<PAGE> 1
As filed pursuant to Rule 424(b)(4)
under the Securities Act of 1933
Registration No. 333-80423
PROSPECTUS
ISSUED OCTOBER 26, 1999
$500,000,000
WFS FINANCIAL 1999-C OWNER TRUST
<TABLE>
<S> <C>
WFS FINANCIAL AUTO LOANS, INC. WFS FINANCIAL INC
SELLER MASTER SERVICER
</TABLE>
THE TRUST WILL ISSUE THE FOLLOWING SECURITIES:
<TABLE>
<CAPTION>
INTEREST RATE OR
PASS-THROUGH
PRINCIPAL AMOUNT RATE FINAL MATURITY DATE
---------------- ---------------- -------------------
<S> <C> <C> <C>
Class A-1 Notes...... $224,100,000 6.411% July 20, 2002
Class A-2 Notes...... $149,425,000 6.92% January 20, 2004
Class A-3 Notes...... $ 73,975,000 7.07% October 20, 2004
Certificates......... $ 52,500,000 7.34% January 20, 2007
</TABLE>
-- The trust will pay interest and principal on the
securities on January 20, April 20, July 20, and
October 20 of each year, or the first business day
thereafter. The first payment date will be January
20, 2000.
-- The trust will pay principal sequentially to the
earliest maturing class of securities then
outstanding until paid in full.
THE UNDERWRITERS ARE OFFERING THE SECURITIES AS FOLLOWS:
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO THE
OFFERING PRICE(1) DISCOUNTS SELLER(1)(2)
----------------- ------------ ---------------
<S> <C> <C> <C>
Per Class A-1 Note... 99.999636% 0.145000% 99.854636%
Per Class A-2 Note... 99.992591% 0.200000% 99.792591%
Per Class A-3 Note... 99.996457% 0.220000% 99.776457%
Per Certificate...... 99.981067% 0.362500% 99.618567%
Total................ $499,975,552.62 $976,852.50 $498,998,700.12
</TABLE>
---------------------------------------------
(1) The price of the offered notes and certificates will
also include interest accrued on the offered
securities, if any, from and including October 1,
1999.
(2) Before deducting expenses payable by the seller
estimated to be $275,000.
- ---------------------------
YOU SHOULD CAREFULLY
REVIEW THE RISK
FACTORS BEGINNING ON
PAGE 10 OF THIS
PROSPECTUS. The
securities are
automobile loan asset
backed securities
issued by a trust.
The securities are
not obligations of
WFS Financial Auto
Loans, Inc., WFS
Financial Inc or any
of their affiliates,
nor are they insured
by the Federal
Deposit Insurance
Corporation.
- ---------------------------
NEITHER THE SECURITIES EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
BANC OF AMERICA SECURITIES LLC
CREDIT SUISSE FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
IMPORTANT NOTICE ABOUT INFORMATION
PRESENTED IN THIS PROSPECTUS....... 4
WHERE TO FIND INFORMATION IN THESE
DOCUMENTS.......................... 4
SUMMARY OF TERMS................... 5
The Securities................... 5
The Terms of the Securities...... 6
Security For The Securities...... 7
Priority of Principal Payments... 8
Optional Purchase................ 8
Optional Redemption and
Prepayment.................... 8
Mandatory Redemption............. 8
The Master Servicer.............. 9
Tax Status....................... 9
ERISA Considerations............. 9
Risk Factors..................... 9
RISK FACTORS....................... 10
Absence of Secondary Market for
the Securities Could Limit
Your Ability to Resell the
Securities.................... 10
The Ratings of the Securities May
be Withdrawn or Revised Which
May Have an Adverse Effect on
the Market Price of the
Securities.................... 10
Losses on Contracts May be
Affected Disproportionately
Because of Geographic
Concentration of Contracts in
California.................... 10
FORMATION OF THE TRUST............. 11
General.......................... 11
Capitalization................... 12
The Owner Trustee................ 13
THE CONTRACTS POOL................. 13
Distribution of Contracts by
APR........................... 15
Geographic Concentration of the
Contracts........................ 16
Underwriting Procedures Relating
to the Contracts.............. 17
Delinquency and Contract Loss
Information................... 19
POOL FACTORS AND TRADING
INFORMATION...................... 21
USE OF PROCEEDS.................... 21
THE NOTES.......................... 21
General.......................... 21
Payments of Interest............. 22
Payments of Principal............ 22
Optional Redemption.............. 23
The Indenture Trustee............ 23
Events of Default................ 23
THE CERTIFICATES................... 25
General.......................... 25
Distributions of Interest........ 25
Distributions of Principal....... 26
Optional Prepayment.............. 26
Mandatory Prepayment............. 27
Paying Agents.................... 27
CERTAIN INFORMATION REGARDING THE
SECURITIES......................... 27
Book-Entry Registration.......... 27
DTC's Year 2000 Efforts.......... 29
Definitive Securities............ 29
Payments on the Contracts........ 30
The Accounts and Eligible
Investments................... 31
Distributions on the
Securities.................... 32
Payment Priorities of the Notes
and the Certificates; The
Spread Account................ 36
Withdrawals from the Spread
Account....................... 38
Payments from the Spread Account
and Under the Policies........ 38
Statements to Securityholders.... 38
Evidence as to Compliance........ 39
Certain Matters Regarding the
Master Servicer............... 40
Servicer Default................. 40
Rights Upon Servicer Default..... 42
Waiver of Past Defaults.......... 42
Voting Interests................. 42
Amendment........................ 43
List of Securityholders.......... 45
No Bankruptcy Proceedings........ 45
Termination...................... 46
Payment in Full of Notes......... 46
The Trustees..................... 46
Duties of the Trustees........... 47
Administration Agreement......... 47
Prepayment Considerations........ 48
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C>
THE POLICIES....................... 49
The Note Policy.................. 49
The Certificate Policy........... 50
Other Terms of the Policies...... 50
FINANCIAL SECURITY ASSURANCE
INC.............................. 52
General.......................... 52
Reinsurance...................... 53
Ratings.......................... 53
Capitalization................... 53
Insurance Regulation............. 54
THE MASTER SERVICER................ 54
Collection of Payments........... 54
Advances......................... 55
Insurance on Financed Vehicles... 55
Servicer Determination and
Reports to Trustees........... 56
Servicing Compensation........... 56
Realization Upon Defaulted
Contracts..................... 57
Year 2000 Compliance............. 57
CERTAIN LEGAL ASPECTS OF THE
CONTRACTS.......................... 58
General.......................... 58
Security Interests in the
Financed Vehicles............. 58
Enforcement of Security Interests
in Financed Vehicles.......... 60
Other Matters.................... 61
Repurchase Obligation............ 61
THE SELLER......................... 62
Breach of Representation and
Warranties; Defective Contract
Documentation................. 62
WFS................................ 62
General.......................... 62
Business Activities.............. 63
WII................................ 63
THE BANK........................... 63
General.......................... 63
Business Activities.............. 64
FEDERAL INCOME TAX CONSEQUENCES.... 64
Tax Characterization of Trusts... 64
Tax Consequences to Holders of
the Notes..................... 65
Tax Consequences to Holders of
the Certificates.............. 66
CALIFORNIA INCOME TAX
CONSEQUENCES..................... 71
ERISA CONSIDERATIONS............... 71
Overview......................... 71
Prohibited Transactions.......... 71
The Notes........................ 71
The Certificates................. 72
UNDERWRITING....................... 72
LEGAL MATTERS...................... 73
EXPERTS............................ 74
FORWARD-LOOKING STATEMENTS......... 74
INDEX OF DEFINITIONS............... A-1
</TABLE>
3
<PAGE> 4
IMPORTANT NOTICE ABOUT INFORMATION
PRESENTED IN THIS PROSPECTUS
You should rely on the information contained in or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
different information.
We do not claim the accuracy of the information in this prospectus as of
any date other than the date stated on the cover of this prospectus.
The documents incorporated by reference in this prospectus can be obtained
by sending a request to: Guy Du Bose, Esq., Secretary, WFS Financial Inc, 23
Pasteur Road, Irvine, California 92618 or by calling (949) 727-1000.
We have filed with the Securities and Exchange Commission a registration
statement in connection with the securities being offered in this prospectus.
This prospectus is a part of the registration statement but does not contain all
of the information included in the registration statement. Some information in
this prospectus is not complete and refers you to exhibits and schedules
contained in the registration statement. You can review and copy the
registration statement at the following locations:
- Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549
- Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661
- 7 World Trade Center, Suite 1300, New York, New York 10048
- http://www.sec.gov.
If you purchase securities you will also be provided with unaudited
quarterly and annual reports concerning the automobile loan contracts which back
the securities.
WHERE TO FIND INFORMATION IN THESE DOCUMENTS
We have included cross-references to captions in these materials where you
can find further related discussions. We have started with an introductory
section describing the trust and terms of this offering in abbreviated form,
followed by a more complete description of the terms of this offering.
Cross-references may be contained in the introductory section which will
direct you elsewhere in this prospectus. You can also find references to key
topics in the Table of Contents on the preceding pages.
You can find a listing of the pages where capitalized terms are defined
under the caption "Index of Definitions" beginning on page A-1 of this
prospectus.
4
<PAGE> 5
SUMMARY OF TERMS
This summary highlights selected information from this document and does
not contain all of the information that you need to consider in making your
investment decision. You will find a detailed description of the offering of
securities following this summary.
The Issuer or the Trust..... WFS Financial 1999-C Owner Trust ("Trust")
Seller...................... WFS Financial Auto Loans, Inc. ("WFAL")
Seller's Address............ 23 Pasteur Road, Irvine, California 92618
Seller's Telephone Number... (949) 727-1000
Master Servicer............. WFS Financial Inc ("WFS")
Indenture Trustee........... Bankers Trust Company
Owner Trustee............... Chase Manhattan Bank Delaware
The Trust Property.......... The trust property will include:
- a pool of retail installment sales contracts and
a limited number of installment loans originated
by WFS, all of which are secured by new or used
automobiles or light duty trucks;
- an insurance policy written by Financial
Security Assurance Inc. ("Financial Security")
guaranteeing all payments to be made to holders
of the notes;
- an insurance policy written by Financial
Security guaranteeing all payments to be made to
holders of the certificates; and
- the funds in the spread account.
THE SECURITIES:
The Notes................... The WFS Financial 1999-C Owner Trust Auto
Receivable Backed Notes will represent obligations
of the Trust secured by the assets of the Trust.
The Certificates............ The WFS Financial 1999-C Owner Trust Auto
Receivable Backed Certificates will represent
fractional undivided interests in the Trust.
5
<PAGE> 6
THE TERMS OF THE SECURITIES
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS A-3
NOTES NOTES NOTES CERTIFICATES
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Principal Amount..... $ 224,100,000 $ 149,425,000 $ 73,975,000 $ 52,500,000
Interest Rate or
Pass-Through Rate
Per Annum.......... 6.411% 6.92% 7.07% 7.34%
Interest Accrual
Method............. actual/360 30/360 30/360 30/360
Distribution Dates... * * * *
First Distribution
Date............... January 20, 2000 January 20, 2000 January 20, 2000 January 20, 2000
Final Distribution
Date............... July 2002 January 2004 October 2004 January 2007
Anticipated Ratings
(Moody's/Standard &
Poor's)**.......... Aaa/AAA Aaa/AAA Aaa/AAA Aaa/AAA
</TABLE>
- ---------------
* Payments of interest and principal on the Securities will be made on January
20, April 20, July 20 and October 20 of each year, or the first business day
thereafter, beginning on January 20, 2000. Principal will be paid
sequentially to the earliest maturing class until paid in full.
** It is a condition to the offering of the Securities that these ratings be
obtained from Moody's Investors Services, Inc. ("Moody's") and Standard &
Poor's, a division of the McGraw-Hill Companies, Inc. ("Standard & Poor's"
and, together with Moody's, the "Rating Agencies"). However, a Rating Agency
in its discretion may lower or withdraw its rating in the future.
6
<PAGE> 7
SECURITY FOR THE SECURITIES
A. The Contracts
GRAPH
- The Trust also receives the right to payments due under the Contracts on
and after October 1, 1999.
- The Contracts are secured by first liens on the vehicles purchased under
each Contract.
- The Contracts will have an expected weighted average annual percentage
rate of approximately 14.77% and an expected weighted average remaining
maturity of approximately 61 months.
- Approximately 10.78% of the aggregate principal amount of the Contracts
will be "Rule of 78's Contracts" and approximately 89.22% will be "Simple
Interest Contracts." See "Index of Definitions" for the definition of
"Rule of 78's Contract" and "Simple Interest Contract."
B. The Spread Account
The Spread Account is a segregated trust account in the name of the
Indenture Trustee that will afford you some limited protection against losses on
the Contracts. The Spread Account will be part of the Trust. It will be created
with an initial deposit by the Seller of $20,000,000 (the "Spread Account
Initial Deposit"). On any Distribution Date, the funds that are available from
the Spread Account will be distributed to you to cover any shortfalls in
interest and principal required to be paid on the Securities. The funds in the
Spread Account will be supplemented on each payment date by any funds in the
collection account remaining after making all of the payments necessary on that
Distribution Date. The funds in the Spread Account will be supplemented until
they are at least equal to 7% or 10% of the sum of the remaining principal
balance of the Simple Interest Contracts and the present value of the remaining
scheduled payments of the monthly principal and interest due on the Rule of 78's
Contracts. The rate to be applied will depend upon the loss and delinquency rate
of the Contracts.
7
<PAGE> 8
If on the last day of any month or on any payment date the amount on
deposit in the Spread Account is greater than the amount required to be in that
account on that date, the excess cash will be distributed first to Financial
Security, to the extent of any unreimbursed amounts due to it, then to the
Seller until the Seller has received an amount equal to the Spread Account
Initial Deposit and finally to the Seller and WFS Investments, Inc. ("WII"). You
will have no further rights to any such excess cash.
C. The Policies
Financial Security will issue policies that guarantee all payments due to
the Noteholders and Certificateholders.
PRIORITY OF PRINCIPAL PAYMENTS
Principal of the Securities will be paid on each payment date in the
following order:
(1) to the Class A-1 Notes until the Class A-1 Notes are paid in full;
(2) to the Class A-2 Notes until the Class A-2 Notes are paid in full;
(3) to the Class A-3 Notes until the Class A-3 Notes are paid in full; and
(4) to the Certificates until the Certificates are paid in full.
OPTIONAL PURCHASE
The Seller may purchase all of the Contracts owned by the Trust at any
Distribution Date at which the aggregate principal balance of the Simple
Interest Contracts plus the aggregate of the present value of the remaining
monthly principal and interest due on the Rule of 78's Contracts owned by the
Trust is equal to or less than $50,000,000.
OPTIONAL REDEMPTION AND PREPAYMENT
If the Seller does purchase all of the Contracts of the Trust pursuant to
an Optional Purchase as discussed above:
- each class of outstanding Notes will be redeemed in whole at a price
equal to the unpaid principal amount of that class of Notes plus the
accrued interest at that class of Notes' interest rate; and
- the Certificates will be repaid in whole at a price equal to the unpaid
principal amount of the Certificates plus accrued interest at the
Certificate's interest rate.
MANDATORY REDEMPTION
The Notes may be accelerated if an Event of Default has occurred and is
continuing under the Indenture. If an Insurer Default has occurred and is
continuing and an Event of Default has occurred and is continuing, the Indenture
Trustee may be permitted to accelerate the Notes. If an Event of Default has
occurred and is continuing but no Insurer Default has occurred and is
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 to accelerate the Notes.
If the Notes are accelerated, the Master Servicer or the Indenture Trustee will
sell or otherwise liquidate the property of the Trust and deliver the proceeds
to the Indenture Trustee for distribution in accordance with the terms of the
Indenture.
8
<PAGE> 9
THE MASTER SERVICER
WFS, as Master Servicer, will be obligated pursuant to the terms of the
Sale and Servicing Agreement to service the Contracts and to repurchase
Contracts if:
- certain representations or warranties made by WFS are incorrect, or it
breaches its obligations under the Sale and Servicing Agreement to
collect payments on the Contracts or to maintain a first priority
perfected security interest in each Contract;
- such incorrectness or breach is not cured within 30 days; and
- such incorrectness or breach materially and adversely affects a Contract.
TAX STATUS
In the opinion of Mitchell, Silberberg & Knupp LLP, special counsel for
federal income 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.
If you purchase a Note, you agree to treat it as debt for tax purposes. If
you purchase a Certificate, you agree to treat the Trust as a partnership and
yourself as a partner for federal income tax purposes.
ERISA CONSIDERATIONS
The Notes, but not the Certificates, are generally eligible for purchase by
employee benefit plans that are subject to the Employee Retirement Income
Security Act of 1974 ("ERISA"). However, administrators of employee benefit
plans should review the matters discussed under "ERISA Considerations" in this
prospectus and also should consult with their legal advisors before purchasing
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 include any
assessment as to the prepayment of the Securities. Approximately 40.28% of the
Contracts, based upon the aggregate principal balance of the Contracts will have
been originated in California. Accordingly, adverse economic conditions in
California may have a disproportionate effect on the losses on the Contracts.
You may not be able to sell the Securities because no secondary market exists
for them and none may develop. See "Risk Factors" for a more detailed discussion
of such risks.
9
<PAGE> 10
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase any of the Securities.
ABSENCE OF SECONDARY MARKET FOR THE SECURITIES COULD LIMIT YOUR ABILITY TO
RESELL THE SECURITIES
The absence of a secondary market for the Securities could limit your
ability to resell them. This means that if in the future you want to sell any of
these Securities before they mature, you may be unable to find a buyer or, if
you find a buyer, the selling price may be less than it would have been if a
market existed for the Securities. There currently is no secondary market for
the Notes or the Certificates. The Underwriters expect to make a market in the
Securities but will not be obligated to do so. There is no assurance that a
secondary market for the Securities will develop. If a secondary market for the
Securities does develop, it might end at any time or it might not be
sufficiently liquid to enable you to resell any of your Securities.
THE RATINGS OF THE SECURITIES MAY BE WITHDRAWN OR REVISED WHICH MAY HAVE AN
ADVERSE EFFECT ON THE MARKET PRICE OF THE SECURITIES
It is a condition of issuance that the Securities be rated as follows:
<TABLE>
<CAPTION>
STANDARD & POOR'S MOODY'S
----------------- -------
<S> <C> <C>
Class A-1, Class A-2 and Class A-3 Notes and
the Certificates................................. AAA Aaa
</TABLE>
The ratings by Standard & Poor's of the Notes will be issued without regard
to the benefit afforded by the Note Policy. The rating by Moody's of the 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.
The Rating Agencies can revise or withdraw their ratings at any time if
they feel the circumstances which lead to the existing ratings have changed
(including, in the case of the Certificates and, with respect to Moody's in the
case of the Notes, as a result of any change in the claims-paying ability of
Financial Security). A revision or withdrawal of the existing rating may have an
adverse effect on the market price of the related Notes and Certificates.
A security rating is not a recommendation to buy, sell or hold the
Securities. The ratings are an assessment by the Rating Agencies of the
likelihood that the Securities will be paid in full by the related final
distribution date. The ratings do not consider to what extent the Securities
will be subject to prepayment.
LOSSES ON CONTRACTS MAY BE AFFECTED DISPROPORTIONATELY BECAUSE OF GEOGRAPHIC
CONCENTRATION OF CONTRACTS IN CALIFORNIA
As of September 30, 1999, WFS' records indicate that 40.28% of the
aggregate principal balance of the Contracts will be from Contracts originating
in California. No other state accounted for more than 5.88% of the aggregate
principal balance of the Contracts. Therefore, economic conditions or other
factors affecting California in particular could adversely affect the losses on
the Contracts.
10
<PAGE> 11
FORMATION OF THE TRUST
GENERAL
The Trust will be a business trust formed for the transaction described in
this Prospectus under the laws of the State of Delaware pursuant to a trust
agreement which will be amended and restated as of the date of initial issuance
of the Securities (the "Closing Date") (the "Trust Agreement"). After its
formation, the Trust will only engage in the following activities:
- acquiring, holding and managing the Contracts and the other assets of the
Trust and proceeds therefrom;
- issuing the Notes and the Certificates;
- making payments on the Notes and the Certificates; and
- engaging in other activities that are necessary, suitable or convenient
to accomplish the foregoing purposes or are incidental thereto or
connected therewith.
On the Closing Date, the Seller will establish the Trust by selling and
assigning the Contracts to the Trust. WFS will act as Master Servicer of the
Contracts and will receive compensation and fees for those services. 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 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 a policy (the "Note Policy") to the Indenture Trustee and a policy (the
"Certificate Policy," and together with the Note Policy, the "Policies") to the
Owner Trustee for the benefit of the Noteholders and Certificateholders
(together, the "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:
- Contracts secured by new or used automobiles and light duty trucks (the
"Financed Vehicles");
- principal and interest due under the Contracts on and after October 1,
1999 (the "Cut-Off Date");
- security interests in the Financed Vehicles;
11
<PAGE> 12
- the Note Policy;
- the Certificate Policy;
- 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;
- proceeds from claims under certain insurance policies in respect of
individual Financed Vehicles or obligors under the Contracts (the
"Obligors"); and
- rights as a third party beneficiary under the sale and servicing
agreement to be dated as of November 1, 1999 (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 Note
Distribution Account, the Certificate Distribution Account, the Note Policy 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, WFS as the
Master Servicer must repurchase Contracts only if:
(a) one of the following occur:
- any representation or warranty made by WFS is incorrect;
- WFS breaches its obligations under the Sale and Servicing Agreement
regarding collection of payments on the Contracts; or
- WFS fails to maintain a first priority perfected security interest in
each Contract;
(b) such incorrectness or breach listed in (a) above is not cured within 30
days; and
(c) that incorrectness or breach materially and adversely affects a
Contract.
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 1201 Market Street,
Wilmington, Delaware 19801.
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 Certificates will be sold to third party investors which 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
that date:
<TABLE>
<S> <C>
Class A-1 Notes......................................... $224,100,000
Class A-2 Notes......................................... 149,425,000
Class A-3 Notes......................................... 73,975,000
Certificates............................................ 52,500,000
------------
Total......................................... $500,000,000
============
</TABLE>
12
<PAGE> 13
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 42 states listed
below. Most of the Contracts were purchased by WFS, however, a limited number of
Contracts, no more than 1% of the Cut-Off Date Aggregate Scheduled Balance, are
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 67.31% of the Contracts will have been originally underwritten as
prime contracts. Approximately 40.28% of the aggregate principal amount of the
Contracts will have been originated in California and approximately 59.72% 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 of those 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.
As of the Cut-Off Date, the aggregate outstanding principal amount of the
Contracts will be $500,000,000. Based on the anticipated Aggregate Scheduled
Balances of the Contracts as of the Cut-Off Date (the "Cut-Off Date Aggregate
Scheduled Balance") approximately 10.78% of the Contracts will be Rule of 78's
Contracts and approximately 89.22% 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 September 30, 1999.
Approximately 25.41% of the aggregate principal amount of the Contracts
relate to the purchase of new vehicles and approximately 74.59% of the Contracts
relate to the purchase of used vehicles. Approximately 48.95% of the aggregate
principal amount of these Contracts consists of contracts secured by automobiles
and approximately 51.05% of the aggregate principal amount consists of contracts
secured by light duty trucks. These Contracts have an annual percentage rate
("APR") of at least 5.90% and not more than 30.00%, and the weighted average APR
of these Contracts is approximately 14.77%. These Contracts have remaining
maturities of at least
13
<PAGE> 14
3 months but not more than 84 months and original maturities of at least 7
months but not more than 84 months. The weighted average original maturity of
these Contracts was 63 months and the weighted average remaining maturity of
these Contracts as of September 30, 1999 was 61 months. It is currently
anticipated that not more than 44.15% 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 September 30, 1999 was $13,852.11 and the outstanding principal
balance of these Contracts as of September 30, 1999 ranged from $529.23 to
$53,051.98.
14
<PAGE> 15
DISTRIBUTION OF CONTRACTS BY APR(1)
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
APR RANGE CONTRACTS BALANCE BALANCES(2)
--------- --------- --------------- -------------
<S> <C> <C> <C>
5.000% to 5.999%.......................... 2 $ 25,345.33 0.01%
6.000% to 6.999%.......................... 31 488,589.24 0.10
7.000% to 7.999%.......................... 382 6,684,715.65 1.34
8.000% to 8.999%.......................... 1,135 19,204,551.09 3.84
9.000% to 9.999%.......................... 1,914 32,012,177.21 6.40
10.000% to 10.999%.......................... 2,383 39,012,446.95 7.80
11.000% to 11.999%.......................... 2,296 37,585,280.08 7.52
12.000% to 12.999%.......................... 3,082 47,904,887.09 9.58
13.000% to 13.999%.......................... 2,711 42,635,512.55 8.53
14.000% to 14.999%.......................... 3,139 46,597,595.49 9.32
15.000% to 15.999%.......................... 3,214 45,532,985.56 9.11
16.000% to 16.999%.......................... 2,861 39,518,647.46 7.90
17.000% to 17.999%.......................... 2,502 32,919,897.78 6.58
18.000% to 18.999%.......................... 2,707 33,281,105.86 6.66
19.000% to 19.999%.......................... 1,823 21,749,343.80 4.35
20.000% to 20.999%.......................... 2,901 29,559,754.46 5.91
21.000% to 21.999%.......................... 1,703 14,702,320.29 2.94
22.000% to 22.999%.......................... 345 3,443,540.42 0.69
23.000% to 23.999%.......................... 233 2,195,332.16 0.44
24.000% to 24.999%.......................... 306 2,319,439.07 0.46
25.000% to 25.999%.......................... 168 1,104,630.04 0.22
26.000% to 26.999%.......................... 66 471,921.24 0.09
27.000% to 27.999%.......................... 23 166,260.19 0.03
28.000% to 28.999%.......................... 11 92,325.70 0.02
29.000% to 29.999%.......................... 154 773,474.03 0.15
30.000% and over............................ 4 23,802.24 0.00
------ --------------- ------
Total.................................. 36,096 $500,005,880.98 100.00%
====== =============== ======
</TABLE>
- -------------------------
(1) Information as of September 30, 1999. Contracts having Cut-Off Date
Aggregate Scheduled Balances of $500,000,000 will be included in the Trust.
(2) Percentages may not add to 100.00% due to rounding.
15
<PAGE> 16
GEOGRAPHIC CONCENTRATION OF THE CONTRACTS(1)
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
STATE(2) CONTRACTS BALANCE BALANCES
-------- --------- --------------- -------------
<S> <C> <C> <C>
California..................................... 15,524 $201,394,085.46 40.28%
Arizona........................................ 2,093 29,396,560.07 5.88
Texas.......................................... 1,945 28,547,849.79 5.71
Washington..................................... 2,035 25,931,899.68 5.19
Florida........................................ 1,452 23,337,314.06 4.67
Oregon......................................... 1,497 17,736,762.69 3.55
Colorado....................................... 1,179 16,164,380.67 3.23
Ohio........................................... 1,177 15,705,914.82 3.14
Nevada......................................... 852 13,035,130.90 2.61
North Carolina................................. 739 11,722,664.77 2.34
Virginia....................................... 600 9,773,372.35 1.95
Illinois....................................... 574 9,357,943.37 1.87
South Carolina................................. 527 8,580,731.24 1.72
Alabama........................................ 461 7,783,317.75 1.56
Tennessee...................................... 425 7,690,242.42 1.54
Missouri....................................... 507 7,559,085.47 1.51
Utah........................................... 535 7,128,146.19 1.43
Georgia........................................ 371 6,391,990.56 1.28
Idaho.......................................... 448 5,392,642.03 1.08
Pennsylvania................................... 289 4,229,403.97 0.85
Maryland....................................... 226 3,916,314.39 0.78
Indiana........................................ 260 3,852,213.59 0.77
Kentucky....................................... 255 3,596,961.18 0.72
Michigan....................................... 241 3,517,930.14 0.70
Massachusetts.................................. 214 3,275,671.96 0.66
New Jersey..................................... 190 3,026,245.40 0.61
Wisconsin...................................... 220 2,807,597.76 0.56
Oklahoma....................................... 170 2,599,421.62 0.52
Connecticut.................................... 189 2,521,859.42 0.50
Kansas......................................... 135 2,504,552.62 0.50
Mississippi.................................... 141 2,409,340.52 0.48
New Mexico..................................... 167 2,281,075.61 0.46
Delaware....................................... 133 2,065,528.35 0.41
Iowa........................................... 71 1,121,619.34 0.22
West Virginia.................................. 59 1,052,948.42 0.21
Wyoming........................................ 56 823,464.44 0.16
Rhode Island................................... 41 497,036.26 0.10
New Hampshire.................................. 39 465,418.00 0.09
Hawaii......................................... 29 411,395.15 0.08
Maine.......................................... 10 150,788.68 0.03
Minnesota...................................... 7 90,482.21 0.02
New York....................................... 7 86,821.17 0.02
Nebraska....................................... 6 71,756.49 0.01
------ --------------- ------
Total..................................... 36,096 $500,005,880.98 100.00%
====== =============== ======
</TABLE>
- -------------------------
(1) Information as of September 30, 1999. Contracts having Cut-Off Date
Aggregate Scheduled Balances of $500,000,000 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.
16
<PAGE> 17
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 Trust Property 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.
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
17
<PAGE> 18
circumstances, will approve or deny the application the same day it 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.
18
<PAGE> 19
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 December 31, 1994 through 1998 and as of September 30, 1999 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. for the years ended December
31, 1994 through 1998 and for the nine months ended September 30, 1999. 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, AT DECEMBER 31,
1999 1998 1997 1996
------------------------ ------------------------ ------------------------ ------------------------
NUMBER NUMBER NUMBER NUMBER
OF AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT
CONTRACTS (2) CONTRACTS (2) CONTRACTS (2) CONTRACTS (2)
----------- ---------- ----------- ---------- ----------- ---------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio............ 513,488 $5,152,194 464,257 $4,367,099 408,958 $3,680,817 341,486 $3,046,585
======= ========== ======= ========== ======= ========== ======= ==========
Period of
delinquency(3)
31-59 days.......... 11,283 $ 90,800 13,885 $ 112,208 6,605 $ 54,450 4,511 $ 38,173
60-89 days.......... 3,482 28,879 3,966 32,100 2,161 18,652 1,305 11,470
90 days or more..... 1,419 11,220 1,768 14,441 918 7,762 567 5,144
------- ---------- ------- ---------- ------- ---------- ------- ----------
Total contracts and
amount delinquent... 16,184 $ 130,899 19,619 $ 158,749 9,684 $ 80,864 6,383 $ 54,787
======= ========== ======= ========== ======= ========== ======= ==========
Delinquencies as a
percentage of number
and amount of
contracts
outstanding......... 3.15% 2.54% 4.23% 3.64% 2.37% 2.20% 1.87% 1.80%
======= ========== ======= ========== ======= ========== ======= ==========
<CAPTION>
AT DECEMBER 31, AT DECEMBER 31,
1995 1994
------------------------ ------------------------
NUMBER NUMBER
OF AMOUNT OF AMOUNT
CONTRACTS (2) CONTRACTS (2)
----------- ---------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Portfolio............ 258,665 $2,209,594 201,957 $1,633,177
======= ========== ======= ==========
Period of
delinquency(3)
31-59 days.......... 2,180 $ 18,557 1,136 $ 8,510
60-89 days.......... 690 6,143 336 2,616
90 days or more..... 308 2,701 145 998
------- ---------- ------- ----------
Total contracts and
amount delinquent... 3,178 $ 27,401 1,617 $ 12,124
======= ========== ======= ==========
Delinquencies as a
percentage of number
and amount of
contracts
outstanding......... 1.23% 1.24% 0.80% 0.74%
======= ========== ======= ==========
</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.
19
<PAGE> 20
CONTRACT LOSS EXPERIENCE (1)
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, SEPTEMBER 30, --------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------------- ------------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Portfolio
At end of period (net of
unearned add-on interest).... $5,152,194 $4,246,814 $4,367,099 $3,680,817 $3,046,585 $2,209,594 $1,633,177
========== ========== ========== ========== ========== ========== ==========
Average during period (net of
unearned add-on interest).... $4,701,213 $3,935,742 $4,006,185 $3,383,570 $2,627,622 $1,886,359 $1,438,582
========== ========== ========== ========== ========== ========== ==========
Gross chargeoffs of contracts
during period................ $ 106,661 $ 124,901 $ 173,422 $ 136,773 $ 86,464 $ 48,999 $ 27,620
Recoveries during period of
contracts charged off........ 35,705 26,196 36,230 34,634 25,946 18,715 11,927
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net chargeoffs................. $ 70,956 $ 98,705 $ 137,192 $ 102,139 $ 60,518 $ 30,284 $ 15,693
========== ========== ========== ========== ========== ========== ==========
Net chargeoffs as a percentage
of contracts outstanding
during period................ 2.01% 3.34% 3.42% 3.02% 2.30% 1.61% 1.09%
</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 decreased in the nine months ended September 30,
1999 to 2.01%, a 41.23% decrease over the 3.42% experienced in 1998 following a
13.25% increase over the 3.02% net charge-off level experienced in 1997.
Delinquencies, as a percentage of amount of contracts outstanding increased from
2.20% at year end 1997 to 3.64% at year end 1998 and decreased to 2.54% at
September 30, 1999, an increase of 65.45% and decrease of 30.22%, respectively.
Loss and delinquency experience during 1998 and 1997 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 in 1997 and 1998 as non-prime contracts, an increase in the number
of personal bankruptcy filings and general economic conditions. Loss and
delinquency experience in 1998 was also impacted by a disruption of collection
efforts arising from WFS' restructuring of its offices throughout the United
States and the continued transitory effect of moving post-repossession
collection efforts to recently created centralized asset recovery and vehicle
recovery centers. The decrease in loss and delinquency experience for the first
nine months in 1999 resulted from an increase in the origination of contracts
originally underwritten as prime contracts and completion of WFS' restructuring
efforts. 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.
20
<PAGE> 21
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
indicating the unpaid principal amount of each Class of Notes, after giving
effect to payments to be made on that Distribution Date, as a fraction of the
initial outstanding principal amount of that 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 that
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 Aggregate Scheduled 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 Seller will apply the net proceeds from the sale of the Securities
(i.e., the proceeds of the public offering of the Securities minus expenses
relating thereto) to the purchase of the Contracts from WFS.
THE NOTES
GENERAL
The Notes will be issued pursuant an indenture between the Trust and the
Indenture Trustee to be dated as of November 1, 1999 (the "Indenture"), a form
of which has been filed as an exhibit to the Registration Statement. You can
obtain a copy of the Indenture (without exhibits) by writing to the Indenture
Trustee at its Corporate Trust Office. The following summary and the information
contained under "Certain Information Regarding the Securities" describes the
material terms of the Indenture and the Notes. You should, however, review the
provisions of the Notes and the Indenture along with the following summary in
order to have more complete information. 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) are incorporated by reference as
part of such summaries.
Distributions of interest and principal on the Securities will be made on
January 20, April 20, July 20 and October 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 January 20, 2000. Payments on the Securities on
each Distribution Date will be paid to the holders of record of the related
21
<PAGE> 22
Securities on the Business Day immediately proceeding such Distribution Date or,
in the event that Definitive Securities are issued, as of the 15(th) day of the
month immediately proceeding 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.
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
each Class on each Distribution Date. Interest on the Class A-1 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-2 and Class A-3 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 that unpaid interest at the related Interest Rate.
An "Interest Period" with respect to any Distribution Date will be the period
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. Interest
payments on the Notes will be made from Net Collections after all accrued and
unpaid Trustees' fees and other administrative fees of the Trust and payment of
all applicable servicing compensation to the Master Servicer (collectively,
"Trust Fees and Expenses") have been paid. See "Certain Information Regarding
the Securities -- Distributions on the Securities -- Deposits to the
Distribution Accounts; Priority of Payments."
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."
We will make principal payments on the Notes on each Distribution Date from
the Note Distribution Account in the following order:
(1) to the Class A-1 Notes until the principal amount of the Class A-1
Notes has been reduced to zero;
(2) to the Class A-2 Notes until the principal amount of the Class A-2
Notes has been reduced to zero; and
(3) to the Class A-3 Notes until the principal amount of the Class A-3
Notes has been reduced to zero.
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 July 20, 2002
(the "Class A-1 Final Distribution Date"), (ii) the Class A-2 Notes will be
payable on January 20, 2004 (the "Class A-2 Final Distribution Date") and (iii)
the Class A-3 Notes will be payable on October 20, 2004 (the "Class A-3 Final
Distribution
22
<PAGE> 23
Date" and, together with the Class A-1 Final Distribution Date and the Class A-2
Final Distribution Date, the "Note Final Distribution Dates"). The Note Final
Distribution Date for a Class of Notes represents the last day on which the
outstanding principal amount of the related Notes will be paid. In no event may
the principal paid in respect of a Class of Notes exceed the unpaid principal
balance of that Class of Notes. No amount of principal will be paid on the
Certificates until the principal amount of all Classes of Notes has been reduced
to zero. See "Certain Information Regarding the Securities -- Distributions on
the Securities -- Deposits to the Distribution Accounts; Priority of Payments."
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." "Certain Legal Aspects
of the Contracts -- Repurchase Obligation" and "The Seller -- Breach of
Representations and Warranties; Defective Contract Documentation."
OPTIONAL REDEMPTION
Each Class of outstanding Notes will be subject to redemption in whole, but
not in part, on any Distribution Date following the last day of a Due Period as
of which an Optional Purchase occurs. An "Optional Purchase" may occur on any
Distribution Date at which the aggregate principal balance of the Simple
Interest Contracts plus the aggregate of the present value of the remaining
monthly principal and interest due on the Rule of 78's Contracts owned by the
Trust is equal to or less than $50,000,000. The redemption price will equal the
unpaid principal amount of that Class of Notes plus accrued interest on that
amount at the applicable Interest Rate for the related Interest Period.
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
It is an "Event of Default" under the Indenture if:
(1) the Trust fails to pay any interest on the Notes of any Class within 5
days after the interest payment becomes due and payable;
(2) the Trust fails to pay any principal of the Notes of any Class when it
becomes due and payable;
(3) the Indenture Trustee notifies the Trust, or if the Holders of Notes
evidencing at least 25% of the voting interests of all the Notes
notifies the Trust or the Indenture Trustee, that one of the following
events has occurred, and continues for a period of 30 days after the
notice is given;
- the Trust fails to observe or perform any covenant or agreement it
made in the Indenture;
- the representations or warranties made by the Trust in the Indenture
or in any certificate delivered pursuant to or in connection with the
Indenture was incorrect in a material respect at the time it was
made; or
23
<PAGE> 24
(4) certain events of bankruptcy, insolvency, receivership or liquidation
relating to the Trust occur (each, a "Trust Insolvency").
Upon the occurrence of an Event of Default:
(1) If an Insurer Default has not occurred or is not continuing, Financial
Security can (in addition to its obligation to make Scheduled Payments
on the Notes in accordance with the terms of the Note Policy), but it
is not obligated to, elect to:
- subject to the limitations listed below, first accelerate the
principal of the Notes and then cause the Master Servicer or the
Trustee to sell or otherwise liquidate all or part of 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 finally to deliver the proceeds to the Indenture Trustee
to distribute in accordance with the terms of the Note Policy.
(2) If an Insurer Default has occurred and is continuing, the Trustee may,
or if requested in writing by holders of at least 66 2/3% of the voting
interests of all the Notes, shall:
- subject to the limitations listed below, declare the Notes due and
payable at par, together with accrued interest on the Notes.
(3) Notwithstanding any of the foregoing, upon the occurrence of a Trust
Insolvency, if an Insurer Default has occurred and is continuing:
- subject to the limitations listed below, the Notes will become
immediately due and payable at par, together with accrued interest on
the Notes.
(4) No sale or liquidation of the property of the Trust pursuant to the
above provisions may occur if the proceeds from the sale or liquidation
are not sufficient to pay all of the outstanding principal and accrued
interest on the Notes; unless:
- an Insurer Default has not occurred or is not continuing and the
related Event of Default arose as described in clauses (1), (2) or
(4) of the first paragraph of this Events of Default Section; or
- an Insurer Default has occurred and is continuing and:
(i) holders of 100% of the voting interests of all the Notes consent
to such sale or liquidation; or
(ii) the Trustee determines that the property of the Trust will not
continue to provide sufficient funds for the payment of the
principal of and interest on the Notes, the Trustee provides
prior written notice of that sale or liquidation to each Rating
Agency, and holder of at least 66 2/3% of the voting interests
of all the Notes consent to that sale or liquidation.
It is an "Insurer Default" if:
(1) Financial Security fails to perform any of its obligations under the
Note Policy or the Certificate Policy; or
(2) certain events of bankruptcy, insolvency, receivership or liquidation
relating to Financial Security occur.
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Further, in the event that an Insurer Default has not occurred or is not
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 that
Event of Default had not occurred.
Following the occurrence of an Event of Default and provided that (i) an
Insurer Default has not occurred or is not 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. 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. You can obtain a copy of the Trust Agreement (without
exhibits) by writing to the Owner Trustee at its Corporate Trust Office. The
following summary and the information contained in this prospectus under the
caption "Certain Information Regarding The Securities" describes the material
terms of the Certificates and the Trust Agreement. You should, however, review
the provisions of the Certificates and the Trust Agreement along with the
following summary in order to have more complete information. 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 on the Certificates will be subordinated to payments of
interest and principal on the Notes as described in this section and under
"Certain Information Regarding the Securities -- Distributions on the
Securities."
DISTRIBUTIONS OF INTEREST
On each Distribution Date, the Owner Trustee or any Paying Agent will
distribute pro rata to Certificateholders of record as of the related Record
Date accrued interest at the rate of 7.34% per annum (the "Pass-Through Rate")
on the Certificate Balance as of the immediately preceding Distribution Date
(after giving effect to distributions of principal made on the immediately
preceding Distribution Date) or, in the case of the first Distribution Date, on
the Original Certificate Balance. Interest on the Certificates will be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
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 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 that
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."
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The "Certificate Balance" will equal $52,500,000 (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 OF PRINCIPAL
No principal will be paid on the Certificates until the Distribution Date
on which the principal amount of all Classes of Notes has been reduced to zero.
On that 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."
To the extent not previously paid prior to such date, the unpaid principal
balance of the Certificates will be payable on January 20, 2007 (the
"Certificate Final Distribution Date" and, together with the Note Final
Distribution Dates, the "Final Distribution Dates").
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:
(a) the Seller's right or obligation to repurchase the Contracts:
- on any Distribution Date as of which the Aggregate Scheduled Balance
is less than 10% of the Cut-Off Date Aggregate Scheduled Balance; or
- because of certain material defects in Contract documentation or due
to breaches of its representations or warranties, in either case
that materially or adversely affect the interests of the
Securityholders, the Indenture Trustee, the Owner Trustee or
Financial Security;
or
(b) purchases by the Master Servicer of Contracts due to certain breaches
of 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 the Contracts.
Any repurchase or optional purchase may reduce the average life of the
Contracts. See "Certain Information Regarding the Securities -- Prepayment
Considerations," "Certain Legal Aspects of the Contracts -- Repurchase
Obligation" and "The Seller -- Breach of Representations and Warranties;
Defective Contract Documentation."
OPTIONAL PREPAYMENT
The Certificates will be subject to prepayment in whole, but not in part,
on any Distribution Date on which an Optional Purchase occurs.
Certificateholders will receive an amount for their Certificates equal to the
Certificate Balance, together with accrued interest at the Pass-Through Rate for
the related Interest Period. An Optional Purchase will effect early retirement
of the Certificates. See "Certain Information Regarding the
Securities -- Termination."
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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 has not
occurred and is not continuing), Financial Security will have the right, but not
the obligation, to cause all or any part of the property of the Trust to be sold
or liquidated and shall select the date(s) for that sale or liquidation. That
date, however, must be prior to the date on which the 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 as the Owner Trustee may designate from
time to time (the "Paying Agent"). The Chase Manhattan Bank, N.A. will be
designated as the initial Paying Agent with respect to the Certificates.
CERTAIN INFORMATION REGARDING THE SECURITIES
BOOK-ENTRY REGISTRATION
The Depository Trust Company ("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. No person acquiring a
beneficial interest in the Securities (an "Owner") will be entitled to receive a
Definitive Security representing such person's beneficial ownership interest in
the related Securities except in the event that Definitive Securities are issued
under the limited circumstances described herein. It is anticipated that the
only Noteholders or Certificateholders, as the case may be, will be Cede, as
nominee of DTC. Owners of Notes will not be recognized by the Indenture Trustee
as "Noteholders," as such term will be used in the Indenture. Owners of
Certificates will not be recognized by the Owner Trustee as
"Certificateholders," as such term will be used in the Trust Agreement. Owners
of Securities 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 securities
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 Securities and
Exchange Commission.
Owners of Securities 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 Owner of Securities will in turn be recorded on
the respective records of Participants and Indirect Participants. Owners of
Securities will not receive written confirmation from DTC of their purchase, but
Owners of Securities are expected to receive written
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confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Participant or Indirect Participant
through which the Owner of Securities 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 Owners of Securities.
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 not change beneficial ownership. DTC will have no knowledge of the actual
Owners of Securities 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 ultimate Owners of Securities. Participants and Indirect Participants
will remain responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by DTC to Participants, by
Participants to Indirect Participants and by Participants and Indirect
Participants to Owners of Securities 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 as 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
Owners of Securities 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 Owners of Securities
will be the responsibility of Participants and Indirect Participants. As a
result, under the book-entry format, Owners of Securities 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 an Owner of
Securities 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.
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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 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 indicated 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 addition, DTC is in the process of
developing such contingency plans as it deems appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided for informational purposes only and is not intended to serve as a
representation, warranty, or contract modification of any kind.
DEFINITIVE SECURITIES
Physical certificates representing any Class of Notes or the Certificates
("Definitive Securities") will be issued to the related Owners of Securities
rather than to DTC, only if
- 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,
- the Administrator, at its option, elects to terminate the book-entry
system with respect to the related Securities through DTC or
- after an Event of Default or Servicer Default, Security Owners evidencing
51% or more 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 Owners of Securities.
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 Owners of Securities, 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 Owners of Securities, who thereupon
will become Noteholders or Certificateholders, as the case may be, for all
purposes of the Indenture or the Trust Agreement, respectively.
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
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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.
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.
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. "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. Net
Collections will include:
(a) prepayments, Net Liquidation Proceeds and Net Insurance Proceeds;
(b) any amounts deposited in the Collection Account by:
- the Seller to purchase Contracts or
- the Master Servicer to purchase Contracts; and
(c) 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.
Subject to the remainder of this paragraph, distributions on the Securities
will be made on each Distribution Date out of Net Collections 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 those Net Collections, reinvestment
earnings and Advances on each Distribution Date will be applied as described
under "Certain Information Regarding the Securities -- 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 Net Collections and funds available in the Spread Account is less than the
sum of the interest and principal due on the Securities for that Distribution
Date and will be obligated to provide for the payment of Scheduled Payments on
the Notes on the respective Note Final Distribution Dates and Guaranteed
Distributions on the Certificates on the Certificate Final Distribution Date.
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THE ACCOUNTS AND ELIGIBLE INVESTMENTS
General. 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
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.
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) 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 collections
deposited will be net of late payments in respect of which the Master Servicer
has previously made an Advance and reimbursements to it for Nonrecoverable
Advances. 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 and WFS Financial
Auto Loans 2, Inc., a subsidiary of WFS, will be the obligors, 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 that 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 Business Day immediately preceding each Distribution Date.
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 the Rating Agencies 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.
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").
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 subsequent Due Periods. 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.
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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 the Rating
Agencies 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:
- the amount of funds in the Collection Account allocable to collections on
the Contracts in the related Due Period (excluding any Advances and
Repurchase Amounts);
- the amount required to repurchase all Contracts repurchased by the Seller
or the Master Servicer during the related Due Period;
- the Advances made by the Master Servicer and the amounts for which the
Master Servicer is entitled to be reimbursed for unreimbursed Advances;
- the amount of Net Collections;
- the Note Interest Distributable Amount;
- the Note Principal Distributable Amount;
- the Certificate Interest Distributable Amount;
- the Certificate Principal Distributable Amount; and
- 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 that 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 (in each case after giving effect to all deposits and distributions of
higher priority):
(1) to the Master Servicer, the Servicing Fee, including any unpaid
Servicing Fees with respect to one or more prior Due Periods;
(2) to the Indenture Trustee and the Owner Trustee, any accrued and
unpaid Trustees' fees;
(3) to the Note Distribution Account, from Net Collections (after
giving effect to the reduction in Net Collections described in clauses (1)
and (2) above), the Note Interest Distributable Amount to be distributed to
the holders of the Notes at their respective Interest Rates;
(4) to the Note Distribution Account, from any remaining Net
Collections, the Note Principal Distributable Amount (which amount
includes, if such Distribution Date is a Note Final Distribution Date, the
remaining principal amount of the related Class of Notes to be distributed
to the holders of such Class of Notes), 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 and 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;
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(5) to the Certificate Distribution Account, from any remaining Net
Collections, the Certificate Interest Distributable Amount to be
distributed to the holders of the Certificates;
(6) to the Certificate Distribution Account, from any remaining Net
Collections, the Certificate Principal Distributable Amount to be
distributed to the holders of the Certificates (which amount includes, if
such Distribution Date is the Certificate Final Distribution Date, 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);
(7) to Financial Security, from any remaining Net Collections, 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
(8) in the event that the distributions described in clauses (1)
through (7) above have been funded exclusively from Net Collections, any
remaining Net Collections ("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
beginning of the related Due Period (or as of the Cut-Off Date in the case of
the first Distribution Date) exceeds the Aggregate Scheduled Balance as of the
end of such Due Period.
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 that 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 that preceding
Distribution Date, over the amount in respect of interest on the Certificates
that is actually deposited in the Certificate Distribution Account on that
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 that Distribution Date and the Certificate Interest
Carryover Shortfall for that Distribution Date.
The "Certificate Percentage" will mean (i) for each Distribution Date prior
to the Distribution Date on which the principal amount of the Class A-3 Notes is
reduced to zero, 0% and (ii) for each Distribution Date on and after the
Distribution Date on which the principal amount of the Class A-3
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Notes is reduced to zero, a percentage equal to 100% minus the Note Percentage
for that Distribution Date.
The "Certificate Principal Carryover Shortfall" will mean, as of the close
of any Distribution Date, the excess of the sum of the Certificate Quarterly
Principal Distributable Amount and any outstanding Certificate Principal
Carryover Shortfall for the immediately preceding Distribution Date, over the
amount in respect of principal that is actually deposited in the Certificate
Distribution Account on that 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 that 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. Notwithstanding the foregoing, the Certificate
Principal Distributable Amount on the Certificate Final Distribution Date shall
not be less than the amount that is necessary (after giving effect to other
amounts to be deposited in the Certificate Distribution Account on such
Distribution Date and allocable to principal) to reduce the 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 that 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 that 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 that 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 that Distribution Date occurs.
A "Liquidated Contract" will be a Contract that (i) has been repurchased by
the Seller or Master Servicer or as to which all of the principal has been paid
prior to its scheduled maturity; (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 scheduled maturity; 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 that Distribution Date.
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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 that Class for the immediately preceding
Distribution Date plus any outstanding Note Interest Carryover Shortfall for
that 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 that Class on that 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 that 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 that Distribution Date.
The "Note Percentage" will mean (i) for each Distribution Date prior to the
Distribution Date on which the principal amount of the Class A-3 Notes is
reduced to zero, 100%; (ii) on the Distribution Date on which the principal
amount of the Class A-3 Notes is reduced to zero, (a) 100% until the principal
amount of the Class A-3 Notes has been reduced to zero and (b) with respect to
any remaining portion of the Principal Distributable Amount, 0%; and (iii) for
each Distribution Date after the principal amount of the Class A-3 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 that
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 that 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,
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 that Class on the immediately
preceding Distribution Date, after giving effect to all payments of principal to
Noteholders of that Class on or prior to that Distribution Date (or, in the case
of the first Distribution Date, on the original principal amount of that 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 that 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 Contracts that became Liquidated Contracts
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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 that
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 of those dates of all
payments of Monthly P&I on the Contract that are due after such Due Date. That
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 that payment of
Monthly P&I is due to the first day of the month in which that 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 substantially all of the Contracts will not be
less than 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 (to
the extent the Trustees and such other entities have not received all Trust Fees
and Expenses payable to them) and Financial Security (to the extent of any
Unreimbursed Insurer Amounts). 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.
The Spread Account. In the event of delinquencies or losses on the
Contracts, the foregoing protection will be affected both by the preferential
right of the Noteholders to receive current distributions with respect to the
Contracts and by the establishment of a segregated trust account in the name of
the Indenture Trustee (the "Spread Account"). The Spread Account will be part of
the Trust. The Indenture Trustee will have a perfected security interest in the
Spread Account 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 $20,000,000 (the "Spread Account Initial
Deposit"). The Spread Account will thereafter be funded by the deposit therein
of any Excess Amounts in respect of each Distribution Date, until the amount on
deposit in the Spread Account is at least equal to the Specified Spread Account
Balance.
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
those amounts will be invested in Eligible
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Investments. Investment income on monies on deposit in the Spread Account will
be credited to the Spread Account. Any loss on that investment will be charged
to the Spread Account.
Calculation of Specified Spread Account Balance. The "Specified Spread
Account Balance" will be calculated as of the last day of each month (each, a
"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 that Calculation Day
exceeds 4% or (ii) the Delinquency Percentage for the three calendar month
period ending on that Calculation Day exceeds 2%, then the Specified Spread
Account Balance shall equal 10% of the Aggregate Scheduled Balance on that
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 $50,000,000 (10% of the Cut-off Date
Aggregate Scheduled Balance) or less than $9,000,000 (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 $9,000,000. At no time after the Closing Date will the
Seller, WII, the Master Servicer, Financial Security or any other entity be
required to deposit their own 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 that month of all Contracts that have become Liquidated Contracts
(as specified in clause (ii) or (iv) of the definition of Liquidated Contracts)
during that month, less any Net Liquidation Proceeds received during that month
(and not reflected in prior periods) with respect to those 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 that period. For each month the
percentage of delinquent Contracts shall be the percentage equivalent of a
fraction, the numerator of which is the sum of (i) the aggregate Scheduled
Balance of all outstanding Contracts 61 days or more delinquent (after taking
into account permitted extensions), plus (ii) the aggregate Scheduled Balance of
all Contracts in respect of which the related Financed Vehicles have been
repossessed but have not been liquidated (to the extent the related Contract is
not otherwise reflected in clause (i) above), and the denominator of which is
the aggregate Scheduled Balance of all outstanding Contracts, in each case on
the last day of that calendar month.
The Master Servicer may, from time to time after the date of this
Prospectus, and with the approval of Financial Security, request the Rating
Agencies 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 the Rating Agencies deliver a letter to
the Indenture Trustee, the Owner Trustee and Financial Security to the effect
that the use of any 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 that new calculation
without the consent of any Securityholder.
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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 is less than the Note Distributable Amount and will be deposited in the
Note Distribution Account. In addition, after giving effect to that 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 "Certain Information Regarding the Securities -- 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 that 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 finally to the Seller and
WII in the proportions of 99% and 1%, respectively.
Upon any distributions to Financial Security, the Seller or WII, the
Securityholders will have no further rights in, or claims to, such amounts. 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 that 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 those amounts are insufficient, from amounts
otherwise payable to Certificateholders in respect of the Certificate
Distributable Amount and third, if those amounts are still insufficient, then
from the payment of a claim under the Note Policy.
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 that 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 those amounts are insufficient, from the payment of a claim under
the Certificate Policy.
STATEMENTS TO SECURITYHOLDERS
On or prior to each Distribution Date, you will be provided with a
statement prepared by the Master Servicer (the "Statement to Securityholders")
setting forth with respect to the Distribution Date or related 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);
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(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 the related 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 that 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 that Distribution Date; and
(vii) the balance on deposit in the Spread Account on that
Distribution Date, after giving effect to distributions made on that
Distribution Date, and the change in that 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, as the case may
be. Copies of the statements may be obtained by Owners of Securities 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."
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, 1999, 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.
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, 1999, of a certificate signed by two officers
of the Master Servicer stating that the Master Servicer has fulfilled its
obligations under the Sale and Servicing Agreement throughout the preceding
fiscal year (or since the Closing Date in the case of the first such
certificate) or, if there has been a default in the fulfillment of any such
obligation, describing each such default.
Copies of those 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.
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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 the Indenture Trustee as
Indenture Trustee; and
- any action taken by it that materially affects the Notes and that has not
been previously reported.
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 except upon
determination that the Master Servicer's performance of such duties is no longer
permissible under applicable law. No resignation will become effective until (i)
the Indenture Trustee or a successor master servicer has assumed the Master
Servicer's servicing obligations and duties under the Sale and Servicing
Agreement and (ii) the Rating Agencies confirm 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.
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 that 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 indemnification or reimbursement
could reduce the amount otherwise available for distribution to Securityholders.
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.
SERVICER DEFAULT
"Servicer Defaults" under the Sale and Servicing Agreement will consist of:
(a) a claim being made under either the Note Policy or the Certificate
Policy;
(b) any failure by the Master Servicer to deposit in, credit to, or make
the required distribution from the following, and such failure is not
remedied within three Business Days after the
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Master Servicer receives written notice from the Indenture Trustee, the
Owner Trustee, or Financial Security or after the Master Servicer
discovers such failure:
- the Collection Account,
- either Distribution Account,
- the Spread Account, or
- the Holding Account
(c) any failure by the Master Servicer to deliver to the Indenture Trustee,
the Owner Trustee or Financial Security 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;
(d) any failure by the Master Servicer or the Seller 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 to:
- the Master Servicer or the Seller, as the case may be, by the Owner
Trustee, the Indenture Trustee or Financial Security or
- 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 at least 25% of the voting interests of
all Notes, or if the Notes have been paid in full, by the holders
of the Certificates evidencing at least 25% of the voting interests
thereof or;
- so long as a default under either Policy has not occurred or is not
continuing and no insolvency of Financial Security has occurred, by
Financial Security;
(e) certain events of insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings and certain action by the
Seller or Master Servicer indicating its insolvency, reorganization
pursuant to bankruptcy or similar proceedings or inability to pay its
obligations (each, an "Insolvency Event"); and
(f) 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,
- by holders of Notes (voting together as a single class) or
Certificates evidencing at least 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.
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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. After such
termination, the Indenture Trustee will automatically succeed 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.
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.
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 at least 51% of the voting interests
thereof), may, on behalf of all Securityholders, with the consent of Financial
Security, waive any default by the Master Servicer in the performance of its
obligations under the Sale and Servicing Agreement and its consequences. A
default, however, 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, may only be
waived by the approval of holders of all of the Securities. No such waiver will
impair the Securityholders' rights with respect to subsequent Servicer Defaults.
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 each 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 Securities held by the Seller, WFS or any of their
respective affiliates will be excluded from such determination.
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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,
- add any other provisions with respect to matters or questions arising
under the agreement which are not inconsistent with the provisions
thereof,
- add or provide for any credit enhancement for any Class of Securities or
- permit certain changes with respect to the Specified Spread Account
Balance.
The requirements that must be met to make the above listed amendments are:
(a) that any amendment will not, in the opinion of counsel satisfactory to
the related Trustee, materially and adversely affect the interests of any
Securityholder, and
(b) that in the case of a change with respect to the Specified Spread
Account Balance:
- the Trustee receives a letter from Standard & Poor's which basically
states that its then-current rating on each Class of Securities will
not be qualified, reduced or withdrawn due to that amendment and
- the Master Servicer provides Moody's notice of such amendment.
The Sale and Servicing Agreement may also be amended with the consent of
the holders of Notes and Certificates evidencing at least 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
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.
Amendment of the Trust Agreement. The Trust Agreement may be amended, with
the consent of Financial Security but without the consent of the
Securityholders, to:
- cure any ambiguity,
- correct or supplement any provision which may be inconsistent with any
other provision or
- add any other provisions with respect to matters or questions arising
thereunder which are not inconsistent with the provisions thereof.
The Trust Agreement may also be amended with the consent of Securityholders
evidencing at least 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
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any manner the rights of the Noteholders or the Certificateholders; provided,
that no such amendment may increase or reduce in any manner the amount of or
accelerate or delay the timing of (i) collections of payments on or in respect
of the Contracts or required distributions on the Notes or the Certificates or
any Interest Rate or the Pass-Through Rate or (ii) reduce the aforesaid
percentage of the voting interests of which the holders of any Class of
Securities are required to consent to any such amendment, without the consent of
Financial Security and the holders of all of the relevant Class of Securities.
Amendment of the Indenture. The Trust and the Indenture Trustee (on behalf
of the 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 such action
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 of those actions 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 of those actions 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.
Without the consent of the holder of each outstanding Note affected
thereby, no supplemental indenture may:
- 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 Note or any interest thereon
is payable;
- impair the right to institute suit for the enforcement of provisions of
the Indenture regarding payment;
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- 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;
- 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;
- 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 that sale
or liquidation would be insufficient to pay the principal amount of and
accrued but unpaid interest on the outstanding Notes;
- 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
- 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 of the collateral for the
Notes or deprive the holder of any Note of the security afforded by the
lien of the Indenture;
provided, that any of those actions will not, in the opinion of counsel
satisfactory to the related Trustee, result in the creation of a new security.
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 that request, a
list of the names and addresses of all Certificateholders. In addition, three or
more holders of Certificates or holders of Certificates evidencing not less than
25% of the voting interests of the Certificates, upon compliance by those
Certificateholders with certain provisions of the Trust Agreement, may request
that the Owner Trustee allow them 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.
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.
Neither the Trust Agreement nor the Indenture will provide for the holding
of any annual or other meetings of Securityholders.
NO BANKRUPTCY PROCEEDINGS
The Trust Agreement will provide that the Owner Trustee, each
Certificateholder, the Indenture Trustee and each Noteholder 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.
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TERMINATION
The obligations of the Master Servicer, the Seller, the Owner Trustee and
Indenture Trustee 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 you of all amounts required to be paid to you 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 following the last day of a Due Period as of which the Aggregate Scheduled
Balance is less than 10% of the Cut-Off Date Aggregate Scheduled Balance at a
price equal to the aggregate unpaid principal amount of the Securities, together
with accrued interest thereon for the related Interest Period.
The Owner Trustee and Indenture Trustee will give you written notice of
termination at least 20 days prior to such termination. The final distribution
to you will be made only upon surrender and cancellation of your 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, 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.
THE TRUSTEES
Each of the Owner Trustees and the Indenture Trustee (the "Trustees") 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 a Trustee 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.
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 the affected Trustee by the Indenture, Sale and Servicing Agreement
or Trust Agreement will be conferred or imposed upon that Trustee and the
separate trustee or co-trustee jointly, or, in any jurisdiction in which that
Trustee will be incompetent
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or unqualified to perform certain acts, singly upon the separate trustee or
co-trustee who will exercise and perform such rights, powers, duties and
obligations solely at the direction of that Trustee.
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 it
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 it not resulting from its own
willful misconduct, negligence or bad faith.
DUTIES OF THE TRUSTEES
Neither Trustee will make any representations as to the validity or
sufficiency of the Trust Agreement or Indenture, the Securities (other than the
execution and authentication thereof), or of any Contracts or related documents.
Neither Trustee will 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 the 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 an Event of Default or
Servicer Default has not occurred or is not 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 those Securityholders have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that may be incurred therein or thereby. No Securityholder will have any right
to institute any proceeding with respect to the Indenture, Trust Agreement or
Sale and Servicing Agreement, unless that holder previously has given to the
appropriate 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 the appropriate Trustee to institute that proceeding in its own name as
Trustee thereunder and have offered to that Trustee reasonable indemnity and
that Trustee for 60 days has neglected or refused to institute that proceeding.
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
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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 is likely to 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."
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. 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. 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 lives of the Contracts and the Securities. 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.
While WFS does not maintain specific records for this purpose, it estimates
that, based on its experience over the past five years, the monthly prepayment
rate on the outstanding principal amount of the retail installment sales
contracts and installment loans secured by automobiles and light duty trucks it
has originated and serviced, for itself or others, has been approximately 1.5%
of the outstanding principal amount. 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
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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. You should review the summary along with the Note Policy and the
Certificate Policy, which are included as exhibits to the Registration Statement
of which this Prospectus is a part, for complete information. The following
summary does, however, describe the material terms of 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, 1999
(the "Insurance Agreement"), among Financial Security, the Trust, the Seller,
Bankers Trust Company as Collateral Agent for Financial Security, WFS and WII.
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.
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. If 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. Scheduled Payments shall also not include, nor shall coverage be provided
under the Note Policy in respect of, any taxes, withholding or other charge with
respect to
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any Noteholder imposed by any governmental authority due in connection with the
payment of any Scheduled Payment to a Noteholder.
Payment of claims on the Note Policy made in respect of Scheduled Payments
will be made by Financial Security following Receipt (as defined below) by
Financial Security of the appropriate notice for payment on the later to occur
of (a) 12:00 noon, New York City time, on the fourth Business Day following
Receipt of such notice for payment, and (b) 12:00 noon, New York City time, on
the date on which such payment was due on the Notes.
THE CERTIFICATE POLICY
Simultaneously with the issuance of the Certificates, Financial Security
will deliver the Certificate Policy to the Owner Trustee for the benefit of each
Certificateholder. Under the Certificate Policy, Financial Security will
unconditionally and irrevocably guarantee to the Owner Trustee for the benefit
of each Certificateholder the full and complete payment of (i) Guaranteed
Distributions (as defined below) with respect to the Certificates and (ii) the
amount of any Guaranteed Distribution which subsequently is avoided in whole or
in part as a preference payment under applicable law.
"Guaranteed Distributions" will mean, with respect to each Distribution
Date, the distributions to be made to Certificateholders (other than to WII) in
an aggregate amount equal to the Certificate Interest Distributable Amount and
the Certificate Principal 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
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because such distributions were avoidable as preference
payments under applicable bankruptcy law,
(B) a certificate of the Noteholder or Certificateholder, as the
case may be, that the Order has been entered and is not
subject to any stay and
(C) an assignment duly executed and delivered by such Noteholder
or Certificateholder, as the case may be, in such form as is
reasonably required by Financial Security and provided to such
Securityholder by Financial Security, irrevocably assigning to
Financial Security all rights and claims of such
Securityholder relating to or arising under the related Class
of Notes or the Certificates, as the case may be, against the
debtor which made such preference payments or otherwise with
respect to such preference payment, or
(ii) the date of Receipt by Financial Security from the Indenture
Trustee or the Owner Trustee, as the case may be, of the items
referred to in clauses (A), (B) and (C) above if, at least four
Business Days prior to such date of Receipt, Financial Security
shall have Received written notice from the related Trustee that
such items were to be delivered on such date and such date was
specified in such notice.
Such payment shall be disbursed to the receiver, conservator,
debtor-in-possession or trustee in bankruptcy named in the Order and not to the
related Trustee or any Securityholder directly (unless a Securityholder has
previously paid such amount to the receiver, conservator, debtor-in-possession
or trustee in bankruptcy named in the Order in which case such payment shall be
disbursed to the related Trustee for distribution to such Securityholder upon
proof of such payment reasonably satisfactory to Financial Security). In
connection with the foregoing, and as will be provided in the Indenture and Sale
and Servicing Agreement, Financial Security will have certain rights to direct
proceedings regarding the seeking to avoid payments made on or in respect of the
Contracts, the Notes or the Certificates as preferential.
The terms "Receipt" and "Received," with respect to either Policy, shall
mean actual delivery to Financial Security and to its fiscal agent, if any,
prior to 12:00 noon, New York City time, on a Business Day and delivery either
on a day that is not a Business Day or after 12:00 noon, New York City time,
shall be deemed to be Receipt on the next succeeding Business Day. If any notice
or certificate given under a Policy by the Indenture Trustee or the Owner
Trustee, as the case may be, is not in proper form or is not properly completed,
executed or delivered, it shall be deemed not to have been Received, and
Financial Security or its fiscal agent shall promptly so advise the Indenture
Trustee or the Owner Trustee, as the case may be, and such Trustee may submit an
amended notice.
Under the Policies, "Business Day" will mean any day other than (i) a
Saturday or Sunday or (ii) a day on which banking institutions in The City of
New York, New York are authorized or obligated by law or executive order to be
closed.
Financial Security's obligations under the Note Policy in respect of
Scheduled Payments and under the Certificate Policy in respect of Guaranteed
Distributions shall in each case be discharged to the extent funds 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.
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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, White
Mountains Insurance Group, Inc., The Tokio Marine and Fire Insurance Co., Ltd.
and XL Capital Ltd. No shareholder of Holdings is obligated to pay any debt of
Financial Security of 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.
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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 or Bermuda operating insurance company subsidiaries are
generally 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
Standard & Poor's 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 revisions or withdrawal at any time by such rating
agencies. See "Risk Factors -- The Ratings of the Securities May be Withdrawn or
Revised Which May Have an Adverse Effect on the Market Price 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 June 30, 1999 (in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1999
-------------
ACTUAL
-------------
(UNAUDITED)
<S> <C>
Deferred Premium Revenue (net of prepaid reinsurance
premiums)................................................. $ 520,986
----------
Surplus Notes............................................... 120,000
----------
Minority Interest........................................... 21,429
----------
Shareholder's Equity:
Common Stock.............................................. 15,000
Additional Paid-In Capital................................ 706,117
Accumulated Other Comprehensive Income (net of deferred
income taxes).......................................... (1,937)
Accumulated Earnings...................................... 418,772
----------
Total Shareholder's Equity.................................. 1,137,952
----------
Total Deferred Premium Revenue, Surplus Notes, Minority
Interest and Shareholder's Equity......................... $1,800,367
==========
</TABLE>
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
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Insurance Department by Financial Security are available upon request to the
State of New York Insurance Department.
INSURANCE REGULATION
Financial Security is licensed and subject to regulation as a financial
guaranty insurance corporation under the laws of the State of New York, its
state of domicile. In addition, Financial Security and its insurance
subsidiaries are subject to regulation by insurance laws of the various other
jurisdictions in which they are licensed to do business. As a financial guaranty
insurance corporation licensed to do business in the State of New York,
Financial Security is subject to Article 69 of the New York Insurance Law which,
among other things, limits the business of each such insurer to financial
guaranty insurance and related lines, requires that each such insurer maintain a
minimum surplus to policyholders, establishes contingency, loss and unearned
premium reserve requirements for each such insurer, and limits the size of
individual transactions ("single risks") and the volume of transactions
("aggregate risks") that may be underwritten by each such insurer. Other
provisions of the New York Insurance Law, applicable to non-life insurance
companies such as Financial Security, regulate, among other things, permitted
investments, payment of dividends, transactions with affiliates, mergers,
consolidations, acquisitions or sales of assets and incurrence of liability for
borrowings.
THE MASTER SERVICER
The Contracts will be serviced by WFS in its capacity as Master Servicer.
While WFS may or may not use a Subservicer in servicing the Contracts, WFS is
referred to as the Master Servicer herein.
WFS, as Master Servicer, will be obligated pursuant to the Sale and
Servicing Agreement, subject to the limitations set forth therein, to service
the Contracts and to repurchase 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. The 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 the Master Servicer uses a Subservicer, the Master Servicer will enter
into a subservicing agreement with that Subservicer. The subservicing agreement
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 those
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 the actions by a Subservicer.
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
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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.
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 the amount of any outstanding and unreimbursed Advances. 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 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.
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
that 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 scheduled
maturity. 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
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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 which
provides coverage for physical damage to, or loss of, a Financed Vehicle if the
Obligor fails to maintain the required insurance and may add the premium for
that insurance to the balance due on the Contract to the extent permitted by
applicable law; provided, however, that the Master Servicer shall not be
required to maintain that 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. Since Obligors
may choose their own insurers to provide the required coverage, the specific
terms and conditions of their policies vary. The Scheduled Balance of a Contract
will not include any amount for premiums paid by the Master Servicer, 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. The Master Servicer
will prepare and deliver to the Owner Trustee, the Indenture Trustee and
Financial Security the following:
(a) each Statement to Securityholders and
(b) an additional report covering:
- the aggregate amount, if any, paid by or due from the Master Servicer
or the Seller for the purchase of Contracts which the Master Servicer
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.
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 that Contract an amount (the "Servicing Fee") equal to one-twelfth
of 1.25% per annum (the "Servicing Fee Percent") of the Scheduled Balance of
that Contract for the related month in respect of which the Monthly P&I for that
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 "The Master Servicer --
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 that 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.
The Servicing Fee will compensate the Master Servicer for:
(a) 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,
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- responding to inquiries of Obligors,
- investigating delinquencies,
- sending payment statements and reporting tax information to Obligors,
- paying costs of collections, and
- policing the collateral; and
(b) administering the Contracts, including:
- accounting for collections, and
- 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,
outsider 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 goes into default and
as to which no satisfactory arrangements can be made for collection of
delinquent payments. Liquidation of a defaulted Contract may be through
repossession or sale of the Financed Vehicle or otherwise. In connection with a
repossession or other conversion, the Master Servicer will follow normal and
usual procedures 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.
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 during 1997 the Master
Servicer initiated the process of preparing its computer systems and
applications to be year 2000 compliant, 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 has substantially modified all of its
information management systems and applications, both hardware and software, and
completed testing and implementation 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 the 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.
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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 those actions as are
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 to 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 those Contracts in the ordinary course of its business and took
possession of them, the purchaser would acquire an interest in those 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 those Contracts. The Master Servicer will agree in the Sale and
Servicing Agreement to take all necessary actions 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
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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 that 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 those 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 a Financed Vehicle. If there are any
Financed Vehicles as to which WFS has failed to perfect the security interest
assigned to the Trust, the 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 that relocation and thereafter, in most
instances, until the owner registers the Financed Vehicle in that 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 a
relocated Financed Vehicle, for the Financed Vehicle owner to effect the
registration. If the Financed Vehicle owner moves to a state that provides for
notation of lien on the certificate of title to perfect the security interests
in the Financed Vehicle, WFS, 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 reperfection upon
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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 that 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 that
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 the 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 a transferred 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 that 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 the Trustee as an
assignee to enforce noncomplying 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 that defect materially and
adversely affects the interests of the Securityholders, the Indenture Trustee,
the Owner Trustee or Financial Security, that 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 the affected
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.
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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.
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 the Contracts, validity and
enforceability of the Contracts as against the related Obligor, and collision
and comprehensive insurance coverage related to each Financed Vehicle. If (i)
any of those 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 that
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 that 90-day period, the Seller must repurchase the Contract affected by
the defect at a price equal to the outstanding principal amount of that Contract
plus accrued interest thereon to the last Due Date in the Due Period in which
the repurchase occurs.
WFS
GENERAL
WFS Financial Inc ("WFS" or, in its capacity as Master Servicer, the
"Master Servicer") is an auto finance company incorporated in California in
1988. WFS was formerly known as Westcorp Financial Services, Inc. ("Westcorp
Financial"), a wholly owned operating 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
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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 1998, WFS purchased approximately
68% of its contracts from the prime credit quality segment and 32% from the
non-prime segment, and during the nine months ended September 30, 1999, WFS
purchased approximately 70% of its contracts from the prime credit quality
segment and 30% from the non-prime segment. WFS purchases the majority of its
contracts from franchised dealers and to a lesser extent from independent
dealers. During 1998, contracts for new and used vehicles represented 18% and
82%, respectively, of WFS' volume of contracts purchased, and during the nine
months ended September 30, 1999, contracts for new and used vehicles represented
22% and 76%, 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, 1999, WFS had total assets of
$1,914.2 million, total liabilities of $1,715.0 million and stockholders' equity
of $199.2 million. As of September 30, 1999, WFS' net portfolio of contracts
totalled approximately $1.2 billion.
WFS' revenues are derived principally from contractual servicing fees, the
retained interest on contracts sold for which servicing is retained, interest on
contracts not sold and fee income including late fees, deferment fees,
documentation fees and other fees, interest charged on its 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 and its telephone number is (949) 727-1000.
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
45 production offices serving 43 states.
WII
WFS Investments, Inc. ("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
Western Financial Bank (the "Bank") is a federally chartered savings
association. As of September 30, 1999, the Bank had total assets of $4.3
billion, total deposits of $2.3 billion and stockholder's equity of $340 million
on a generally accepted accounting principles basis. The Bank is
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a wholly owned subsidiary of Westcorp. Westcorp is a 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 25 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 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 that 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 corporate
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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 gain or loss will be capital gain or loss if the
Note was held as a capital asset, except for gain representing accrued interest
and accrued market discount not previously included in income. Capital losses
generally may be used only to offset capital gains.
Foreign holders. Interest payments made (or accrued) to a Noteholder who is
a nonresident alien, foreign corporation or other non-United States person (a
"foreign person") generally will be considered "portfolio interest," and
generally will not be subject to United States federal income tax and
withholding tax, if the interest is not effectively connected with the conduct
of a trade or business within the United States by the foreign person and the
foreign person (i) is not actually or constructively a "10 percent shareholder"
of the Trust or the Seller (including a holder of 10% of outstanding Notes or
Certificates) or a "controlled foreign corporation" with respect to which the
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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 that 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.
The IRS has issued final regulations (the "Final Regulations") which, among
other things, affect the procedures to be followed by a Noteholder that is a
foreign person in establishing such person's exemption for the purpose of the
backup withholding rules discussed above. The Final Regulations generally will
be effective for payments made after December 31, 2000. Prospective investors
should consult their own tax advisors concerning the effect of the Final
Regulations on their purchase, ownership and disposition of the Notes.
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 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
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partnership for purposes of federal and state income tax, franchise tax and any
other tax measured in whole or in part by income, with the assets of the
partnership being the assets held by the Trust, the partners of the partnership
being the Certificateholders and the 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.
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All of the taxable income allocated to a Certificateholder that is a
pension, profit sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) will constitute "unrelated business
taxable income" generally taxable to such a holder under the Code.
An individual taxpayer's share of expenses of the Trust (including fees to
the Master Servicer but not interest expense) would be miscellaneous itemized
deductions. Such deductions might be disallowed to the individual in whole or in
part and might result in such holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to such holder over the life of
the Trust.
The Trust intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Contract, the Trust
might be required to incur additional expense but it is believed that there
would not be a material adverse effect on Certificateholders.
Discount and Premium. It is believed that the Contracts will not be issued
with OID, and, therefore, the Trust should not have OID income. However, the
purchase price paid by the Trust for the related Contracts may be greater or
less than the remaining principal balance of the Contracts at the time of
purchase. If so, the Contracts will have been acquired at a premium or discount,
as the case may be. As indicated above, the Trust will make this calculation on
an aggregate basis, but might be required to recompute it on a
Contract-by-Contract basis.
If the Trust acquires the Contracts at a market discount or premium, it
will elect to include any such discount in income currently as it accrues over
the life of such Contracts or to offset any such premium against interest income
on such Contracts. As indicated above, a portion of such market discount income
or premium deduction may be allocated to Certificateholders.
Section 708 Termination. 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
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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 a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Trust might be reallocated among the Certificateholders. The Seller will
be authorized to revise the Trust's method of allocation between transferors and
transferees to conform to a method permitted by future regulations.
Section 754 Election. In the event that a Certificateholder sells its
Certificates at a profit (loss), the purchasing Certificateholder will have a
higher (lower) basis in the Certificates than the selling Certificateholder had.
The tax basis of the Trust's assets will not be adjusted to reflect that higher
(or lower) basis unless the Trust were to file an election under Section 754 of
the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the Trust will not make such election. As a
result, Certificateholders might be allocated a greater or lesser amount of
Trust income than would be appropriate based on their own purchase price for
Certificates.
Administrative Matters. The Trustee is required to keep or have kept
complete and accurate books of the Trust. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year of
the Trust will be the calendar year. The Trustee will file a partnership
information return (IRS Form 1065) with the IRS for each taxable year of the
Trust and will report each Certificateholder's allocable share of items of Trust
income and expense to holders and the IRS on Schedule K-1. The Trust will
provide the Schedule K-l information to nominees that fail to provide the Trust
with the information statement described below and such nominees will be
required to forward such information to the beneficial owners of the
Certificates. Generally, holders must file tax returns that are consistent with
the information return filed by the Trust or be subject to penalties unless the
holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust with
a statement containing certain information on the nominee, the beneficial owners
and the Certificates so held. Such information includes (i) the name, address
and taxpayer identification number of the nominee and (ii) as to each beneficial
owner (a) the name, address and identification number of such person, (b)
whether such person is a United States person, a tax-exempt entity, a foreign
government or an international organization, or any wholly owned agency or
instrumentality of either of the foregoing, and (c) certain information on
Certificates that were held, bought or sold on behalf of such person throughout
the year. In addition, brokers and financial institutions that hold Certificates
through a nominee are required to furnish directly to the Trust information as
to themselves and their ownership of Certificates. A clearing agency registered
under Section 17A of the Exchange Act is not required to furnish any such
information statement to the Trust. The information referred to above for any
calendar year must be furnished to the Trust on or before the following January
31. Nominees, brokers and financial institutions that fail to provide the Trust
with the information described above may be subject to penalties.
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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.
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.
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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, 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 those 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 government or church plan qualified under Section 401(a)
of the Code and exempt from taxation under Section 501(a) of the Code, the
prohibited transaction rules set forth in Section 503 of the Code.
Investments by Plans are subject to ERISA's general fiduciary requirements,
including the requirement of investment prudence and diversification,
requirements respecting delegation of investment authority and the requirement
that a Plan's investment be made in accordance with the documents governing the
Plan.
PROHIBITED TRANSACTIONS
Section 406 of ERISA prohibits parties in interest with respect to a Plan
from engaging in certain transactions involving a Plan and its assets unless a
statutory or administrative exemption applies to the transaction. Section 4975
of the Code and Section 502(i) of ERISA impose certain excise taxes on such
prohibited transactions. Securities purchased by a Plan would be assets of the
Plan. Under regulations issued by the U.S. Department of Labor, the Contracts in
certain circumstances may also be deemed to be assets of each Plan that
purchases Securities. If this were so, persons that cause a Plan to acquire
Securities or that sponsor or insure the related Contracts or manage, control or
service the Contracts may be subject to the fiduciary responsibility provisions
of ERISA and the prohibited transaction provisions of Section 4975 of the Code
in the absence of a statutory or administrative exemption.
THE NOTES
The Notes may be purchased by a Plan subject to ERISA or Section 4975 of
the Code. A fiduciary of a Plan must determine that the purchase of a Note is
consistent with its fiduciary duties under ERISA and does not result in a
nonexempt prohibited transaction as defined in Section 406 of ERISA or Section
4975 of the Code.
71
<PAGE> 72
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 that 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.
UNDERWRITING
Subject to certain conditions contained in an underwriting agreement (the
"Underwriting Agreement"), Banc of America Securities LLC, Credit Suisse First
Boston Corporation and Donaldson, Lufkin & Jenrette Securities Corporation (the
"Underwriters"), for whom Banc of America Securities LLC is acting as
representative (the "Representative"), 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>
Banc of America Securities LLC......... $112,050,000 $ 74,712,500 $36,987,500
Credit Suisse First Boston
Corporation.......................... 56,025,000 37,356,250 18,493,750
Donaldson, Lufkin & Jenrette
Securities Corporation............... 56,025,000 37,356,250 18,493,750
------------ ------------ -----------
Total........................ $224,100,000 $149,425,000 $73,975,000
============ ============ ===========
</TABLE>
72
<PAGE> 73
CERTIFICATES
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITER OF CERTIFICATES
----------- ----------------
<S> <C>
Banc of America Securities LLC.............................. $26,250,000
Credit Suisse First Boston Corporation...................... 13,125,000
Donaldson, Lufkin & Jenrette Securities Corporation......... 13,125,000
-----------
Total............................................. $52,500,000
===========
</TABLE>
The Seller has been advised by the Representative that the Underwriters
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 those prices less a concession not in excess of 0.090% of the
principal amount of the Class A-1 Notes, 0.120% of the principal amount of the
Class A-2 Notes and 0.130% of the principal amount of the Class A-3 Notes. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of 0.075% of the principal amount of the Class A-1 Notes, 0.100% of the
principal amount of the Class A-2 Notes and 0.110% of the principal amount of
the Class A-3 Notes on sales to certain other dealers. After the initial public
offering, the public offering prices of the Notes and these concessions and
discounts may be changed.
The Seller has been advised by the Representative that the Underwriters
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
that price less a concession not in excess of 0.220% of the principal amount
thereof. The Underwriters may allow, and such dealers may reallow, a discount
not in excess of 0.200% of the principal amount of the Certificates. After the
initial public offering, the public offering price of the Certificates and that
concession and discount 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.
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 LLP, New York, New
York.
73
<PAGE> 74
EXPERTS
The consolidated balance sheets of Financial Security Assurance Inc. and
Subsidiaries as of December 31, 1998 and 1997 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, 1998, 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 "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. The forward-looking statements reflect
the Seller's current views with respect to future events and financial
performance and 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. You 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 consumers and demographics
of WFS' lending markets could cause actual results to differ materially from
historical results or those anticipated.
74
<PAGE> 75
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.................................... 47
Administration Fee.......................................... 48
Administrator............................................... 47
Advance..................................................... 55
Aggregate Scheduled Balance................................. 33
Aggregate Scheduled Balance Decline......................... 33
APR......................................................... 13
Bank........................................................ 63
Business Day................................................ 22, 51
Calculation Day............................................. 37
Cede........................................................ 27
Certificate Balance......................................... 26
Certificate Distributable Amount............................ 33
Certificate Distribution Account............................ 31
Certificate Final Distribution Date......................... 26
Certificateholders.......................................... 27
Certificate Interest Carryover Shortfall.................... 33
Certificate Interest Distributable Amount................... 33
Certificate Percentage...................................... 33
Certificate Policy.......................................... 11
Certificate Pool Factor..................................... 21
Certificate Principal Carryover Shortfall................... 34
Certificate Principal Distributable Amount.................. 34
Certificate Quarterly Interest Distributable Amount......... 34
Certificate Quarterly Principal Distributable Amount........ 34
Certificates................................................ 5
Charge-Off Percentage....................................... 37
Class A-1 Final Distribution Date........................... 1, 22
Class A-1 Notes............................................. 1
Class A-2 Final Distribution Date........................... 1, 22
Class A-2 Notes............................................. 1
Class A-3 Final Distribution Date........................... 1, 22
Class A-3 Notes............................................. 1
Closing Date................................................ 11
Code........................................................ 64
Collection Account.......................................... 31
Contracts................................................... 17
Cut-Off Date................................................ 11
Cut-Off Date Aggregate Scheduled Balance.................... 13
Defaulted Contract.......................................... 34
Definitive Securities....................................... 29
Delinquency Percentage...................................... 37
Determination Date.......................................... 32
Distribution Accounts....................................... 31
Distribution Dates.......................................... 6, 21
Distribution Date Statement................................. 32
</TABLE>
A-1
<PAGE> 76
<TABLE>
<CAPTION>
TERM PAGE
---- ----
<S> <C>
DTC......................................................... 27
DTC Services................................................ 29
Due Date.................................................... 36
Due Period.................................................. 34
Eligible Investments........................................ 31
ERISA....................................................... 9
Event of Default............................................ 23
Excess Amounts.............................................. 33
Exchange Act................................................ 27
FDIC........................................................ 63
Final Distribution Dates.................................... 6, 26
Final Regulations........................................... 66
Financed Vehicles........................................... 11
Financial Security.......................................... 5
Guaranteed Distributions.................................... 50
Holding Account............................................. 31
Holdings.................................................... 52
Indenture................................................... 21
Indenture Trustee........................................... 5
Indirect Participants....................................... 27
Insolvency Event............................................ 41
Insurance Agreement......................................... 49
Insurer Default............................................. 24
Interest Period............................................. 22
Interest Rate............................................... 1, 6
Issuer...................................................... 5
IRS......................................................... 64
Liquidated Contract......................................... 34
Liquidation Expenses........................................ 30
Master Servicer............................................. 5
Monthly P&I................................................. 36
Moody's..................................................... 6
Net Collections............................................. 30
Net Insurance Proceeds...................................... 30
Net Liquidation Proceeds.................................... 30
New Partnership............................................. 68
Nonrecoverable Advance...................................... 55
Note Distributable Amount................................... 34
Note Distribution Account................................... 31
Note Final Distribution Dates............................... 23
Note Interest Carryover Shortfall........................... 35
Note Interest Distributable Amount.......................... 35
Note Percentage............................................. 35
Note Policy................................................. 11
Note Pool Factor............................................ 21
Note Principal Carryover Shortfall.......................... 35
Note Principal Distributable Amount......................... 35
Note Quarterly Interest Distributable Amount................ 35
Note Quarterly Principal Distributable Amount............... 35
Noteholders................................................. 27
</TABLE>
A-2
<PAGE> 77
<TABLE>
<CAPTION>
TERM PAGE
---- ----
<S> <C>
Notes....................................................... 5
Obligors.................................................... 12
OID......................................................... 65
Old Partnership............................................. 68
Omnibus Proxy............................................... 28
Optional Purchase........................................... 23
Order....................................................... 50
Original Certificate Balance................................ 26
OTS......................................................... 57
Owner....................................................... 27
Owner Trustee............................................... 5
Participants................................................ 27
Pass-Through Rate........................................... 1, 6, 25
Paying Agent................................................ 27
Plans....................................................... 71
Policies.................................................... 11
Principal Distributable Amount.............................. 35
PTCE........................................................ 72
Rating Agencies............................................. 6
Record Date................................................. 22
Rees-Levering Act........................................... 60
Receipt..................................................... 51
Received.................................................... 51
Reinvestment Contract....................................... 31
Representative.............................................. 72
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.
</TABLE>
A-3
<PAGE> 78
<TABLE>
<CAPTION>
TERM PAGE
---- ----
<S> <C>
Sale and Servicing Agreement................................ 12
Scheduled Balance........................................... 36
Scheduled Payments.......................................... 49
Securities.................................................. 5
Securityholders............................................. 11
Seller...................................................... 5
Servicer Defaults........................................... 40
Servicing Fee............................................... 56
Servicing Fee Percent....................................... 56
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............................ 37
Spread Account.............................................. 7, 36
Spread Account Initial Deposit.............................. 7, 36
Standard & Poor's........................................... 6
Statement to Securityholders................................ 38
Subservicer................................................. 54
Systems..................................................... 29
Trust....................................................... 5
Trust Agreement............................................. 11
Trust Fees and Expenses..................................... 22
Trust Property.............................................. 5
Trustees.................................................... 46
Trust Insolvency............................................ 24
UCC......................................................... 58
Underwriters................................................ 72
Underwriting Agreement...................................... 72
Unreimbursed Insurer Amounts................................ 33
Westcorp Financial.......................................... 62
WFAL........................................................ 5
WFS......................................................... 5, 62
WII......................................................... 8
Year 2000 Problems.......................................... 29, 63
</TABLE>
A-4
<PAGE> 79
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$500,000,000
WFS FINANCIAL 1999-C OWNER TRUST
$224,100,000
6.411% AUTO RECEIVABLE BACKED NOTES, CLASS A-1
$149,425,000
6.92% AUTO RECEIVABLE BACKED NOTES, CLASS A-2
$73,975,000
7.07% AUTO RECEIVABLE BACKED NOTES, CLASS A-3
$52,500,000
7.34% AUTO RECEIVABLE BACKED CERTIFICATES
WFS FINANCIAL AUTO LOANS, INC.
SELLER
WFS FINANCIAL INC
MASTER SERVICER
---------------------
PROSPECTUS
OCTOBER 26, 1999
---------------------
BANC OF AMERICA SECURITIES LLC
CREDIT SUISSE FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
You should rely only on the information contained in or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
different information.
We are not offering the notes or certificates in any state where the offer
of such securities is not permitted.
We do not claim the accuracy of the information in this prospectus as of
any date other than the date stated on the cover of this prospectus.
Until January 24, 2000, all dealers that buy, sell or trade the Securities
may be required to deliver a prospectus, regardless of whether they are
participating in the offer. 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.
- --------------------------------------------------------------------------------
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