIVABLE
BACKED NOTES, CLASS A-2
$210,000,000
% AUTO RECEIVABLE
BACKED NOTES, CLASS A-3
$103,000,000
% AUTO RECEIVABLE
BACKED NOTES, CLASS A-4
$77,000,000
% AUTO RECEIVABLE
BACKED CERTIFICATES
--------------------
PROSPECTUS
--------------------
DONALDSON, LUFKIN & JENRETTE
MORGAN STANLEY DEAN WITTER
NATIONSBANC MONTGOMERY
SECURITIES LLC
, 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 69
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............................................ $194,617.00
Printing and Engraving...................................... 52,500.00
Trustees' Fees.............................................. 13,100.00
Accounting Fees............................................. 36,800.00
Legal Fees and Expenses..................................... 84,000.00
Blue Sky Fees and Expenses.................................. 21,000.00
Rating Agency Fees.......................................... 63,000.00
Miscellaneous Fees.......................................... 4,983.00
-----------
Total............................................. $470,000.00
===========
</TABLE>
- ---------------
* To be supplied by amendment.
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> 70
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, WFS Investments, Inc., Financial Security
Assurance Inc. and Chase Manhattan Bank Delaware, as Owner
Trustee (including form of Certificates)*
4.2 Form of Indenture among WFS Financial 1998-C 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> 71
<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 1998-C Owner Trust, WFS Financial Inc, and
Bankers Trust Company, as Indenture Trustee*
20.1 Consolidated financial statements of Financial Security Assurance Inc. and Subsidiaries as of
December 31, 1997 and 1996, and for each of the three years in the period ended December 31,
1997 (Incorporated by reference from the Annual Report on Form 10-K of Financial Security
Assurance Holdings Inc. for the year ended December 31, 1997 (file #1-12644) as filed on or
about March 24, 1998)
20.2 Condensed consolidated financial statements of Financial Security Assurance Inc. and
Subsidiaries for the nine month period ended September 30, 1998 (Incorporated by reference from
the Quarterly Report on Form 10-Q of Financial Security Assurance Holdings Inc. for the quarter
ended September 30, 1998 (file #1-12644) as filed on or about November 10, 1998)
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 PricewaterhouseCoopers LLP
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 Underwriters at the closing date specified in
the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters 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 purposes 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> 72
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that (i) it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and (ii) it reasonably believes
that the securities offered under this Registration Statement will be
"investment grade securities", as such term is defined under Transaction
Requirements B.2 of the Instructions to Form S-3, at the time of sale of such
securities, and has duly caused this Amendment No. 1 to Registration Statement
on Form S-3 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Irvine, State of California, on the 10th day of
November, 1998.
WFS FINANCIAL AUTO LOANS, INC.,
as originator of
WFS FINANCIAL 1998-C OWNER TRUST
By: /s/ JAMES R. DOWLAN
-------------------------------------
James R. Dowlan
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to Registration Statement on Form S-3 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 November 10, 1998
- ----------------------------------------------------- Executive Officer,
James R. Dowlan Director (Principal
Executive Officer)
* Chief Financial Officer, November 10, 1998
- ----------------------------------------------------- Director
Lee A. Whatcott (Principal Financial and
Accounting Officer)
* Director November 10, 1998
- -----------------------------------------------------
Joy Schaefer
Director November , 1998
- -----------------------------------------------------
James R. May
* Director November 10, 1998
- -----------------------------------------------------
Jeffrey B. Davis
*By: /s/ JAMES R. DOWLAN
------------------------------------------------
James R. Dowlan
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 73
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER 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, WFS Investments, Inc., Financial Security
Assurance Inc. and Chase Manhattan Bank Delaware, as Owner
Trustee (including form of Certificates)*...................
4.2 Form of Indenture among WFS Financial 1998-C 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 1998-C
Owner Trust, WFS Financial Inc, and Bankers Trust Company,
as Indenture Trustee*.......................................
20.1 Consolidated financial statements of Financial Security
Assurance Inc. and Subsidiaries as of December 31, 1997 and
1996, and for each of the three years in the period ended
December 31, 1997 (Incorporated by reference from the Annual
Report on Form 10-K of Financial Security Assurance Holdings
Inc. for the year ended December 31, 1997 (file #1-12644) as
filed on or about March 24, 1998)
20.2 Condensed consolidated financial statements of Financial
Security Assurance Inc. and Subsidiaries for the three month
period ended March 31, 1998 (Incorporated by reference from
the Quarterly Report on Form 10-Q of Financial Security
Assurance Holdings Inc. for the quarter ended March 31, 1998
(file #1-12644) as filed on or about May 13, 1998)
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 PricewaterhouseCoopers LLP.......................
24.1 Power of Attorney*..........................................
25.1 Statement of Eligibility and Qualification of Indenture
Trustee.....................................................
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
EXHIBIT 1.1
WFS FINANCIAL 1998-C OWNER TRUST
$---,---,---
_.___% AUTO RECEIVABLE BACKED NOTES, CLASS A-1
$---,---,---
_.___% AUTO RECEIVABLE BACKED NOTES, CLASS A-2
$---,---,---
_.___% AUTO RECEIVABLE BACKED NOTES, CLASS A-3
$---,---,---
_.___% AUTO RECEIVABLE BACKED NOTES, CLASS A-4
$---,---,---
_.___ AUTO RECEIVABLE BACKED CERTIFICATES
WFS FINANCIAL AUTO LOANS, INC., SELLER
WFS FINANCIAL INC, MASTER SERVICER
UNDERWRITING AGREEMENT
__________, 1998
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
as Representative of the several Underwriters
277 Park Avenue
New York, New York 10172
Dear Sirs:
WFS Financial Auto Loans, Inc., a California corporation (the
"Company"), proposes to sell to the several underwriters listed on Schedule I
hereto (the "Underwriters") for whom Donaldson, Lufkin & Jenrette Securities
Corporation will be acting as representative (the "Representative"), as provided
in Section 2 hereof $___,___,___ aggregate principal amount of _.___% Auto
Receivable Backed Notes, Class A-1 (the "Class A-1 Notes"), $___,___,___
aggregate principal amount of _.___% Auto Receivable Backed Notes, Class A-2
(the "Class A-2 Notes"), $___,___,___ aggregate principal amount of _.___% Auto
Receivable Backed Notes, Class A-3 (the "Class A-3 Notes"), $___,___,___
aggregate principal amount of _.___% Auto Receivable Backed Notes, Class A-4
(the "Class A-4 Notes" and, together with the Class A-1 Notes, the Class A-2
Notes and the Class A-3 Notes, the "Notes") and $__,___,___ aggregate principal
amount of _.___% Auto Receivable Backed Certificates (the "Certificates"
<PAGE> 2
and, together with the Notes, the "Securities"). The Notes will be issued
pursuant to an indenture dated as of September 1, 1998 (the "Indenture"), among
the WFS Financial 1998-C Owner Trust (the "Trust") and Bankers Trust Company, as
trustee (the "Indenture Trustee"). Each Note will represent an obligation of the
Trust. The Trust will be created and the Certificates will be issued pursuant to
a trust agreement, dated as of September __, 1998 as amended and restated as of
September __, 1998 (the "Trust Agreement"), among the Company, WFS Investments,
Inc. ("WII"), Financial Security Assurance Inc. ("Financial Security") and Chase
Manhattan Bank Delaware, as Owner Trustee. Each Certificate will evidence a
fractional undivided interest in 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 assets of the Trust will include, among other things, (i) a pool of
retail installment sales contracts and installment loans (the "Contracts")
secured by new and used automobiles and light-duty trucks financed thereby (the
"Financed Vehicles"), (ii) certain monies due under the Contracts on and after
September 1, 1998, (iii) security interests in the Financed Vehicles, (iv) the
Policies, (v) amounts on deposit in certain accounts and (vi) certain rights
under the sale and servicing agreement dated as of September 1, 1998 (the "Sale
and Servicing Agreement"), among the Trust, the Company and WFS Financial Inc
("WFS"), as Master Servicer. Pursuant to the Indenture, the Trust property will
be held by the Indenture Trustee on behalf of the holders of the Notes. Pursuant
to the administration agreement dated as of September 1, 1998 (the
"Administration Agreement"), among the Company, WII, WFS, as administrator (in
such capacity, the "Administrator"), the Trust and the Indenture Trustee, the
Administrator will perform certain administrative obligations under the
Indenture. Capitalized terms used herein that are not otherwise defined shall
have the meanings ascribed thereto in the Indenture or the Sale and Servicing
Agreement, as the case may be. The Securities are more fully described in a
Registration Statement (as such term is defined in Section 1 hereof) which the
Company has furnished to the Underwriters.
1. Registration Statement and Prospectuses. The Company has prepared
and filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended (the
"Act"), a registration statement on Form S-3 (File No. 333-_____), including a
form of prospectus, relating to the Securities. Such registration statement has
been declared effective by the Commission. If any post-effective amendment has
been filed with respect thereto, prior to the execution and delivery of this
Agreement, the most recent such amendment has been declared effective by the
Commission. Such registration statement, as amended and the prospectus
constituting a part thereof (including in each case the information deemed to be
a part thereof pursuant to Rule 430A under the Act and all documents, if any,
incorporated or deemed to be incorporated by reference therein pursuant to the
Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act")), as
from time to time amended or supplemented pursuant to the Act or otherwise, are
hereinafter referred to as the "Registration Statement" and the "Prospectus",
respectively, except that if any revised prospectus shall be provided to the
Underwriters by the Company for use in connection with the offering of the
Securities which differs from the Prospectus on file at the Commission at the
time the Registration Statement became effective (whether or not such revised
prospectus is required to be filed by the Company pursuant to Rule 424(b) under
the Act ("Rule 424(b)") of
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<PAGE> 3
the rules and regulations of the Commission promulgated under the Act (the
"Rules and Regulations"), the term "Prospectus" shall refer to such revised
prospectus from and after the time it is first provided to the Underwriters for
such use. All references in this Agreement to financial statements and schedules
and other information which is "contained," "included" or "stated" in the
Registration Statement or the Prospectus (and all other references of like
import) shall be deemed to mean and include all such financial statements and
schedules and other information which are or are deemed to be incorporated by
reference in the Registration Statement or the Prospectus, as the case may be;
and all references in this Agreement to amendments or supplements to the
Registration Statement or the Prospectus shall be deemed to mean and include the
filing of any documents under the Exchange Act after the date of this Agreement
which are or are deemed to be incorporated by reference in the Registration
Statement or the Prospectus, as the case may be.
2. Agreements to Sell and Purchase. The Company agrees to sell to the
Underwriters, severally and not jointly, and upon the basis of the
representations, warranties and agreements of the Company and WFS herein
contained and subject to all the terms and conditions of this Agreement, the
Underwriters agree to purchase from the Company, on the Closing Date referred to
in Section 4 hereof, the Securities at a purchase price of, in the case of (i)
the Class A-1 Notes, __._____% of the principal amount thereof; (ii) the Class
A-2 Notes, __.______% of the principal amount thereof; (iii) the Class A-3
Notes, __.______% of the principal amount thereof; (iv) the Class A-4 Notes,
__.______% of the principal amount thereof; and (v) the Certificates, __.______%
of the principal amount thereof, in each case plus accrued interest at the
related Interest Rate or the Pass-Through Rate, as the case may be, from
September 1, 1998, to but not including the Closing Date.
3. Terms of Public Offering. The Company is advised by the
Representative that the Underwriters propose (i) to make a public offering of
the Securities as soon after the execution of this Agreement as in the judgment
of the Representative is advisable and (ii) initially to offer each Class of
Notes and the Certificates upon the terms set forth in the Prospectus.
4. Delivery and Payment. Delivery of the Securities shall be made at
the office of the Representative at 277 Park Avenue, New York, New York 10172 at
10:00 A.M., New York City time, on September __ , 1998 (such time and date are
referred to herein as the "Closing Date"). Payment for the Securities shall be
made at the offices of WFS Financial Inc, 23 Pasteur Road, Irvine, California
92718. The Closing Date and the location of the delivery of and payment for the
Securities may be varied by agreement between the Representative and the
Company.
Each Class of Notes and the Certificates will be initially represented by
one or more certificates in definitive form registered in the name of Cede &
Co., the nominee of The Depository Trust Company ("DTC") (the "DTC
Certificates"). The certificates evidencing the DTC Certificates shall be made
available to the Representative for inspection not later than 10:00 A.M., New
York City time, on the business day immediately preceding the Closing Date. The
Securities shall be delivered to the Underwriters on the Closing Date for their
respective accounts against payment of the purchase price therefor by either (i)
certified or official bank check or checks payable in New York Clearing House
(next day) funds to the order of the
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<PAGE> 4
Company or (ii) wire transfer (same day funds), as the Representative and the
Company shall agree.
Pursuant to Rule 15c6-1(d) under the Exchange Act, the parties hereto have
agreed that the Closing Date will be not later than September __, 1998.
5. Agreements of the Company. The Company agrees with the Underwriters:
(a) To transmit the Prospectus to the Commission pursuant to Rule 424(b)
by a means reasonably calculated to result in the timely filing of such
Prospectus with the Commission pursuant to Rule 424(b).
(b) To advise the Representative promptly and, if requested by the
Representative, to confirm such advice in writing, (i) when the Registration
Statement has become effective and when any post-effective amendment to it
becomes effective, (ii) of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus or for
additional information, (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or of the
suspension of qualification of any of the Securities for offering or sale in any
jurisdiction, or the initiation of any proceeding for either such purpose, and
(iv) of the happening of any event during the period referred to in paragraph
(e) below which, in the judgment of the Company, makes the Registration
Statement or the Prospectus contain an untrue statement of material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading. If at any time the Commission shall issue any
stop order suspending the effectiveness of the Registration Statement, the
Company will make every reasonable effort to obtain the withdrawal or lifting of
such order at the earliest possible time.
(c) To furnish to the Representative two signed copies of the
Registration Statement as first filed with the Commission and of each amendment
to it, including all exhibits, and to furnish to the Underwriters such number of
conformed copies of the Registration Statement as so filed and of each amendment
to it, without exhibits, as the Underwriters may reasonably request.
(d) Not to file any amendment or supplement to the Registration
Statement, whether before or after the time when it becomes effective, or to
make any amendment or supplement to the Prospectus of which the Representative
shall not previously have been advised or to which the Representative shall
reasonably object and to prepare and file with the Commission promptly upon the
request of the Representative, any amendment to the Registration Statement or
supplement to the Prospectus which may be necessary or advisable in connection
with the distribution of any of the Securities by the Underwriters, and to use
our best efforts to cause the same to become promptly effective.
(e) Promptly after the Registration Statement becomes effective, and
from time to time thereafter for such period as in the opinion of counsel to the
Underwriters a prospectus is required by law to be delivered in connection with
sales by the Underwriters or such dealers as the Representative shall specify,
to furnish to the Underwriters and each such dealer as many copies of the
Prospectus (and of each amendment or supplement to the Prospectus) as the
Underwriters or such dealer may reasonably request.
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<PAGE> 5
(f) If during the period specified in Section 5(e) hereof any event
shall occur as a result of which, in the opinion of the Company or counsel to
the Underwriters it becomes necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading, or if it is necessary to
amend or supplement the Prospectus to comply with any law, forthwith to prepare
and file with the Commission an appropriate amendment or supplement to the
Prospectus so that the statements in the Prospectus, as so amended or
supplemented, will not, in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with law, and to
furnish to the Underwriters and to such dealers as the Representative shall
specify, such number of copies thereof as the Underwriters or such dealers may
reasonably request.
(g) Prior to any public offering of the Securities, to cooperate with
the Underwriters and counsel to the Underwriters in connection with the
registration or qualification of the Securities for offer and sale by the
Underwriters and by dealers under the securities or Blue Sky laws of such
jurisdictions as the Underwriters may reasonably request, to continue such
qualification in effect so long as reasonably required for distribution of the
Securities and to file such consents to service of process or other documents as
may be necessary in order to effect such registration or qualification; provided
that the Company shall not be required to register or qualify as a foreign
corporation or to take any action which would subject it to service of process
in suits, other than as to matters and transactions relating to the offer and
sale of the Securities, in any jurisdiction where it is not now so subject.
(h) As soon as practicable, but not later than 16 months after the
"effective date" of the Registration Statement, to cause the Trust to make
generally available to holders of the Securities an earnings statement of the
Trust covering a 12 month period beginning not later than the first day of the
Trust's fiscal quarter next following the "effective date" of the Registration
Statement. Such statement shall satisfy the provisions of Section 11(a) of the
Act.
(i) So long as any of the Securities remain outstanding, promptly to
furnish to the Underwriters (i) the annual statements of compliance, annual
independent certified public accountants' reports and annual opinions of counsel
furnished to the Indenture Trustee or the Owner Trustee pursuant to the Sale and
Servicing Agreement, the Indenture and the Trust Agreement, as soon as such
statements, reports and opinions are furnished to the Indenture Trustee or the
Owner Trustee, (ii) all documents of the Company or the Trust required to be
distributed to Securityholders or filed with the Commission pursuant to the
Exchange Act or any order of the Commission thereunder and (iii) such other
information concerning the Company, the Trust or WFS as the Underwriters may
reasonably request.
(j) To pay all costs, expenses, fees and taxes incident to (i) the
preparation, printing, filing and distribution under the Act of the Registration
Statement as first filed (including all financial statements and exhibits), each
preliminary prospectus and all amendments and supplements to any of them prior
to or during the period specified in Section 5(e) hereof, (ii) the printing and
delivery of the Prospectus and all amendments or supplements to it during the
period specified in paragraph (e), (iii) the reproducing and delivery of this
Agreement, any dealer agreement, Preliminary and Supplemental Blue Sky
Memoranda, legal investment memoranda and all other agreements, memoranda,
correspondence and other documents printed and delivered in connection with the
offering of the Securities (including in each case the
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<PAGE> 6
disbursements of counsel to the Underwriters relating to such reproducing and
delivery), (iv) the registration or qualification of the Securities for offer
and sale under the securities or Blue Sky laws of the jurisdictions referenced
in Section 5(g) hereof (including in each case the fees and disbursements of
counsel to the Underwriters relating to such registration or qualification and
memoranda relating thereto), (v) any filings and clearance with the National
Association of Securities Dealers, Inc. in connection with the public offering
of any of the Securities, (vi) any fees paid to rating agencies in connection
with the rating of the Securities and (vii) the performance by the Company of
its other obligations under this Agreement.
(k) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by the Company prior to
the Closing Date and to satisfy all conditions precedent to the delivery of the
Securities. To the extent, if any, that the ratings provided with respect to the
Securities by any Rating Agency (as such term is defined in Section 8(m) hereof)
that initially rates the Securities is conditional upon the furnishing of
documents or the taking of any other actions by the Company, the Company shall
furnish such documents and take such other actions.
(l) If this Agreement shall be terminated pursuant to any of the
provisions hereof (otherwise than by notice given by the Representative pursuant
to Section 9 hereof) or if for any reason the Company shall be unable to perform
its obligations hereunder, to reimburse the Underwriters for all of their
out-of-pocket expenses (including the fees and expenses of counsel to the
Underwriters) reasonably incurred by the Underwriters in connection herewith.
(m) To apply the net proceeds from the offering in the manner set forth
under the caption "Use of Proceeds" in the Prospectus.
(n) The Company, during the period when the Prospectus is required to be
delivered under the Act or the Exchange Act (including the Rules and Regulations
and the rules and regulations of the Commission under the Exchange Act (the
"Exchange Act Regulations")), will file all documents required to be filed with
the Commission pursuant to Section 13, 14 or 15 of the Exchange Act within the
time periods required by the Exchange Act and the Exchange Act Regulations.
6. Representations and Warranties of the Company and WFS.
(a) The Company represents and warrants to the Underwriters that:
(i) The conditions to the use of a registration statement on Form
S-3 under the Act, as set forth in the General Instructions to Form S-3,
have been satisfied with respect to the Company and the Registration
Statement and the Prospectus fully comply, and any supplements or
amendments thereto will fully comply, in all material respects with the
provisions of the Act.
(ii) No stop order suspending the effectiveness of the Registration
Statement has been issued and no proceeding for that purpose has been
instituted or, to the knowledge of the Company, threatened by the
Commission. At the effective date, respectively, of the Registration
Statement and any
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<PAGE> 7
post-effective amendments thereto, at the date of this Agreement and the
Closing Date, the Registration Statement and any post-effective amendments
or supplements thereto complied or will comply in all respects with the
requirements of the Act and the Rules and Regulations, and did not and
will not include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading and on the date of filing the Prospectus
pursuant to Rule 424(b), the date of this Agreement and the Closing Date,
neither the Prospectus nor any amendments or supplements thereto contained
or will contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading, except that the representations and
warranties in this subparagraph shall not apply to statements or omissions
in the Registration Statement or the Prospectus or any preliminary
prospectus made in reliance upon information furnished to the Company in
writing by the Underwriters through the Representative expressly for use
therein or to that part of the Registration Statement which shall
constitute the Statement of Eligibility and Qualification of the Indenture
Trustee on Form T-1 (the "Form T-1") under the Trust Indenture Act of
1939, as amended (the "1939 Act").
(iii) Each preliminary prospectus, the Prospectus and any amendment
or supplement thereto, complied or will comply when so filed with the
requirements of the Act and the Rules and Regulations, and the Prospectus
delivered to the Underwriters for use in connection with the offering of
the Securities was identical to the electronically transmitted copies
thereof filed with the Commission pursuant to its Electronic Data
Gathering, Analysis and Retrieval system, except to the extent permitted
by Regulation S-T.
(iv) The documents incorporated or deemed to be incorporated by
reference in the Registration Statement and the Prospectus, at the time
they were or hereafter are filed with the Commission, complied and will
comply in all material respects with the requirements of the Exchange Act
and Exchange Act Regulations, and, when read together with the other
information in the Prospectus, at the date of this Agreement and at the
Closing Date, did not and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
(v) The Securities conform to the description thereof contained in
the Prospectus and are duly and validly authorized and (i) when the
Certificates have been executed, authenticated and delivered in accordance
with the Trust Agreement and delivered to and paid for by the Underwriters
as provided herein, will be entitled to the benefits and security afforded
by the Trust Agreement and will constitute legal, valid and binding
obligations of the Trust enforceable in accordance with their terms and
the terms of the Trust Agreement, and (ii) when the Notes have been
executed, authenticated and delivered in accordance with the Indenture and
delivered to and paid for by the Underwriters as provided herein, will be
entitled to the benefits and security afforded by the Indenture and will
constitute legal, valid and binding obligations of the Trust enforceable
in accordance with their terms and the terms of the Indenture, in each
case subject to applicable bankruptcy, reorganization, insolvency,
moratorium or other similar
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laws affecting creditors' rights generally, and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law).
(vi) The execution and delivery by the Company of the
Administration Agreement, the Indenture, the Sale and Servicing Agreement,
the Trust Agreement, the indemnification agreement dated as of September
1, 1998 (the "Indemnification Agreement"), among the Company, WFS,
Financial Security and the Representative, the insurance, indemnity and
pledge agreement dated as of September 1, 1998 (the "Insurance Agreement"
and, together with the Administration Agreement, the Indemnification
Agreement, the Indenture, the Sale and Servicing Agreement and the Trust
Agreement, the "Basic Documents"), among the Trust, the Company, WFS, WII,
Financial Security and the Indenture Trustee, and this Agreement are
within the corporate power of the Company and have been duly authorized by
all necessary corporate action on the part of the Company; and neither the
issuance and sale of the Securities to the Underwriters, nor the execution
and delivery by the Company of this Agreement and the Basic Documents to
which it is a party, nor the consummation by the Company of the
transactions herein and therein contemplated, nor compliance by the
Company with the provisions hereof or thereof, will conflict with or
result in a breach of any of the terms or provisions of, or constitute a
default under, the articles of incorporation or bylaws of the Company or
any indenture, mortgage, deed of trust or other agreement or instrument to
which the Company is now a party or by which it is bound, or any order of
any court or government agency or authority entered in any proceeding to
which the Company was or is now a party or by which it is bound.
(vii) The Company has been duly incorporated and is validly existing
in good standing under the laws of the State of California and is duly
qualified to do business as a foreign corporation and is in good standing
under the laws of each jurisdiction where the character of its properties
or the nature of its activities makes such qualification necessary, except
such jurisdictions, if any, in which the failure to be so qualified will
not have a material adverse effect on either the business or properties of
the Company; the Company holds all material licenses, certificates and
permits from all governmental authorities necessary for the conduct of its
business as described in the Prospectus; and the Company has the corporate
power and authority to own its properties and conduct its business as
described in the Prospectus.
(viii) Each of this Agreement and the Basic Documents to which the
Company is a party, when executed and delivered as contemplated thereby,
will have been duly authorized, executed and delivered by the Company and
will constitute, when so executed and delivered, a legal, valid and
binding instrument enforceable against the Company in accordance with its
terms, subject to applicable bankruptcy, reorganization, insolvency,
moratorium or other similar laws affecting creditors' rights generally,
subject to general principles of equity (regardless of whether enforcement
is sought in a proceeding in equity or at law) and, in the case of this
Agreement and the Indemnification Agreement, except as rights to indemnity
and contribution hereunder and thereunder may be limited by applicable
law; each of the Basic Documents conforms to the description
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thereof contained in the Prospectus; and the Indenture has been duly
qualified under the 1939 Act.
(ix) At the Closing Date, the Company will have good and marketable
title to the Contracts listed in Schedule A to the Sale and Servicing
Agreement, free and clear of any lien, mortgage, pledge, charge, security
interest or other encumbrance (subject to the security interest afforded
to Financial Security under the Insurance Agreement); and the Company's
assignment and delivery of the Contract Documents to the Trust will vest
in the Trust the full legal title purported to be conveyed thereby
(subject to the security interest afforded to Financial Security under the
Insurance Agreement).
(x) The Trust's assignment of the Trust Estate to the Indenture
Trustee pursuant to the Indenture will vest in the Indenture Trustee, for
the benefit of the Noteholders, a first priority perfected security
interest therein, subject to no prior lien, mortgage, pledge, charge,
security interest or other encumbrance, except that such security interest
will be subject to the security interest afforded to Financial Security
under the Insurance Agreement.
(xi) The representations and warranties made by the Company in the
Sale and Servicing Agreement and in the Officers' Certificates of the
Company delivered pursuant to the Basic Documents to which the Company is
a party will be true and correct at the Closing Date.
(xii) Since June 30, 1998, there has been no material adverse change
or development involving a prospective material adverse change in or
affecting particularly the condition, financial or otherwise, of the
Company, or the earnings, affairs or business prospects of the Company,
whether or not arising in the ordinary course of business, except as set
forth in or contemplated in the Prospectus.
(b) WFS represents and warrants to the Underwriters that the
representations and warranties of the Company set forth in paragraph (a) above
are true and correct, and to the further effect that:
(i) WFS has been duly incorporated and is validly existing in good
standing under the laws of the State of California and is duly qualified
to do business as a foreign corporation and is in good standing under the
laws of each jurisdiction where the character of its properties or the
nature of its activities makes such qualification necessary, except such
jurisdictions, if any, in which the failure to be so qualified will not
have a material adverse effect on either the business or properties of
WFS; WFS holds all material licenses, certificates and permits from all
governmental authorities necessary for the conduct of its business as
described in the Prospectus; and WFS has the corporate power and authority
to own its properties and conduct its business as described in the
Prospectus.
(ii) The execution and delivery by WFS of this Agreement and the
Basic Documents to which it is a party are within the corporate power of
WFS and have been duly authorized by all necessary action on the part of
WFS; and neither the execution and
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delivery by WFS of this Agreement and the Basic Documents to which it is a
party, nor the consummation by WFS of the transactions herein and therein
contemplated, nor compliance by WFS with the provisions hereof and
thereof, will conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, the articles of
incorporation or bylaws of WFS or any indenture, mortgage, deed of trust
or other agreement or instrument to which WFS is now a party or by which
it is bound, or any order of any court or government agency or authority
entered in any proceeding to which WFS was or is now a party or by which
it is bound.
(iii) Each of this Agreement and each Basic Document to which WFS is
a party has been duly authorized, executed and delivered by WFS and
constitutes a valid and binding agreement of WFS, enforceable against WFS
in accordance with its terms, subject to applicable bankruptcy,
reorganization, insolvency, moratorium or other similar laws affecting
creditors' rights generally, subject to general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity or
at law) and, in the case of this Agreement and the Indemnification
Agreement, except as rights to indemnity and contribution hereunder and
thereunder may be limited by applicable law.
(iv) The Contracts transferred to the Company from WFS on the
Closing Date were free and clear of all liens (including tax liens),
mortgages, pledges, charges, security interests and other encumbrances at
the time of such transfer (subject to the security interest afforded to
Financial Security under the Insurance Agreement).
(v) WFS has the power and authority to own its properties, to
conduct its business as described in the Prospectus and to enter into and
perform its obligations under each of the Basic Documents to which it is a
party.
(vi) Since _____, 1998, there has been no material adverse change
or development involving a prospective material adverse change in or
affecting particularly the condition, financial or otherwise, of WFS, or
the earnings, affairs or business prospects of WFS, whether or not arising
in the ordinary course of business, except as set forth in or contemplated
in the Prospectus.
7. Indemnification.
(a) The Company and WFS jointly and severally agree to indemnify and
hold harmless each Underwriter and each person, if any, who controls each
Underwriter within the meaning of Section 15 of the Act, or Section 20 of the
Exchange Act, from and against any and all losses, claims, damages, liabilities
and judgments caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or the Prospectus (if used
within the period set forth in Section 5(e) hereof and as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) or any preliminary prospectus, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or judgments are caused by any such untrue
statement or omission or alleged untrue statement or omission based upon
information furnished
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in writing to the Company by the Underwriters through the Representative
expressly for use therein.
(b) In case any action shall be brought against any Underwriter or any
person controlling any Underwriter, based upon any preliminary prospectus, the
Registration Statement or the Prospectus or any amendment or supplement thereto
and with respect to which indemnity may be sought against the Company or WFS,
such Underwriter shall promptly notify the Company or WFS in writing and the
Company and WFS shall assume the defense thereof, including the employment of
counsel and payment of all fees and expenses. Such Underwriter or any such
controlling person shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Underwriter or such controlling person
unless (i) the employment of such counsel has been specifically authorized in
writing by the Company and WFS, (ii) the Company and WFS have failed to assume
the defense and employ counsel or (iii) the named parties to any such action
(including any impleaded parties) include both such Underwriter or such
controlling person and the Company or WFS, as the case may be, and such
Underwriter or such controlling person shall have been advised by such counsel
that there may be one or more legal defenses available to it which are different
from or additional to those available to the Company or WFS, as the case may be
(in which case the Company and WFS shall not have the right to assume the
defense of such action on behalf of such Underwriter or such controlling person;
it being understood, however, that the Company and WFS shall not, in connection
with any one such action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys (in addition to any local counsel) for such
Underwriter and controlling persons, which firm shall be designated in writing
by such Underwriter and that all such fees and expenses shall be reimbursed as
they are incurred). The Company and WFS shall not be liable for any settlement
of any such action effected without the written consent of the Company and WFS
but, if settled with the written consent of the Company and WFS, the Company and
WFS agree that each person so consenting agrees to indemnify and hold harmless
each such Underwriter and any such controlling person from and against any loss
or liability by reason of such settlement. No indemnifying party shall, without
the prior written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such proceeding.
(c) The Underwriters, severally but not jointly, agree to indemnify and
hold harmless the Company, WFS, their respective directors, their respective
officers who signed the Registration Statement and any person controlling the
Company and WFS to the same extent as the foregoing indemnity from the Company
and WFS to the Underwriters but only with reference to information relating to
the Underwriters furnished in writing by the Underwriters through the
Representative expressly for use in the Registration Statement, the Prospectus
or any preliminary prospectus. In case any action shall be brought against the
Company, any of its directors, any such officer or any such controlling person
based on the Registration Statement, the Prospectus or any preliminary
prospectus and in respect of which indemnity may be sought against any
Underwriter, such Underwriter shall have the rights and duties given to the
Company
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<PAGE> 12
or WFS (except that if the Company or WFS shall have assumed the defense thereof
such Underwriter shall not be required to do so, but may employ separate counsel
therein and participate in the defense thereof but the fees and expenses of such
counsel shall be at the expense of such Underwriter), and the Company, its
directors, any such officers, any such controlling person and WFS shall have the
rights and duties given to the Underwriters by Section 7(b) hereof.
(d) If the indemnification provided for in this Section is unavailable
to an indemnified party in respect of any losses, claims, damages, liabilities
or judgments referred to therein, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages,
liabilities and judgments (i) in such proportion as is appropriate to reflect
the relative benefits received by the Company and WFS on the one hand and the
Underwriters on the other hand from the offering of the Securities or (ii) if
the allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company, WFS
and the Underwriters in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or judgments, as well as
any other relevant equitable considerations. The relative benefits received by
the Company, WFS and the Underwriters shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Securities (before
deducting expenses) received by the Company and WFS and the total underwriting
discounts and commissions received by the Underwriters, bear to the total price
to the public of the Securities, in each case as set forth in the table on the
cover page of the Prospectus. The relative fault of the Company, WFS and the
Underwriters shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission to
state a material fact relates to information supplied by the Company, WFS or the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company, WFS and the Underwriters agree that it would not be just and
equitable if contribution pursuant to Section 7(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section, no Underwriter shall be required
to contribute any amount in excess of the amount by which the total price at
which the Securities underwritten by such Underwriter and distributed to the
public was offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
8. Conditions. The obligations of the Underwriters to purchase the
Securities under this Agreement are subject to the satisfaction of each of the
following conditions:
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<PAGE> 13
(a) All the representations and warranties of the Company and WFS
contained in this Agreement shall be true and correct on the Closing Date with
the same force and effect as if made on and as of the Closing Date.
(b) The Registration Statement shall have become effective not later
than 6:30 P.M., New York City time, on the date of this Agreement or at such
later date and time as the Representative may approve in writing, and at the
Closing Date no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall have
been commenced or shall be pending before or contemplated by the Commission.
(c) Since June 30, 1998, there shall not have been any material adverse
change, or any development involving a prospective material adverse change, in
the condition, financial or otherwise, or in the earnings, affairs or business
prospects, whether or not arising in the ordinary course of business, of the
Company or WFS. On the Closing Date, the Representative shall have received (i)
a certificate dated the Closing Date, signed by the President or a Vice
President of the Company, confirming the matters set forth in paragraphs (a) (as
to the Company's representations and warranties only), (b) and (c) of this
Section (as to the Company only), and (ii) a certificate dated the Closing Date,
signed by the President or a Vice President of WFS, confirming the matters set
forth in paragraphs (a) and (c) of this Section. Such officers may in each
certificate rely upon the best of their information and belief as to proceedings
contemplated.
(d) The Representative shall have received the opinion of Mitchell,
Silberberg & Knupp LLP, counsel for the Company, dated the Closing Date and
satisfactory to counsel to the Underwriters, to the effect that:
(i) The Company has been duly incorporated and is validly existing
and in good standing under the laws of the State of California, with
corporate power and authority to own its properties, to conduct its
business as described in the Prospectus and to enter into and perform its
obligations under this Agreement and each of the Basic Documents to which
it is a party, and is duly qualified and in good standing as a foreign
corporation in each jurisdiction in which the location of its properties
or the character of its operations makes such qualification necessary,
except such jurisdictions, if any, in which the failure to be so qualified
will not have a material adverse effect on either the business or
properties of the Company.
(ii) The statements in the Prospectus set forth under the captions
"Summary of Prospectus", "The Notes", "The Certificates", "The Contracts
Pool" and "Certain Information Regarding the Securities", insofar as such
statements purport to summarize certain provisions of the Notes, the
Certificates or the Basic Documents, provide a fair summary of such
provisions, and the statements in the Prospectus under the captions
"Summary of Prospectus--Tax Status", "--ERISA Considerations", "Certain
Legal Aspects of the Contracts", "Certain Federal Income Tax
Consequences", "Certain California Income Tax Consequences" and "ERISA
Considerations", to the extent such statements constitute matters of law
or legal conclusions with respect thereto, have been prepared or reviewed
by such counsel and are correct in all material respects.
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<PAGE> 14
(iii) For federal income tax purposes, the Notes will be considered
debt, the Trust will not be an association taxable as a corporation and
the Trust will not be a publicly traded partnership taxable as a
corporation. The trust fund created by the Trust Agreement will not, for
California income tax purposes, be classified as an association taxable as
a corporation, and 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 any Class of Notes or the
Certificates, be subject to California income, franchise, excise or
similar taxes with respect to interest on any Class of Notes or the
Certificates or with respect to any of the other Trust property.
(iv) Each of this Agreement and the Indemnification Agreement has
been duly authorized, executed and delivered by the Company.
(v) Each Basic Document (other than the Indemnification Agreement)
to which the Company is a party has been duly authorized, executed and
delivered by the Company and, assuming the due authorization, execution
and delivery by the other parties thereto, constitutes the valid, legal
and binding obligation of the Company, enforceable against the Company, in
accordance with its terms, except as enforceability thereof may be limited
by bankruptcy, insolvency, reorganization or other laws 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 proceeding
therefor may be brought.
(vi) Assuming the due authorization, execution and delivery of each
Basic Document to which the Trust is a party by the Owner Trustee, on
behalf of the Trust, and by each other party thereto (other than the
Company) each such Basic Document constitutes the valid, legal and binding
obligation of the Trust enforceable against the Trust in accordance with
its terms, except as enforceability thereof may be limited by bankruptcy,
insolvency, reorganization or other laws 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 proceeding therefor may
be brought.
(vii) The Certificates, when executed and authenticated in
accordance with the Trust Agreement and delivered and paid for pursuant to
this Agreement, will be validly issued and outstanding and entitled to the
benefits of the Trust Agreement.
(viii) The Notes, when executed and authenticated in accordance with
the Indenture and delivered and paid for pursuant to this Agreement, will
be entitled to the benefits of the Indenture and will constitute legal,
valid and binding obligations of the Trust, entitled to the benefits of
the Indenture, and enforceable in accordance with their terms and the
terms of the Indenture (subject to the security interest afforded to
Financial Security under the Insurance Agreement), subject, with respect
to each of the Indenture
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<PAGE> 15
and the Notes, to applicable bankruptcy, reorganization, insolvency,
moratorium or other similar laws affecting 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
proceeding therefor may be brought.
(ix) As to each security interest in a Financed Vehicle created by
a Contract, no filing or other action is necessary to perfect or continue
the perfected status of such security interest as against creditors of or
transferees from the obligor under such Contract, so long as such Financed
Vehicle is not removed from the State of California for a period longer
than four months, or before the end of such four-month period, WFS
perfects such security interest under applicable law; provided that (A) no
opinion is rendered as to a security interest in a Financed Vehicle as to
which neither a properly endorsed certificate of title naming WFS or an
affiliate or predecessor of WFS as legal owner nor an application for an
original registration together with an application for registration of WFS
or an affiliate or predecessor of WFS as legal owner, has been deposited
with the California Department of Motor Vehicles, and (B) no opinion is
given as to the enforceability of the security interest in a Financed
Vehicle as against a subsequent owner of a Financed Vehicle or a holder or
assignee of a certificate of title relating to such Financed Vehicle
through fraudulent or negligent transfer of such certificate of title.
(x) The Sale and Servicing Agreement, together with the filing
referred to in this subsection, creates and perfects the ownership
interest of the Trust in the Contracts which is a valid first priority
ownership interest (subject to the security interest afforded to Financial
Security under the Insurance Agreement); a financing statement with
respect to the Contracts has been filed with the Secretary of State of the
State of California pursuant to the California Uniform Commercial Code, as
amended, and with the Secretary of State of the State of Delaware,
pursuant to the Delaware Uniform Commercial Code, as amended; and no other
filings in any jurisdiction or any other actions are necessary to perfect
the ownership interest of the Trustee in the Contracts against any third
parties.
(xi) The Indenture constitutes a grant by the Trust to the
Indenture Trustee of a valid security interest in the Contracts, the
security interests in the Financed Vehicles securing the Contracts and the
proceeds of each of the foregoing (subject to the security interest
afforded to Financial Security under the Insurance Agreement), which
security interest has been perfected by the filing of financing statements
with the Secretary of State of the State of California and the Secretary
of State of the State of Delaware, each as pursuant to the Uniform
Commercial Code as in effect in such state. No filing or other action,
other than the filing of the financing statements referred to above, is
necessary to perfect and maintain the interest or the security interest of
the Indenture Trustee in the Contracts, the security interests in the
Financed Vehicles securing the Contracts and the proceeds of each of the
foregoing against third parties (subject to the security interest afforded
to Financial Security under the Insurance Agreement).
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<PAGE> 16
(xii) The Company's assignment and delivery of the Contracts to the
Trust will vest in the Trust all of the Company's right, title and
interest therein, subject to no prior lien, mortgage, security interest,
pledge, adverse claim, charge or other encumbrance, except that such
security interest will be subject to the security interest afforded to
Financial Security under the Insurance Agreement.
(xiii) The Trust's assignment of the Contracts to the Indenture
Trustee pursuant to the Indenture will vest in the Indenture Trustee, for
the benefit of the Noteholders, a first priority perfected security
interest therein, subject to no prior lien, mortgage, security interest,
pledge, adverse claim, charge or other encumbrance.
(xiv) The Registration Statement has become effective under the Act
and the Prospectus has been filed with the Commission, pursuant to Rule
424(b) and, to the best of the knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement has been issued
and no proceedings for that purpose have been instituted or are pending or
contemplated.
(xv) No order, consent or other authorization or approval of any
court, public board or governmental body is legally required for the
performance by the Company of its obligations under this Agreement or any
of the Basic Documents to which the Company is a party, except such as
have been obtained under the Act, such as may be required under the Blue
Sky laws of any jurisdiction in connection with the purchase and
distribution of the Securities by the Underwriters, such as have been
obtained from the Office of Thrift Supervision and such other approvals
(specified in such opinion) as have been obtained.
(xvi) Neither the consummation of the transactions contemplated in
this Agreement or any Basic Document to which the Company is a party, nor
the fulfillment of the terms hereof or thereof will conflict with, result
in a breach of, or constitute a default under the articles of
incorporation or bylaws of the Company or the terms of (A) any indenture
or other agreement or instrument known to such counsel and to which the
Company or any of its subsidiaries is a party or is bound, or (B) any
judgment, order or decree known to such counsel to be applicable to the
Company or any of its subsidiaries of any court, regulatory body,
administrative agency, governmental body or arbitrator having jurisdiction
over the Company or any of its subsidiaries, except, in the case of
clauses (A) and (B), for defaults, breaches or violations that do not, in
the aggregate, have a material adverse affect on the Company.
(xvii) To the best knowledge of such counsel, there is no legal or
governmental proceeding pending or threatened to which the Trust or the
Company is, or is threatened to be, a party or of which the business or
property of the Trust or the Company is, or is threatened to be, the
subject that is material to the business or financial condition of the
Trust or the Company and is not disclosed in the Prospectus.
(xviii) There is no contract or other document known to such counsel
of a character required to be described in the Prospectus or to be filed
as an exhibit to the Registration Statement that is not described or filed
as required.
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<PAGE> 17
(xix) Neither the Trust nor the Company is an "investment company"
and neither is "controlled" by an "investment company", as such terms are
defined in the Investment Company Act of 1940, as amended.
(xx) The Company has obtained all material licenses, permits and
other governmental authorizations which are necessary to the conduct of
its business; such licenses, permits and other governmental authorizations
are in full force and effect, and the Company is in all material respects
complying therewith; and the Company is otherwise in compliance with all
laws, rules, regulations and statutes of any jurisdiction to which it is
subject, except where non-compliance would not have a material adverse
effect on the Company.
(xxi) Except as to the financial statements and other financial and
statistical data included therein, as to which such counsel need not
express any opinion, such counsel (A) is of the opinion the Registration
Statement and the Prospectus and any supplements or amendments thereto
(except for the financial statements and other financial or statistical
data included therein and the Form T-1) comply as to form in all material
respects with the Act and the 1939 Act and (B) believes that the
Registration Statement (except for the financial statements and other
financial or statistical data included therein, the information regarding
Financial Security included therein and the Form T-1), at the time the
Registration Statement became effective, did not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading and the Prospectus (except for the financial statements and
other financial or statistical data included therein and the information
regarding Financial Security included therein) at the date hereof and at
the Closing Date did not and does not contain any untrue statement of a
material fact and did not and does not omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(xxii) The documents incorporated or deemed to be incorporated by
reference in the Prospectus (other than the financial statements,
supporting schedules and other financial data therein, as to which no
opinion need be rendered), when they were filed with the Commission,
complied as to form in all material respects with the applicable
requirements of the Exchange Act and the Exchange Act Regulations.
(xxiii) The Indenture has been duly qualified under the 1939 Act and
the Trust Agreement is not required to be qualified under the 1939 Act.
(e) The Representative shall have received the opinion of Harriet Burns
Feller, Esq., General Counsel of WFS, General Counsel of Western Financial Bank
(the "Bank") and General Counsel of WII, dated the Closing Date and satisfactory
to counsel to the Underwriters, to the effect that:
(i) Each of WFS and WII has been duly incorporated and is validly
existing and in good standing under the laws of the State of California,
with corporate power and authority to own its properties, to conduct its
business as described in the Prospectus and to enter into and perform its
obligations under this Agreement and each of the Basic
17
<PAGE> 18
Documents to which it is a party, and is duly qualified and in good
standing as a foreign corporation in each jurisdiction in which the
location of its properties or the character of its operations makes such
qualification necessary, except such jurisdictions, if any, in which the
failure to be so qualified will not have a material adverse effect on
either the business or properties of WFS or WII, as the case may be.
(ii) This Agreement has been duly authorized, executed and
delivered by WFS.
(iii) Each Basic Document to which each of WFS or WII is a party has
been duly authorized, executed and delivered by WFS or WII, as the case
may be, and each Basic Document other than the Indemnification Agreement
constitutes a legal, valid and binding agreement of WFS or WII, as the
case may be, enforceable against WFS or WII, as the case may be, in
accordance with its terms, except as enforceability thereof may be subject
to or limited by bankruptcy, insolvency, reorganization or other laws,
provisions or principles now or hereafter in effect affecting the
enforcement of creditors' rights generally 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 proceeding therefor may be
brought.
(iv) No consent, approval, authorization or order of any court or
governmental agency or body is required for the performance by each of WFS
or WII of its respective obligations under this Agreement and any of the
Basic Documents to which it is a party, except such as have been obtained.
(v) Neither the consummation of any of the transactions
contemplated by this Agreement and each of the Basic Documents to which
WFS or WII is a party nor the fulfillment of the terms hereof or thereof
will conflict with, result in a breach of, or constitute a default under,
the respective articles of incorporation or bylaws of WFS or WII, as the
case may be, or the terms of (A) any indenture or other agreement or
instrument known to such counsel and to which WFS or WII, as the case may
be, or any of its subsidiaries is a party or is bound or (B) any judgment,
order or decree known to such counsel to be applicable to WFS or any of
its subsidiaries or WII, as the case may be, of any court, regulatory
body, administrative agency, governmental body or arbitrator having
jurisdiction over WFS or any of its subsidiaries or WII, as the case may
be, except, in the case of clauses (A) and (B), for defaults, breaches or
violations that do not, in the aggregate, have an adverse material effect
on WFS or WII, as the case may be.
(vi) To the best knowledge of such counsel, there is no legal or
governmental proceeding pending or threatened to which WFS or WII, as the
case may be, is, or is threatened to be, a party or of which its business
or property is, or is threatened to be, the subject that would have a
material adverse effect on the ability of WFS or WII, as the case may be,
to perform its obligations under any of the Basic Documents to which it is
a party.
(vii) Each of WFS and WII has obtained all material licenses,
permits and other governmental authorizations which are necessary to the
conduct of its business; such
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<PAGE> 19
licenses, permits and other governmental authorizations are in full force
and effect, and each of WFS and WII is in all material respects complying
therewith; and each of WFS and WII is otherwise in compliance with all
laws, rules, regulations and statutes of any jurisdiction to which it is
subject, except where non-compliance would not have a material adverse
effect on WFS or WII, as the case may be, or, in the case of the
Contracts, would not cause the Contracts to be unenforceable.
(viii) The Bank has been duly organized and is validly existing and
in good standing as a Federal association pursuant to the laws of the
United States of America, with the authority within its charter to own its
properties, to conduct its business as described in the Prospectus and to
enter into and perform its obligations under the Reinvestment Contract
dated as of September 1, 1998, between the Bank and the Indenture Trustee,
and the Sale and Assignment dated as of September 1, 1998, from the Bank
to WFS of the Contracts (collectively, the "Bank Agreements").
(ix) Each of the Bank Agreements has been duly authorized, executed
and delivered by the Bank and constitutes a legal, valid and binding
instrument enforceable against the Bank in accordance with its 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 or the
rights of creditors of savings banks the accounts of which are insured by
the Federal Deposit Insurance Corporation 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 proceeding therefor may be
brought.
(x) No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the
transactions contemplated by the Bank Agreements except such as have been
obtained under the Act and such as have been obtained from the Office of
Thrift Supervision.
(xi) Neither the consummation of any of the transactions
contemplated by the Bank Agreements, nor the fulfillment of the terms
thereof, will conflict with, result in a breach of, or constitute a
default under the Charter or bylaws of the Bank or (i) the terms of any
indenture or other agreement or instrument known to such counsel to be
applicable to the Bank or any of its subsidiaries or (ii) any judgment,
order or decree known to such counsel to be applicable to the Bank or any
of its subsidiaries of any court, regulatory body, administrative agency,
governmental body or arbitrator having jurisdiction over the Bank or any
of its subsidiaries, except in the case of clauses (i) and (ii), for
defaults, breaches or violations that do not in the aggregate, have a
material adverse effect on the Bank.
(xii) The Bank is in compliance with all applicable state and
federal laws regarding its continued operation, including those pertaining
to the origination of the Contracts, other than those laws the Bank's
non-compliance with which would not materially affect its ability to
perform its obligations under the Bank Agreements or, in
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<PAGE> 20
the case of the origination of the Contracts, would not cause the
Contracts to be unenforceable.
(f) The Representative shall have received from Mitchell, Silberberg &
Knupp LLP, counsel for the Company, a letter dated the Closing Date to the
effect that the Underwriters may rely upon each opinion rendered by such counsel
to either Standard & Poor's or Moody's Investors Service, Inc. in connection
with the rating of any of the Securities, as if each such opinion were addressed
to the Underwriters.
(g) The Representative shall have received the opinion of Bruce E.
Stern, Esq., General Counsel for Financial Security, dated the Closing Date and
satisfactory to counsel to the Underwriters.
(h) The Representative shall have received the opinion addressed to the
Underwriters and to WFS from Richards, Layton & Finger, counsel to the Owner
Trustee, dated the Closing Date and satisfactory in form and substance to
counsel to the Underwriters and to counsel to the Company, to the effect that:
(i) The Owner Trustee has been duly incorporated and is validly
existing as a banking corporation in good standing under the laws of the
State of Delaware.
(ii) The Owner Trustee has full corporate trustee power and
authority to enter into and perform its obligations under the Trust
Agreement and, on behalf of the Trust, under the Indenture, the Sale and
Servicing Agreement and the Administration Agreement.
(iii) The execution and delivery of the Trust Agreement and, on
behalf of the Trust, of the Indenture, the Sale and Servicing Agreement,
the Administration Agreement, the Certificates and the Notes and the
performance by the Owner Trustee of its obligations under the Trust
Agreement, the Indenture, the Sale and Servicing Agreement and the
Administration Agreement have been duly authorized by all necessary
corporate action of the Owner Trustee and each has been duly executed and
delivered by the Owner Trustee.
(iv) The Trust Agreement, the Sale and Servicing Agreement, the
Indenture and the Administration Agreement constitute valid and binding
agreements of the Owner Trustee, enforceable against the Owner Trustee in
accordance with their terms, subject, as to enforcement of remedies, (A)
to applicable bankruptcy, insolvency and reorganization, generally, and
(B) to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(v) The execution and delivery by the Owner Trustee of the Trust
Agreement and, on behalf of the Trustee, of the Indenture, the Sale and
Servicing Agreement and the Administration Agreement do not require any
consent, approval or authorization of, or any registration or filing with,
any Delaware or United States Federal governmental authority having
jurisdiction over the trust power of the Owner Trustee, other than those
consents, approvals or authorizations as have been obtained and the filing
of the Certificate of Trust with the Secretary of State of the State of
Delaware.
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<PAGE> 21
(vi) The Notes have been duly authorized, executed and issued by
the Trust.
(vii) The Certificates have been duly authorized, executed and
issued by the Trust.
(viii) The execution and delivery by the Owner Trustee of the Trust
Agreement and, on behalf of the Trust, the Sale and Servicing Agreement,
the Indenture and the Administration Agreement, and the performance by the
Owner Trustee of its obligations thereunder do not conflict with, result
in a breach or violation of or constitute a default under, the Articles of
Association or By-laws of the Owner Trustee.
(i) The Representative shall have received an opinion addressed to the
Underwriters and to WFS, dated as of the Closing Date, of Richards, Layton &
Finger, special Delaware counsel to the Trust, in form and substance
satisfactory to counsel to the Underwriters and counsel to WFS, to the effect
that:
(i) The Trust has been duly formed and is validly existing as a
business trust pursuant to the laws of the State of Delaware, 12 Del. C.
Section 3801, et seq.
(ii) The Trust Agreement authorizes the Trust to execute and
deliver the Indenture, the Sale and Servicing Agreement and the
Administration Agreement, to issue the Certificates and Notes and to grant
the trust estate to the Indenture Trustee as security for the Notes.
(iii) Assuming that the Certificates have been duly authorized,
executed and issued by the Trust, when delivered to the Underwriter and
paid for by the Underwriter pursuant to this Agreement, the Certificates
have been validly issued and are entitled to the benefits of the Trust
Agreement.
(iv) Except for the timely filing in the future of continuation
statements with respect to the financing statements, no other filing is
required in the State of Delaware in order to make effective the lien of
the Indenture. Insofar as the Delaware Uniform Commercial Code, 6 Del. C.
Section 9-101 et seq. (the "UCC"), applies (without regard to conflict of
laws principles) and, assuming that the security interests in that portion
of the trust estate that consists of general intangibles, accounts or
chattel paper, as defined under the UCC, have been duly created and have
attached, the Indenture Trustee has a perfected security interest in such
general intangibles, accounts or chattel paper and, assuming that the UCC
search accurately lists all the financing statements filed naming the
Trust as debtor and describing any portion of the trust estate consisting
of such general intangibles, accounts or chattel paper, the security
interest of the Indenture Trustee will be prior to the security interest
of all other creditors, except that such security interest will be subject
to the security interest afforded to Financial Security under the
Insurance Agreement, and excluding purchase money security interests under
Section 9-312(4) of the UCC, and temporarily perfected security interests
pursuant to Section 9-306(3) of the UCC (as to the priority of temporarily
unrecorded security interests in proceeds), subject to customary and usual
exceptions.
21
<PAGE> 22
(v) No creditor of the Seller or any Certificateholder shall have
any right to obtain possession or, or otherwise legal or equitable
remedies with respect to, the property of the Trust.
(vi) Assuming that the Sale and Servicing Agreement conveys good
title to the Trust Property referred to therein to the Trust as a true
sale and not as a security arrangement, the Trust rather than the Seller
is the owner of the Trust Property.
(j) The Representative shall have received an opinion addressed to the
Underwriters and to WFS from White & Case, counsel to the Indenture Trustee,
dated the Closing Date and satisfactory in form and substance to counsel to the
Underwriters and to special counsel to WFS to the effect that:
(i) The Indenture Trustee has been duly incorporated and is
validly existing as a banking corporation under the laws of the State of
New York.
(ii) The Indenture Trustee, at the time of its execution and
delivery of the Indenture, had full power and authority to execute and
deliver the Indenture and has full power and authority to perform its
obligations thereunder.
(iii) The Indenture has been duly and validly authorized, executed
and delivered by the Indenture Trustee and, assuming due authorization,
execution and delivery thereof by the Trustee, constitutes the valid and
binding obligation of the Indenture Trustee enforceable against the
Indenture Trustee in accordance with its terms, except as enforcement
thereof may be limited by bankruptcy, insolvency or other laws relating to
or affecting creditors' rights or by general principles of equity.
(iv) To the best of such counsel's knowledge, there are no actions,
proceedings or investigations pending or threatened against or affecting
the Indenture Trustee before or by any court, arbitrator, administrative
agency or other governmental authority which, if adversely decided, would
materially and adversely affect the ability of the Indenture Trustee to
carry out the transactions contemplated in the Indenture.
(v) No consent, approval or authorization of, or registration,
declaration or filing with, any court or governmental agency or body of
the United States of America or any state thereof was or is required for
the execution, delivery or performance by the Indenture Trustee of the
Indenture.
(k) The Representative shall have received the opinion of Brown & Wood
LLP, counsel to the Underwriters, dated the Closing Date, with respect to the
issuance and sale of the Notes, the Registration Statement, the Prospectus and
other related matters as the Representative may reasonably require, and the
Company and WFS shall have furnished to counsel to the Underwriters such
documents as they may reasonably request for the purpose of enabling them to
pass upon such matters.
(l) The Representative shall have received letters in form and substance
satisfactory to the Representative, addressed to the Underwriters and dated the
date hereof and the Closing
22
<PAGE> 23
Date, from Ernst & Young LLP, independent public accountants for the Company,
substantially in the forms heretofore approved by the Representative.
(m) At the Closing Date each Class of Notes and the Certificates shall
have been rated in the highest category by at least one nationally recognized
rating agency without regard to the benefit afforded the Notes under the Note
Policy and such ratings shall be in full force and effect and subsequent to the
execution and delivery of this Agreement and prior to the Closing Date, there
shall not have been any downgrading, nor any notice given by any "nationally
recognized statistical rating organization," as such term is defined for
purposes of Rule 436(g)(2) under the Act (a "Rating Agency"), to the public or
the Company of any intended or potential downgrading or of a possible change
that does not indicate the direction of the possible change, in the rating
accorded any of the Company's securities by any Rating Agency.
(n) The Representative shall have received the Indemnification Agreement
executed by all parties thereto.
9. Effective Date of Agreement and Termination. This Agreement shall
become effective upon the later of (i) execution of this Agreement and (ii)
receipt of notification of the effectiveness of the Registration Statement by
the Company or the Representative.
This Agreement may be terminated at any time prior to the Closing Date by
the Representative by written notice to the Company if any of the following has
occurred: (i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any adverse change or development
involving a prospective adverse change in or affecting particularly the
condition, financial or otherwise, of the Company or WFS or the earnings,
affairs or business prospects of the Company or WFS, whether or not arising in
the ordinary course of business, which would, in the reasonable judgment of the
Representative, make the offering or delivery of any Class of Notes or the
Certificates impracticable, (ii) any outbreak of hostilities or other national
or international calamity or crisis or material change in economic conditions,
if the effect of such outbreak, calamity, crisis or change on the financial
markets of the United States or elsewhere would, in the reasonable judgment of
the Representative, make the offering or delivery of any Class of Notes or the
Certificates impracticable, (iii) suspension of trading in securities on the New
York Stock Exchange or the American Stock Exchange or limitation on prices
(other than limitations on hours or numbers of days of trading) for securities
on either such Exchange, (iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of any
court or other governmental authority which in the reasonable opinion of the
Representative materially and adversely affects, or will materially and
adversely affect, the business or operations of the Company, (v) declaration of
a banking moratorium by either federal or New York State authorities or (vi) the
taking of any action by any federal, state or local government or agency in
respect of its monetary or fiscal affairs which in the reasonable opinion the
Representative has a material adverse effect on the financial markets in the
United States.
10. Miscellaneous. Notices given pursuant to any provision of this
Agreement shall be addressed as follows: (i) if to the Company, to Harriet Burns
Feller, Esq. at her office at 23 Pasteur Road, Irvine, California 92618, (ii) if
to WFS, to Harriet Burns Feller, Esq. at her office at 23 Pasteur Road, Irvine,
California 92618 or (iii) if to any Underwriter, through the
23
<PAGE> 24
Representative at Donaldson, Lufkin & Jenrette Securities Corporation at 277
Park Avenue - 14th Floor, New York, New York 10172, Attention: Investment
Banking Department, or in any case to such other address as the person to be
notified may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of WFS, the Company, their respective officers
and directors and of the Underwriters set forth in or made pursuant to this
Agreement shall remain operative and in full force and effect, and will survive
delivery of and payment for the Securities, regardless of (i) any investigation,
or statement as to the results thereof, made by or on behalf of the Underwriters
or by or on behalf of the Company, its officers or directors or any controlling
person of the Company or WFS, (ii) acceptance of the Securities and payment for
them hereunder and (iii) termination of this Agreement.
If this Agreement shall be terminated by the Representative because of any
failure or refusal on the part of the Company or WFS to comply with the terms or
to fulfill any of the conditions of this Agreement, or pursuant to any other
provision hereof (other than by notice given to the Company with respect to
clauses (ii) through (vi) of the second paragraph of Section 9 hereof), the
Company and WFS agree to reimburse the Underwriters for all of their
out-of-pocket expenses (including the fees and disbursements of counsel to the
Underwriters) reasonably incurred by the Underwriters.
Except as otherwise provided, this Agreement has been and is made solely
for the benefit of and shall be binding upon the Company, WFS and the
Underwriters, any controlling persons referred to herein and their respective
successors and assigns, all as and to the extent provided in this Agreement, and
no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include a purchaser of
any of the Securities from the Underwriters merely because of such purchase.
This Agreement shall be governed and construed in accordance with the laws
of the State of New York.
This Agreement may be signed in various counterparts which together shall
constitute one and the same instrument.
The Representative will act for the several Underwriters in connection
with the transactions described in this Agreement and any action taken by the
Representative under this Agreement will be binding upon all of the
Underwriters.
24
<PAGE> 25
11. Please confirm that the foregoing correctly sets forth the agreement
among the Company, WFS and the Underwriters.
Very truly yours,
WFS FINANCIAL AUTO LOANS, INC.
By: _____________________________________
Name:
Title:
WFS FINANCIAL INC
By: _____________________________________
Name:
Title:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
as Representative of the several
Underwriters named on Schedule I hereto
By: ________________________________
Alan H. Mentle
Senior Vice President
25
<PAGE> 26
SCHEDULE I
<TABLE>
<CAPTION>
Amount of Amount of Amount of
Class A-1 Class A-2 Class A-3
Underwriter Notes Notes Notes
- ----------- ----------- ----------- -----------
<S> <C> <C> <C>
Donaldson, Lufkin & Jenrette
Securities Corporation............ $__________ $__________ $__________
.......................................
__________ __________ __________
Total $__________ $__________ $__________
</TABLE>
<TABLE>
<CAPTION>
Amount of
Class A-4 Amount of
Underwriter Notes Certificates
- ----------- ---------- ------------
<S> <C> <C>
Donaldson, Lufkin & Jenrette
Securities Corporation............ $__________ $__________
__________ __________
Total $__________ $__________
</TABLE>
S-1
<PAGE> 1
Exhibit 5.1
[MITCHELL SILBERBERG & KNUPP LLP LETTERHEAD]
November 12, 1998
VIA EDGAR
- ---------
Securities and Exchange
450 5th Street, N.W.
Judiciary Plaza
Washington, DC 20549
WFS Financial Inc
23 Pasteur Road
Irvine, California 92618
Re: WFS Financial 1998-C Owner Trust
Registration Statement on Form S-3, File Number 333-59293
---------------------------------------------------------
Dear Ladies and Gentlemen:
We are counsel for WFS Financial Auto Loans, Inc. (the
"Company") in connection with the proposed offering of $700,000,000 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 1998-C 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 between the Trust and
Bankers Trust Company as the Trustee (the "Indenture"). The Certificates are to
be issued pursuant to a trust agreement (the "Agreement") among the Company, WFS
Investments, Inc., Financial Security Assurance Inc. and Chase Manhattan Bank
Delaware, as Owner Trustee. The Securities are to be registered for sale
pursuant to the accompanying Form S-3 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, without independent investigation
or confirmation, upon certificates
<PAGE> 2
Securities and Exchange Commission
WFS Financial Inc.
November 12, 1998
Page 2
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, BancAmerica Securities, Inc. and Morgan Stanley & Co.
Incorporated (together, the "Underwriters") pursuant to the underwriting
agreement among the Underwriters, 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 Underwriters 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,
Mitchell Silberberg & Knupp LLP
AEK:tf
<PAGE> 1
Exhibit 8.1
[MITCHELL SILBERBERG & KNUPP LLP LETTERHEAD]
November 12, 1998
VIA EDGAR
- ---------
WFS Financial Auto Loans, Inc.
23 Pasteur Road
Irvine, California 92618
Re: WFS Financial 1998-C Owner Trust
Registration Statement on Form S-3, File Number 333-59293
---------------------------------------------------------
Dear Ladies and Gentlemen:
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-3
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 1998-C 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 November , 1998 (the "Form S-3") and
such exhibits to the Form S-3 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-3 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-3. In
rendering this opinion, we have relied upon certain representations regarding
the underlying facts set forth in the Form S-3, 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 Bank 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.
November 12, 1998
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-3 under
the caption "Federal Income Tax Consequences" and the caption "California Income
Tax Consequences", and the opinions set forth under each such caption, 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-3. 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,
Mitchell, Silberberg & Knupp LLP
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
_________________
We consent to the incorporation by reference in Amendment No. 1 to Form S-3 of
WFS Financial Auto Loans, Inc. relating to WFS Financial 1998-C Owner Trust of
our report dated January 26, 1998 on our audits of the consolidated financial
statements of Financial Security Assurance Inc. and Subsidiaries as of
December 31, 1997 and 1996, and for each of the three years in the period ended
December 31, 1997. We also consent to the reference to our Firm under the
caption "Experts".
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
November 10, 1998
<PAGE> 1
EXHIBIT 25.1
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT
TO SECTION 305(b)(2) ___________
------------------------------
BANKERS TRUST COMPANY
(Exact name of trustee as specified in its charter)
NEW YORK 13-4941247
(Jurisdiction of Incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification no.)
FOUR ALBANY STREET
NEW YORK, NEW YORK 10006
(Address of principal (Zip Code)
executive offices)
BANKERS TRUST COMPANY
LEGAL DEPARTMENT
130 LIBERTY STREET, 31ST FLOOR
NEW YORK, NEW YORK 10006
(212) 250-2201
(Name, address and telephone number of agent for service)
---------------------------------
WFS FINANCIAL 1998-C OWNER TRUST
(Exact name of obligor as specified in its charter)
CALIFORNIA 33-0149603
(State or other jurisdiction of (I.R.S. employer
Incorporation or organization) Identification no.)
23 PASTEUR ROAD
IRVINE, CALIFORNIA 92618
(Address of principal executive offices)
WFS FINANCIAL 1998-B OWNER TRUST
AUTO RECEIVABLE BACKED SECURITIES
(Title of the indenture securities)
<PAGE> 2
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee.
(a) Name and address of each examining or supervising authority to
which it is subject.
<TABLE>
<CAPTION>
NAME ADDRESS
---- -------
<S> <C>
Federal Reserve Bank (2nd District) New York, NY
Federal Deposit Insurance Corporation Washington, D.C.
New York State Banking Department Albany, NY
</TABLE>
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
If the obligor is an affiliate of the Trustee, describe each
such affiliation.
None.
ITEM 3.-15. NOT APPLICABLE
ITEM 16. LIST OF EXHIBITS.
EXHIBIT 1 - Restated Organization Certificate of Bankers
Trust Company dated August 7, 1990, Certificate of
Amendment of the Organization Certificate of
Bankers Trust Company dated June 21, 1995 -
Incorporated herein by reference to Exhibit 1
filed with Form T-1 Statement, Registration No.
33-65171, Certificate of Amendment of the
Organization Certificate of Bankers Trust Company
dated March 20, 1996, incorporated by reference to
Exhibit 1 filed with Form T-1 Statement,
Registration No. 333-25843, Certificate of
Amendment of the Organization Certificate of
Bankers Trust Company dated June 19, 1997,
incorporated by reference to Exhibit 1 filed with
Form T-1 Statement, Registration No. 333-45229 and
Certificate of Amendment of the Organization
Certificate of Bankers Trust Company dated March
26, 1998, copy attached.
EXHIBIT 2 - Certificate of Authority to commence business -
Incorporated herein by reference to Exhibit 2
filed with Form T-1 Statement, Registration No.
33-21047.
EXHIBIT 3 - Authorization of the Trustee to exercise corporate
trust powers Incorporated herein by reference to
Exhibit 2 filed with Form T-1 Statement,
Registration No. 33-21047.
EXHIBIT 4 - Existing By-Laws of Bankers Trust Company, as
amended on November 18, 1997. Copy attached.
<PAGE> 3
EXHIBIT 5 - Not applicable.
EXHIBIT 6 - Consent of Bankers Trust Company required by
Section 321(b) of the Act. Incorporated herein by
reference to Exhibit 4 filed with Form T-1
Statement, Registration No. 22-18864.
EXHIBIT 7 - The latest report of condition of Bankers Trust
Company dated as of March 31, 1998. Copy attached.
EXHIBIT 8 - Not Applicable.
EXHIBIT 9 - Not Applicable.
-2-
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, Bankers Trust Company, a corporation organized and
existing under the laws of the State of New York, has duly caused this statement
of eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in The City of New York, and State of New York, on the 8th day
of September, 1998.
BANKERS TRUST COMPANY
By: /s/ PATRICIA MF RUSSO
-------------------------------
Patricia MF Russo
Vice President
-3-
<PAGE> 5
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, Bankers Trust Company, a corporation organized and
existing under the laws of the State of New York, has duly caused this statement
of eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in The City of New York, and State of New York, on the 8th day
of September, 1998.
BANKERS TRUST COMPANY
By: Patricia MF Russo
-------------------------------
Patricia MF Russo
Vice President
-4-
<PAGE> 6
STATE OF NEW YORK,
BANKING DEPARTMENT
I, MANUEL KURSKY, Deputy Superintendent of Banks of the State of New
York, DO HEREBY APPROVE the annexed Certificate entitled "CERTIFICATE OF
AMENDMENT OF THE ORGANIZATION CERTIFICATE OF BANKERS TRUST COMPANY UNDER SECTION
8005 OF THE BANKING LAW," dated March 18, 1998, providing for an increase in
authorized capital stock from $2,351,666,670 consisting of 135,166,667 shares
with a par value of $10 each designated as Common Stock and 1000 shares with a
par value of $1,000,000 each designated as Series Preferred Stock to
$2,501,666,670 consisting of 150,166,667 shares with a par value of $10 each
designated as Common Stock and 1,000 shares with a par value of $1,000,000 each
designated as Series Preferred Stock.
WITNESS, my hand and official seal of the Banking Department at the City of New
York, this 26TH day of MARCH in the Year of our Lord one thousand nine hundred
and NINETY-EIGHT.
Manuel Kursky
------------------------------
Deputy Superintendent of Banks
<PAGE> 7
CERTIFICATE OF AMENDMENT
OF THE
ORGANIZATION CERTIFICATE
OF BANKERS TRUST
Under Section 8005 of the Banking Law
-----------------------------
We, James T. Byrne, Jr. and Lea Lahtinen, being respectively a Managing
Director and an Assistant Secretary of Bankers Trust Company, do hereby certify:
1. The name of the corporation is Bankers Trust Company.
2. The organization certificate of said corporation was filed by the
Superintendent of Banks on the 5th of March, 1903.
3. The organization certificate as heretofore amended is hereby amended
to increase the aggregate number of shares which the corporation shall have
authority to issue and to increase the amount of its authorized capital stock in
conformity therewith.
4. Article III of the organization certificate with reference to the
authorized capital stock, the number of shares into which the capital stock
shall be divided, the par value of the shares and the capital stock outstanding,
which reads as follows:
"III. The amount of capital stock which the corporation is hereafter to
have is Two Billion, Three Hundred and Fifty One Million, Six Hundred
Sixty-Six Thousand, Six Hundred Seventy Dollars ($2,351,666,670),
divided into One Hundred Thirty Five Million, One Hundred Sixty-Six
Thousand, Six Hundred Sixty-Seven (135,166,667) shares with a par value
of $10 each designated as Common Stock and 1000 shares with a par value
of One Million Dollars ($1,000,000) each designated as Series Preferred
Stock."
is hereby amended to read as follows:
"III. The amount of capital stock which the corporation is hereafter to
have is Two Billion Five Hundred and One Million, Six Hundred Sixty-Six
Thousand, Six Hundred Seventy Dollars ($2,501,666,670), divided into
One Hundred Fifty Million, One Hundred Sixty-Six Thousand, Six Hundred
Sixty-Seven (150,166,667) shares with a par value of $10 each
designated as Common Stock and 1000 shares with a par value of One
Million Dollars ($1,000,000) each designated as Series Preferred
Stock."
<PAGE> 8
6. The foregoing amendment of the organization certificate was
authorized by unanimous written consent signed by the holder of all outstanding
shares entitled to vote thereon.
IN WITNESS WHEREOF, we have made and subscribed this certificate this
18th day of March, 1998.
James T. Byrne, Jr.
--------------------------------------------
James T. Byrne, Jr.
Managing Director and Secretary
Lea Lahtinen
--------------------------------------------
Lea Lahtinen
Vice President and Assistant Secretary
State of New York )
) ss:
County of New York )
Lea Lahtinen, being fully sworn, deposes and says that she is a Vice
President and an Assistant Secretary of Bankers Trust Company, the corporation
described in the foregoing certificate; that she has read the foregoing
certificate and knows the contents thereof, and that the statements herein
contained are true.
Lea Lahtinen
-----------------------------
Lea Lahtinen
Sworn to before me this 18th day of March, 1998.
Sandra L. West
- ---------------------------------------
Notary Public
SANDRA L. WEST
Notary Public State of New York
No. 31-4942101
Qualified in New York County
Commission Expires September 19, 1998
<PAGE> 9
BY-LAWS
NOVEMBER 18, 1997
BANKERS TRUST COMPANY
NEW YORK
<PAGE> 10
BY-LAWS
OF
BANKERS TRUST COMPANY
ARTICLE I
MEETINGS OF STOCKHOLDERS
SECTION 1. The annual meeting of the stockholders of this Company shall be held
at the office of the Company in the Borough of Manhattan, City of New York, on
the third Tuesday in January of each year, for the election of directors and
such other business as may properly come before said meeting.
SECTION 2. Special meetings of stockholders other than those regulated by
statute may be called at any time by a majority of the directors. It shall be
the duty of the Chairman of the Board, the Chief Executive Officer or the
President to call such meetings whenever requested in writing to do so by
stockholders owning a majority of the capital stock.
SECTION 3. At all meetings of stockholders, there shall be present, either in
person or by proxy, stockholders owning a majority of the capital stock of the
Company, in order to constitute a quorum, except at special elections of
directors, as provided by law, but less than a quorum shall have power to
adjourn any meeting.
SECTION 4. The Chairman of the Board or, in his absence, the Chief Executive
Officer or, in his absence, the President or, in their absence, the senior
officer present, shall preside at meetings of the stockholders and shall direct
the proceedings and the order of business. The Secretary shall act as secretary
of such meetings and record the proceedings.
ARTICLE II
DIRECTORS
SECTION 1. The affairs of the Company shall be managed and its corporate powers
exercised by a Board of Directors consisting of such number of directors, but
not less than ten nor more than twenty-five, as may from time to time be fixed
by resolution adopted by a majority of the directors then in office, or by the
stockholders. In the event of any increase in the number of directors,
additional directors may be elected within the limitations so fixed, either by
the stockholders or within the limitations imposed by law, by a majority of
directors then in office. One-third of the number of directors, as fixed from
time to time, shall constitute a quorum. Any one or more members of the Board of
Directors or any Committee thereof may participate in a meeting of the Board of
Directors or Committee thereof by means of a conference telephone or similar
communications equipment which allows all persons participating in the meeting
to hear each other at the same time. Participation by such means shall
constitute presence in person at such a meeting.
All directors hereafter elected shall hold office until the next annual meeting
of the stockholders and until their successors are elected and have qualified.
No person who shall have attained age 72 shall be eligible to be elected or
re-elected a director. Such director may, however, remain a director of the
Company until the next annual meeting of the stockholders of Bankers Trust New
York Corporation (the Company's parent) so that such director's retirement will
coincide with the retirement date from Bankers Trust New York Corporation.
<PAGE> 11
No Officer-Director who shall have attained age 65, or earlier relinquishes his
responsibilities and title, shall be eligible to serve as a director.
SECTION 2. Vacancies not exceeding one-third of the whole number of the Board of
Directors may be filled by the affirmative vote of a majority of the directors
then in office, and the directors so elected shall hold office for the balance
of the unexpired term.
SECTION 3. The Chairman of the Board shall preside at meetings of the Board of
Directors. In his absence, the Chief Executive Officer or, in his absence, such
other director as the Board of Directors from time to time may designate shall
preside at such meetings.
SECTION 4. The Board of Directors may adopt such Rules and Regulations for the
conduct of its meetings and the management of the affairs of the Company as it
may deem proper, not inconsistent with the laws of the State of New York, or
these By-Laws, and all officers and employees shall strictly adhere to, and be
bound by, such Rules and Regulations.
SECTION 5. Regular meetings of the Board of Directors shall be held from time to
time on the third Tuesday of the month. If the day appointed for holding such
regular meetings shall be a legal holiday, the regular meeting to be held on
such day shall be held on the next business day thereafter. Special meetings of
the Board of Directors may be called upon at least two day's notice whenever it
may be deemed proper by the Chairman of the Board or, the Chief Executive
Officer or, in their absence, by such other director as the Board of Directors
may have designated pursuant to Section 3 of this Article, and shall be called
upon like notice whenever any three of the directors so request in writing.
SECTION 6. The compensation of directors as such or as members of committees
shall be fixed from time to time by resolution of the Board of Directors.
<PAGE> 12
ARTICLE III
COMMITTEES
SECTION 1. There shall be an Executive Committee of the Board consisting of not
less than five directors who shall be appointed annually by the Board of
Directors. The Chairman of the Board shall preside at meetings of the Executive
Committee. In his absence, the Chief Executive Officer or, in his absence, such
other member of the Committee as the Committee from time to time may designate
shall preside at such meetings.
The Executive Committee shall possess and exercise to the extent permitted by
law all of the powers of the Board of Directors, except when the latter is in
session, and shall keep minutes of its proceedings, which shall be presented to
the Board of Directors at its next subsequent meeting. All acts done and powers
and authority conferred by the Executive Committee from time to time shall be
and be deemed to be, and may be certified as being, the act and under the
authority of the Board of Directors.
A majority of the Committee shall constitute a quorum, but the Committee may act
only by the concurrent vote of not less than one-third of its members, at least
one of whom must be a director other than an officer. Any one or more directors,
even though not members of the Executive Committee, may attend any meeting of
the Committee, and the member or members of the Committee present, even though
less than a quorum, may designate any one or more of such directors as a
substitute or substitutes for any absent member or members of the Committee, and
each such substitute or substitutes shall be counted for quorum, voting, and all
other purposes as a member or members of the Committee.
SECTION 2. There shall be an Audit Committee appointed annually by resolution
adopted by a majority of the entire Board of Directors which shall consist of
such number of directors, who are not also officers of the Company, as may from
time to time be fixed by resolution adopted by the Board of Directors. The
Chairman shall be designated by the Board of Directors, who shall also from time
to time fix a quorum for meetings of the Committee. Such Committee shall conduct
the annual directors' examinations of the Company as required by the New York
State Banking Law; shall review the reports of all examinations made of the
Company by public authorities and report thereon to the Board of Directors; and
shall report to the Board of Directors such other matters as it deems advisable
with respect to the Company, its various departments and the conduct of its
operations.
In the performance of its duties, the Audit Committee may employ or retain, from
time to time, expert assistants, independent of the officers or personnel of the
Company, to make studies of the Company's assets and liabilities as the
Committee may request and to make an examination of the accounting and auditing
methods of the Company and its system of internal protective controls to the
extent considered necessary or advisable in order to determine that the
operations of the Company, including its fiduciary departments, are being
audited by the General Auditor in such a manner as to provide prudent and
adequate protection. The Committee also may direct the General Auditor to make
such investigation as it deems necessary or advisable with respect to the
Company, its various departments and the conduct of its operations. The
Committee shall hold regular quarterly meetings and during the intervals thereof
shall meet at other times on call of the Chairman.
SECTION 3. The Board of Directors shall have the power to appoint any other
Committees as may seem necessary, and from time to time to suspend or continue
the powers and duties of such Committees. Each Committee appointed pursuant to
this Article shall serve at the pleasure of the Board of Directors.
<PAGE> 13
ARTICLE IV
OFFICERS
SECTION 1. The Board of Directors shall elect from among their number a Chairman
of the Board and a Chief Executive Officer; and shall also elect a President,
and may also elect a Senior Vice Chairman, one or more Vice Chairmen, one or
more Executive Vice Presidents, one or more Senior Managing Directors, one or
more Managing Directors, one or more Senior Vice Presidents, one or more
Principals, one or more Vice Presidents, one or more General Managers, a
Secretary, a Controller, a Treasurer, a General Counsel, one or more Associate
General Counsels, a General Auditor, a General Credit Auditor, and one or more
Deputy Auditors, who need not be directors. The officers of the corporation may
also include such other officers or assistant officers as shall from time to
time be elected or appointed by the Board. The Chairman of the Board or the
Chief Executive Officer or, in their absence, the President, the Senior Vice
Chairman or any Vice Chairman, may from time to time appoint assistant officers.
All officers elected or appointed by the Board of Directors shall hold their
respective offices during the pleasure of the Board of Directors, and all
assistant officers shall hold office at the pleasure of the Board or the
Chairman of the Board or the Chief Executive Officer or, in their absence, the
President, the Senior Vice Chairman or any Vice Chairman. The Board of Directors
may require any and all officers and employees to give security for the faithful
performance of their duties.
SECTION 2. The Board of Directors shall designate the Chief Executive Officer of
the Company who may also hold the additional title of Chairman of the Board,
President, Senior Vice Chairman or Vice Chairman and such person shall have,
subject to the supervision and direction of the Board of Directors or the
Executive Committee, all of the powers vested in such Chief Executive Officer by
law or by these By-Laws, or which usually attach or pertain to such office. The
other officers shall have, subject to the supervision and direction of the Board
of Directors or the Executive Committee or the Chairman of the Board or, the
Chief Executive Officer, the powers vested by law or by these By-Laws in them as
holders of their respective offices and, in addition, shall perform such other
duties as shall be assigned to them by the Board of Directors or the Executive
Committee or the Chairman of the Board or the Chief Executive Officer.
The General Auditor shall be responsible, through the Audit Committee, to the
Board of Directors for the determination of the program of the internal audit
function and the evaluation of the adequacy of the system of internal controls.
Subject to the Board of Directors, the General Auditor shall have and may
exercise all the powers and shall perform all the duties usual to such office
and shall have such other powers as may be prescribed or assigned to him from
time to time by the Board of Directors or vested in him by law or by these
By-Laws. He shall perform such other duties and shall make such investigations,
examinations and reports as may be prescribed or required by the Audit
Committee. The General Auditor shall have unrestricted access to all records and
premises of the Company and shall delegate such authority to his subordinates.
He shall have the duty to report to the Audit Committee on all matters
concerning the internal audit program and the adequacy of the system of internal
controls of the Company which he deems advisable or which the Audit Committee
may request. Additionally, the General Auditor shall have the duty of reporting
independently of all officers of the Company to the Audit Committee at least
quarterly on any matters concerning the internal audit program and the adequacy
of the system of internal controls of the Company that should be brought to the
attention of the directors except those matters responsibility for which has
been vested in the General Credit Auditor. Should the General Auditor deem any
matter to be of special immediate importance, he shall report thereon forthwith
to the Audit Committee. The General Auditor shall report to the Chief Financial
Officer only for administrative purposes.
The General Credit Auditor shall be responsible to the Chief Executive Officer
and, through the Audit Committee, to the Board of Directors for the systems of
internal credit audit, shall perform such other duties as the Chief Executive
Officer may prescribe, and shall make such examinations and reports as may be
required by the Audit Committee. The General Credit Auditor shall have
unrestricted access to all records and may delegate such authority to
subordinates.
<PAGE> 14
SECTION 3. The compensation of all officers shall be fixed under such plan or
plans of position evaluation and salary administration as shall be approved from
time to time by resolution of the Board of Directors.
SECTION 4. The Board of Directors, the Executive Committee, the Chairman of the
Board, the Chief Executive Officer or any person authorized for this purpose by
the Chief Executive Officer, shall appoint or engage all other employees and
agents and fix their compensation. The employment of all such employees and
agents shall continue during the pleasure of the Board of Directors or the
Executive Committee or the Chairman of the Board or the Chief Executive Officer
or any such authorized person; and the Board of Directors, the Executive
Committee, the Chairman of the Board, the Chief Executive Officer or any such
authorized person may discharge any such employees and agents at will.
<PAGE> 15
ARTICLE V
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
SECTION 1. The Company shall, to the fullest extent permitted by Section 7018 of
the New York Banking Law, indemnify any person who is or was made, or threatened
to be made, a party to an action or proceeding, whether civil or criminal,
whether involving any actual or alleged breach of duty, neglect or error, any
accountability, or any actual or alleged misstatement, misleading statement or
other act or omission and whether brought or threatened in any court or
administrative or legislative body or agency, including an action by or in the
right of the Company to procure a judgment in its favor and an action by or in
the right of any other corporation of any type or kind, domestic or foreign, or
any partnership, joint venture, trust, employee benefit plan or other
enterprise, which any director or officer of the Company is servicing or served
in any capacity at the request of the Company by reason of the fact that he, his
testator or intestate, is or was a director or officer of the Company, or is
serving or served such other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise in any capacity, against judgments,
fines, amounts paid in settlement, and costs, charges and expenses, including
attorneys' fees, or any appeal therein; provided, however, that no
indemnification shall be provided to any such person if a judgment or other
final adjudication adverse to the director or officer establishes that (i) his
acts were committed in bad faith or were the result of active and deliberate
dishonesty and, in either case, were material to the cause of action so
adjudicated, or (ii) he personally gained in fact a financial profit or other
advantage to which he was not legally entitled.
SECTION 2. The Company may indemnify any other person to whom the Company is
permitted to provide indemnification or the advancement of expenses by
applicable law, whether pursuant to rights granted pursuant to, or provided by,
the New York Banking Law or other rights created by (i) a resolution of
stockholders, (ii) a resolution of directors, or (iii) an agreement providing
for such indemnification, it being expressly intended that these By-Laws
authorize the creation of other rights in any such manner.
SECTION 3. The Company shall, from time to time, reimburse or advance to any
person referred to in Section 1 the funds necessary for payment of expenses,
including attorneys' fees, incurred in connection with any action or proceeding
referred to in Section 1, upon receipt of a written undertaking by or on behalf
of such person to repay such amount(s) if a judgment or other final adjudication
adverse to the director or officer establishes that (i) his acts were committed
in bad faith or were the result of active and deliberate dishonesty and, in
either case, were material to the cause of action so adjudicated, or (ii) he
personally gained in fact a financial profit or other advantage to which he was
not legally entitled.
SECTION 4. Any director or officer of the Company serving (i) another
corporation, of which a majority of the shares entitled to vote in the election
of its directors is held by the Company, or (ii) any employee benefit plan of
the Company or any corporation referred to in clause (i) in any capacity shall
be deemed to be doing so at the request of the Company. In all other cases, the
provisions of this Article V will apply (i) only if the person serving another
corporation or any partnership, joint venture, trust, employee benefit plan or
other enterprise so served at the specific request of the Company, evidenced by
a written communication signed by the Chairman of the Board, the Chief Executive
Officer or the President, and (ii) only if and to the extent that, after making
such efforts as the Chairman of the Board, the Chief Executive Officer or the
President shall deem adequate in the circumstances, such person shall be unable
to obtain indemnification from such other enterprise or its insurer.
SECTION 5. Any person entitled to be indemnified or to the reimbursement or
advancement of expenses as a matter of right pursuant to this Article V may
elect to have the right to indemnification (or advancement of expenses)
interpreted on the basis of the applicable law in effect at the time of
occurrence of the event or events
<PAGE> 16
giving rise to the action or proceeding, to the extent permitted by law, or on
the basis of the applicable law in effect at the time indemnification is sought.
SECTION 6. The right to be indemnified or to the reimbursement or advancement of
expense pursuant to this Article V (i) is a contract right pursuant to which the
person entitled thereto may bring suit as if the provisions hereof were set
forth in a separate written contract between the Company and the director or
officer, (ii) is intended to be retroactive and shall be available with respect
to events occurring prior to the adoption hereof, and (iii) shall continue to
exist after the rescission or restrictive modification hereof with respect to
events occurring prior thereto.
SECTION 7. If a request to be indemnified or for the reimbursement or
advancement of expenses pursuant hereto is not paid in full by the Company
within thirty days after a written claim has been received by the Company, the
claimant may at any time thereafter bring suit against the Company to recover
the unpaid amount of the claim and, if successful in whole or in part, the
claimant shall be entitled also to be paid the expenses of prosecuting such
claim. Neither the failure of the Company (including its Board of Directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of or
reimbursement or advancement of expenses to the claimant is proper in the
circumstance, nor an actual determination by the Company (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant is
not entitled to indemnification or to the reimbursement or advancement of
expenses, shall be a defense to the action or create a presumption that the
claimant is not so entitled.
SECTION 8. A person who has been successful, on the merits or otherwise, in the
defense of a civil or criminal action or proceeding of the character described
in Section 1 shall be entitled to indemnification only as provided in Sections 1
and 3, notwithstanding any provision of the New York Banking Law to the
contrary.
ARTICLE VI
SEAL
SECTION 1. The Board of Directors shall provide a seal for the Company, the
counterpart dies of which shall be in the charge of the Secretary of the Company
and such officers as the Chairman of the Board, the Chief Executive Officer or
the Secretary may from time to time direct in writing, to be affixed to
certificates of stock and other documents in accordance with the directions of
the Board of Directors or the Executive Committee.
SECTION 2. The Board of Directors may provide, in proper cases on a specified
occasion and for a specified transaction or transactions, for the use of a
printed or engraved facsimile seal of the Company.
ARTICLE VII
CAPITAL STOCK
SECTION 1. Registration of transfer of shares shall only be made upon the books
of the Company by the registered holder in person, or by power of attorney, duly
executed, witnessed and filed with the Secretary or other proper officer of the
Company, on the surrender of the certificate or certificates of such shares
properly assigned for transfer.
<PAGE> 17
ARTICLE VIII
CONSTRUCTION
SECTION 1. The masculine gender, when appearing in these By-Laws, shall be
deemed to include the feminine gender.
ARTICLE IX
AMENDMENTS
SECTION 1. These By-Laws may be altered, amended or added to by the Board of
Directors at any meeting, or by the stockholders at any annual or special
meeting, provided notice thereof has been given.
<PAGE> 18
I, Peter Becker , Assistant Secretary of Bankers Trust Company, New York, New
York, hereby certify that the foregoing is a complete, true and correct copy of
the By-Laws of Bankers Trust Company, and that the same are in full force and
effect at this date.
Peter Becker
----------------------------------
ASSISTANT SECRETARY
DATED: September 8, 1998
-------------------------------
<PAGE> 19
<TABLE>
<S> <C> <C> <C> <C>
Legal Title of Bank: Bankers Trust Company Call Date: 06/30/98 ST-BK: 36-4840 FFIEC 031
Address: 130 Liberty Street Vendor ID: D CERT: 00623 Page RC-1
City, State, ZIP: New York, NY 10006 11
FDIC Certificate No.: /0/0/6/2/3
</TABLE>
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR JUNE 30, 1998
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, reported the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC--BALANCE SHEET
<TABLE>
<S> <C>
C400
Dollar Amounts in Thousands RCFD Bil Mil Thou
ASSETS / / / / / / / / / / / / / / / / / /
1. Cash and balances due from depository institutions (from Schedule RC-A): / / / / / / / / / / / / / / / / / /
a. Noninterest-bearing balances and currency and coin (1) ................ 0081 1,868,000 1.a.
b. Interest-bearing balances (2) ......................................... 0071 2,041,000 1.b.
2. Securities: / / / / / / / / / / / / / / / / / /
a. Held-to-maturity securities (from Schedule RC-B, column A) ............ 1754 0 2.a.
b. Available-for-sale securities (from Schedule RC-B, column D)........... 1773 7,419,000 2.b.
3. Federal funds sold and securities purchased under agreements to resell...... 1350 41,837,000 3.
4. Loans and lease financing receivables: / / / / / / / / / / / / / / / / / /
a. Loans and leases, net of unearned income (from Schedule RC-C) RCFD 2122 20,707,000 / / / / / / / / / / / / / / / 4.a.
b. LESS: Allowance for loan and lease losses...................RCFD 3123 629,000 / / / / / / / / / / / / / / / 4.b.
c. LESS: Allocated transfer risk reserve ......................RCFD 3128 0 / / / / / / / / / / / / / / / 4.c.
d. Loans and leases, net of unearned income, / / / / / / / / / / / / / / / / / /
allowance, and reserve (item 4.a minus 4.b and 4.c) ................... 2125 20,078,000 4.d.
5. Trading Assets (from schedule RC-D) ....................................... 3545 49,665,000 5.
6. Premises and fixed assets (including capitalized leases) ................... 2145 848,000 6.
7. Other real estate owned (from Schedule RC-M) ............................... 2150 180,000 7.
8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M) 2130 92,000 8.
9. Customers' liability to this bank on acceptances outstanding ............... 2155 512,000 9.
10. Intangible assets (from Schedule RC-M) ..................................... 2143 270,000 10.
11. Other assets (from Schedule RC-F) ........................................... 2160 6,442,000 11.
12. Total assets (sum of items 1 through 11) .................................... 2170 131,252,000 12.
</TABLE>
- ------------------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE> 20
<TABLE>
<S> <C>
Legal Title of Bank: Bankers Trust Company Call Date: 06/30/98 ST-BK: 36-4840 FFIEC 031
Address: 130 Liberty Street Vendor ID: D CERT: 00623 Page RC-2
City, State, Zip: New York, NY 10006 12
FDIC Certificate No.: | 0 | 0 | 6 | 2 | 3
SCHEDULE RC--CONTINUED
Dollar Amounts in Thousands / / / / / / / / Bil Mil Thou
LIABILITIES / / / / / / / / / / / / /
13. Deposits: / / / / / / / / / / / / /
a.In domestic offices (sum of totals of columns A and C from Schedule RC-E, part I) RCON 2200 26,791,00013.a.
(1) Noninterest-bearing(1) .....................RCON 6631 3,362,000........ / / / / / / / / / / / 13.a.(1)
(2) Interest-bearing ............................RCON 6636 23,429,000........ / / / / / / / / / / / 13.a.(2)
b.In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E / / / / / / / / / / /
part II) RCFN 2200 22,089,000 13.b.
(1) Noninterest-bearing ........................RCFN 6631 1,810,000 / / / / / / / / / / / 13.b.(1)
(2) Interest-bearing ...........................RCFN 6636 20,279,000 / / / / / / / / / / / 13.b.(2)
14. Federal funds purchased and securities sold under agreements to repurchase RCFD 2800 19,274,000 14.
15. a. Demand notes issued to the U.S. Treasury ............................ RCON 2840 0 15.a.
b. Trading liabilities (from Schedule RC-D)............................. RCFD 3548 30,729,000 15.b.
16. Other borrowed money (includes mortgage indebtedness and obligations under
capitalized leases): / / / // / / / / / / / /
a. With a remaining maturity of one year or less ..................... RCFD2332 7,891,000 16.a.
b. With a remaining maturity of more than one year through three years..... A547 3,576,000 16.b.
c. With a remaining maturity of more than three years........................ A548 2,872,000 16.c
17. Not Applicable. / / / / / / / / / / / / / 17.
18. Bank's liability on acceptances executed and outstanding ..................... RCFD 2920 512,000 18.
19. Subordinated notes and debentures (2)......................................... RCFD 3200 1,534,000 19.
20. Other liabilities (from Schedule RC-G) ....................................... RCFD 2930 9,202,000 20.
21. Total liabilities (sum of items 13 through 20) ............................... RCFD 2948 124,470,000 21.
22. Not Applicable / / / / / / / / / / / / /
/ / / / / / / / / / / / / 22.
EQUITY CAPITAL / / / / / / / / / / / / /
23. Perpetual preferred stock and related surplus ................................ RCFD 3838 1,000,000 23.
24. Common stock ................................................................. RCFD 3230 2,001,000 24.
25. Surplus (exclude all surplus related to preferred stock) ..................... RCFD 3839 540,000 25.
26. a. Undivided profits and capital reserves .................................. RCFD 3632 3,693,000 26.a.
b. Net unrealized holding gains (losses) on available-for-sale securities RCFD 8434 (71,000) 26.b.
27. Cumulative foreign currency translation adjustments .......................... RCFD 3284 (381,000) 27.
28. Total equity capital (sum of items 23 through 27) ............................ RCFD 3210 6,782,000 28.
29. Total liabilities and equity capital (sum of items 21 and 28)................. RCFD 3300 131,252,000 29
</TABLE>
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the
number of the statement below that
best describes the most comprehensive
level of auditing work performed for Number
the bank by independent external ----------------------
auditors as of any date during 1997....... RCFD 6724 N/A M.1
----------------------
1 = Independent audit of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm which
submits a report on the bank
2 = Independent audit of the bank's parent holding company conducted in
accordance with generally accepted auditing standards by a certified
public accounting firm which submits a report on the consolidated
holding company (but not on the bank separately)
3 = Directors' examination of the bank conducted in accordance with
generally accepted auditing standards by a certified public accounting
firm (may be required by state chartering authority)
4 = Directors' examination of the bank performed by other external auditors
(may be required by state chartering authority)
5 = Review of the bank's financial statements by external auditors
6 = Compilation of the bank's financial statements by external auditors
7 = Other audit procedures (excluding tax preparation work)
8 = No external audit work
- -----------------
(1) Including total demand deposits and noninterest-bearing time and savings
deposits.
(2) Includes limited-life preferred stock and related surplus.
