<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 24, 2000
REGISTRATION NO.
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
WFS FINANCIAL OWNER TRUSTS
(ISSUER WITH RESPECT TO THE SECURITIES)
WFS FINANCIAL AUTO LOANS, INC.
(CO-ORIGINATOR OF THE TRUSTS DESCRIBED HEREIN)
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CALIFORNIA 9999 33-0149603
(STATE OR OTHER JURISDICTION OF (PRIMARY SIC (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
23 PASTEUR
IRVINE, CALIFORNIA 92618
(949) 727-1002
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
CO-REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JOY SCHAEFER
PRESIDENT
WFS FINANCIAL AUTO LOANS, INC.
23 PASTEUR
IRVINE, CALIFORNIA 92618
(949) 727-1002
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
WFS RECEIVABLES CORPORATION
(CO-ORIGINATOR OF THE TRUSTS DESCRIBED HEREIN)
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CALIFORNIA 9999 APPLIED FOR
(STATE OR OTHER JURISDICTION OF (PRIMARY SIC (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
6655 WEST SAHARA AVENUE
LAS VEGAS, NEVADA 89102
(702) 247-1442
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
CO-REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DAVID A. GUAY
PRESIDENT
WFS RECEIVABLES CORPORATION
6655 WEST SAHARA AVENUE
LAS VEGAS, NEVADA 89102
(702) 247-1442
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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ANDREW E. KATZ, ESQ. DALE W. LUM, ESQ.
MITCHELL, SILBERBERG & KNUPP LLP BROWN & WOOD LLP
11377 W. OLYMPIC BOULEVARD 555 CALIFORNIA STREET
LOS ANGELES, CALIFORNIA 90064-1683 SAN FRANCISCO, CALIFORNIA 94104-1715
(310) 312-2000 (415) 772-1200
</TABLE>
------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
TITLE OF EACH MAXIMUM MAXIMUM AMOUNT OF
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE FEE*
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Auto Receivable Backed Securities....... $3,500,000,000 100% $3,500,000,000 $924,000
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</TABLE>
* Estimated, pursuant to Rule 457(a) under the Securities Act, solely for the
purpose of calculating the registration fee on the basis of the proposed
maximum offering price per unit.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE AS MAY
BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED , 2000
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AUTOMOBILE LOAN ASSET-
BACKED SECURITIES, ISSUABLE IN
SERIES
WFS FINANCIAL INC
MASTER SERVICER
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- -------------------------------------------------------
YOU SHOULD CAREFULLY REVIEW THE RISK FACTORS BEGINNING ON PAGE 8 OF THIS
PROSPECTUS AS WELL AS THOSE IN THE RELATED PROSPECTUS SUPPLEMENT. These
securities are automobile loan asset-backed securities issued by a trust.
The securities are not obligations of WFS Financial Auto Loans, Inc., WFS
Receivables Corporation, WFS Financial Inc or any of their affiliates, nor are
the securities insured by the Federal Deposit Insurance Corporation or any
other governmental agency on instrumentality.
This prospectus may not be used to consummate sales of securities unless
accompanied by the prospectus supplement relating to the offering of these
securities.
- --------------------------------------------------------
THE SECURITIES:
- - will be asset-backed securities issued from time to time in one or more
series;
- - will be backed by one or more pools of automobile loans held by the issuer;
- - will be rated in one of the four highest rating categories by at least one
nationally recognized statistical rating organization; and
- - will have the benefit of one or more forms of credit enhancement, such as
insurance policies, overcollateralization, subordination or spread account
funds.
THE ASSETS:
The assets of each issuer will consist of a pool of retail installment sales
contracts secured by new or used motor vehicles, and other assets specified in
the applicable prospectus supplement.
NEITHER THE SECURITIES EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 2000.
<PAGE> 3
IMPORTANT NOTICE ABOUT INFORMATION
PRESENTED IN THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities Exchange Commission utilizing a "shelf" registration process. Under
this shelf process, we may, over the next two years, sell any combination of the
securities described in this prospectus in one or more offerings. This
prospectus provides you with a general description of the securities we may
offer. Each time we sell securities, we will provide a prospectus supplement
that will contain specific information about the terms of that offering. The
prospectus supplement may also add, update or change information contained in
this prospectus. You should read both this prospectus and any prospectus
supplement.
We have filed with the SEC 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
and to documents incorporated by reference in this prospectus. 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.
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.
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 each trust, and an abbreviated discussion of terms, of which
some will apply to every offering while others will vary depending on the nature
of the particular offering. A more complete description of terms follows the
abbreviated discussion.
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.
WFS, as Master Service, will provide without charge to each person,
including any beneficial owner of Notes, to whom a copy of this prospectus is
delivered, on the written or oral request of any such person, a copy of any or
all of the documents incorporated herein by reference, except the exhibits to
such documents (unless such exhibits are specifically incorporated by reference
in such documents). Requests for such copies should be directed to Secretary,
WFS Financial Inc, 23 Pasteur, Irvine, California 92618 or by calling
(949)727-1002.
2
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Important Notice About Information
Presented in this Prospectus......... 2
Where to Find Information in These
Documents.......................... 2
Summary of Terms..................... 5
The Parties........................ 5
The Securities:.................... 5
The Trust Property................. 5
Redemption of Securities and
Repurchase of Contracts......... 6
Tax Status and ERISA
Considerations.................. 7
Risk Factors......................... 8
Absence of Secondary Market for the
Notes Could Limit Your Ability
to Resell the Notes............. 8
The Ratings of the Notes May be
Withdrawn or Revised Which May
Have an Adverse Effect on the
Market Price of the Notes....... 8
Losses on Contracts May be Affected
Disproportionately Because of
Geographic Concentration of
Contracts in California......... 8
Prepayments on the Contracts Could
Cause You to Be Paid Earlier
Than You Expected, Which May
Adversely Affect Your Yield to
Maturity........................ 8
Possession of the Contracts by WFS
Combined with the Insolvency of
WFS May Cause Your Payments to
Be Reduced or Delayed........... 9
Losses and Delinquencies on the
Contracts May Differ From WFS'
Historical Loss and Delinquency
Levels.......................... 9
Noteholders Have No Recourse
Against WFS for Losses.......... 9
Formation of the Trust............... 9
General............................ 9
Capitalization..................... 11
Interest Rate and Currency Swap.... 11
Prefunding Account................. 11
The Owner Trustee.................. 11
The Contracts Pool................... 11
Underwriting Procedures Relating to
the Contracts................... 12
Servicing of Contracts............. 14
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Pool Factors and Trading
Information........................ 14
The Notes............................ 15
General............................ 15
Payments of Interest and
Principal....................... 15
Optional Redemption................ 15
Optional Repurchase of Contracts by
WFSRC........................... 15
Prepayment Following Optional
Repurchase by WFSRC............. 16
The Indenture Trustee.............. 16
Events of Default.................. 16
Certain Information Regarding the
Securities......................... 17
Book-Entry Registration............ 17
DTC's Year 2000 Efforts............ 18
Definitive Securities.............. 19
Payments on the Contracts.......... 19
The Accounts and Eligible
Investments..................... 20
Distributions on the Notes......... 20
Payment Priorities of the Notes;
The Spread Account.............. 20
Withdrawals from the Spread
Account......................... 22
Payments from the Spread Account
and Under the Note Policy....... 23
Statements to Noteholders.......... 23
Evidence as to Compliance.......... 23
Certain Matters Regarding the
Master Servicer................. 24
Servicer Default................... 25
Rights Upon Servicer Default....... 26
Waiver of Past Defaults............ 26
Voting Interests................... 26
Amendment.......................... 27
List of Noteholders................ 29
No Bankruptcy Proceedings.......... 29
Termination........................ 29
Payment in Full of Notes........... 30
The Trustees....................... 30
Duties of the Trustees............. 30
Administration Agreement........... 31
Prepayment Considerations.......... 31
The Note Policy...................... 32
Other Terms of the Note Policy..... 33
Financial Security Assurance Inc..... 35
General............................ 35
Reinsurance........................ 35
</TABLE>
3
<PAGE> 5
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PAGE
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<S> <C>
Ratings.............................. 35
Capitalization..................... 36
Insurance Regulation............... 36
Sources of Additional
Information..................... 36
The Master Servicer.................. 36
Collection of Payments............. 37
Advances........................... 37
Insurance on Financed Vehicles..... 38
Servicer Determination and Reports
to Trustees..................... 38
Servicing Compensation............. 38
Realization Upon Defaulted
Contracts....................... 39
Year 2000 Compliance............... 39
Certain Legal Aspects of the
Contracts.......................... 39
General............................ 39
Security Interests in the Financed
Vehicles........................ 40
Enforcement of Security Interests
in Financed Vehicles............ 42
Other Matters...................... 42
Repurchase Obligation.............. 43
</TABLE>
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PAGE
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WFAL................................. 43
WFSRC................................ 44
WFS.................................. 45
General............................ 45
Business Activities................ 45
Federal and California Income Tax
Consequences....................... 45
Federal Income Tax Consequences.... 45
Tax Characterization of Trusts..... 45
Tax Consequences to Holders of the
Notes........................... 46
California Income Tax
Consequences.................... 48
ERISA Considerations................. 48
Plan of Distribution................. 48
Legal Matters........................ 49
Experts.............................. 49
Forward-Looking Statements........... 49
Index of Definitions................. 50
</TABLE>
4
<PAGE> 6
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. To understand all of the terms of an offering, carefully
read this entire document and the accompanying prospectus supplement.
THE PARTIES:
The Issuer of the Trust....... Each series of Notes will be issued by a
separate owner trust (each, a "Trust")
Sellers/Seller................ WFS Financial Auto Loans, Inc. ("WFAL") and WFS
Receivables Corporation ("WFSRC") or only WFAL,
as described in the related prospectus
supplement
Sellers' Addresses............ WFAL: 23 Pasteur, Irvine, California 92618
WFSRC: 6655 West Sahara Avenue, Las Vegas,
Nevada 89102
Sellers' Telephone Numbers.... WFAL: (949) 727-1000
WFSRC: (702) 247-1442
Master Servicer............... WFS Financial Inc ("WFS")
The Insurer................... Financial Security Assurance, Inc. ("Financial
Security")
Indenture Trustee............. See the related prospectus supplement
Owner Trustee................. See the related prospectus supplement
THE SECURITIES:
We will describe in each prospectus supplement the securities we are
offering at that time. The offered securities will include one or more classes
of asset-backed notes.
The Notes..................... Each Note will represent the right to receive
payments of principal and interest as described
in the related prospectus supplement.
THE TRUST PROPERTY:
General....................... The property of each trust will be described in
the applicable prospectus supplement. In
general, 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;
- credit enhancement features to provide
protection against losses on trust assets,
including, for example, an insurance policy
guaranteeing all payments to be made to
holders of the notes; and
- the funds in a spread account.
5
<PAGE> 7
THE CONTRACTS
The Contracts will consist of
- retail installment sales contracts secured by new and used automobiles
and light duty trucks purchased by WFS from new and used car dealers,
- installment loans secured by new and used automobiles and light duty
trucks made by WFS to the obligors under those loans, and
- installment loans secured by new and used automobiles and light duty
trucks made by independent auto finance companies to the obligors under
those loans, which loans are then purchased by WFS,
including in each case, the right to receive the payments due thereon from on or
after the Cut-Off Date specified in the related prospectus supplement.
THE SPREAD ACCOUNT
A 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 each Trust. It would be created
with an initial deposit by WFAL (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 Notes. The funds in the Spread Account will be supplemented on
each distribution 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 a certain
percentage, described in the related prospectus supplement, 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 percentage to be applied will depend upon
the loss and delinquency rate trigger in the related Sale and Servicing
Agreement.
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 the Insurer
to the extent of any unreimbursed amounts due to it, then to WFAL until WFAL has
received an amount equal to the Spread Account Initial Deposit and finally to
the Sellers in accordance with their certificate percentage interests as
described in further detail in the prospectus supplement. You will have no
further rights to any such excess cash once distributed.
THE NOTE POLICY
The Insurer will issue policies that guarantee all payments due to the
Noteholders of insured classes.
REDEMPTION OF SECURITIES AND REPURCHASE OF CONTRACTS:
OPTIONAL REPURCHASE OF CONTRACTS BY WFSRC
If WFSRC is a seller, to the extent described in the related prospectus
supplement, WFSRC may repurchase all of the Contracts it has sold to a Trust on
any Distribution Date prior to which it has given notice that it is exercising
this right (an "Optional Repurchase"). If WFSRC exercises its right to
repurchase, WFSRC will pay a Trust, in addition to the Aggregate Scheduled
Balance of the Contracts being repurchased, a premium in an amount to be
specified in the related prospectus supplement.
6
<PAGE> 8
OPTIONAL PURCHASE
The Sellers may purchase all of the Contracts owned by a 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 an amount to be specified in the related
prospectus supplement (an "Optional Purchase").
OPTIONAL REDEMPTION AND PREPAYMENT
If the Sellers 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 borne by that class of Notes.
MANDATORY REDEMPTION
The Notes may be accelerated if an Event of Default has occurred and is
continuing under the Indenture. Except as otherwise provided in the related
prospectus supplement, 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. Except as otherwise provided in the related
prospectus supplement, if an Event of Default has occurred and is continuing but
no Insurer Default has occurred and is continuing, the Insurer may 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.
TAX STATUS AND ERISA CONSIDERATIONS:
For information concerning the application of federal and state income tax
laws, and ERISA considerations, see the accompanying prospectus supplement. We
urge you to consult your own tax counsel before you purchase any securities.
7
<PAGE> 9
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase any of the Notes. You should also consider the risk factors set forth
under the heading "Risk Factors" in the prospectus supplement.
ABSENCE OF A SECONDARY MARKET FOR THE NOTES COULD LIMIT YOUR ABILITY TO RESELL
THE NOTES
The absence of a secondary market for the Notes could limit your ability to
resell them. This means that if in the future you want to sell any Notes 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
Notes. There currently is no secondary market for the Notes. The Underwriters
expect to make a market in the Notes but will not be obligated to do so. There
is no assurance that a secondary market for the Notes will develop. If a
secondary market for the Notes does develop, it might end at any time or it
might not be sufficiently liquid to enable you to resell any of your Notes.
THE RATINGS OF THE NOTES MAY BE WITHDRAWN OR REVISED WHICH MAY HAVE AN ADVERSE
EFFECT ON THE MARKET PRICE OF THE NOTES
A rating agency can revise or withdraw its ratings at any time if it feels
the circumstances which led to the existing ratings have changed. A revision or
withdrawal of the existing rating may have an adverse effect on the market price
of the related Notes.
A security rating is not a recommendation to buy, sell or hold the Notes.
The ratings are an assessment by the Rating Agencies of the likelihood that each
class of Notes will be paid in full by the related final scheduled distribution
date. The ratings do not consider to what extent the Notes will be subject to
prepayment.
LOSSES ON CONTRACTS MAY BE AFFECTED DISPROPORTIONATELY BECAUSE OF GEOGRAPHIC
CONCENTRATION OF CONTRACTS IN CALIFORNIA
We anticipate that, as compared to other states, California will account
for a larger percentage of the aggregate principal balance of the Contracts.
Information regarding geographic concentrations is set forth in the prospectus
supplement under the heading "Geographic Concentration of the Contracts".
Economic conditions or other factors affecting California in particular could
adversely affect the losses on the Contracts.
PREPAYMENTS ON THE CONTRACTS COULD CAUSE YOU TO BE PAID EARLIER THAN YOU
EXPECTED, WHICH MAY ADVERSELY AFFECT YOUR YIELD TO MATURITY
The yield to maturity of the Notes may be adversely affected by a higher or
lower than anticipated rate of prepayments on the contracts. If you purchase a
Note at a premium based on your expectations as to its maturity or weighted
average life, and the Note pays principal more quickly than you expected, your
yield will be reduced and you may not recover the premium you paid. Similarly,
if you purchase a Note at a discount based on your expectations as to its
maturity or weighted average life, and the Note pays principal more slowly than
you expected, your yield will be lower than you anticipated. The yield to
maturity on interest only Notes will be extremely sensitive to the rate of
prepayments on the contracts. If the contracts prepay very quickly the yield on
an interest only Note could be dramatically reduced. The vehicle loans may be
prepaid in full or in part at any time. We cannot predict the rate of
prepayments of the contracts, which is influenced by a wide variety of economic,
social and other factors, including among others, obsolescence, the prevailing
interest rates, availability of alternative financing, local and regional
economic conditions and natural disasters. Therefore, we can give no assurance
as to the level of prepayments that a trust will
8
<PAGE> 10
experience. Your Notes could be subject to optional or mandatory redemption
features, exposing you to investment risk. One or more classes of Notes of any
series may be subject to optional or mandatory redemption in whole or in part,
on or after a specified date, or on or after the time when the aggregate
outstanding principal amount of the automobile loans or the securities is less
than a specified amount or percentage. Since prevailing interest rates may
fluctuate, we cannot assure you that you will be able to reinvest these amounts
at a yield equaling or exceeding the yield on your securities. You will bear the
risk of reinvesting unscheduled distributions resulting from a redemption.
POSSESSION OF THE CONTRACTS BY WFS COMBINED WITH THE INSOLVENCY OF WFS MAY CAUSE
YOUR PAYMENTS TO BE REDUCED OR DELAYED
Any insolvency by WFS while in possession of the contracts may result in
competing claims to ownership or security interests in the contracts which could
result in delays in payments on the securities, losses to securityholders or the
repayment of the securities. In addition, if the company, the servicer, or a
third party while in possession of the contracts, sells or pledges and delivers
them to another party, that party could acquire an interest in the contracts
with priority over the trustee's interest. This could result in delays in
payments on the securities, losses to you or the repayment of the securities.
LOSSES AND DELINQUENCIES ON THE CONTRACTS MAY DIFFER FROM WFS' HISTORICAL LOSS
AND DELINQUENCY LEVELS
We cannot guarantee that the delinquency and loss levels of the contracts
in the Trust will correspond to the historical levels WFS experienced on its
loan and vehicle portfolio. There is a risk that delinquencies and losses could
increase or decline significantly for various reasons including:
- Changes in compliance with underwriting standards; or
- Changes in the local, regional or national economies.
NOTEHOLDERS HAVE NO RECOURSE AGAINST WFS FOR LOSSES
There is no recourse against WFS. The securities represent obligations
solely of the trust or debt secured by the trust property. No securities will be
guaranteed by WFS, WFAL, WFSRC or the applicable trustee. Consequently, if
payments on the automobile loans, and to the extent available, any credit
enhancement, are insufficient to pay the securities in full, you have no rights
to obtain payment from the company.
FORMATION OF THE TRUST
GENERAL
Each 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 on a date to be specified in the
prospectus supplement (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 to investors;
- issuing Certificates to Sellers or their affiliates;
- making payments on the Notes; and
9
<PAGE> 11
- 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 Sellers, WFAL and WFSRC, will individually or
jointly establish the Trust (as described in greater detail in the related
prospectus supplement), to which the Contracts will be sold. WFAL will sell and
assign a percentage of the Contracts directly to the Trust, and the remaining
Contracts will be transferred to WFSRC, which will then sell and assign those
Contracts to the Trust. The percentage of Contracts to be sold to the Trust
through WFSRC will be specified in the related prospectus supplement and will
range from zero percent to one hundred percent. The Sellers will receive
Certificates representing their beneficial interest in the assets of the Trust.
The Certificates will be subordinate to the Notes.
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
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 Sellers or the Trust. See "Certain
Legal Aspects of the Contracts."
Simultaneously with the issuance of the Notes, the Insurer will issue a
policy (the "Note Policy") to the Indenture Trustee and to the Owner Trustee for
the benefit of the Noteholders. Under the Note Policy, the Insurer will
unconditionally and irrevocably guarantee to the related Noteholders full and
complete payment of the Scheduled Payments for each Distribution Date. The
Insurer will have a lien on the Contracts and other documents relating to the
Contracts subordinate to the interest of the Noteholders, which lien cannot be
executed upon until all required payments under the Note Policy have been made.
Detailed information about the Note Policy and the Insurer are set forth under
the headings "The Note Policy" and "The Insurer".
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 a date to be
specified in the prospectus supplement (the "Cut-Off Date");
- security interests in the Financed Vehicles;
- the Note Policy;
- amounts on deposit in the Collection Account, the Note 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 (the "Sale and Servicing Agreement"), among the Trust, the
Sellers and the Master Servicer.
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Pursuant to the Indenture, the property of the Trust (other than the Note
Distribution Account and the Note Policy) will be held by the Master Servicer
for the benefit of the Indenture Trustee and the Insurer 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 the Trust's 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."
CAPITALIZATION
Each prospectus supplement sets forth further details regarding the
capitalization of the related Trust.
INTEREST RATE AND CURRENCY SWAPS
The Trust may also include a derivative arrangement for any series or class
of Notes. A derivative arrangement may include a guaranteed rate agreement, a
maturity liquidity facility, a tax protection agreement, an interest rate cap or
floor agreement, an interest rate or currency swap agreement or any other
similar arrangement. The related prospectus supplement will contain further
details regarding any such arrangement.
PREFUNDING ACCOUNT
The amount of Notes issued by a particular Trust may exceed the Aggregate
Scheduled Balance of the Contracts sold to that Trust. If so, the difference is
placed in a cash account (the "Prefunding Account"). The Prefunding Account is
used to purchase additional Contracts by the Trust. The Prefunding Account will
not exceed 25% of the principal amount of the Notes sold by a Trust. The related
prospectus supplement will contain further details regarding the Prefunding
Account, if any.
THE OWNER TRUSTEE
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." Each prospectus supplement will contain further information
regarding the Owner Trustee.
THE CONTRACTS POOL
Each Contract is a retail installment sales contract or installment loan
originated by a new or used car dealer or an auto finance company. Most of the
Contracts will be purchased by WFS from new and used car dealers, however, a
limited number of Contracts may be installment loans originated by branch
offices or affiliates of WFS directly to consumers or by other independent auto
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finance companies which loans are then sold to WFS. 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 are underwritten and purchased by WFS in the
ordinary course of its business operations. 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 Notes. As amortization on an actuarial basis produces a faster
amortization than does application of the Rule of 78's, there will not be a
shortfall of principal in any event, including as a result of prepayments or
timely payment to maturity of a Rule of 78's Contract.
The prospectus supplement sets forth details regarding the percentage of
Contracts which are Rule of 78's Contracts and the percentage of Contracts which
are Simple Interest Contracts. Each prospectus supplement also will contain
details regarding the distribution of Contracts by APR, the geographic
concentration of the Contracts, and the percentage of Contracts relating to new
and used vehicles.
UNDERWRITING PROCEDURES RELATING TO THE CONTRACTS
WFS and its predecessors and affiliates have underwritten and purchased
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 or
lender. 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.
The underwriting process begins when an application is faxed to WFS'
centralized data entry center. WFS' data entry group enters the applicant
information into its front-end underwriting
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computer system. Once the application has been entered, the computer system will
automatically obtains credit bureau information on the applicant which is then
routed through one of WFS' multiple proprietary credit scorecards.
WFS uses credit scoring to differentiate credit applicants and to rank
order credit risk in terms of expected default probabilities, which enables WFS
to tailor contract pricing and structure according to this statistical
assessment of credit risk. For example, a consumer with a lower score would
indicate a higher probability of default; therefore, WFS would structure and
price the transaction to compensate for this higher default risk. Multiple
scorecards are used to accommodate the full spectrum of contracts WFS purchases.
In addition to a credit score, the system will highlight certain aspects of the
credit application which have historically impacted the creditworthiness of the
borrowers.
Given the different risk characteristics of the contracts WFS acquires, WFS
has separate credit analysts who specialize in reviewing either prime or
non-prime contracts. Credit analysts are responsible for properly structuring
and pricing deals to meet WFS' risked-based criteria. Credit analysts review the
information, structure and price of an application and make a determination
whether to approve or decline it, or make a counteroffer to the dealer. Each
credit analyst's lending levels and approval authorities are established based
on the individual's credit experience and portfolio performance, credit manager
audit results and quality control review results. Higher levels of approvals are
required for higher credit risk and are controlled by system driven parameters
and limits. System driven controls include limits on interest rates, contract
term, contract advances, payment to income ratios, debt to income ratios,
collateral values and low side overrides.
Once adequate approval has been received, the computer system automatically
sends a fax back to the dealer with WFS' credit decision, specifying approval,
denial or conditional approval based upon modification to the transaction such
as increase in down payment, reduction of term, or the addition of a co-signer.
As part of the approval process, the system or the credit analyst may require
that some of the information be verified, such as income, employment, residence
or credit history of the applicant. The system increases efficiency by
automatically denying approval in certain circumstances without additional
underwriting being performed. These automated notices are controlled by
parameters set by WFS to be consistent with WFS' credit policy.
If the dealer and obligor accept the terms of the approval, the dealer is
required to deliver the necessary documentation for each contract to the
appropriate office. The operations group audits such documents for completeness
and consistency with the application, providing final approval and funding of
the contract. A direct deposit is made or a check is prepared and is promptly
sent to the dealer for payment. The dealer's proceeds include an up-front dealer
participation paid to the dealer for consideration of the acquisition of the
contract. The completed contract file is then forwarded to the records center
for imaging.
Under the direction of the Credit Pricing Committee, the Chief Credit
Officer oversees credit risk management, sets underwriting policy, monitors
contract pricing and tracks compliance to underwriting policies and
re-underwrites select contracts. If re-underwriting statistics are unacceptable,
all monthly and quarterly incentives. are forfeited by the office that
originated the contracts. WFS' internal quality control group reviews contracts,
on a statistical sampling basis, to ensure adherence to established lending
guidelines and proper documentation requirements. Credit managers, within each
regional business center, provide direct management oversight to each credit
analyst. In addition, the Chief Credit Officer provides oversight management to
ensure that all credit managers analysts are following overall corporate
guidelines.
Contracts purchased from independent auto finance companies are fully
underwritten by WFS in the same manner and to the same criteria as Contracts
originated by WFS. WFS purchases Contracts
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from independent auto finance companies only after WFS has completed a thorough
review of the business practices and lending criteria applied by that
independent auto finance company and WFS has entered into a written agreement
with that company. The written agreement contains representations and warranties
as to the Contracts no less broad than those made by WFS or the Sellers in the
Sale and Servicing Agreement as to a related Trust.
SERVICING OF CONTRACTS
WFS services all of the contracts WFS purchases, both those held by WFS and
those sold in securitization transactions. The servicing process includes the
routine collection and processing of payments, responding to borrower inquiries,
maintaining the security interest in the vehicle, maintaining physical damage
insurance coverage and repossessing and selling collateral when necessary.
WFS uses monthly billing statements to serve as a reminder to borrowers as
well as an early warning mechanism in the event a borrower has failed to notify
WFS of an address change. Approximately 15 days before a borrower's payment is
due, WFS mails a billing statement directing the borrower to mail payments to
WFS' lockbox address. Payments received in the mail or through WFS' offices are
processed by WFS' remittance processing center using state of the art lockbox
equipment. To expedite the collection process, WFS accepts payments from
borrowers through automated payment programs including PC banking, direct debits
and third party payment processing services. WFS' customer service center uses
interactive voice response technology to answer routine account questions and
route calls to the appropriate service counselor.
WFS' fully integrated servicing and collections system automatically
forwards accounts based on estimated likelihood of default and delinquency
status to WFS' automated dialers or to WFS' collection centers throughout the
country. Borrowers who are past due initially receive a call from a collector
queued by WFS' automated telephone dialing system. If the system is unable to
reach a borrower within a specified number of days or if the account is more
than 30 days delinquent, the account is forwarded to a collection specialist
within the office that originated the contract. This process balances the
efficiency of centralized collection efforts with the effectiveness of
decentralized personal collection efforts. WFS' systems also track delinquencies
and chargeoffs, monitor the performance of WFS' collection associates and
forecast potential future delinquency. To assist in the collections process, WFS
can access original documents through WFS' imaging system which stores all the
documents related to each contract. WFS limits deferments to a maximum of three
deferments over the life of the contract and rarely rewrite contracts.
If satisfactory payment arrangements are not made, the vehicle is generally
repossessed within 60 to 90 days of the date of delinquency, subject to
compliance with applicable law. WFS uses independent contractors to perform
repossessions. The vehicle remains in WFS' custody generally for 15 days, or
longer if required by local law, to provide the obligor the opportunity to
redeem the contract. If after the redemption period the delinquency is not
cured, WFS writes down the vehicle to fair value and reclassifies the contract
as a repossessed asset. After the redemption period expires, WFS prepares the
vehicle for sale. WFS sells substantially all repossessed vehicles through
wholesale auto auctions, subject to applicable law. WFS does not provide the
financing on repossessions sold. WFS uses regional remarketing departments to
sell WFS' repossessed vehicles. Once the vehicle is sold, any remaining
deficiency balances are then charged off.
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
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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. Each Note 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. 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.
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. In addition, Noteholders 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 Noteholders."
THE NOTES
GENERAL
For each Trust that issues notes, one or more classes of notes of the
related series will be issued pursuant to the terms of an indenture (the
"Indenture"). 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 certain terms of the Indenture and the Notes, but does not
purport to be complete. You should review the applicable prospectus supplement,
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.
PAYMENTS OF INTEREST AND PRINCIPAL
The applicable prospectus supplement will describe the timing and priority
of payment, seniority, allocations of losses, interest rate and amount of or
method of determining payments of principal and interest on each class of notes
of a given series, including the final distribution date for each class of Notes
(each, a "Final Scheduled Distribution Date"). In particular, interest and/or
principal may be paid at different intervals, for example, monthly, quarterly,
or semi-annually. Interest may be payable on either a fixed or floating rate
basis. The rights of holders of any class of notes to receive payments of
principal and interest may be senior or subordinate to the rights of holders of
any other class or classes of Notes of that series.
OPTIONAL REDEMPTION
Each Class of outstanding Notes may be subject to redemption, on terms set
forth in the applicable prospectus supplement. 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 an amount to be specified in the applicable
prospectus supplement.
OPTIONAL REPURCHASE OF CONTRACTS BY WFSRC
If WFSRC is a seller, as described in the related prospectus supplement, it
will have an Optional Repurchase right as to the Contracts it has sold to a
Trust If WFSRC exercises its Optional
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Repurchase right, WFSRC will pay the Trust a repurchase premium in an amount to
be specified in the related prospectus supplement.
PREPAYMENT FOLLOWING OPTIONAL REPURCHASE BY WFSRC
If WFSRC exercises its Optional Repurchase right as described above:
- the amount received upon repurchase equal to the Aggregate Scheduled
Balance of the repurchased Contracts will be treated as Collections and
distributed to the Noteholders in the order of priority specified in the
related prospectus supplement in addition to the distributions to which
the Noteholders would then otherwise be entitled to receive,
- the amount received equal to the prepayment premium will be distributed
by the Trust on a pro-rata basis to all classes of Notes then outstanding
based upon the principal amount of each such class outstanding as of the
Distribution Date on which the distribution occurs, and
- the repurchased Contracts will be transferred back to WFSRC and will no
longer be assets of the Trust.
The effect of the exercise by WFSRC of its optional right to repurchase all of
the Contracts it has sold to a Trust will be a reduction of the average life of
those classes of Notes outstanding at the time the optional repurchase occurs.
The extent of that reduction will be a function of when, following the Closing
Date, the repurchase occurs. The reduction will be greater the sooner after the
Closing Date the repurchase occurs.
THE INDENTURE TRUSTEE
The Indenture Trustee will have the rights and duties set forth under
"Certain Information Regarding the Securities -- The Trustees" and "-- Duties of
the Trustees." Each prospectus supplement will contain further information
regarding the Indenture Trustee.
EVENTS OF DEFAULT
With respect to the Notes of a given series (unless otherwise specified in
the related prospectus supplement), "Events of Default" under the related
Indenture will occur 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; or
- 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
(4) certain events of bankruptcy, insolvency, receivership or
liquidation relating to the Trust occur (each, a "Trust Insolvency").
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CERTAIN INFORMATION REGARDING THE SECURITIES
BOOK-ENTRY REGISTRATION
The Depository Trust Company ("DTC"), New York, New York, will act as
securities depository for the Notes. Each Class of Notes 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 Notes (an "Owner") will
be entitled to receive a Definitive Security representing such person's
beneficial ownership interest in the related Notes except in the event that
Definitive Securities are issued under the limited circumstances described
herein. It is anticipated that the only Noteholders 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 Notes will
only be permitted to exercise the rights of Noteholders 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 Notes that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or an interest in,
Notes may do so only through Participants and Indirect Participants.
Participants will receive a credit for the related Notes on DTC's records. The
ownership interest of each Owner of Notes will in turn be recorded on the
respective records of Participants and Indirect Participants. Owners of Notes
will not receive written confirmation from DTC of their purchase, but Owners of
Notes are expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the
Participant or Indirect Participant through which the Owner of Notes entered
into the transaction. Transfers of ownership interests in the Notes will be
accomplished by entries made on the books of Participants acting on behalf of
Owners of Notes.
To facilitate subsequent transfers, all Notes deposited by Participants
with DTC will be registered in the name of Cede, as nominee of DTC. The deposit
of Notes 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 Notes
and its records will reflect only the identity of the Participants to whose
accounts such Notes are credited, which may or may not be the ultimate Owners of
Notes. 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 Notes will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
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DTC's practice is to credit Participants' accounts on each Distribution
Date in accordance with their respective holdings of Notes 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 Notes 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 Notes 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 Notes will
be the responsibility of Participants and Indirect Participants. As a result,
under the book-entry format, Owners of Notes 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
Notes to pledge Notes to persons or entities that do not participate in the DTC
system, or otherwise take actions with respect to such Notes, may be limited due
to the lack of a physical certificate for such Notes.
Neither DTC nor Cede will consent or vote with respect to the Notes. 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 Notes 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 Notes held by Cede, as nominee for DTC, or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
DTC'S YEAR 2000 EFFORTS
We believe that DTC has not experienced any "Year 2000 Problems." 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 has implemented 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 included a testing phase, which was 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 has contacted (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,
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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 ("Definitive
Securities") will be issued to the related Owners of Notes rather than to DTC,
only if:
- DTC is no longer willing or able to discharge its responsibilities as
depository with respect to the Notes, 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 Notes through DTC; or
- after an Event of Default or Servicer Default, Noteholders evidencing 51%
or more of the voting interests of the related Notes 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 Notes.
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 Notes, through Participants, of
the availability through DTC of Definitive Securities. Upon surrender by DTC of
the certificates representing all Notes of any affected Class and the receipt of
instructions for re-registration, such Trustee will issue Definitive Securities
to the related Owners of Notes, who thereupon will become Noteholders 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 Notes
on each Distribution Date will be made to holders in whose names the Definitive
Securities were registered at the close of business on the Record Date with
respect to such Distribution Date. Distributions will be made by check mailed to
the address of such holders as they appear on the register specified in the
Trust Agreement or the Indenture, as the case may be. The final payment on any
Notes (whether Definitive Securities or Notes registered in the name of Cede),
however, will be made only upon presentation and surrender of such Notes at the
office or agency specified in the notice of final distribution to Noteholders.
The Owner Trustee or the Indenture Trustee will mail such notice to registered
Noteholders 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
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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:
- a 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 Notes 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 Noteholders. Under the Note Policy, the
Insurer will be obligated to provide for distribution on the Notes 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 Notes for that Distribution Date and will be obligated to
provide for the payment of Scheduled Payments on the Notes on the respective
Final Scheduled Distribution Dates.
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 Note Policy 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.
All payments to Noteholders will be made from the Note 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 the
Insurer, be an uninsured general ledger account or a deposit
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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 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
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 Notes. 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 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").
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.
DISTRIBUTIONS ON THE NOTES
With respect to each series of Notes, beginning on the Distribution Date
specified in the applicable prospectus supplement, payments of principal of and
interest (or, where applicable, of principal or interest only) on each class of
those Notes entitled thereto will be made by the applicable Indenture Trustee to
the Noteholders. The timing, calculation, allocation, order, source, priorities
of and requirements for all payments to each class of Noteholders will be set
forth in the applicable prospectus supplement.
With respect to each Trust, on each Distribution Date, collections on the
related Receivables will be withdrawn from the related Collection Account and
will be paid to the Noteholders to the extent provided in the applicable
prospectus supplement. Credit enhancement, including an insurance policy, will
be available to cover any shortfalls in the amount available for payment to the
Noteholders on that date to the extent specified in the applicable prospectus
supplement. As more fully described in the applicable prospectus supplement:
1. payments of principal of a class of Notes of a given series will be
subordinate to payments of interest on that class;
2. payments in respect of one or more classes of Notes may be
subordinated to payments in respect of other classes of Notes of the same
series.
PAYMENT PRIORITIES OF THE NOTES; THE SPREAD ACCOUNT
General. The rights of the Noteholders 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
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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 the Insurer (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," to
the extent described above. Such priorities and subordination are intended to
enhance the likelihood of timely receipt by senior Noteholders of the full
amount of interest and principal required to be paid to them, and to afford such
senior Noteholders 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 effected 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"). A Spread Account will be part of
each 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 WFAL on the Closing
Date in an amount to be specified in the prospectus supplement (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 Notes and the Insurer and those amounts
will be invested in Eligible Investments. Investment income on monies on deposit
in the Spread Account will be credited to the Spread Account. Any loss on that
investment will be charged to the Spread Account.
Calculation of Specified Spread Account Balance. The "Specified Spread
Account Balance" will be calculated as described in the related prospectus
supplement.
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 and the Insurer. 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. See
"Certain Information Regarding the Securities -- Withdrawals from the Spread
Account" in the related prospectus supplement.
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 the Insurer, to the extent of any Unreimbursed Insurer Amounts, then to WFAL
until WFAL has received from the Spread Account an aggregate amount equal to the
Spread Account Initial Deposit and thereafter as described in the related
prospectus supplement.
Upon any distributions to the Insurer, either Seller or the Noteholders
will have no further rights in, or claims to, such amounts. None of the
Noteholders, the Indenture Trustee, the Owner Trustee, the Sellers or the
Insurer 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 Noteholders. The obligations of the
Insurer under the Note Policy will not be diminished or otherwise affected by
any amounts distributed to the Insurer.
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PAYMENTS FROM THE SPREAD ACCOUNT AND UNDER THE NOTE POLICY
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 Final Scheduled Distribution Date), first, from amounts on deposit
in the Spread Account, and if those amounts are insufficient, then from the
payment of a claim under the Note Policy.
STATEMENTS TO NOTEHOLDERS
On or prior to each Distribution Date, you will be provided with a
statement prepared by the Master Servicer (the "Statement to Noteholders")
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 distribution allocable to principal
(stated separately for each Class of Notes);
(ii) the amount of the Noteholder's distribution allocable to interest
(stated separately for each Class of Notes);
(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, 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 as of that
Distribution Date;
(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; and
(viii) if applicable, following an Optional Repurchase, the amount of
Repurchase Premium payable.
Each amount set forth pursuant to subclauses (i), (ii), (iv), (v) and
(viii) above with respect to a Note will be expressed in the aggregate and as a
dollar amount per $1,000 of original principal amount of a Note. Copies of the
statements may be obtained by Owners of Notes 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, 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 the Insurer, on or before 90 days
after the end of each fiscal year of the Master Servicer, a statement as to
compliance by the Master Servicer during the preceding fiscal year (or since the
Closing Date
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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 the Insurer, on or before 90 days
after the end of each fiscal year of the Master Servicer, 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 Noteholders
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 the Insurer a written statement as to the fulfillment of
its obligations under the Indenture.
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
Each 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 Notes.
Each 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 Noteholders 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, each 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 Noteholders 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.
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Any indemnification or reimbursement could reduce the amount otherwise available
for distribution to Noteholders.
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
Except as otherwise provided in the related prospectus supplement,
"Servicer Defaults" under each Sale and Servicing Agreement will consist of:
(a) a claim being made under the Note 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 Master Servicer receives
written notice from the Indenture Trustee, the Owner Trustee or the Insurer
or after the Master Servicer discovers such failure:
- the Collection Account,
- the 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 the Insurer certain reports required by the
Sale and Servicing Agreement by, except as otherwise provided in the
related prospectus supplement, 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 either 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 Noteholders, the Insurer, 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 related Seller, as the case may be, by the
Owner Trustee, the Indenture Trustee or the Insurer or
- to the Master Servicer or the related 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, voting together as a single class, or
- so long as a default under the Note Policy has not occurred or is
not continuing and no insolvency of the Insurer has occurred, by the
Insurer;
(e) certain events of insolvency, readjustment of debt, marshaling of
assets and liabilities or similar proceedings and certain action by either
Seller or the Master Servicer indicating its insolvency, reorganization
pursuant to bankruptcy or similar proceedings or inability to pay its
obligations (each, an "Insolvency Event"); and
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(f) any material breach of any of the representations and warranties
of the Master Servicer or either Seller (except for any breaches relating
to Contracts repurchased by either Seller or the Master Servicer) that has
a material adverse effect on the Noteholders and, within 30 days after
written notice thereof shall have been given to the Master Servicer or
either Seller by:
- the Indenture Trustee or the Owner Trustee,
- by holders of Notes (voting together as a single class), evidencing at
least 25% of the respective voting interests thereof, or
- so long as no default under the Note Policy has occurred and is
continuing and no insolvency of the Insurer has occurred, by the
Insurer.
RIGHTS UPON SERVICER DEFAULT
Except as otherwise provided in the related prospectus supplement, as long
as a Servicer Default remains unremedied, the Indenture Trustee, the Insurer or
holders of Notes representing 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, the Insurer, or the Noteholders 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 the Insurer is not in default under the Note 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, may, on behalf of all Noteholders,
with the consent of the Insurer, 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, 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 Noteholder, may only be waived by the approval of
holders of all of the Notes. No such waiver will impair the Noteholders' rights
with respect to subsequent Servicer Defaults.
VOTING INTERESTS
The "voting interests" of the Notes of a Class or Classes will be allocated
among the Noteholders or related Owners, as the case may be, in accordance with
the unpaid principal amount of the Notes of each Class or Classes represented
thereby; except that in certain circumstances Notes
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held by either Seller, WFS or any of their respective affiliates will be
excluded from such determination.
AMENDMENT
Amendment of the Sale and Servicing Agreement. The Sale and Servicing
Agreement may be amended, with the consent of the Insurer but without the
consent of the Noteholders 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 Notes 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 Noteholder, 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 Notes 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 Noteholders 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 Noteholders 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 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 Notes are required to consent to any such
amendment, without the consent of the Insurer and the holders of all of the
relevant Class of Notes.
Amendment of the Trust Agreement. The Trust Agreement may be amended, with
the consent of the Insurer but without the consent of the Noteholders, 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 Noteholders
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 Noteholders; 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
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respect of the Contracts or required distributions on the Notes, or any Interest
Rate or (ii) reduce the aforesaid percentage of the voting interests of which
the holders of any Class of Notes are required to consent to any such amendment,
without the consent of the Insurer and the holders of all of the relevant Class
of Notes.
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 the Insurer, 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 Indenture 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;
- 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;
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- 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 NOTEHOLDERS
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 Noteholders.
NO BANKRUPTCY PROCEEDINGS
The Trust Agreement will provide that the Owner Trustee, the Indenture
Trustee and each Noteholder agree that they will not at any time institute, or
join in any institution against, the Trust, or the Sellers, any bankruptcy
proceedings relating to the Notes, the Trust Agreement, the Indenture or certain
other agreements.
TERMINATION
The obligations of the Master Servicer, the Sellers, the Owner Trustee and
Indenture Trustee pursuant to the Trust Agreement, Sale and Servicing Agreement
and 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 Sellers 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 a certain percentage, specified in the related prospectus
supplement, of the Cut-Off Date Aggregate Scheduled Balance at a price equal to
the aggregate unpaid principal amount of the Notes, together with accrued
interest thereon for the related Interest Period. Each Seller will pay an amount
equal to a percentage of the Aggregate Scheduled Balance of Contracts remaining
in the Trusts in accordance with their relative certificate percentage
interests.
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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 Notes at the
office or agency of the Indenture 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 Noteholder 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 Sellers of all amounts required
to be distributed to them pursuant to a Trust Agreement will terminate the
Trust.
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.
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 each 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 Notes 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 each 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 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.
Each Trust Agreement will further provide that each Trust will, or will
cause the Administrator to, pay the fees of the Indenture Trustee. Each 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 each Trust Agreement or Indenture, the Notes (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 Sellers or
the Master Servicer of any funds paid to the Sellers or the Master Servicer in
respect of the Notes 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
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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 Noteholders,
unless those Noteholders have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities that may be incurred
therein or thereby. No Noteholder 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 Notes evidencing not
less than 25% of the voting interests of the related Notes, 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 Sellers
and the Indenture Trustee pursuant to which the Administrator will agree, to the
extent provided in the Administration Agreement, to provide the notices and to
perform other administrative obligations required to be provided or performed by
the Trust or the Owner Trustee under the Indenture. As compensation for the
performance of the Administrator's obligations under the Administration
Agreement and as reimbursement for its expenses related thereto, the
Administrator will be entitled to a monthly administration fee (the
"Administration Fee"), which fee will be paid by the Sellers 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 Notes will depend on
the rate of payment on the Contracts (including prepayments, liquidations,
Optional Repurchase by WFSRC if WFSRC is a seller, and repurchases of Contracts
by a 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 is likely to occur earlier than the related Final Distribution Date. The
right of the Sellers to repurchase all of the Contracts upon certain events is
described under "-- Termination" and "The Master Servicer," and the right of
WFSRC to repurchase Contracts is described under "The Notes -- Optional
Repurchase of Contracts by WFSRC."
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
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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 Noteholders 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
Noteholders will be borne entirely by the Noteholders.
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 Noteholders, the Indenture Trustee, the Owner Trustee or
the Insurer, 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 Notes. Any reduction in the average life of the Notes
will reduce the aggregate amount of interest received by the Noteholders over
the life of the Notes.
THE NOTE POLICY
The following summary of the terms of the Note Policy does not purport to
be complete. You should review the summary along with the Note Policy, which is
included as an exhibit to the Registration Statement of which this prospectus
supplement is a part, for complete information. The following summary does,
however, describe the material terms of the Note Policy as it relates to insured
classes of Notes.
On each Closing Date, Financial Security will issue the Note Policy to the
Indenture Trustee pursuant to the insurance, indemnity and pledge agreement (the
"Insurance Agreement"), among Financial Security, the Trust, the Sellers,
Bankers Trust Company as Collateral Agent for Financial Security and WFS.
Pursuant to the Note Policy, Financial Security will fully, unconditionally and
irrevocably guarantee to the Noteholders payment of the Scheduled Payments for
each Distribution Date.
Simultaneously with the issuance of Notes, Financial Security will deliver
a 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, but will not
guarantee payment of any Repurchase Premium.
"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
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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 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.
OTHER TERMS OF THE NOTE POLICY
If payment of any amount avoided as a preference under applicable
bankruptcy, insolvency, receivership or similar law is required to be made under
the Note 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, in either case
because such distributions were avoidable as preference payments
under applicable bankruptcy law,
(B) a certificate of the Noteholder that the Order has been
entered and is not subject to any stay and
(C) an assignment duly executed and delivered by such
Noteholder, in such form as is reasonably required by Financial
Security and provided to such Noteholder by Financial Security,
irrevocably assigning to Financial Security all rights and claims of
such Noteholder relating to or arising under the related Class of
Notes, 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)
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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 Noteholder directly (unless a Noteholder 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 Noteholder 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
or the Notes 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 the Note Policy by the Indenture Trustee 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, and the Indenture Trustee may
submit an amended notice.
Under the Note Policy, "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 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 to
receive payments of principal and interest to the extent of any payment by
Financial Security under the related Policy.
Claims under the Note Policy 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 Note Policy 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. The Note
Policy is not covered by the Property/Casualty Insurance Security Fund specified
in Article 76 of the New York Insurance Law. The Note Policy 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 and Financial Security is insolvent
and unable to pay the amount then due under that policy, the Noteholders 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 would have recourse against the estate of Financial Security only,
as any other general creditor of Financial Security.
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FINANCIAL SECURITY ASSURANCE INC.
GENERAL
Financial Security is the Insurer. 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.
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
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May be Withdrawn or Revised Which May Have an Adverse Effect on the Market Price
of the Securities."
CAPITALIZATION
Information regarding the capitalization of Financial Security is presented
in the accompanying prospectus supplement.
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.
SOURCES OF ADDITIONAL INFORMATION
For further information concerning Financial Security, see the accompanying
prospectus supplement, the Consolidated Financial Statements of Financial
Security and Subsidiaries, and the notes thereto, incorporated by reference into
this Prospectus. Copies of the statutory quarterly and annual statements filed
with the State of New York Insurance Department by Financial Security are
available upon request to the State of New York Insurance Department.
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.
The 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 the Master Servicer are incorrect or if
the 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 Noteholders. 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
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Trustee, the Owner Trustee and the Noteholders 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 Notes.
The Master Servicer must take all actions necessary to maintain continuous
perfection of the security interests granted by the Obligors in the Financed
Vehicles. The Master Servicer will be obligated to service the Contracts in
accordance with the customary and usual servicing procedures employed by
financial institutions that service retail installment sales contracts and/or
installment loan agreements secured by motor vehicles and, to the extent more
exacting, the procedures used for such contracts owned by the Master Servicer.
In its judgment, the Master Servicer may reduce the APR of a delinquent Contract
(but not below the sum of the weighted average interest 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 weighted average interest 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 Noteholders 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
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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 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 Notes.
SERVICER DETERMINATION AND REPORTS TO TRUSTEES
The Master Servicer will perform monitoring and reporting functions for the
Owner Trustee, the Indenture Trustee and the Insurer. The Master Servicer will
prepare and deliver to the Owner Trustee, the Indenture Trustee and the Insurer
the following:
(a) each Statement to Noteholders 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 a certain
percentage (the "Servicing Fee Percent"), specified in the related prospectus
supplement, 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,
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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,
- 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
We have been advised by WFS that WFS has not experienced any "Year 2000
Problems," but WFS continues to monitor for such problems. 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.
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
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UCC, an ownership or security 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 each Seller will each take or cause to be taken those actions as
are required to perfect a Trust's rights in the Contracts sold by that Seller
and will represent and warrant that the Trust, subject to the interest of the
Insurer under each Insurance Agreement pursuant to which a Note Policy will be
issued, has good title, or a first priority security interest, free and clear of
liens and encumbrances, to each Contract on the Closing Date. Under each 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 a
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
or security interest thereof by a Trust. UCC-1 financing statements will be
filed with the California Secretary of State to perfect by filing and to give
notice of a Trust's ownership or security 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 a Trust if the purchaser acquired the Contracts in
good faith, for value and without actual knowledge of the Trust's ownership or
security interest in those Contracts. The Master Servicer will agree in the Sale
and Servicing Agreement to take all necessary actions to preserve and protect a
Trust's ownership or security interest in the Contracts. The Seller will
represent and warrant that each Contract is secured by a Financed Vehicle.
Notwithstanding the failure of a Trust to have obtained a valid, first priority
ownership or security interest in a Contract, the Insurer will remain
unconditionally and irrevocably obligated on its guarantee of Scheduled Payments
payable to Noteholders on each Distribution Date. See "The Note Policy."
SECURITY INTERESTS IN THE FINANCED VEHICLES
All of the Financed Vehicles were registered in the State of California or
another of the states listed above under "The Contracts Pool" at the time of
origination of the related Contracts. Perfection of security interests in motor
vehicles is generally governed by state certificate of title statutes or by the
motor vehicle registration laws of the state in which each vehicle is located.
Security interests in vehicles registered in the State of California (the state
in which the largest number of Financed Vehicles is located) may be perfected by
depositing with the California Department of Motor Vehicles a properly endorsed
certificate of title showing the secured party as legal owner or an application
for an original registration together with an application for registration of
the secured party as legal owner. Security interests in vehicles registered in
most other states are perfected, generally, in a similar manner. California and
some other states permit the required documents to perfect a security interest
to be filed electronically as well as physically. The Sellers 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 sold by that Seller 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 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.
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A Seller will sell the Contracts sold by it and assign its security
interests in the Financed Vehicles to each Trust and Financial Security.
However, because of the administrative burden and expense, neither a 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 a 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 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. Each 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
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any time during the term of a Contract. No notice will be given to the Trustees,
the Master Servicer or Noteholders 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 each 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.
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 a 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.
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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. Each 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
In each 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.
WFAL
WFAL 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 WFAL is 23 Pasteur, Irvine, California 92618. WFAL's
telephone number is (949) 727-1002.
WFAL 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 WFAL was transferred to WFS and it is now a limited purpose
operating subsidiary of WFS. WFAL 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.
WFAL's Articles of Incorporation limit the activities of WFAL to the above
purposes and to any activities incidental to and necessary for such purposes.
BREACH OF REPRESENTATIONS AND WARRANTIES; DEFECTIVE CONTRACT DOCUMENTATION
In each Sale and Servicing Agreement, WFAL 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 a Trust in and to the Contracts, validity and enforceability
of the Contracts as
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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 Indenture Trustee, the Owner Trustee or the Insurer
in and to that Contract, WFAL 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, WFAL 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.
WFSRC
WFSRC is a wholly owned, limited-purpose service corporation of WFS, and
was incorporated under the laws of the State of California on December 22, 1999.
The principal office of WFSRC is 6655 West Sahara Avenue, Las Vegas, Nevada
83102. WFSRC's telephone number is (702) 247-1442.
WFSRC was organized principally for the purpose of purchasing retail
installment sales contracts and installment loans from WFS in connection with
its activities as a finance subsidiary of WFS. WFSRC 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) originating one or more grantor or owner trusts owning installment sales
contracts and installment loans secured by automobiles and light-duty trucks.
WFSRC's Articles of Incorporation limit the activities of WFSRC to the
above purposes and to any activities incidental to and necessary for such
purposes.
BREACH OF REPRESENTATIONS AND WARRANTIES; DEFECTIVE CONTRACT DOCUMENTATION
In each Sale and Servicing Agreement, WFSRC 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 a 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 Indenture Trustee, the
Owner Trustee or the Insurer in and to that Contract, WFSRC 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, WFSRC
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 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
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the Bank and a licensed consumer finance company. Prior to May 1, 1995, the auto
finance activities described in this Prospectus were conducted separately by the
Bank, through its auto finance division, and by Westcorp Financial. Effective
May 1, 1995, the Bank's auto finance division was combined with the consumer
auto finance activities of Westcorp Financial, with Westcorp Financial then
changing its corporate name to WFS Financial Inc. In August 1995, WFS completed
an initial public offering of 19.7% of its common stock. WFS is now a majority
owned operating subsidiary of the Bank.
WFS' 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, Irvine,
California 92618 and its telephone number is (949) 727-1002.
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.
FEDERAL AND CALIFORNIA INCOME TAX CONSEQUENCES
FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material federal income tax
consequences of the purchase, ownership and disposition of the Notes. 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 Notes. 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. Prospective
investors are urged to consult their own tax advisors in determining the
federal, state, local, foreign and any other tax consequences to them of the
purchase, ownership and disposition of the Notes.
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 Sellers, 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 each Trust Agreement and
related documents will be complied with, and on that counsel's conclusions that
the
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nature of the income of such Trust will exempt it from the rule that certain
publicly traded partnerships are taxable as corporations.
If a Trust were taxable as a corporation for federal income tax purposes,
it would be subject to corporate income tax on its taxable income. Such 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 income tax could
materially reduce cash available to make payments on the Notes.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES
Treatment of the Notes as Indebtedness. The Sellers 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 Sellers, will render 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 Notes is not a
default and does not give rise to a penalty, under the OID regulations 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
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within the United States by the foreign person and the foreign person (i) is not
actually or constructively a "10 percent shareholder" of a Trust or the Seller
(including a holder of 10% of outstanding Notes) or a "controlled foreign
corporation" with respect to which a 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 a 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, such Notes might
be treated as equity interests in a Trust. If so treated, a 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, such 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 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.
NOTEHOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
47
<PAGE> 49
DISPOSITION OF THE SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE,
LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL
OR OTHER TAX LAWS.
CALIFORNIA INCOME TAX CONSEQUENCES
In the opinion of Mitchell, Silberberg & Knupp LLP, special tax counsel to
the Sellers, 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 Noteholders
who are not residents of or otherwise subject to tax in California will not,
solely by reason of their acquisition of an interest in any Class of Notes,
respectively, be subject to California income, franchise, excise or similar
taxes with respect to interest on any Class of Notes 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 Notes.
ERISA CONSIDERATIONS
The prospectus supplement contains a summary of pertinent considerations
relating to ERISA and the eligibility for purchase of the Notes by ERISA plans.
PLAN OF DISTRIBUTION
The issuer will offer Notes through one or more of the methods described
below. The prospectus supplement will provide specific details as to the method
of distribution for particular offerings, and set forth the time and place for
delivery of Notes. Offerings may be made through one or more of the following
methods:
- By negotiated firm commitment or best efforts underwriting and public
re-offering by underwriters;
- By placements with institutional investors through dealers;
- By direct placements with institutional investors; and
- By competitive bid.
If underwriters are used for the sale of any securities, other than for
underwriting on a best efforts basis, the Notes will be acquired by the
underwriters for their own account an may be resold from time to time through
one or more transactions, including negotiated transactions, at fixed public
offering prices or at varying prices to be determined at the time of sale or at
the time of commitment. The Notes will be described on the cover of the
prospectus supplement and the members of the underwriting syndicate, if any,
will be named in the prospectus supplement.
In connection with the sale of Notes, underwriters may receive compensation
from the company or from purchasers of Notes in the form of discounts,
concessions or commissions. Underwriters and dealers participating in the
distribution of Notes may be deemed to be underwriters in connection with Notes,
and any discounts or commissions received by them from the company and any
profit on the resale of Notes by them may be deemed to be underwriting discounts
and commissions under the Act. The prospectus supplement will describe any
compensation paid to underwriters.
It is anticipated that the underwriting agreement pertaining to the sale of
Notes will provide that the obligations of the underwriters will be subject to
conditions precedent providing that the underwriters will be obligated to
purchase all the securities if any are purchased, other than in
48
<PAGE> 50
connection with underwriting on a best efforts basis, and that, in limited
circumstances, the company will indemnify the several underwriters and the
underwriters will indemnify the company against certain civil liabilities,
including liabilities under the Act or will contribute to payments required to
be made.
The prospectus supplement with respect to any securities offered by
placements through dealers will contain information regarding the nature of the
offering and any agreements to be entered into between the company and
purchasers of Notes.
Purchasers of Notes, including dealers, may, depending upon the facts and
circumstances of such purchases, be deemed to be "underwriters" within the
meaning of the Act in connection with reoffers and sales by them of securities.
Noteholders should consult with their legal advisors in this regard prior to any
reoffer or sale.
LEGAL MATTERS
Certain legal matters with respect to the Notes, 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 Note Policy will be passed upon for the Insurer by the
counsel identified in the prospectus supplement.
EXPERTS
Financial statements of the Insurer are contained in or incorporated by
reference in the related prospectus supplement.
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.
49
<PAGE> 51
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.................................... 31
Administration Fee.......................................... 31
Administrator............................................... 31
Advance..................................................... 37
Business Day................................................ 34
Cede........................................................ 17
Closing Date................................................ 9
Code........................................................ 45
Cut-Off Date................................................ 10
Definitive Securities....................................... 19
DTC......................................................... 17
DTC Services................................................ 18
Eligible Investments........................................ 21
Event of Default............................................ 16
Exchange Act................................................ 17
Final Scheduled Distribution Dates.......................... 15
Final Regulations........................................... 47
Financed Vehicles........................................... 10
Financial Security.......................................... 5
Holding Account............................................. 21
Holdings.................................................... 35
Indenture................................................... 15
Indenture Trustee........................................... 5
Indirect Participants....................................... 17
Insolvency Event............................................ 25
Insurance Agreement......................................... 32
Issuer...................................................... 5
IRS......................................................... 45
Liquidation Expenses........................................ 20
Master Servicer............................................. 5
Net Collections............................................. 19
Net Insurance Proceeds...................................... 20
Net Liquidation Proceeds.................................... 20
Nonrecoverable Advance...................................... 37
Note Distribution Account................................... 21
Note Policy................................................. 10
Note Pool Factor............................................ 14
Noteholders................................................. 17
Notes....................................................... 5
Obligors.................................................... 10
OID......................................................... 46
Omnibus Proxy............................................... 18
Optional Purchase........................................... 7
Optional Repurchase......................................... 6
</TABLE>
50
<PAGE> 52
<TABLE>
<CAPTION>
TERM PAGE
---- -----
<S> <C>
Order....................................................... 33
Owner....................................................... 17
Owner Trustee............................................... 5
Participants................................................ 17
Prefunding Account.......................................... 11
Rees-Levering Act........................................... 42
Receipt..................................................... 34
Received.................................................... 34
Reinvestment Contract....................................... 21
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.
Sale and Servicing Agreement................................ 10
Scheduled Payments.......................................... 32
Securities.................................................. 5
Seller...................................................... 5
Servicer Defaults........................................... 25
Servicing Fee............................................... 38
Servicing Fee Percent....................................... 38
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............................ 22
Spread Account.............................................. 6, 22
Spread Account Initial Deposit.............................. 22
</TABLE>
51
<PAGE> 53
<TABLE>
<CAPTION>
TERM PAGE
---- -----
<S> <C>
Statement to Noteholders.................................... 23
Subservicer................................................. 36
Systems..................................................... 18
Trust....................................................... 5
Trust Agreement............................................. 9
Trust Property.............................................. 5
Trustees.................................................... 30
Trust Insolvency............................................ 16
UCC......................................................... 39
Westcorp Financial.......................................... 44
WFAL........................................................ 5
WFS......................................................... 5
WFSRC....................................................... 5
Year 2000 Problems.......................................... 18
</TABLE>
52
<PAGE> 54
THE INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE
AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
IS EFFECTIVE. THIS PROSPECTUS IS SUPPLEMENT NOT AN OFFER TO SELL THESE
SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED , 200
$ AUTOMOBILE LOAN ASSET-BACKED NOTES
WFS FINANCIAL 2 - OWNER TRUST
WFS FINANCIAL AUTO LOANS, INC.
AND WFS RECEIVABLES CORPORATION
SELLERS
WFS FINANCIAL INC
MASTER SERVICER
The issuer will issue three classes of notes as listed below. The issuer
will pay interest quarterly on the 20th of , , and
. The first interest payment will be made on , 2000.
Full and timely payment of the noteholders' distributable amount on each
distribution date is unconditionally and irrevocably guaranteed under a
financial guaranty insurance policy issued by Financial Security Assurance Inc.
YOU SHOULD CAREFULLY REVIEW THE RISK FACTORS BEGINNING ON PAGE S-11 OF THIS
PROSPECTUS SUPPLEMENT AND PAGE 8 OF THE 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 Receivables Corporation,
WFS Financial Inc or any of their affiliates, nor are the securities insured by
the Federal Deposit Insurance Corporation.
<TABLE>
<CAPTION>
PRINCIPAL INTEREST FINAL SCHEDULED INITIAL PUBLIC UNDERWRITING PROCEEDS TO THE
AMOUNT RATE DISTRIBUTION DATE OFFERING PRICE(1) DISCOUNTS SELLER(1)(2)
---------------- ------------- ----------------- ----------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Per Class A-1 Note... $ %
Per Class A-2 Note... $ %
Per Class A-3 Note... $ %
Total................ $ % $ $ $
</TABLE>
- -------------------------
(1) Plus accrued interest, if any, from , 200 .
(2) Before deducting expenses, estimated to be $ .
Delivery of the Notes, in book-entry form only, will be made through The
Depositary Trust Company against payment in immediately available funds, on
or about , 200 .
NEITHER THE SECURITIES EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS
SUPPLEMENT IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
[ UNDERWRITERS ]
Prospectus Supplement dated , 200
<PAGE> 55
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Important Notice About Information
Presented in this Prospectus
Supplement.......................... S-3
Where to Find Information in These
Documents......................... S-3
Incorporation by Reference.......... S-3
Summary of Terms.................... S-5
The Parties....................... S-5
Important Dates................... S-5
The Securities:................... S-5
The Trust Property................ S-6
Redemption of Securities and
Repurchase of Contracts........ S-8
Tax Status........................ S-9
Eligibility for Purchase by Money
Market Funds................... S-9
ERISA Considerations.............. S-9
Risk Factors........................ S-10
The Ratings of the Notes May be
Withdrawn or Revised Which May
Have an Adverse Effect on the
Market Price of the Notes...... S-10
Losses on Contracts May be
Affected Disproportionately
Because of Geographic
Concentration of Contracts in
California..................... S-10
Formation of the Trust.............. S-10
General........................... S-10
Capitalization.................... S-12
The Owner Trustee................. S-12
The Contracts Pool.................. S-12
Distribution of Contracts by APR.... S-15
Geographic Concentration of the
Contracts......................... S-15
Weighted Average Lives of the
Notes.......................... S-16
Percentage of Initial Note Principal
at Various ABS Percentages........ S-17
Delinquency and Contract Loss
Information....................... S-18
Use of Proceeds..................... S-19
The Notes........................... S-20
General........................... S-20
Payments of Interest.............. S-20
Payments of Principal............. S-20
Optional Redemption............... S-21
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Optional Repurchase............... S-21
The Indenture Trustee............. S-22
Events of Default................. S-22
Certain Information Regarding the
Securities........................ S-24
Payments on the Contracts......... S-24
Distributions on the Notes........ S-25
Payment Priorities of the Notes;
The Spread Account............. S-28
Withdrawals from the Spread
Account........................ S-29
Payments from the Spread Account
and Under the Note Policy...... S-30
Servicer Default.................. S-30
Rights Upon Servicer Default...... S-31
Waiver of Past Defaults........... S-32
Voting Interests.................. S-32
Termination....................... S-32
Payment in Full of Notes.......... S-32
Prepayment Considerations......... S-33
Capitalization of Financial Security
Assurance Inc..................... S-34
The Sellers......................... S-34
WFAL.............................. S-34
WFSRC............................. S-34
Breach of Representations and
Warranties; Defective Contract
Documentation.................. S-35
WFS................................. S-35
General........................... S-35
Business Activities............... S-36
The Bank............................ S-36
General........................... S-36
Business Activities............... S-36
ERISA Considerations................ S-36
Overview.......................... S-36
Prohibited Transactions........... S-37
The Notes......................... S-37
Underwriting........................ S-38
Legal Matters....................... S-38
Experts............................. S-39
Forward-Looking Statements.......... S-39
Index of Definitions................ S-40
</TABLE>
S-2
<PAGE> 56
IMPORTANT NOTICE ABOUT INFORMATION
PRESENTED IN THIS PROSPECTUS SUPPLEMENT
We provide information to you about the securities in two separate
documents that progressively provide more detail: (1) the accompanying
prospectus, which provides general information, some of which may not apply to
your series of notes, and (2) this prospectus supplement, which describes the
specific terms of your series of Notes. This prospectus supplement does not
contain complete information about the offering of the Notes. Additional
information is contained in the prospectus. You are urged to read both this
prospectus supplement and the prospectus in full. We cannot sell the notes to
you unless you have received both this prospectus supplement and the prospectus.
You should rely on the information contained in or incorporated by
reference in this prospectus supplement and the accompanying prospectus. If the
information concerning your series of notes varies between this prospectus
supplement and the accompanying prospectus, you should rely on the information
contained in this prospectus supplement. We have not authorized anyone to
provide you with different information. We do not claim the accuracy of the
information in this prospectus supplement as of any date other than the date
stated on the cover of this prospectus supplement.
If you purchase Notes you will also be provided with unaudited quarterly
and annual reports concerning the automobile loan contracts which back the
Notes.
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 supplement. 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 supplement.
INCORPORATION BY REFERENCE
All reports and other documents filed by WFS, as Master Servicer, on behalf
of the Seller, or on behalf of the Trust, and the financial statements of
Financial Security Assurance, Inc. and Subsidiaries included in, or as exhibits
to, documents filed by Financial Security Assurance Holdings Ltd. (including
specifically the Annual Report on Form 10-K for the year ended December 31, 1998
and the Quarterly Report on Form 10-Q for the quarterly periods ended March 31,
June 30 and September 30, 1999), as filed in each case pursuant to Section
13(a), 13(c), 14 or 14(d) of the Securities Act of 1934, as amended (the
"Exchange Act"), and those filed subsequent to the date of this prospectus
supplement and prior to the termination of the offering of the Notes offered
hereby shall be deemed to be incorporated by reference into this prospectus
supplement and to be a part hereof from the respective dates of filing such
documents. Any statement contained herein or in a document all or a portion of
which is incorporated herein by this reference shall be deemed to be modified or
superseded for purposes of this prospectus supplement to the extent that a
statement contained herein or in any subsequently filed document which is or is
also deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or
S-3
<PAGE> 57
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this prospectus supplement.
You should rely only on the information contained in or incorporated by
reference in this prospectus supplement. We have not authorized anyone to
provide you with different information.
We are not offering the notes 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 supplement.
Until , 200 , all dealers that buy, sell or trade the Securities may
be required to deliver a prospectus and this prospectus supplement, regardless
of whether they are participating in the offer. This is in addition to the
obligation of dealers to deliver a prospectus and this prospectus supplement
when acting as underwriters and with respect to their unsold allotments or
subscriptions.
S-4
<PAGE> 58
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 PARTIES:
The Issuer................. WFS Financial 200 - Owner Trust ("Trust")
Sellers.................... WFS Financial Auto Loans, Inc. ("WFAL")
WFS Receivables Corporation ("WFSRC")
Master Servicer............ WFS Financial Inc ("WFS")
The Insurer................ Financial Security Assurance, Inc. ("Financial
Security")
Indenture Trustee.......... [ ]
Owner Trustee.............. [ ]
IMPORTANT DATES:
Statistical Calculation
Date....................... , 200
Cut-Off Date............... 1, 200
Closing Date............... Expected to be , 200
Distribution Dates......... Payments of interest will be made on the Notes on
each 20, 20, 20,
20, commencing on 20,
2
Final Scheduled
Distribution Dates......... If not paid earlier, the full outstanding principal
balance of the Class A-1 Notes will be paid on
20, 200 (the "Class A-1 Final Scheduled
Distribution Date"), of the Class A-2 Notes will be
paid on 20, 200 (the "Class A-2 Final
Scheduled Distribution Date") and of the Class A-3
Notes will be paid on 20, 200 (the "Class
A-3 Final Scheduled Distribution Date").
THE SECURITIES:
The Notes.................. The WFS Financial 2 - Owner Trust Auto
Receivable Backed Notes will represent obligations
of the Trust secured by the assets of the Trust.
The Certificates........... The Trust will issue Certificates which are not
being offered by this prospectus supplement. All
payments in respect of any Certificates issued by
the Trust will be subordinated to payments on the
Notes.
S-5
<PAGE> 59
THE TERMS OF THE NOTES
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS A-3
NOTES NOTES NOTES
------------ ------------- -------------
<S> <C> <C> <C>
Principal Amount................... $ $ $
Interest Rate Per Annum............ % % %
Interest Accrual Method............ [ ] [ ] [ ]
Distribution Dates................. * * *
First Distribution Date............ 20, 2000 20, 2000 20, 2000
Final Scheduled Distribution Date
Anticipated Ratings (Moody's/
Standard & Poor's)**............. [ ] [ ] [ ]
</TABLE>
- -------------------------
* Payments of interest and principal on the Notes will be made on 20,
20, 20 and 20 of each year, or the first business day
thereafter, beginning on 20, 2 . Principal will be paid sequentially
to the earliest maturing class until paid in full.
** It is a condition to the offering of the Notes 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.
PRIORITY OF PRINCIPAL PAYMENTS
Principal of the Notes will be paid on each payment date in the following
order:
to the Class A-1 Notes until the Class A-1 Notes are paid in full;
to the Class A-2 Notes until the Class A-2 Notes are paid in full; and
to the Class A-3 Notes until the Class A-3 Notes are paid in full.
THE TRUST PROPERTY:
General.................... 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;
- the funds in the spread account; and
- an insurance policy written by Financial Security
guaranteeing all payments to be made to holders
of the notes.
S-6
<PAGE> 60
THE CONTRACTS
[GRAPHIC]
- The Trust receives the right to payments due under the Contracts on and
after 1, 200 .
- 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 % and an expected weighted average remaining
maturity of approximately months.
- Approximately % of the aggregate principal amount of the Contracts
will be "Rule of 78's Contracts" and approximately % will be "Simple
Interest Contracts." See "Index of Definitions" for the definition of
"Rule of 78's Contract" and "Simple Interest Contract."
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 WFAL of $ (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 Notes. 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 % or % 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 loss and delinquency triggers.
S-7
<PAGE> 61
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 WFAL
until the WFAL has received an amount equal to the Spread Account Initial
Deposit and finally to the Sellers. You will have no further rights to any such
excess cash.
THE NOTE POLICY
Financial Security will issue a policy that will guarantee all payments due
to the Noteholders of insured Notes.
REDEMPTION OF SECURITIES AND REPURCHASE OF CONTRACTS:
OPTIONAL REPURCHASE OF CONTRACTS BY WFSRC
WFSRC may repurchase all of the Contracts it has sold to the Trust on any
Distribution Date prior to which it has given notice that it is exercising its
right to repurchase all of those Contracts 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 $ (an "Optional
Repurchase"). If WFSRC exercises its Optional Repurchase right, WFSRC will pay
the Trust, in addition to the Aggregate Scheduled Balance of the Contracts being
repurchased, the Repurchase Premium which is an amount equal to a fraction of
the Aggregate Scheduled Balance of the Contracts being repurchased. See "The
Notes -- Optional Repurchase -- Calculation of Repurchase Premium".
PREPAYMENT FOLLOWING OPTIONAL REPURCHASE BY WFSRC
If WFSRC exercises its Optional Repurchase right as described above:
- the amount received upon repurchase equal to the Aggregate Scheduled
Balance of the repurchased Contracts will be treated as Collections and
distributed to the Noteholders in the order of priority specified above
under "Priority of Principal Payments" in addition to the distributions
to which the Noteholders would then otherwise be entitled to receive,
- the amount received for each class of Note outstanding on the
Distribution Date on which WFSRC repurchases the Contracts sold by it to
the Trust as the Repurchase Premium will be distributed pro rata by the
Indenture Trustee to the Holders of record as of the Record Date related
to that Distribution Date on that Distribution Date, and
- the repurchased Contracts will be transferred back to WFSRC on that
Distribution Date and will no longer be assets of the Trust.
OPTIONAL PURCHASE
WFAL (and WFSRC to the extent it has not exercised its Optional Repurchase
of the Contracts) 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 $ .
S-8
<PAGE> 62
OPTIONAL REDEMPTION AND PREPAYMENT
If WFAL and WFSRC 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;
- the trust will be terminated.
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.
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.
ELIGIBILITY FOR PURCHASE BY MONEY MARKET FUNDS:
The Class A-1 Notes will be structured to be eligible securities for
purchase by money market funds under Rule 2a-7 under the Investment Company Act
of 1940, as amended. A money market fund should consult its legal advisers
regarding the eligibility of such notes under Rule 2a-7 and whether an
investment in such notes satisfies the fund's investment policies and
objectives.
ERISA CONSIDERATIONS:
The Notes 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 supplement and
also should consult with their legal advisors before purchasing Notes.
S-9
<PAGE> 63
RISK FACTORS
In addition to risk factors beginning on page 8 of the accompanying
prospectus, you should also consider the following risk factors in deciding
whether to purchase any of the Notes.
THE RATINGS OF THE NOTES MAY BE WITHDRAWN OR REVISED WHICH MAY HAVE AN ADVERSE
EFFECT ON THE MARKET PRICE OF THE NOTES
It is a condition of issuance that the Notes be rated as follows:
<TABLE>
<CAPTION>
STANDARD & POOR'S MOODY'S
----------------- -------
<S> <C> <C>
Class A-1 Notes...................................... [ ] [ ]
Class A-2 and Class A-3 Notes........................ [ ] [ ]
</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 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, with respect to Moody's, 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.
A security rating is not a recommendation to buy, sell or hold the Notes.
The ratings are an assessment by the Rating Agencies of the likelihood that the
Notes will be paid in full by the related Final Scheduled Distribution Date. The
ratings do not consider to what extent the Notes will be subject to prepayment.
LOSSES ON CONTRACTS MAY BE AFFECTED DISPROPORTIONATELY BECAUSE OF GEOGRAPHIC
CONCENTRATION OF CONTRACTS IN CALIFORNIA
As of , 1999, WFS' records indicate that % of the aggregate
principal balance of the Contracts will be from Contracts originating in
California. No other state accounted for more than % 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.
FORMATION OF THE TRUST
GENERAL
The Trust will be a business trust formed for the transaction described in
this prospectus supplement 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 Notes (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;
- making payments on the Notes;
S-10
<PAGE> 64
- engaging in other activities that are necessary, suitable or convenient
to accomplish the foregoing purposes or are incidental thereto or
connected therewith.
On or before the Closing Date, WFS will sell and assign the Contracts to
WFAL and WFAL will divide the Contracts into two pools having relatively the
same characteristics. One pool containing Contracts representing % of the
Cut-Off Date Aggregate Scheduled Balance ($ ) will be sold and assigned
by WFAL to WFSRC and on the Closing Date by WFSRC to the Trust. WFAL will sell
the other pool containing Contracts representing % of the Cut-Off Date
Aggregate Scheduled Balance ($ ) directly to the Trust on the Closing
Date. The Trust will be established by the sale and assignment of the Contracts
to the Trust by WFAL and WFSRC on the Closing Date. Certificates representing
WFAL's and WFSRC's beneficial interest in the Trust will be issued by 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 and security interests in the
Contracts, the Trust's interests in the Contracts will be perfected by WFAL
filing UCC-1 financing statements in the State of California and WFSRC in the
State of Nevada to give notice of the Trust's ownership of and security
interests in 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 WFAL or by the Sellers to the Trust. See "Certain
Legal Aspects of the Contracts" in the accompanying prospectus.
Simultaneously with the issuance of the Notes, Financial Security will
issue a policy (the "Note Policy") to the Indenture Trustee for the benefit of
the Noteholders of insured classes of Notes. Under the Note Policy, Financial
Security will unconditionally and irrevocably guarantee to the related
Noteholders full and complete payment of the Scheduled Payments for each
Distribution Date, but not payment upon a default of WFSRC upon exercise of its
Optional Repurchase right. Financial Security will have a lien on the Contracts
and other documents relating to the Contracts subordinate to the interest of the
Noteholders, which lien cannot be executed upon until all required payments
under the Note Policy has been made. See "The Note Policy" in the accompanying
prospectus.
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
(the "Cut-Off Date");
- security interests in the Financed Vehicles;
- the Note Policy;
- amounts on deposit in the Collection Account, the Note 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
S-11
<PAGE> 65
- rights as a third party beneficiary under the sale and servicing
agreement to be dated as of (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 and the Note 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 following table illustrates the capitalization of the Trust as of the
Cut-Off Date, as if the issuance and sale of the Notes had taken place on that
date:
<TABLE>
<S> <C>
Class A-1 Notes............................................. $
Class A-2 Notes.............................................
Class A-3 Notes.............................................
--------
Total..................................................... $
========
</TABLE>
THE OWNER TRUSTEE
will be the Owner Trustee under the Trust Agreement. is a
Delaware corporation and its Corporate Trust Office is located at
Delaware.
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 secured by a new or
used automobiles or light duty trucks originated by a new or used car dealer
located in California or one of the other 43 states listed below or an
installment loan secured by a new or used automobile or light duty truck. Most
of the Contracts were purchased by WFS; however, a limited number of Contracts,
no more than % of the Cut-Off Date Aggregate Scheduled Balance, are
installment loans originated by branch
S-12
<PAGE> 66
offices of WFS directly to consumers or by other independent auto finance
companies which loans were then sold to WFS. Each Contract is secured by a
Financed Vehicle. Except as otherwise noted, all references in this prospectus
supplement, to contracts include installment loans.
WFS will select the Contracts from its portfolio of fixed-interest rate
contracts. The Contracts were underwritten and purchased by WFS in the ordinary
course of its business operations.
<TABLE>
<CAPTION>
ALL CONTRACTS CONTRACTS CONTRACTS
IN THE TRUST SOLD BY WFAL SOLD BY WFSRC
------------- ------------ -------------
<S> <C> <C> <C>
Outstanding Principal Balance(1)
Minimum................................... $ $ $
Maximum................................... $ $ $
Average................................... $ $ $
Number of Contracts
Percentage of New Vehicles(1)............. % % %
Percentage of Used Vehicles(1)............ % % %
Financed Vehicles(1)
Automobiles............................... % % %
Light Duty Trucks......................... % % %
Percentage of Rule of 78's Contracts(1)..... % % %
Percentage of Simple Interest
Contracts(1).............................. % % %
Annual Percentage Rate(1)
Minimum................................... % % %
Maximum................................... % % %
Weighted Ave. APR......................... % % %
Remaining Maturities(1).....................
Minimum................................... Months Months Months
Maximum................................... Months Months Months
Weighted Ave.............................. Months Months Months
Original Maturities
Minimum................................... Months Months Months
Maximum................................... Months Months Months
Weighted Ave.............................. Months Months Months
Percent over 60 Months.................... % % %
</TABLE>
- -------------------------
(1) Information as of . Contracts having Cut-Off Date Aggregate
Scheduled Balances of $ will be included in the Trust.
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 Notes. As amortization on an actuarial
basis produces a faster amortization than does application of the Rule of 78's,
there will not be a shortfall of principal in any event, including as a result
of prepayments or timely payment to maturity of a Rule of 78's Contract.
The information concerning the Contracts presented in this prospectus
supplement is based upon a pool of retail installment sales contracts and
installment loans originated through .
S-13
<PAGE> 67
DISTRIBUTION OF CONTRACTS BY APR(1)
<TABLE>
<CAPTION>
ALL CONTRACTS IN THE TRUST CONTRACTS SOLD BY WFAL
------------------------------------- -------------------------------------
PERCENTAGE OF PERCENTAGE OF
AGGREGATE AGGREGATE AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL NUMBER OF PRINCIPAL PRINCIPAL
APR RANGE CONTRACTS BALANCE BALANCES(2) CONTRACTS BALANCE BALANCES(2)
--------- --------- --------- ------------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
5.000% to 5.999%.... $ % $ %
6.000% to 6.999%....
7.000% to 7.999%....
8.000% to 8.999%....
9.000% to 9.999%....
10.000% to
10.999%...........
11.000% to
11.999%...........
12.000% to
12.999%...........
13.000% to
13.999%...........
14.000% to
14.999%...........
15.000% to
15.999%...........
16.000% to
16.999%...........
17.000% to
17.999%...........
18.000% to
18.999%...........
19.000% to
19.999%...........
20.000% to
20.999%...........
21.000% to
21.999%...........
22.000% to
22.999%...........
23.000% to
23.999%...........
24.000% to
24.999%...........
25.000% to
25.999%...........
26.000% to
26.999%...........
27.000% to
27.999%...........
28.000% to
28.999%...........
29.000% to
29.999%...........
30.000% and over....
------- -------- ------ ------- -------- ------
Total............. $........ % $ %
======= ======== ====== ======= ======== ======
<CAPTION>
CONTRACTS SOLD BY WFSRC
-------------------------------------
PERCENTAGE OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
APR RANGE CONTRACTS BALANCE BALANCES(2)
--------- --------- --------- -------------
<S> <C> <C> <C>
5.000% to 5.999%.... $ %
6.000% to 6.999%....
7.000% to 7.999%....
8.000% to 8.999%....
9.000% to 9.999%....
10.000% to
10.999%...........
11.000% to
11.999%...........
12.000% to
12.999%...........
13.000% to
13.999%...........
14.000% to
14.999%...........
15.000% to
15.999%...........
16.000% to
16.999%...........
17.000% to
17.999%...........
18.000% to
18.999%...........
19.000% to
19.999%...........
20.000% to
20.999%...........
21.000% to
21.999%...........
22.000% to
22.999%...........
23.000% to
23.999%...........
24.000% to
24.999%...........
25.000% to
25.999%...........
26.000% to
26.999%...........
27.000% to
27.999%...........
28.000% to
28.999%...........
29.000% to
29.999%...........
30.000% and over....
------- -------- ------
Total............. $ %
======= ======== ======
</TABLE>
- -------------------------
(1) Information as of . Contracts having Cut-Off Date Aggregate
Scheduled Balances of $ will be included in the Trust.
(2) Percentages may not add to 100.00% due to rounding.
S-14
<PAGE> 68
GEOGRAPHIC CONCENTRATION OF THE CONTRACTS(1)
<TABLE>
<CAPTION>
ALL CONTRACTS SOLD TO THE TRUST CONTRACTS SOLD BY WFAL
------------------------------------- -------------------------------------
PERCENTAGE OF PERCENTAGE OF
AGGREGATE AGGREGATE AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL NUMBER OF PRINCIPAL PRINCIPAL
STATE(2) CONTRACTS BALANCE BALANCES CONTRACTS BALANCE BALANCES
-------- --------- --------- ------------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
California........... $ % $ %
Arizona..............
Texas................
Washington...........
Florida..............
Oregon...............
Colorado.............
Ohio.................
Nevada...............
North Carolina.......
Virginia.............
Illinois.............
South Carolina.......
Alabama..............
Tennessee............
Missouri.............
Utah.................
Georgia..............
Idaho................
Pennsylvania.........
Maryland.............
Indiana..............
Kentucky.............
Michigan.............
Massachusetts........
New Jersey...........
Wisconsin............
Oklahoma.............
Connecticut..........
Kansas...............
Mississippi..........
New Mexico...........
Delaware.............
Iowa.................
West Virginia........
Wyoming..............
Rhode Island.........
New Hampshire........
Hawaii...............
Maine................
Minnesota............
New York.............
Nebraska.............
------- -------- ----- ------- -------- -----
Total.............. $ % $ %
======= ======== ===== ======= ======== =====
<CAPTION>
CONTRACTS SOLD BY WFSRC
-------------------------------------
PERCENTAGE OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
STATE(2) CONTRACTS BALANCE BALANCES(2)
-------- --------- --------- -------------
<S> <C> <C> <C>
California........... $ %
Arizona..............
Texas................
Washington...........
Florida..............
Oregon...............
Colorado.............
Ohio.................
Nevada...............
North Carolina.......
Virginia.............
Illinois.............
South Carolina.......
Alabama..............
Tennessee............
Missouri.............
Utah.................
Georgia..............
Idaho................
Pennsylvania.........
Maryland.............
Indiana..............
Kentucky.............
Michigan.............
Massachusetts........
New Jersey...........
Wisconsin............
Oklahoma.............
Connecticut..........
Kansas...............
Mississippi..........
New Mexico...........
Delaware.............
Iowa.................
West Virginia........
Wyoming..............
Rhode Island.........
New Hampshire........
Hawaii...............
Maine................
Minnesota............
New York.............
Nebraska.............
------- -------- -----
Total.............. $ %
======= ======== =====
</TABLE>
- -------------------------
(1) Information as of , 2 . Contracts having Cut-Off Date
Aggregate Scheduled Balances of $ 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, the state in
which the office of the lender which originated the loan is located.
S-15
<PAGE> 69
WEIGHTED AVERAGE LIVES OF THE NOTES
Prepayments on Contracts can be measured relative to a payment standard or
model. The model used in this prospectus supplement, the Absolute Prepayment
Model ("ABS"), represents an assumed rate of prepayment each month relative to
the original number of Contracts in a pool of Contracts. ABS further assumes
that all the Contracts in question are the same size and amortize at the same
rate and that each Contract in each month of its life will either be paid as
scheduled or be paid in full. For example, in a pool of Contracts originally
containing 10,000 Contracts, a 1% ABS rate means that 100 receivables prepay
each month. ABS does not purport to be an historical description of prepayment
experience or a prediction of the anticipated rate of prepayment of any pool of
Contracts, including the Contracts.
As the rate of payment of principal of each class of Notes will depend on
the rate of payment (including prepayments) of the principal balance of the
Contracts, final payment of any class of Notes could occur significantly earlier
than the Final Scheduled Distribution Dates for that class of Notes.
Reinvestment risk associated with early payment of the Notes of any class will
be borne exclusively by the holders of those Notes.
The table captioned "Percent of Initial Note Principal Amount at Various
ABS Percentages" (the "ABS Table") has been prepared on the basis of the
characteristics of the Contracts described under "The Contract Pool". The ABS
Tables assumes that:
- the Contracts prepay in full at the specified constant percentage of ABS
monthly, with no defaults, losses or repurchases,
- each Scheduled Payment on each Contract is scheduled to be made and is
made on the last day of each month and each month has 30 days,
- payments are made on the Notes on each Distribution Date (and each such
date is assumed to be the twentieth day of each applicable month),
- WFSRC does not exercise its Optional Repurchase right, and
- the Sellers exercise their Optional Purchase on the earliest Distribution
Date on which such option may be exercised.
The ABS Table indicates the projected weighted average life of each class
of Notes and sets forth the percent of the initial principal amount of each
class of Notes that is projected to be outstanding after each of the
Distribution Dates shown at various constant ABS percentages.
The ABS Table also assumes that the Contracts have been aggregated into
hypothetical pools with all of the Contracts within each such pool having the
following characteristics and that the level scheduled payment for each of the
pools (which is based on the Aggregate Scheduled Balance, APR, original term to
maturity and remaining term to maturity as of the assumed Cut-Off Date) will be
such that each pool will be fully amortized by the end of its remaining term to
maturity.
<TABLE>
<CAPTION>
REMAINING ORIGINAL
AGGREGATE TERM TERM
PRINCIPAL ASSUMED TO MATURITY TO MATURITY
POOL BALANCE APR CUT-OFF DATE (IN MONTHS) (IN MONTHS)
---- --------- ----- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
[ ].............................
[ ].............................
[ ].............................
Total.............................
</TABLE>
S-16
<PAGE> 70
The actual characteristics and performance of the Contracts will differ
from the assumptions used in preparing the ABS Table. The assumptions used are
hypothetical and have been provided only to give a general sense of how the
principal cash flows might behave under varying prepayment scenarios. For
example, it is very unlikely that the Contracts will prepay at a constant ABS
rate until maturity or that all of the Contracts will prepay at the same ABS
rate. Moreover, the diverse terms of Contracts within each of the hypothetical
pools could produce slower or faster principal distributions than indicated in
the ABS Table at the various constant percentages of ABS specified, even if the
original and remaining terms to maturity of the Contracts are as assumed. Any
difference between those assumptions and the actual characteristics and
performance of the Contracts, or actual prepayment experience, will affect the
percentages of initial amounts outstanding over time and the weighted average
lives of each class of Notes.
PERCENTAGE OF INITIAL NOTE PRINCIPAL AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
CLASS A-1 NOTES CLASS A-2 NOTES CLASS A-3 NOTES
--------------------------------- --------------------------------- ---------------------------------
DISTRIBUTION DATE 0.0% 1.0% 1.8% 2.5% 0.0% 1.0% 1.8% 2.5% 0.0% 1.0% 1.8% 2.5%
----------------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Weighted Average Life
(years)(1)............
</TABLE>
- -------------------------
(1) The weighted average life of a Note is determined by (x) multiplying the
amount of each principal payment on a Note by the number of periods (months)
from the date of issuance of the Note to the related Distribution Date, (y)
adding the results and (z) dividing the sum by the original principal amount
of the Note.
(2) This calculation assumes that the Sellers do not exercise their Optional
Purchase and that WFSRC does not exercise its Optional Repurchase right.
This Table has been prepared based on the assumptions described on Page
S-17 (including the assumptions regarding the characteristics and performance of
the Contracts, which will differ from the actual characteristics and performance
thereof) and should be read in conjunction therewith.
S-17
<PAGE> 71
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, 1995 through 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, 1995 through 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>
DECEMBER 31,
------------------------------------------------------------------------------------
1999 1998 1997 1996
---------------------- ---------------------- ---------------------- ---------
NUMBER NUMBER NUMBER NUMBER
OF AMOUNT OF AMOUNT OF AMOUNT OF
CONTRACTS (2) CONTRACTS (2) CONTRACTS (2) CONTRACTS
--------- ---------- --------- ---------- --------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Contracts Serviced...... 524,709 $5,354,385 464,257 $4,367,099 408,958 $3,680,817 341,486
======= ========== ======= ========== ======= ========== =======
Period of delinquency(3)
31 - 59 days........... 12,868 $ 107,416 13,885 $ 112,208 6,605 $ 54,450 4,511
60 - 89 days........... 3,511 29,738 3,966 32,100 2,161 18,652 1,305
90 days or more........ 1,711 14,872 1,768 14,441 918 7,762 567
------- ---------- ------- ---------- ------- ---------- -------
Total contracts
and amount
delinquent...... 18,090 $ 152,026 19,619 $ 158,749 9,684 $ 80,864 6,383
======= ========== ======= ========== ======= ========== =======
Delinquencies as a
percentage of number
and amount of contracts
outstanding............ 3.45% 2.84% 4.23% 3.64% 2.37% 2.20% 1.87%
======= ========== ======= ========== ======= ========== =======
<CAPTION>
DECEMBER 31,
-----------------------------------
1996 1995
---------- ----------------------
NUMBER
AMOUNT OF AMOUNT
(2) CONTRACTS (2)
---------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Contracts Serviced...... $3,046,585 258,665 $2,209,594
========== ======= ==========
Period of delinquency(3)
31 - 59 days........... $ 38,173 2,180 $ 18,557
60 - 89 days........... 11,470 690 6,143
90 days or more........ 5,144 308 2,701
---------- ------- ----------
Total contracts
and amount
delinquent...... $ 54,787 3,178 $ 27,401
========== ======= ==========
Delinquencies as a
percentage of number
and amount of contracts
outstanding............ 1.80% 1.23% 1.24%
========== ======= ==========
</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.
S-18
<PAGE> 72
CONTRACT LOSS EXPERIENCE(1)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Contracts Serviced
At end of period (net of
unearned add-on
interest).................. $5,354,385 $4,367,099 $3,680,817 $3,046,585 $2,209,594
========== ========== ========== ========== ==========
Average during period (net of
unearned add-on
interest).................. $4,839,514 $4,006,185 $3,383,570 $2,627,622 $1,886,359
========== ========== ========== ========== ==========
Gross charge offs of contracts
during period.............. $ 150,518 $ 173,422 $ 136,773 $ 86,464 $ 48,999
Recoveries and contracts
charged off in prior
periods.................... 47,581 36,230 34,634 25,946 18,715
---------- ---------- ---------- ---------- ----------
Net charge offs............... $ 102,937 $ 137,192 $ 102,139 $ 60,518 $ 30,284
========== ========== ========== ========== ==========
Net charge offs as a
percentage of contracts
outstanding during
period..................... 2.13% 3.42% 3.02% 2.30% 1.61%
</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 1999 to 2.13%, a 37.7% decrease from
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 2.84% in 1999, an increase of 65.5% and decrease of
22.0%, 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.
USE OF PROCEEDS
WFAL will apply the net proceeds from the sale of the Notes (i.e., the
proceeds of the public offering of the Notes minus expenses relating thereto) to
the purchase of the Contracts from WFS.
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THE NOTES
GENERAL
The Notes will be issued pursuant to an indenture between the Trust and the
Indenture Trustee to be dated as of (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 Notes will be made on
20, 20, 20 and 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 20, 2 . Payments on the
Notes on each Distribution Date will be paid to the holders of record of the
related Notes on the Business Day immediately proceeding such Distribution Date
or, in the event that Definitive Securities are issued, as of the 15th 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 in the accompanying prospectus."
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 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
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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 20,
200 (the "Class A-1 Final Scheduled Distribution Date"), (ii) the Class
A-2 Notes will be payable on 20, 200 (the "Class A-2 Final
Scheduled Distribution Date") and (iii) the Class A-3 Notes will be payable on
20, 200 (the "Class A-3 Final Scheduled Distribution Date"
and, together with the Class A-1 Final Scheduled Distribution Date and the Class
A-2 Final Scheduled Distribution Date, the "Final Scheduled Distribution
Dates"). The Final Scheduled 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. See "Certain
Information Regarding the Securities -- Distributions on the
Securities -- Deposits to the Distribution Accounts; Priority of Payments in the
accompanying prospectus."
The actual date on which the outstanding principal amount of any Class of
Notes is paid may be earlier than its Note Final Scheduled 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 Sellers --
Breach of Representations and Warranties; Defective Contract Documentation in
the accompanying prospectus."
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 $ . 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.
OPTIONAL REPURCHASE
If WFSRC exercises its Optional Repurchase right as described above, it
will give not less than days notice to the Trustee and will affect the
repurchase at the next following Distribution Date. The repurchase price payable
by WFSRC will be equal to the Aggregate Scheduled Balance of the Contracts it is
repurchasing as of the Distribution Date preceding the Distribution Date as of
which
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the repurchase is to occur (the "Base Price"), plus the Repurchase Premium
described in the next paragraph.
Calculation of Repurchase Premium. The Repurchase Premium payable by WFSRC
will be a fraction of the Base Price. If the Base Price is $ or less,
but more than $ , the Repurchase Premium will be % of the Base
Price. If the Base Price is $ or less, but more than $ , the
Repurchase Premium will be % of the Base Price. If the Base Price is less
than $ , the Repurchase Premium will be zero.
The amount of the repurchase price equal to the Base Price will be treated
as Collections and distributed to the Noteholders in the order of priority
specified above under "-- Payments of Principal" in addition to the
distributions to which the Noteholders would then otherwise be entitled to
receive.
The Repurchase Premium will be distributed to the Holders of record as of
the related Record Date for the Distribution Date on which WFSRC is repurchasing
the balance of the Contracts sold by it to the Trust on a pro rata basis, in
addition to any distribution which those Holders are otherwise then entitled to
receive.
The repurchased Contracts will be transferred back to WFSRC and will no
longer be assets of the Trust.
THE INDENTURE TRUSTEE
will be the Indenture Trustee. The Indenture Trustee is a
corporation and its Corporate Trust Office is located at .
The Indenture Trustee will have the rights and duties set forth under
"Certain Information Regarding the Securities -- The Trustees" and "-- Duties of
the Trustees" in the accompanying prospectus.
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
(4) certain events of bankruptcy, insolvency, receivership or
liquidation relating to the Trust occur (each, a "Trust Insolvency").
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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
(2) certain events of bankruptcy, insolvency, receivership or
liquidation relating to Financial Security occur.
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.
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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 Policy
for any shortfalls in Scheduled Payments on the Notes. See "The Note Policy."
CERTAIN INFORMATION REGARDING THE SECURITIES
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 and
net of the Servicing Fee of . Net Collections will include:
(a) prepayments, Net Liquidation Proceeds and Net Insurance Proceeds;
(b) any amounts deposited in the Collection Account by:
- the Sellers to purchase Contracts,
- WFSRC to repurchase 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 Notes 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" in the accompanying prospectus. The amount of those Net
Collections, reinvestment earnings and Advances on each Distribution Date will
be applied as described under "-- Distributions on the Securities." Amounts, to
the extent available, will be withdrawn from the Spread Account to cover any
shortfalls in distributions to Noteholders. Under the Note Policy, Financial
Security will be obligated to provide for distribution on the insured Notes 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 insured Notes for that Distribution Date
and will be obligated to provide for the payment of Scheduled Payments on the
Notes on the respective Note Final Scheduled Distribution Dates.
If WFSRC exercises its Optional Repurchase right, the amount payable by it
equal to the Base Price will be treated as Net Collections and will be deposited
into the Collections Account and
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<PAGE> 78
distributed as any other Net Collections at the time of their receipt. The
amount payable by WFSRC equal to the Repurchase Premium will not be treated as
Net Collections and will not be, directly or indirectly, distributed as any
other Net Collections. Instead, the Repurchase Premium will be distributed
separately by the Indenture Trustee, on the Distribution Date as of which the
Contracts sold to the Trust by WFSRC are to be repurchased by WFSRC on a pro
rata basis. The Indenture Trustee will deliver a report (the "Prepayment
Report") concurrently with the distribution of the Repurchase Premium reflecting
the total amounts of Repurchase Premium received by the Indenture Trustee
expressed as a dollar amount per $1,000 of securities of each class of Notes
then outstanding.
DISTRIBUTIONS ON THE NOTES
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 Repurchase Premium, if any; 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
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Final Scheduled Distribution Date, the remaining principal amount of the
related Class of Notes to be distributed to the holders of such Class of
Notes), to be distributed 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;
(5) to Financial Security, from any remaining Net Collections, any
amounts owing to Financial Security in respect of all payments, if any,
made under the Note Policy 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
(6) in the event that the distributions described in clauses (1)
through (5) 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."
In addition, WFSRC has exercised its Optional Repurchase, the Indenture
Trustee will distribute the Repurchase Premium to Noteholders on a pro rata
basis.
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
Notes, the initial aggregate principal amount of the Notes 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.
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
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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.
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 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 Scheduled Distribution Date shall not be less than the amount that is
necessary (after giving effect to other amounts to be deposited in the Note
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 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 pursuant to
clause (i), (ii) or (iv) of the definition of the term "Liquidated Contract"
during the related Due Period.
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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 weighted average of the sums of the Interest Rates on the Closing
Date plus the Servicing Fee Percent.
PAYMENT PRIORITIES OF THE NOTES; THE SPREAD ACCOUNT
General. The rights of the Noteholders 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," "-- Distributions on the
Securities -- Prepayment Premium; Priority of Payments." Such priorities and
subordination are intended to enhance the likelihood of timely receipt by
Noteholders of the full amount of interest and principal required to be paid to
them, and to afford such Noteholders 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 WFAL on the
Closing Date of an amount equal to $ (the "Spread Account Initial
Deposit"). The Spread Account will thereafter be funded by the deposit therein
of 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 Notes and Financial Security and those
amounts will be invested in Eligible Investments. Investment income on monies on
deposit in the Spread Account will be credited to the Spread Account. Any loss
on 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 % 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
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exceeds % or (ii) the Delinquency Percentage for the three calendar month
period ending on that Calculation Day exceeds %, then the Specified Spread
Account Balance shall equal % 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 $ ( % of the Cut-off Date
Aggregate Scheduled Balance) or less than $ (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 Notes if such
amount is less than $ . At no time after the Closing Date will the
Sellers, 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 supplement, 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 Notes (without giving effect to the guaranty under the Policy of payments
owing to the Noteholders of insured Classes of Notes), 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 Noteholder.
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 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. See "Certain Information Regarding the Securities -- Payments from the
Spread Account and Under the Note Policy" in the accompanying prospectus.
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<PAGE> 83
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 WFAL until WFAL has received from the Spread Account an aggregate amount
equal to the Spread Account Initial Deposit and finally to WFAL and WFSRC
according to their certificate percentage interests.
Upon any distributions to Financial Security or the Sellers, the
Noteholders will have no further rights in, or claims to, such amounts. None of
the Noteholders, the Indenture Trustee, the Owner Trustee, the Sellers 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 Noteholders. The obligations
of Financial Security under the Policy will not be diminished or otherwise
affected by any amounts distributed to Financial Security.
PAYMENTS FROM THE SPREAD ACCOUNT AND UNDER THE NOTE POLICY
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 Scheduled Distribution Date), first, from amounts on
deposit in the Spread Account, and second, if those amounts are still
insufficient, then from the payment of a claim under the Note Policy.
SERVICER DEFAULT
"Servicer Defaults" under the Sale and Servicing Agreement will consist of:
(a) a claim being made under the Note 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 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 either 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 Noteholders, Financial Security, the
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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 affected Seller, as the case may be, by the
Owner Trustee, the Indenture Trustee or Financial Security or
- to the Master Servicer or the affected 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
- so long as a default under the 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 either
Seller or the Master Servicer indicating its insolvency, reorganization
pursuant to bankruptcy or similar proceedings or inability to pay its
obligations (each, an "Insolvency Event"); and
(f) any material breach of any of the representations and warranties
of the Master Servicer or either Seller (except for any breaches relating
to Contracts repurchased by a Seller or the Master Servicer) that has a
material adverse effect on the Noteholders and, within 30 days after
written notice thereof shall have been given to the Master Servicer or the
Sellers by:
- the Indenture Trustee or the Owner Trustee,
- by holders of Notes (voting together as a single class), or
- so long as no default under the Policy has occurred and is
continuing and no insolvency of Financial Security has occurred, by
Financial Security.
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, 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
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 the Note Policy it
may direct the actions of the Indenture Trustee upon an Event of Default.
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<PAGE> 85
WAIVER OF PAST DEFAULTS
The holders of Notes evidencing at least 51% of the voting interests
thereof, voting together as a single class, may, on behalf of all Noteholders,
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 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 Noteholder, may only be waived by the approval of
holders of all of the Notes. No such waiver will impair the Noteholders' rights
with respect to subsequent Servicer Defaults.
VOTING INTERESTS
The "voting interests" of the 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; except that in certain circumstances Notes held by either
Seller, WFS or any of their respective affiliates will be excluded from such
determination.
TERMINATION
The obligations of the Master Servicer, the Sellers, the Owner Trustee and
Indenture Trustee pursuant to the Trust Agreement, Sale and Servicing Agreement
and the 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
agreements and (iii) the occurrence of the event described below.
In order to avoid excessive administrative expenses, WFAL 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 Notes, together with
accrued interest thereon for the related Interest Period. If WFSRC has not
previously exercised its Option Repurchase right, it will join WFAL in the
repurchase of the remaining Contracts (for which no Repurchase premium will be
due), in the proportions of % and %, respectively.
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 Notes 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 Noteholder 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 Sellers of all amounts required
to be distributed to them pursuant to the Trust Agreement will terminate the
Trust.
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.
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<PAGE> 86
PREPAYMENT CONSIDERATIONS
Because the rate of distribution of principal on the Notes will depend on
the rate of payment on the Contracts (including prepayments, liquidations, the
exercise by WFSRC of its Optional Repurchase right, and repurchases of Contracts
by a 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 or the Optional Purchase by the Sellers), the
final distribution on each Class of Notes is likely to occur earlier than the
related Final Scheduled Distribution Date. The right of the Sellers to
repurchase all of the Contracts upon certain events is described under
"-- Termination" and "The Master Servicer," and the right of WFSRC to repurchase
the Contracts it has sold to the Trust is described under "The Notes -- Optional
Repurchase".
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 Noteholders 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
Noteholders will be borne entirely by the Noteholders, but will be partially
offered in the case of an Optional Repurchase by the Prepayment Premium payable
by WFSRC in connection with an Optional Repurchase.
Purchases by the Sellers 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 Noteholders, 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 Notes. Any reduction in the average life
of the Notes will reduce the aggregate amount of interest received by the
Noteholders over the life of the Notes.
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 1.8%
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 would suggest any difference in
prepayment rate for Rule of 78's Contracts as compared with Simple Interest
Contracts.
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<PAGE> 87
CAPITALIZATION OF FINANCIAL SECURITY ASSURANCE INC.
The following table sets forth the capitalization of Financial Security and
its wholly owned subsidiaries on the basis of generally accepted accounting
principles as of September 30, 1999 (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------
ACTUAL
------------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C>
Deferred Premium Revenue (net of prepaid reinsurance
premiums)................................................. $ 550,165
----------
Surplus Notes............................................... 120,000
----------
Minority Interest........................................... 22,002
----------
Shareholder's Equity:
Common Stock.............................................. 15,000
Additional Paid-In Capital................................ 706,117
Accumulated Other Comprehensive Income (net of deferred
income taxes).......................................... (23,005)
Accumulated Earnings...................................... 450,593
----------
Total Shareholder's Equity................................ 1,148,705
----------
Total Deferred Premium Revenue, Surplus Notes, Minority
Interest and Shareholder's Equity......................... $1,840,872
==========
</TABLE>
For further information regarding Financial Security, see the accompanying
prospectus.
THE SELLERS
WFAL
WFAL 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 WFAL is 23 Pasteur, Irvine, California 92618. WFAL's
telephone number is (949) 727-1002.
WFAL 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 WFAL 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 vehicles 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 vehicles, which bonds or pass-through
certificates are rated in one of the four highest available categories by at
least one nationally recognized statistical rating agency.
WFAL's Articles of Incorporation limit its activities to the above purposes
and to any activities incidental to and necessary for such purposes.
WFSRC
WFSRC is a wholly owned, limited-purpose service operation of WFS, and was
incorporated under the laws of the State of California on December 22, 1999. The
principal office of WFSRC is
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<PAGE> 88
6655 West Sahara Avenue, Las Vegas, Nevada 83102. WFSRC's telephone number is
(702) 247-1442.
WFSRC was organized principally for the purpose of purchasing retail
installment sales contracts and installment loans from WFS in connection with
its activities as a finance subsidiary of WFS. WFSRC 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 vehicles or (ii) originating one or
more grantor or owner trusts owning installment sales contracts and installment
loans secured by vehicles.
WFSRC's Articles of Incorporation limit the activities of WFSRC 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 Sellers will make certain
representations and warranties with respect to each Contract sold by them to the
Trust 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 Noteholders, the Indenture Trustee, the Owner Trustee or Financial
Security in and to that Contract, the affected 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, that 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
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
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<PAGE> 89
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 December 31, 1999, WFS had total assets of
$2,130.9 million, total liabilities of $1,918.7 million and stockholders' equity
of $212.2 million. As of December 31, 1999, WFS' net portfolio of contracts
totaled approximately $1.4 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, Irvine,
California 92618 and its telephone number is (949) 727-1002.
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.
THE BANK
GENERAL
Western Financial Bank (the "Bank") is a federally chartered savings
association. At December 31, 1999, the Bank had total assets of $4.5 billion,
total deposits of $2.2 billion and stockholder's equity of $353 million on a
generally accepted accounting principles basis. The Bank is 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 15750 Alton
Parkway, Irvine, California 92618 and its telephone number is (949) 727-1100.
BUSINESS ACTIVITIES
The Bank provides a wide range of financial services through its community
banking group which includes retail and commercial operations. Retail banking
services are available through a network of 25 retail banking offices located
throughout California. Commercial banking operations target selected southern
California markets. Western Financial Bank maintains an ownership interest in
WFS which exceeds 80 percent.
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
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purchases of Notes 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 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. Notes 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 Notes. If this were so, persons that cause a Plan to acquire Notes or
that sponsor or insure the related Contracts or manage, control or service the
Contracts may be subject to the fiduciary responsibility provisions of ERISA and
the prohibited transaction provisions of Section 4975 of the Code in the absence
of a statutory or administrative exemption.
THE NOTES
The Notes may be purchased by a Plan subject to ERISA or Section 4975 of
the Code. A fiduciary of a Plan must determine that the purchase of a Note is
consistent with its fiduciary duties under ERISA and does not result in a
nonexempt prohibited transaction as defined in Section 406 of ERISA or Section
4975 of the Code.
The Notes may not be purchased with the assets of a Plan if the Sellers,
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.
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<PAGE> 91
UNDERWRITING
Subject to certain conditions contained in an underwriting agreement (the
"Underwriting Agreement"), (the "Underwriters"), for whom is
acting as representative (the "Representative"), have agreed to severally
purchase from the Sellers, and the Sellers have jointly and severally agreed to
sell to the Underwriters, the respective principal amounts of each Class of
Notes 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>
................................. $ $ $
.................................
-------- -------- --------
Total.................... $ $ $
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
SELLING REALLOWANCE
CLASS CONCESSION DISCOUNT
----- ---------- -----------
<S> <C> <C>
Class A-1 Notes............................................. % %
Class A-2 Notes............................................. % %
Class A-3 Notes............................................. % %
</TABLE>
After the initial public offering, the public offering prices of the Notes
and these concessions and discounts may be changed.
The Underwriting Agreement provides that the Underwriters' obligations
thereunder are subject to approval of certain legal matters by counsel and to
various other conditions.
The Sellers 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 Notes, the Underwriters may engage
in transactions that stabilize, maintain or otherwise affect the price of any
Class of Notes. Specifically, the Underwriters may overallot the offering,
creating a syndicate short position. The Underwriters may bid for and purchase
the Notes in the open market to cover syndicate short positions. In addition,
the Underwriters may bid for and purchase the Notes in the open market to
stabilize the price of the Notes. These activities may stabilize or maintain the
market price of the Notes 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 Notes, including certain federal
and California income tax matters, will be passed upon for the Sellers 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 Clifford Chance Rogers & Wells LLP,
New York, New York.
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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 supplement, 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 supplement 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 Sellers' 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 Sellers undertake 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.
S-39
<PAGE> 93
INDEX OF DEFINITIONS
Set forth below is a list of the defined capitalized terms used in this
prospectus supplement and the pages on which the definitions of such terms may
be found.
<TABLE>
<CAPTION>
TERM PAGE
---- ----
<S> <C>
ABS................................. S-16
Administration Agreement............
Advance............................. S-24
Aggregate Scheduled Balance......... S-26
Aggregate Scheduled Balance
Decline........................... S-26
APR................................. S-13
Bank................................ S-36
Business Day........................ S-20
Calculation Day..................... S-28
Charge-Off Percentage............... S-29
Class A-1 Final Scheduled
Distribution Date................. S-5
Class A-1 Notes..................... S-6
Class A-2 Final Scheduled
Distribution Date................. S-5
Class A-2 Notes..................... S-6
Class A-3 Final Scheduled
Distribution Date................. S-5
Class A-3 Notes..................... S-6
Closing Date........................ S-5
Contracts........................... S-6
Cut-Off Date........................ S-5
Cut-Off Date Aggregate Scheduled
Balance........................... S-11
Defaulted Contract.................. S-26
Delinquency Percentage.............. S-29
Determination Date.................. S-25
Distribution Accounts............... S-25
Distribution Dates.................. S-5
Due Period.......................... S-26
Eligible Investments................ S-13
ERISA............................... S-9
Event of Default.................... S-22
Excess Amounts...................... S-26
Exchange Act........................ S-3
FDIC................................ S-36
Final Scheduled Distribution Date... S-6
Financed Vehicles................... S-11
Financial Security.................. S-5
</TABLE>
<TABLE>
<CAPTION>
TERM PAGE
---- ----
<S> <C>
Holding Account..................... S-11
Indenture........................... S-20
Indenture Trustee................... S-5
Insolvency Event.................... S-31
Insurer Default..................... S-23
Interest Rate....................... S-6
Issuer.............................. S-5
Liquidated Contract................. S-26
Liquidation Expenses................ S-24
Master Servicer..................... S-5
Moody's............................. S-6
Net Collections..................... S-24
Net Insurance Proceeds.............. S-24
Net Liquidation Proceeds............ S-24
Note Distributable Amount........... S-26
Note Distribution Account........... S-12
Note Interest Carryover Shortfall... S-26
Note Interest Distributable
Amount............................ S-26
Note Policy......................... S-8
Note Principal Carryover
Shortfall......................... S-26
Note Principal Distributable
Amount............................ S-26
Note Quarterly Interest
Distributable Amount.............. S-26
Note Quarterly Principal
Distributable Amount.............. S-26
Noteholders......................... S-12
Notes............................... S-5
Obligors............................ S-11
Optional Purchase................... S-8
Optimal Repurchase.................. S-9
OTS................................. S-36
Owner Trustee....................... S-5
Plans............................... S-36
Principal Distributable Amount...... S-26
Rating Agencies..................... S-6
Record Date......................... S-20
Repurchase Program.................. S-8
</TABLE>
S-40
<PAGE> 94
<TABLE>
<CAPTION>
TERM PAGE
---- ----
<S> <C>
Rule of 78's Contract -- A Contract
that provides for the payment by the
Obligor of a specified total number
of payments, payable in equal
monthly installments, which total
represents the principal amount
financed plus add-on interest in an
amount calculated by using the Rule
of 78's. Under the Rule of 78's, the
amount of a monthly payment
allocable to interest on a Contract
is determined by multiplying the
total amount of add-on interest
payable over the term of the
Contract by a fraction the
denominator of which is a number
equal to the sum of a series of
numbers representing the number of
each monthly payment due under the
Contract and the numerator of which
for a given month is the number of
payments remaining before the
maturity of the Contract. For
example, with a Contract providing
for 12 payments, the denominator of
each month's fraction will be 78,
the sum of a series of numbers from
1 to 12. Accordingly, in the example
of a twelve payment Contract, the
fraction for the first payment is
12/78, for the second payment
11/78, for the third payment 10/78,
and so on through the final payment,
for which the fraction is 1/78. The
applicable fraction is then
multiplied by the total add-on
interest payment over the entire
term of the Contract, and the
resulting amount is the amount of
add-on interest earned that month.
The difference between the amount of
the monthly payment by the Obligor
and the amount of earned add-on
interest calculated for the month is
applied to principal reduction.
Under the law of Texas, a similar
procedure is permitted for
calculating the amount of add-on
interest earned, except the fraction
is derived by using the sum of the
monthly payments
</TABLE>
<TABLE>
<CAPTION>
TERM PAGE
---- ----
<S> <C>
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.
Sale and Servicing Agreement........ S-13
Scheduled Balance................... S-28
Securities.......................... S-5
Sellers............................. S-5
Servicer Defaults................... S-30
Servicing Fee....................... S-24
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.... S-28
Spread Account...................... S-7
Spread Account Initial Deposit...... S-7
Standard & Poor's................... S-6
Trust............................... S-5
Trust Agreement..................... S-10
Trust Fees and Expenses............. S-20
Trust Property...................... S-6
Trustees............................ S-5
Trust Insolvency.................... S-22
UCC-I............................... S-11
Underwriters........................ S-38
Underwriting Agreement.............. S-38
Unreimbursed Insurer Amounts........ S-26
Westcorp Financial.................. S-35
WFAL................................ S-65
WFS................................. S-65
WFSRC............................... S-65
</TABLE>
S-41
<PAGE> 95
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[ WFS LOGO ]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 96
THE INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE
AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
IS EFFECTIVE. THIS PROSPECTUS IS SUPPLEMENT NOT AN OFFER TO SELL THESE
SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED , 200
$ AUTOMOBILE LOAN ASSET-BACKED NOTES
WFS FINANCIAL 2 - OWNER TRUST
WFS FINANCIAL AUTO LOANS, INC.
SELLER
WFS FINANCIAL INC
MASTER SERVICER
The issuer will issue three classes of notes as listed below. The issuer
will pay interest quarterly on the 20th of , , and
. The first interest payment will be made on , 2000.
Full and timely payment of the noteholders' distributable amount on each
distribution date is unconditionally and irrevocably guaranteed under a
financial guaranty insurance policy issued by Financial Security Assurance Inc.
YOU SHOULD CAREFULLY REVIEW THE RISK FACTORS BEGINNING ON PAGE S-10 OF THIS
PROSPECTUS SUPPLEMENT AND PAGE 8 OF THE 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 the securities insured by the Federal Deposit
Insurance Corporation.
<TABLE>
<CAPTION>
PRINCIPAL INTEREST FINAL SCHEDULED INITIAL PUBLIC UNDERWRITING PROCEEDS TO THE
AMOUNT RATE DISTRIBUTION DATE OFFERING PRICE(1) DISCOUNTS SELLER(1)(2)
---------------- ------------- ----------------- ----------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Per Class A-1 Note... $ %
Per Class A-2 Note... $ %
Per Class A-3 Note... $ %
Total................ $ % $ $ $
</TABLE>
- -------------------------
(1) Plus accrued interest, if any, from , 200 .
(2) Before deducting expenses, estimated to be $ .
Delivery of the Notes, in book-entry form only, will be made through The
Depositary Trust Company against payment in immediately available funds, on
or about , 200 .
NEITHER THE SECURITIES EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS
SUPPLEMENT IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
[ UNDERWRITERS ]
Prospectus Supplement dated , 200
<PAGE> 97
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Important Notice About Information
Presented in this Prospectus
Supplement.......................... S-3
Where to Find Information in These
Documents......................... S-3
Incorporation by Reference.......... S-3
Summary of Terms.................... S-5
The Parties....................... S-5
Important Dates................... S-5
The Securities:................... S-5
The Trust Property................ S-6
Redemption of Securities and
Repurchase of Contracts........ S-8
Tax Status........................ S-8
Eligibility for Purchase by Money
Market Funds................... S-9
ERISA Considerations.............. S-9
Risk Factors........................ S-10
The Ratings of the Notes May be
Withdrawn or Revised Which May
Have an Adverse Effect on the
Market Price of the Notes...... S-10
Losses on Contracts May be
Affected Disproportionately
Because of Geographic
Concentration of Contracts in
California..................... S-10
Formation of the Trust.............. S-10
General........................... S-10
Capitalization.................... S-12
The Owner Trustee................. S-12
The Contracts Pool.................. S-12
Distribution of Contracts by APR.... S-14
Geographic Concentration of the
Contracts......................... S-15
Weighted Average Lives of the
Notes.......................... S-16
Percentage of Initial Note Principal
at Various ABS Percentages........ S-17
Delinquency and Contract Loss
Information....................... S-18
Use of Proceeds..................... S-19
The Notes........................... S-20
General........................... S-20
Payments of Interest.............. S-20
Payments of Principal............. S-20
Optional Redemption............... S-21
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Indenture Trustee............. S-21
Events of Default................. S-22
Certain Information Regarding the
Securities........................ S-23
Payments on the Contracts......... S-23
Distributions on the Notes........ S-24
Payment Priorities of the Notes;
The Spread Account............. S-27
Withdrawals from the Spread
Account........................ S-29
Payments from the Spread Account
and Under the Note Policy...... S-29
Servicer Default.................. S-29
Rights Upon Servicer Default...... S-30
Waiver of Past Defaults........... S-31
Voting Interests.................. S-31
Termination....................... S-31
Payment in Full of Notes.......... S-32
Prepayment Considerations......... S-32
Capitalization of Financial Security
Assurance Inc..................... S-33
The Seller.......................... S-33
WFAL.............................. S-33
Breach of Representations and
Warranties; Defective Contract
Documentation.................. S-33
WFS................................. S-34
General........................... S-34
Business Activities............... S-35
The Bank............................ S-35
General........................... S-35
Business Activities............... S-35
WII................................. S-35
ERISA Considerations................ S-36
Overview.......................... S-36
Prohibited Transactions........... S-36
The Notes......................... S-36
Underwriting........................ S-37
Legal Matters....................... S-37
Experts............................. S-38
Forward-Looking Statements.......... S-38
Index of Definitions................ S-39
</TABLE>
S-2
<PAGE> 98
IMPORTANT NOTICE ABOUT INFORMATION
PRESENTED IN THIS PROSPECTUS SUPPLEMENT
We provide information to you about the securities in two separate
documents that progressively provide more detail: (1) the accompanying
prospectus, which provides general information, some of which may not apply to
your series of notes, and (2) this prospectus supplement, which describes the
specific terms of your series of Notes. This prospectus supplement does not
contain complete information about the offering of the Notes. Additional
information is contained in the prospectus. You are urged to read both this
prospectus supplement and the prospectus in full. We cannot sell the notes to
you unless you have received both this prospectus supplement and the prospectus.
You should rely on the information contained in or incorporated by
reference in this prospectus supplement and the accompanying prospectus. If the
information concerning your series of notes varies between this prospectus
supplement and the accompanying prospectus, you should rely on the information
contained in this prospectus supplement. We have not authorized anyone to
provide you with different information. We do not claim the accuracy of the
information in this prospectus supplement as of any date other than the date
stated on the cover of this prospectus supplement.
If you purchase Notes you will also be provided with unaudited quarterly
and annual reports concerning the automobile loan contracts which back the
Notes.
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 supplement. 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 S-45 of this
prospectus supplement.
INCORPORATION BY REFERENCE
All reports and other documents filed by WFS, as Master Servicer, on behalf
of the Seller, or on behalf of the Trust, and the financial statements of
Financial Security Assurance, Inc. and Subsidiaries included in, or as exhibits
to, documents filed by Financial Security Assurance Holdings Ltd. (including
specifically the Annual Report on Form 10-K for the year ended December 31, 1998
and the Quarterly Report on Form 10-Q for the quarterly periods ended March 31,
June 30 and September 30, 1999), as filed in each case pursuant to Section
13(a), 13(c), 14 or 14(d) of the Securities Act of 1934, as amended (the
"Exchange Act"), and those filed subsequent to the date of this prospectus
supplement and prior to the termination of the offering of the Notes offered
hereby shall be deemed to be incorporated by reference into this prospectus
supplement and to be a part hereof from the respective dates of filing such
documents. Any statement contained herein or in a document all or a portion of
which is incorporated herein by this reference shall be deemed to be modified or
superseded for purposes of this prospectus supplement to the extent that a
statement contained herein or in any subsequently filed document which is or is
also deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or
S-3
<PAGE> 99
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this prospectus supplement.
You should rely only on the information contained in or incorporated by
reference in this prospectus supplement. We have not authorized anyone to
provide you with different information.
We are not offering the notes 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 supplement.
Until , 200 , all dealers that buy, sell or trade the Notes
may be required to deliver a prospectus and this prospectus supplement,
regardless of whether they are participating in the offer. This is in addition
to the obligation of dealers to deliver a prospectus and this prospectus
supplement when acting as underwriters and with respect to their unsold
allotments or subscriptions.
S-4
<PAGE> 100
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 PARTIES:
The Issuer................. WFS Financial 2 - Owner Trust ("Trust")
Seller..................... WFS Financial Auto Loans, Inc. ("WFAL")
Master Servicer............ WFS Financial Inc ("WFS")
The Insurer................ Financial Security Assurance, Inc. ("Financial
Security")
Indenture Trustee.......... [ ]
Owner Trustee.............. [ ]
IMPORTANT DATES:
Statistical Calculation
Date....................... , 2
Cut-Off Date............... 1, 2
Closing Date............... Expected to be , 2
Distribution Dates......... Payments of principal and interest will be made on
the Notes on each 20, 20,
20, 20, commencing on
20, 2
Final Scheduled
Distribution Dates......... If not paid earlier, the full outstanding principal
balance of the Class A-1 Notes will be paid on
20, 200 (the "Class A-1 Final Scheduled
Distribution Date"), of the Class A-2 Notes will be
paid on 20, 200 (the "Class A-2 Final
Scheduled Distribution Date") of the Class A-3
Notes will be paid on 20, 200 (the "Class
A-3 Final Scheduled Distribution Date").
SECURITIES:
The Notes.................. The WFS Financial 2 - Owner Trust Auto
Receivable Backed Notes will represent obligations
of the Trust secured by the assets of the Trust.
The Certificates........... The Trust will issue Certificates which are not
being offered by this prospectus supplement. All
payments in respect of any Certificates issued by
the Trust will be subordinated to payments on the
Notes.
S-5
<PAGE> 101
THE TERMS OF THE NOTES
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS A-3
NOTES NOTES NOTES
----------------- ----------------- -----------------
<S> <C> <C> <C>
Principal Amount..... $ $ $
Interest Rate Per
Annum................ % % %
Interest Accrual
Method............. [ ] [ ] [ ]
Distribution Dates... * * *
First Distribution
Date............... 20, 2000 20, 2000 20, 2000
Final Scheduled
Distribution
Date...............
Anticipated Ratings
(Moody's/Standard &
Poor's)**.......... [ ] [ ] [ ]
</TABLE>
- -------------------------
* Payments of interest and principal on the Notes will be made on 20,
20, 20 and 20 of each year, or the first
business day thereafter, beginning on 20, 2 . Principal
will be paid sequentially to the earliest maturing class until paid in full.
** It is a condition to the offering of the Notes 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.
PRIORITY OF PRINCIPAL PAYMENTS
Principal of the Notes will be paid on each distribution date in the
following order:
to the Class A-1 Notes until the Class A-1 Notes are paid in full;
to the Class A-2 Notes until the Class A-2 Notes are paid in full; and
to the Class A-3 Notes until the Class A-3 Notes are paid in full.
THE TRUST PROPERTY:
GENERAL.................... 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;
- the funds in the spread account; and
- an insurance policy written by Financial Security
guaranteeing all payments to be made to holders
of the notes.
S-6
<PAGE> 102
THE CONTRACTS
[GRAPHIC]
- The Trust also receives the right to payments due under the Contracts on
and after 1, 2000.
- 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 % and an expected weighted average remaining
maturity of approximately months.
- Approximately % of the aggregate principal amount of the Contracts
will be "Rule of 78's Contracts" and approximately % will be "Simple
Interest Contracts." See "Index of Definitions" for the definition of
"Rule of 78's Contract" and "Simple Interest Contract."
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 WFAL of $ (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 Notes. 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 % or % 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 loss and delinquency triggers.
S-7
<PAGE> 103
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.
THE NOTE POLICY
Financial Security will issue policies that guarantee all payments due to
the Noteholders of insured Notes.
REDEMPTION OF SECURITIES AND REPURCHASE OF CONTRACTS:
OPTIONAL PURCHASE
WFAL 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 $ .
OPTIONAL REDEMPTION AND PREPAYMENT
If WFAL purchases 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 trust will be terminated.
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.
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.
S-8
<PAGE> 104
If you purchase a Note, you agree to treat it as debt for tax purposes.
ELIGIBILITY FOR PURCHASE BY MONEY MARKET FUNDS:
The Class A-1 Notes will be structured to be eligible securities for
purchase by money market funds under Rule 2a-7 under the Investment Company Act
of 1940, as amended. A money market fund should consult its legal advisers
regarding the eligibility of such notes under Rule 2a-7 and whether an
investment in such notes satisfies the fund's investment policies and
objectives.
ERISA CONSIDERATIONS:
The Notes 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 supplement and
also should consult with their legal advisors before purchasing Notes.
S-9
<PAGE> 105
RISK FACTORS
In addition to risk factors on page of the accompanying prospectus, you
should also consider the following risk factors in deciding whether to purchase
any of the Notes.
THE RATINGS OF THE NOTES MAY BE WITHDRAWN OR REVISED WHICH MAY HAVE AN ADVERSE
EFFECT ON THE MARKET PRICE OF THE NOTES
It is a condition of issuance that the Notes be rated as follows:
<TABLE>
<CAPTION>
STANDARD & POOR'S MOODY'S
----------------- -------
<S> <C> <C>
Class A-1 Notes...................................... [ ] [ ]
Class A-2 and Class A-3 Notes........................ [ ] [ ]
</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 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, with respect to Moody's, 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.
A security rating is not a recommendation to buy, sell or hold the Notes.
The ratings are an assessment by the Rating Agencies of the likelihood that the
Notes will be paid in full by the related Final Scheduled Distribution Date. The
ratings do not consider to what extent the Notes will be subject to prepayment.
LOSSES ON CONTRACTS MAY BE AFFECTED DISPROPORTIONATELY BECAUSE OF GEOGRAPHIC
CONCENTRATION OF CONTRACTS IN CALIFORNIA
As of , 1999, WFS' records indicate that % of the
aggregate principal balance of the Contracts will be from Contracts originating
in California. No other state accounted for more than % 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.
FORMATION OF THE TRUST
GENERAL
The Trust will be a business trust formed for the transaction described in
this prospectus supplement 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 Notes (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;
- making payments on the Notes; and
S-10
<PAGE> 106
- engaging in other activities that are necessary, suitable or convenient
to accomplish the foregoing purposes or are incidental thereto or
connected therewith.
On or before the Closing Date, WFS will sell and assign the Contracts to
WFAL. The Trust will be established by the sale and assignment of the Contracts
to the Trust by WFAL on the Closing Date. Certificates representing WFAL's and
WII's beneficial interests in the Trust will be issued by the Trust in the
relative amounts of 99% and 1%. 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 and security interests in the
Contracts, the Trust's interests in the Contracts will be perfected by WFAL
filing UCC-1 financing statements in the State of California and WFSRC in the
State of Nevada to give notice of the Trust's ownership of and security
interests in 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 WFAL or by the Seller to the Trust. See "Certain
Legal Aspects of the Contracts" in the accompanying prospectus.
Simultaneously with the issuance of the Notes, Financial Security will
issue a policy (the "Note Policy") to the Indenture Trustee for the benefit of
the Noteholders. Under the Note Policy, Financial Security will unconditionally
and irrevocably guarantee to the related Noteholders full and complete payment
of the Scheduled Payments 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 Noteholders, which lien cannot be executed
upon until all required payments under the Note Policy have been made. See "The
Note Policy" in the accompanying prospectus.
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
(the "Cut-Off Date");
- security interests in the Financed Vehicles;
- the Note Policy;
- amounts on deposit in the Collection Account, the Note 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 (the "Sale and Servicing
Agreement"), among the Trust, the Seller and the Master Servicer.
S-11
<PAGE> 107
Pursuant to the Indenture, the property of the Trust (other than the Note
Distribution Account, and the Note 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 following table illustrates the capitalization of the Trust as of the
Cut-Off Date, as if the issuance and sale of the Notes had taken place on that
date:
<TABLE>
<S> <C>
Class A-1 Notes............................................. $
Class A-2 Notes.............................................
Class A-3 Notes.............................................
--------
Total..................................................... $
========
</TABLE>
THE OWNER TRUSTEE
will be the Owner Trustee under the Trust Agreement. is
a Delaware corporation and its Corporate Trust Office is located at
Delaware.
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 secured by a new or
used automobiles or light duty trucks originated by a new or used car dealer
located in California or one of the other 43 states listed below or an
installment loan secured by a new or used automobile or light duty truck. Most
of the Contracts were purchased by WFS; however, a limited number of Contracts,
no more than % of the Cut-Off Date Aggregate Scheduled Balance, are
installment loans originated by branch offices of WFS directly to consumers or
by other independent auto finance companies which loans were then sold to WFS.
Each Contract is secured by a Financed Vehicle. Except as otherwise noted, all
references to contracts in this prospectus supplement include installment loans.
S-12
<PAGE> 108
WFS will select the Contracts from its portfolio of fixed-interest rate
contracts. The Contracts were underwritten and purchased by WFS in the ordinary
course of its business operations.
<TABLE>
<CAPTION>
ALL CONTRACTS
IN THE TRUST
-------------
<S> <C>
Outstanding Principal Balance(1)
Minimum..................................................... $
Maximum................................................... $
Average................................................... $
Number of Contracts.........................................
Percentage of New Vehicles(1)............................. %
Percentage of Used Vehicles(1)............................ %
Financed Vehicles(1)........................................
Automobiles............................................... %
Light Duty Trucks......................................... %
Percentage of Rule of 78's Contracts(1)..................... %
Percentage of Simple Interest Contracts(1).................. %
Annual Percentage Rate(1)
Minimum................................................... %
Maximum................................................... %
Weighted Ave. APR......................................... %
Remaining Maturities(1)
Minimum................................................... Months
Maximum................................................... Months
Weighted Ave. ............................................ Months
Original Maturities
Minimum................................................... Months
Maximum................................................... Months
Weighted Ave. ............................................ Months
Percent over 60 Months.................................... %
</TABLE>
- -------------------------
(1) Information as of . Contracts having Cut-Off Date Aggregate
Scheduled Balances of $ will be included in the Trust.
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 Notes. As amortization on an actuarial
basis produces a faster amortization than does application of the Rule of 78's,
there will not be a shortfall of principal in any event, including as a result
of prepayments or timely payment to maturity of a Rule of 78's Contract.
The information concerning the Contracts presented in this prospectus
supplement is based upon a pool of retail installment sales contracts and
installment loans originated through .
S-13
<PAGE> 109
DISTRIBUTION OF CONTRACTS BY APR(1)
<TABLE>
<CAPTION>
ALL CONTRACTS IN THE TRUST
---------------------------------------
PERCENTAGE OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
APR RANGE CONTRACTS BALANCE BALANCES(2)
--------- --------- --------- -------------
<S> <C> <C> <C>
5.000% to 5.999%................................... $ %
6.000% to 6.999%...................................
7.000% to 7.999%...................................
8.000% to 8.999%...................................
9.000% to 9.999%...................................
10.000% to 10.999%..................................
11.000% to 11.999%..................................
12.000% to 12.999%..................................
13.000% to 13.999%..................................
14.000% to 14.999%..................................
15.000% to 15.999%..................................
16.000% to 16.999%..................................
17.000% to 17.999%..................................
18.000% to 18.999%..................................
19.000% to 19.999%..................................
20.000% to 20.999%..................................
21.000% to 21.999%..................................
22.000% to 22.999%..................................
23.000% to 23.999%..................................
24.000% to 24.999%..................................
25.000% to 25.999%..................................
26.000% to 26.999%..................................
27.000% to 27.999%..................................
28.000% to 28.999%..................................
29.000% to 29.999%..................................
30.000% and over....................................
-------- -------- ---
Total............................................. $ %
======== ======== ===
</TABLE>
- -------------------------
(1) Information as of . Contracts having Cut-Off Date Aggregate
Scheduled Balances of $ will be included in the Trust.
(2) Percentages may not add to 100.00% due to rounding.
S-14
<PAGE> 110
GEOGRAPHIC CONCENTRATION OF THE CONTRACTS(1)
<TABLE>
<CAPTION>
ALL CONTRACTS SOLD TO THE TRUST
---------------------------------------
PERCENTAGE OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
STATE(2) CONTRACTS BALANCE BALANCES
-------- --------- --------- -------------
<S> <C> <C> <C>
California..........................................
Arizona.............................................
Texas...............................................
Washington..........................................
Florida.............................................
Oregon..............................................
Colorado............................................
Ohio................................................
Nevada..............................................
North Carolina......................................
Virginia............................................
Illinois............................................
South Carolina......................................
Alabama.............................................
Tennessee...........................................
Missouri............................................
Utah................................................
Georgia.............................................
Idaho...............................................
Pennsylvania........................................
Maryland............................................
Indiana.............................................
Kentucky............................................
Michigan............................................
Massachusetts.......................................
New Jersey..........................................
Wisconsin...........................................
Oklahoma............................................
Connecticut.........................................
Kansas..............................................
Mississippi.........................................
New Mexico..........................................
Delaware............................................
Iowa................................................
West Virginia.......................................
Wyoming.............................................
Rhode Island........................................
New Hampshire.......................................
Hawaii..............................................
Maine...............................................
Minnesota...........................................
New York............................................
Nebraska............................................
------- -------- ---
Total $........ %
======= ======== ===
</TABLE>
S-15
<PAGE> 111
- -------------------------
(1) Information as of , 2 . Contracts having Cut-Off Date Aggregate
Scheduled Balances of $ 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, the state in
which the office of the lender which originated the loan is located.
WEIGHTED AVERAGE LIVES OF THE NOTES
Prepayments on Contracts can be measured relative to a payment standard or
model. The model used in this prospectus supplement, the Absolute Prepayment
Model ("ABS"), represents an assumed rate of prepayment each month relative to
the original number of Contracts in a pool of Contracts. ABS further assumes
that all the Contracts in question are the same size and amortize at the same
rate and that each Contract in each month of its life will either be paid as
scheduled or be paid in full. For example, in a pool of Contracts originally
containing 10,000 Contracts, a 1% ABS rate means that 100 receivables prepay
each month. ABS does not purport to be an historical description of prepayment
experience or a prediction of the anticipated rate of prepayment of any pool of
Contracts, including the Contracts.
As the rate of payment of principal of each class of Notes will depend on
the rate of payment (including prepayments) of the principal balance of the
Contracts, final payment of any class of Notes could occur significantly earlier
than the Final Scheduled Distribution Dates for that class of Notes.
Reinvestment risk associated with early payment of the Notes of any class will
be borne exclusively by the holders of those Notes.
The table captioned "Percent of Initial Note Principal Amount at Various
ABS Percentages" (the "ABS Table") has been prepared on the basis of the
characteristics of the Contracts described under "The Contract Pool". The ABS
Tables assumes that:
- the Contracts prepay in full at the specified constant percentage of ABS
monthly, with no defaults, losses or repurchases,
- each Scheduled Payment on each Contract is scheduled to be made and is
made on the last day of each month and each month has 30 days,
- payments are made on the Notes on each Distribution Date (and each such
date is assumed to be the twentieth day of each applicable month), and
- the Seller exercises its Optional Purchase on the earliest Distribution
Date on which such option may be exercised.
The ABS Table indicates the projected weighted average life of each class
of Notes and sets forth the percent of the initial principal amount of each
class of Notes that is projected to be outstanding after each of the
Distribution Dates shown at various constant ABS percentages.
The ABS Table also assumes that the Contracts have been aggregated into
hypothetical pools with all of the Contracts within each such pool having the
following characteristics and that the level scheduled payment for each of the
pools (which is based on the Aggregate Scheduled Balance, APR, original term to
maturity and remaining term to maturity as of the assumed Cut-Off Date) will be
such that each pool will be fully amortized by the end of its remaining term to
maturity.
S-16
<PAGE> 112
<TABLE>
<CAPTION>
REMAINING ORIGINAL
AGGREGATE ASSUMED TERM TO TERM TO
PRINCIPAL CUT-OFF MATURITY MATURITY
POOL BALANCE APR DATE (IN MONTHS) (IN MONTHS)
---- --------- ----- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
[ ]........................
[ ]........................
[ ]........................
Total.............................
</TABLE>
The actual characteristics and performance of the Contracts will differ
from the assumptions used in preparing the ABS Table. The assumptions used are
hypothetical and have been provided only to give a general sense of how the
principal cash flows might behave under varying prepayment scenarios. For
example, it is very unlikely that the Contracts will prepay at a constant ABS
rate until maturity or that all of the Contracts will prepay at the same ABS
rate. Moreover, the diverse terms of Contracts within each of the hypothetical
pools could produce slower or faster principal distributions than indicated in
the ABS Table at the various constant percentages of ABS specified, even if the
original and remaining terms to maturity of the Contracts are as assumed. Any
difference between those assumptions and the actual characteristics and
performance of the Contracts, or actual prepayment experience, will affect the
percentages of initial amounts outstanding over time and the weighted average
lives of each class of Notes.
PERCENTAGE OF INITIAL NOTE PRINCIPAL AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
CLASS A-1 NOTES CLASS A-2 NOTES CLASS A-3 NOTES
------------------------- ------------------------- -------------------------
DISTRIBUTION DATE 0.0% 1.0% 1.8% 2.5% 0.0% 1.0% 1.8% 2.5% 0.0% 1.0% 1.8% 2.5%
----------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Weighted Average Life
(years)(1).........
</TABLE>
- -------------------------
(1) The weighted average life of a Note is determined by (x) multiplying the
amount of each principal payment on a Note by the number of periods (months)
from the date of issuance of the Note to the related Distribution Date, (y)
adding the results and (z) dividing the sum by the original principal amount
of the Note.
(2) This calculation assumes that the Seller does not exercise its Optional
Purchase.
This Table has been prepared based on the assumptions described on Page
S-20 (including the assumptions regarding the characteristics and performance of
the Contracts, which will differ from the actual characteristics and performance
thereof) and should be read in conjunction therewith.
S-17
<PAGE> 113
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, 1995 through 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, 1995 through 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 DECEMBER 31,
------------------------------------------------------------------------------------
1999 1998 1997 1996
---------------------- ---------------------- ---------------------- ---------
NUMBER NUMBER NUMBER NUMBER
OF OF OF OF
CONTRACTS AMOUNT(2) CONTRACTS AMOUNT(2) CONTRACTS AMOUNT(2) CONTRACTS
--------- ---------- --------- ---------- --------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Portfolio............. $524,709 $5,354,385 464,257 $4,367,099 408,958 $3,680,817 341,486
======== ========== ======= ========== ======= ========== =======
Period of
delinquency(3)
31-59 days.......... 12,868 $ 107,416 13,885 $ 112,208 6,605 $ 54,450 4,511
60-89 days.......... 3,511 29,738 3,966 32,100 2,161 18,652 1,305
90 days or more..... 1,711 14,872 1,768 14,441 918 7,762 567
-------- ---------- ------- ---------- ------- ---------- -------
Total contracts and
amount delinquent... 18,090 $ 152,026 19,619 $ 158,749 9,684 $ 80,864 6,383
======== ========== ======= ========== ======= ========== =======
Delinquencies as a
percentage of number
and amount of
contracts
outstanding......... 3.45% 2.84% 4.23% 3.64% 2.37% 2.20% 1.87%
======== ========== ======= ========== ======= ========== =======
<CAPTION>
AT DECEMBER 31,
-----------------------------------
1996 1995
---------- ----------------------
NUMBER
OF
AMOUNT(2) CONTRACTS AMOUNT(2)
---------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Portfolio............. $3,046,585 258,665 $2,209,594
========== ======= ==========
Period of
delinquency(3)
31-59 days.......... $ 38,173 2,180 $ 18,557
60-89 days.......... 11,470 690 6,143
90 days or more..... 5,144 308 2,701
---------- ------- ----------
Total contracts and
amount delinquent... $ 54,787 3,178 $ 27,401
========== ======= ==========
Delinquencies as a
percentage of number
and amount of
contracts
outstanding......... 1.80% 1.23% 1.24%
========== ======= ==========
</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.
S-18
<PAGE> 114
CONTRACT LOSS EXPERIENCE(1)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Contracts Serviced
At end of period (net of
unearned add-on interest)..... $5,354,385 $4,367,099 $3,680,817 $3,046,585 $2,209,594
========== ========== ========== ========== ==========
Average during period (net of
unearned add-on
interest).................. $4,839,514 $4,006,185 $3,383,570 $2,627,622 $1,886,359
========== ========== ========== ========== ==========
Gross charge offs of contracts
during period.............. $ 150,518 $ 173,422 $ 136,773 $ 86,464 $ 48,999
Recoveries of contracts
charged off in prior
periods.................... 47,581 36,230 34,634 25,946 18,715
---------- ---------- ---------- ---------- ----------
Net charge offs............... $ 102,937 $ 137,192 $ 102,139 $ 60,518 $ 30,284
========== ========== ========== ========== ==========
Net charge offs as a
percentage of contracts
outstanding during
period..................... 2.13% 3.42% 3.02% 2.30% 1.61%
</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 1999 to 2.13%, a 37.7% decrease from
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 2.84% in 1999, an increase of 65.5% and decrease of
22.0%, 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 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.
USE OF PROCEEDS
WFAL will apply the net proceeds from the sale of the Notes (i.e., the
proceeds of the public offering of the Notes minus expenses relating thereto) to
the purchase of the Contracts from WFS.
S-19
<PAGE> 115
THE NOTES
GENERAL
The Notes will be issued pursuant to an indenture between the Trust and the
Indenture Trustee to be dated as of (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 Notes will be made on
20, 20, 20 and 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 20, 2 .
Payments on the Notes on each Distribution Date will be paid to the holders of
record of the related Notes on the Business Day immediately proceeding such
Distribution Date or, in the event that Definitive Securities are issued, as of
the 15th 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" in the accompanying prospectus.
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
S-20
<PAGE> 116
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
20, 200 (the "Class A-1 Final Scheduled Distribution Date"), (ii) the Class A-2
Notes will be payable on 20, 200 (the "Class A-2 Final Scheduled
Distribution Date") and (iii) the Class A-3 Notes will be payable on
20, 200 (the "Class A-3 Final Scheduled Distribution Date" and,
together with the Class A-1 Final Scheduled Distribution Date and the Class A-2
Final Scheduled Distribution Date, the "Final Scheduled Distribution Dates").
The Final Scheduled 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. See "Certain Information
Regarding the Securities -- Distributions on the Securities -- Deposits to the
Distribution Accounts; Priority of Payments" in the accompanying prospectus.
The actual date on which the outstanding principal amount of any Class of
Notes is paid may be earlier than its Note Final Scheduled 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" in
the accompanying prospectus.
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 $ . 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
will be the Indenture Trustee. The Indenture Trustee is a
corporation and its Corporate Trust Office is located at .
S-21
<PAGE> 117
The Indenture Trustee will have the rights and duties set forth under
"Certain Information Regarding the Securities -- The Trustees" and "-- Duties of
the Trustees" in the accompanying prospectus.
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
was incorrect in a material respect at the time it was made; or
(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
Indenture 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
Indenture 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.
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(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
(2) certain events of bankruptcy, insolvency, receivership or
liquidation relating to Financial Security occur.
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 Note
Policy for any shortfalls in Scheduled Payments on the Notes. See "The Note
Policy."
CERTAIN INFORMATION REGARDING THE SECURITIES
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 and
net of the Servicing Fee of . 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
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- 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 Notes 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" in the accompanying prospectus. The amount of those Net Collections,
reinvestment earnings and Advances on each Distribution Date will be applied as
described under "Distributions on the Securities." Amounts, to the extent
available, will be withdrawn from the Spread Account to cover any shortfalls in
distributions to Noteholders. Under the Note Policy, Financial Security will be
obligated to provide for distribution on the insured Notes 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 insured Notes for that Distribution Date and will be
obligated to provide for the payment of Scheduled Payments on the Notes on the
respective Note Final Scheduled Distribution Dates.
DISTRIBUTIONS ON THE NOTES
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; 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
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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 Scheduled Distribution
Date, the remaining principal amount of the related Class of Notes to be
distributed to the holders of such Class of Notes), to be distributed 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;
(5) to Financial Security, from any remaining Net Collections, any
amounts owing to Financial Security in respect of all payments, if any,
made under the Note Policy 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
(6) in the event that the distributions described in clauses (1)
through (5) 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
Notes, the initial aggregate principal amount of the Notes 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.
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
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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.
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 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 Scheduled Distribution Date shall not be less than the amount that is
necessary (after giving effect to other amounts to be deposited in the Note
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
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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 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 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 on the Closing
Date plus the Servicing Fee Percent.
PAYMENT PRIORITIES OF THE NOTES; THE SPREAD ACCOUNT
General. The rights of the Noteholders 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," to the extent described above.
Such priorities and subordination are intended to enhance the likelihood of
timely receipt by Noteholders of the full amount of interest and principal
required to be paid to them, and to afford such Noteholders 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
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such deposits and earnings. The Spread Account will be created with an initial
deposit by WFAL on the Closing Date of an amount equal to $ (the
"Spread Account Initial Deposit"). The Spread Account will thereafter be funded
by the deposit therein of 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 Notes and Financial Security and those
amounts will be invested in Eligible Investments. Investment income on monies on
deposit in the Spread Account will be credited to the Spread Account. Any loss
on 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 % 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 % or (ii) the Delinquency Percentage for the three calendar month
period ending on that Calculation Day exceeds %, then the Specified Spread
Account Balance shall equal % 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 $ ( % of the Cut-off Date
Aggregate Scheduled Balance) or less than $ (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 Notes if such
amount is less than $ . 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 supplement, 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
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in and of itself result in a qualification, reduction or withdrawal of its
then-current rating of any Class of Notes (without giving effect to the guaranty
under the Note Policy of payments owing to the Noteholders of insured classes of
Notes), 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 Noteholder.
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 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. See "Certain Information Regarding the Securities -- Payments from the
Spread Account and Under the Note Policy" in the accompanying prospectus.
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
Noteholders will have no further rights in, or claims to, such amounts. None of
the Noteholders, 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 Noteholders. The obligations
of Financial Security under the Note Policy will not be diminished or otherwise
affected by any amounts distributed to Financial Security.
PAYMENTS FROM THE SPREAD ACCOUNT AND UNDER THE NOTE POLICY
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 Scheduled Distribution Date), first, from amounts on
deposit in the Spread Account and second, if those amounts are still
insufficient, then from the payment of a claim under the Note Policy.
SERVICER DEFAULT
"Servicer Defaults" under the Sale and Servicing Agreement will consist of:
(a) a claim being made under either the Note 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
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the 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,
- the 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 Noteholders, 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
- so long as a default under the 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 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) evidencing at
least 25% of the respective voting interests thereof, or
- so long as no default under the Policy has occurred and is continuing
and no insolvency of Financial Security has occurred, by Financial
Security.
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, voting together as a single class, may terminate all
the rights and obligations of the Master Servicer under the Sale and
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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 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 the Note 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, may, on behalf of all Noteholders,
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 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 Noteholder, may only be waived by the approval of
holders of all of the Notes. No such waiver will impair the Noteholders' rights
with respect to subsequent Servicer Defaults.
VOTING INTERESTS
The "voting interests" of the 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; except that in certain circumstances Notes held by the
Seller, WFS or any of their respective affiliates will be excluded from such
determination.
TERMINATION
The obligations of the Master Servicer, the Seller, the Owner Trustee and
Indenture Trustee pursuant to the Trust Agreement, Sale and Servicing Agreement
and the 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
agreements 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 Notes, together with
accrued interest thereon for the related Interest Period.
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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 Notes 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 Noteholder 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 Seller of all amounts required
to be distributed to the Seller pursuant to the Trust Agreement will terminate
the Trust.
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.
PREPAYMENT CONSIDERATIONS
Because the rate of distribution of principal on the Notes 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 or the
Optional Purchase by the Seller), the final distribution on each Class of Notes
is likely to occur earlier than the related Final Scheduled Distribution Date.
The right of the Seller to repurchase all of the Contracts upon certain events
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 Noteholders 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
Noteholders will be borne entirely by the Noteholders.
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 Noteholders, 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 Notes. Any reduction in the average life
of the Notes will reduce the aggregate amount of interest received by the
Noteholders over the life of the Notes.
S-32
<PAGE> 128
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 1.8%
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 would suggest any difference in
prepayment rate for Rule of 78's Contracts as compared with Simple Interest
Contracts.
CAPITALIZATION OF FINANCIAL SECURITY ASSURANCE INC.
The following table sets forth the capitalization of Financial Security and
its wholly owned subsidiaries on the basis of generally accepted accounting
principles as of September 30, 1999 (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
ACTUAL
------------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C>
Deferred Premium Revenue (net of prepaid reinsurance
premiums)................................................. $ 550,165
----------
Surplus Notes............................................... 120,000
----------
Minority Interest........................................... 22,002
----------
Shareholder's Equity:
Common Stock.............................................. 15,000
Additional Paid-In Capital................................ 706,117
Accumulated Other Comprehensive Income (net of deferred
income taxes).......................................... (23,005)
Accumulated Earnings...................................... 450,593
----------
Total Shareholder's Equity.................................. 1,148,705
----------
Total Deferred Premium Revenue, Surplus Notes, Minority.....
Interest and Shareholder's Equity......................... $1,840,872
==========
</TABLE>
For further information regarding Financial Security, see the accompanying
prospectus.
THE SELLER
WFAL
WFAL 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, Irvine, California 92618.
WFAL's telephone number is (949) 727-1002.
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 vehicles 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
S-33
<PAGE> 129
vehicles, which bonds or pass-through certificates are rated in one of the four
highest available categories 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 sold by them to the
Trust 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 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, 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
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 December 31, 1999, WFS had total assets of
$2,130.9 million, total liabilities of $1,918.7 million and
S-34
<PAGE> 130
stockholders' equity of $212.2 million. As of December 31, 1999, WFS' net
portfolio of contracts totaled approximately $1.4 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, Irvine,
California 92618 and its telephone number is (949) 727-1002.
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.
THE BANK
GENERAL
Western Financial Bank (the "Bank") is a federally chartered savings
association. As of December 31, 1999, the Bank had total assets of $4.5 billion,
total deposits of $2.2 billion and stockholder's equity of $753 million on a
generally accepted accounting principles basis. The Bank is 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 15750 Alton
Parkway, Irvine, California 92618 and its telephone number is (949) 727-1100.
BUSINESS ACTIVITIES
The Bank provides a wide range of financial services through its community
banking group which includes retail and commercial operations. Retail banking
services are available through a network of 25 retail banking offices located
throughout California. Commercial banking operations target selected southern
California markets. Western Financial Bank maintains an ownership interest in
WFS which exceeds 80 percent.
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, Irvine,
California 92618 and its telephone number is (949) 727-1002.
S-35
<PAGE> 131
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 Notes 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 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. Notes 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 Notes. If this were so, persons that cause a Plan to acquire Notes or
that sponsor or insure the related Contracts or manage, control or service the
Contracts may be subject to the fiduciary responsibility provisions of ERISA and
the prohibited transaction provisions of Section 4975 of the Code in the absence
of a statutory or administrative exemption.
THE NOTES
The Notes may be purchased by a Plan subject to ERISA or Section 4975 of
the Code. A fiduciary of a Plan must determine that the purchase of a Note is
consistent with its fiduciary duties under ERISA and does not result in a
nonexempt prohibited transaction as defined in Section 406 of ERISA or Section
4975 of the Code.
The Notes may not be purchased with the assets of a Plan if the Seller, the
Master Servicer, the Indenture Trustee, the Owner Trustee or any of their
affiliates (i) has investment or administrative discretion with respect to such
Plan assets; (ii) has authority or responsibility to give, or regularly gives,
investment advice with respect to such Plan assets, for a fee and pursuant to an
agreement or understanding that such advice (a) will serve as a primary basis
for investment decisions with respect to such Plan assets and (b) will be based
on the particular investment needs for such Plan; or (iii) is an employer
maintaining or contributing to that Plan.
S-36
<PAGE> 132
UNDERWRITING
Subject to certain conditions contained in an underwriting agreement (the
"Underwriting Agreement"), (the "Underwriters"), for whom
is acting as representative (the "Representative"), have agreed
to severally purchase from the Seller, and the Seller has agreed to sell to the
Underwriters, the respective principal amounts of each Class of Notes 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>
......................... $ $ $
.........................
-------- -------- --------
Total............ $ $ $
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
SELLING REALLOWANCE
CLASS CONCESSION DISCOUNT
----- ---------- -----------
<S> <C> <C>
Class A-1 Notes............................................. % %
Class A-2 Notes............................................. % %
Class A-3 Notes............................................. % %
</TABLE>
After the initial public offering, the public offering prices of the Notes
and these concessions and discounts may be changed.
The Underwriting Agreement provides that the Underwriters' obligations
thereunder are subject to approval of certain legal matters by counsel and to
various other conditions.
The Seller and WFS have agreed to jointly and severally indemnify the
Underwriters against certain liabilities, including liabilities under applicable
securities laws, or contribute to payments the Underwriters may be required to
make in respect thereof.
In connection with the offering of the Notes, the Underwriters may engage
in transactions that stabilize, maintain or otherwise affect the price of any
Class of Notes. Specifically, the Underwriters may overallot the offering,
creating a syndicate short position. The Underwriters may bid for and purchase
the Notes in the open market to cover syndicate short positions. In addition,
the Underwriters may bid for and purchase the Notes in the open market to
stabilize the price of the Notes. These activities may stabilize or maintain the
market price of the Notes 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 Notes, 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 Note Policy 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 Clifford Chance Rogers & Wells LLP,
New York, New York.
S-37
<PAGE> 133
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 supplement, 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 supplement 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.
S-38
<PAGE> 134
INDEX OF DEFINITIONS
Set forth below is a list of the defined capitalized terms used in this
prospectus supplement and the pages on which the definitions of such terms may
be found.
<TABLE>
<CAPTION>
TERM PAGE
---- ----
<S> <C>
ABS................................. S-16
Advance............................. S-24
Aggregate Scheduled Balance......... S-25
Aggregate Scheduled Balance
Decline........................... S-25
APR................................. S-13
Bank................................ S-35
Business Day........................ S-20
Calculation Day..................... S-28
Closing Date........................ S-5
Cut Off Date........................ S-5
Delinquency Percentage.............. S-28
Determination Date.................. S-24
Distribution Accounts............... S-24
Distribution Dates.................. S-5
Distribution Date Statement......... S-24
Due Period.......................... S-26
Eligible Investments................ S-11
ERISA............................... S-9
Event of Default.................... S-22
Excess Amounts...................... S-25
Exchange Act........................ S-3
FDIC................................ S-34
Final Scheduled Distribution Date... S-5
Financed Vehicles................... S-11
Financial Security.................. S-5
Holding Account..................... S-11
Indenture........................... S-20
Indenture Trustee................... S-5
Insolvency Event.................... S-30
Insurer Default..................... S-22
</TABLE>
<TABLE>
<CAPTION>
TERM PAGE
---- ----
<S> <C>
Interest Rate....................... S-6
Issuer.............................. S-5
Liquidated Contract................. S-26
Liquidation Expenses................ S-24
Master Servicer..................... S-5
Moody's............................. S-6
Net Collections..................... S-
Net Insurance Proceeds.............. S-24
Net Liquidation Proceeds............ S-24
Note Distributable Amount........... S-26
Note Distribution Account........... S-11
Note Interest Carryover Shortfall... S-26
Note Interest Distributable
Amount............................ S-26
Note Policy......................... S-8
Note Principal Carryover
Shortfall......................... S-26
Note Principal Distributable
Amount............................ S-26
Note Quarterly Interest
Distributable Amount.............. S-26
Note Quarterly Principal
Distributable Amount.............. S-27
Noteholders......................... S-11
Notes............................... S-5
Obligors............................ S-11
Optional Purchase................... S-8
OTS................................. S-34
Owner Trustee....................... S-5
Plans............................... S-36
Principal Distributable Amount...... S-27
Rating Agencies..................... S-6
Record Date......................... S-20
</TABLE>
S-39
<PAGE> 135
<TABLE>
<CAPTION>
TERM PAGE
---- ----
<S> <C>
Rule of 78's Contract -- A Contract
that provides for the payment by the
Obligor of a specified total number
of payments, payable in equal
monthly installments, which total
represents the principal amount
financed plus add-on interest in an
amount calculated by using the Rule
of 78's. Under the Rule of 78's, the
amount of a monthly payment
allocable to interest on a Contract
is determined by multiplying the
total amount of add-on interest
payable over the term of the
Contract by a fraction the
denominator of which is a number
equal to the sum of a series of
numbers representing the number of
each monthly payment due under the
Contract and the numerator of which
for a given month is the number of
payments remaining before the
maturity of the Contract. For
example, with a Contract providing
for 12 payments, the denominator of
each month's fraction will be 78,
the sum of a series of numbers from
1 to 12. Accordingly, in the example
of a twelve payment Contract, the
fraction for the first payment is
12/78, for the second payment
11/78, for the third payment 10/78,
and so on through the final payment,
for which the fraction is 1/78. The
applicable fraction is then
multiplied by the total add-on
interest payment over the entire
term of the Contract, and the
resulting amount is the amount of
add-on interest earned that month.
The difference between the amount of
the monthly payment by the Obligor
and the amount of earned add-on
interest calculated for the month is
applied to principal reduction.
Under the law of Texas, a similar
procedure is permitted for
calculating the amount of add-on
interest earned, except the fraction
is derived by
</TABLE>
<TABLE>
<CAPTION>
TERM PAGE
---- ----
<S> <C>
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.
Sale and Servicing Agreement........ S-11
Scheduled Balance................... S-27
Securities.......................... S-5
Seller.............................. S-5
Servicer Defaults................... S-29
Servicing Fee....................... S-23
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.... S-28
Spread Account...................... S-7
Spread Account Initial Deposit...... S-7
Standard & Poor's................... S-6
Trust............................... S-5
Trust Agreement..................... S-10
Trust Fees and Expenses............. S-20
Trust Property...................... S-6
Trustees............................ S-5
Trust Insolvency.................... S-22
UCC-I............................... S-11
Underwriters........................ S-37
Underwriting Agreement.............. S-37
Unreimbursed Insurer Amounts........ S-25
WFAL................................ S-5
WFS................................. S-5
</TABLE>
S-40
<PAGE> 136
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[ WFS LOGO ]
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<PAGE> 137
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Expenses in connection with the offering of the Notes being registered
hereby are estimated as follows:
<TABLE>
<S> <C>
Registration Fee............................................ $924,000
Printing and Engraving...................................... *
Trustees' Fees.............................................. *
Accounting Fees............................................. *
Legal Fees and Expenses..................................... *
Blue Sky Fees and Expenses.................................. *
Rating Agency Fees.......................................... *
Miscellaneous Fees.......................................... *
--------
Total..................................................... $
========
</TABLE>
- ---------------
* to be supplied by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The following applies to both co-registrants WFS Financial Auto Loans, Inc.
and WFS Receivables Corporation:
Section 317(b) of the California Corporations Code (the "Corporations
Code") provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any "proceeding" (as defined in
Section 317(a) of the Corporations Code), other than an action by or in the
right of the corporation to procure a judgment in its favor, by reason of the
fact that such person is or was a director, officer, employee or other agent of
the corporation (collectively, an "Agent"), against expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with such proceeding if the Agent acted in good faith and in a manner the Agent
reasonably believed to be in the best interest of the corporation and, in the
case of a criminal proceeding, had no reasonable cause to believe the conduct
was unlawful.
Section 317(c) of the Corporations Code provides that a corporation shall
have power to indemnify any Agent who was or is a party or is threatened to be
made a party to any threatened, pending or completed action by or in the right
of the corporation to procure a judgment in its favor by reason of the fact that
such person is or was an Agent, against expenses actually and reasonably
incurred by the Agent in connection with the defense or settlement of such
action if the Agent acted in good faith and in a manner such Agent believed to
be in the best interest of the corporation and its shareholders.
Section 317(c) further provides that no indemnification may be made
thereunder for any of the following: (i) in respect of any matter as to which an
Agent shall have been adjudged to be liable to the corporation, unless the court
in which such proceeding is or was pending shall determine that such Agent is
fairly and reasonably entitled to indemnity for expenses, (ii) of amounts paid
in settling or otherwise disposing of a pending action without court approval
and (iii) of expenses incurred in defending a pending action which is settled or
otherwise disposed of without court approval.
II-1
<PAGE> 138
Section 317(d) of the Corporations Code requires that an Agent be
indemnified against expenses actually and reasonably incurred to the extent the
Agent has been successful on the merits in the defense of proceedings referred
to in subdivisions (b) or (c) of Section 317.
Except as provided in Section 317(d), and pursuant to Section 317(e),
indemnification under Section 317 shall be made by the corporation only if
specifically authorized and upon a determination that indemnification is proper
in the circumstances because the Agent has met the applicable standard of
conduct, by any of the following: (i) a majority vote of a quorum consisting of
directors who are not parties to the proceeding, (ii) if such a quorum of
directors is not obtainable, by independent legal counsel in a written opinion,
(iii) approval of the shareholders, provided that any shares owned by the Agent
may not vote thereon, or (iv) the court in which such proceeding is or was
pending.
Pursuant to Section 317(f) of the Corporations Code, the corporation may
advance expenses incurred in defending any proceeding upon receipt of an
undertaking by the Agent to repay such amount if it is ultimately determined
that the Agent is not entitled to be indemnified.
Section 317(h) provides, with certain exceptions, that no indemnification
shall be made under Section 317 where it appears that it would be inconsistent
with a provision of the corporation's articles, bylaws, a shareholder resolution
or an agreement which prohibits or otherwise limits indemnification, or where it
would be inconsistent with any condition expressly imposed by a court in
approving a settlement.
Section 317(i) authorizes a corporation to purchase and maintain insurance
on behalf of an Agent for liabilities arising by reason of the Agent's status,
whether or not the corporation would have the power to indemnify the Agent
against such liability under the provisions of Section 317.
The Bylaws (the "Bylaws") of co-registrants WFAL and WFSRC
("Co-Registrants") provide for the indemnification of officers and directors of
the Co-Registrants, to the maximum extent permitted by the Corporations Code,
against expenses, judgments, fines, settlements, and other amounts actually and
reasonably incurred in connection with any proceeding arising by reason of the
fact that such person is or was an officer or director of the Co-Registrants,
and further provides for the advance to such officer or director of expenses
incurred by such officer or director in any such proceeding to the maximum
extent permitted by law. The Bylaws also provide that a Co-Registrant's Board of
Directors may provide for the indemnification of, or advancement of expenses to,
other Agents. The Co-Registrants' Articles of Incorporation provide that the
liability of directors of the Co-Registrants shall be eliminated to the fullest
extent permissible under California law, but contain no specific provisions with
respect to the indemnification of, or advancement of expenses to, Agents.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Not applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
a. EXHIBITS
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement*
3.1 Articles of Incorporation of WFS Financial Auto Loans,
Inc.**
3.2 Bylaws of WFS Financial Auto Loans, Inc.**
3.3 Articles of Incorporation of WFS Receivables Corporation
3.4 Bylaws of WFS Receivables Corporation
4.1 Form of Trust Agreement among the Seller(s), Financial
Security Assurance Inc. and the Owner Trustee*
</TABLE>
II-2
<PAGE> 139
<TABLE>
<C> <S>
4.2 Form of Indenture among the Owner Trust, Financial Security
Assurance Inc. and the Indenture Trustee (including forms of
Notes)*
5.1 Opinion of Mitchell, Silberberg & Knupp LLP with respect to
legality*
8.1 Opinion of Mitchell, Silberberg & Knupp LLP with respect to
tax matters*
10.1 Form of Reinvestment Contract*
10.2 Form of Sale and Servicing Agreement*
10.3 Form of Insurance Agreement*
10.4 Form of Financial Guaranty Insurance Policy (Notes)*
10.5 Form of Indemnification Agreement*
10.6 Form of Administration Agreement*
20.1 Consolidated financial statements of Financial Security
Assurance Inc. and Subsidiaries as of December 31, 1998 and
1997, and for each of the three years in the period ended
December 31, 1998 (Incorporated by reference from the Annual
Report on Form 10-K of Financial Security Assurance Holdings
Inc. for the year ended December 31, 1998 (file #1-12644) as
filed on or about March 25, 1999)
20.2 Condensed consolidated financial statements of Financial
Security Assurance Inc. and Subsidiaries for the three month
period ended March 31, 1999 (Incorporated by reference from
the Quarterly Report on Form 10-Q of Financial Security
Assurance Holdings Inc. for the quarter ended March 31, 1999
(file #1-12644) as filed on or about May 14, 1999)
20.3 Condensed consolidated financial statements of Financial
Security Assurance Inc. and Subsidiaries for the six month
period ended June 30, 1999 (Incorporated by reference from
the Quarterly Report on Form 10-Q of Financial Security
Assurance Holdings Inc. for the quarter ended June 30, 1999
(file #1-12644) as filed on or about August 14, 1999)
23.1 Consent of Mitchell, Silberberg & Knupp LLP (included as
part of Exhibit 5.1)*
23.2 Consent of Mitchell, Silberberg & Knupp LLP (included as
part of Exhibit 8.1)*
23.3 Consent of Pricewaterhouse Coopers L.L.P.*
24.1 Power of Attorney (included at pages II-5 and II-6)
25.1 Statement of Eligibility and Qualification of Indenture
Trustee*
</TABLE>
- -------------------------
* to be supplied by amendment
** incorporated by reference from the registration statement filed by WFS
Financial Auto Loans, Inc. on June 12, 1996 as file number 33-49422.
b. FINANCIAL STATEMENT SCHEDULES
Not applicable.
ITEM 17. UNDERTAKINGS.
The undersigned Registrants hereby undertake as follows:
(a) To provide to the Underwriters at the Closing Date specified in
the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to provide prompt
delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers
and controlling persons of the Registrants pursuant to the foregoing
provisions, or otherwise, the Registrants has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore
unenforceable. In the event that a claim for indemnification against such
liabilities (other than payment by the Registrants of expenses incurred or
paid by a director, officer or controlling person of such Registrants in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling
II-3
<PAGE> 140
person in connection with the securities being registered, the Registrants
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(c) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrants pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act will be deemed to be part of this registration
statement as of the time it was declared effective.
(d) For purposes of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus will be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time will be deemed to
be the initial bona fide offering thereof.
(e) In accordance with Item 512(a) of Regulation S-K, relating to Rule
415 Offerings,
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental changes in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) under
the Securities Act of 1933, as amended, if, in the aggregate, the
changes in volume and price represent no more than 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
provided, however, that paragraphs (e)(1)(i) and (e)(1)(ii) do not apply
if the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed with or
furnished to the Commission by the registrant pursuant to section 13 or
section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
II-4
<PAGE> 141
SIGNATURES
SIGNATURES -- CO-REGISTRANT WFS FINANCIAL AUTO LOANS, INC.
Pursuant to the requirements of the Securities Act of 1933, as amended,
co-registrant WFS Financial Auto Loans, Inc. certifies that (i) it has
reasonable grounds to believe that it meets all of the requirements for filing
on Form S-3 and (ii) it reasonably believes that the securities offered under
this Registration Statement will be "investment grade securities", as such term
is defined under Transaction Requirements B.2 of the Instructions to Form S-3,
at the time of sale of such securities, and has duly caused this Registration
Statement on Form S-3 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Irvine, State of California, on the 21st day of
January 2000.
WFS FINANCIAL AUTO LOANS, INC.,
as co-originator of
WFS FINANCIAL OWNER TRUSTS
By: /s/ JOY SCHAEFER
------------------------------------
Joy Schaefer
President
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature appears
below constitutes and appoints Joy Schaefer, Lee A. Whatcott, or Guy Du Bose as
his or her true and lawful attorney-in-fact and agent, with full powers of
substitution, for him or her and in his or her name, place and stead, in any and
all capacities, to sign and file any and all amendments, including
post-effective amendments to this Registration Statement, with the Securities
and Exchange Commission granting to said attorney-in-fact power and authority to
perform any other act on behalf of the undersigned required to be done in
connection therewith.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-3 has been signed by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JOY SCHAEFER President and Chief January 21, 2000
- ----------------------------------------------------- Executive Officer, Director
Joy Schaefer (Principal Executive
Officer)
/s/ LEE A. WHATCOTT Chief Financial Officer, January 21, 2000
- ----------------------------------------------------- Director (Principal
Lee A. Whatcott Financial
and Accounting Officer)
/s/ THOMAS A. WOLFE Director January 21, 2000
- -----------------------------------------------------
Thomas A. Wolfe
/s/ JEFFREY B. DAVIS Director January 21, 2000
- -----------------------------------------------------
Jeffrey B. Davis
Director , 2000
- -----------------------------------------------------
James R. May
</TABLE>
II-5
<PAGE> 142
SIGNATURES -- CO-REGISTRANT WFS RECEIVABLES CORPORATION
Pursuant to the requirements of the Securities Act of 1933, as amended,
co-registrant WFS Receivables Corporation certifies that (i) it has reasonable
grounds to believe that it meets all of the requirements for filing on Form S-3
and (ii) it reasonably believes that the securities offered under this
Registration Statement will be "investment grade securities", as such term is
defined under Transaction Requirements B.2 of the Instructions to Form S-3, at
the time of sale of such securities, and has duly caused this Registration
Statement on Form S-3 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Las Vegas, State of Nevada, on the 21st day of
January 2000.
WFS RECEIVABLES CORPORATION,
as co-originator of
WFS FINANCIAL OWNER TRUSTS
By: /s/ DAVID A. GUAY
------------------------------------
David A. Guay
President
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature appears
below constitutes and appoints Joy Schaefer, Lee A. Whatcott, or Guy Du Bose as
his or her true and lawful attorney-in-fact and agent, with full powers of
substitution, for him or her and in his or her name, place and stead, in any and
all capacities, to sign and file any and all amendments, including
post-effective amendments to this Registration Statement, with the Securities
and Exchange Commission granting to said attorney-in-fact power and authority to
perform any other act on behalf of the undersigned required to be done in
connection therewith.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-3 has been signed by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ DAVID A. GUAY President and Chief January 21, 2000
- ----------------------------------------------------- Executive Officer, Director
David A. Guay (Principal Executive
Officer)
/s/ LEE A. WHATCOTT Chief Financial Officer, January 21, 2000
- ----------------------------------------------------- Director (Principal
Lee A. Whatcott Financial and Accounting
Officer)
Director , 2000
- -----------------------------------------------------
Ilana Tandowsky
Director , 2000
- -----------------------------------------------------
Stuart Brotman
/s/ JOY SCHAEFER Director January 21, 2000
- -----------------------------------------------------
Joy Schaefer
</TABLE>
II-6
<PAGE> 143
INDEX TO EXHIBITS
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement*
3.1 Articles of Incorporation of WFS Financial Auto Loans,
Inc.**
3.2 Bylaws of WFS Financial Auto Loans, Inc.**
3.3 Articles of Incorporation of WFS Receivables Corporation
3.4 Bylaws of WFS Receivables Corporation
4.1 Form of Trust Agreement among the Sellers, Financial
Security Assurance Inc. and the Owner Trustee*
4.2 Form of Indenture among the Owner Trust, Financial Security
Assurance Inc. and the Indenture Trustee (including forms of
Notes)*
5.1 Opinion of Mitchell, Silberberg & Knupp LLP with respect to
legality*
8.1 Opinion of Mitchell, Silberberg & Knupp LLP with respect to
tax matters*
10.1 Form of Reinvestment Contract*
10.2 Form of Sale and Servicing Agreement*
10.3 Form of Insurance Agreement*
10.4 Form of Financial Guaranty Insurance Policy (Notes)*
10.5 Form of Indemnification Agreement*
10.6 Form of Administration Agreement*
20.1 Consolidated financial statements of Financial Security
Assurance Inc. and Subsidiaries as of December 31, 1998 and
1997, and for each of the three years in the period ended
December 31, 1998 (Incorporated by reference from the Annual
Report on Form 10-K of Financial Security Assurance Holdings
Inc. for the year ended December 31, 1998 (file #1-12644) as
filed on or about March 25, 1999)
20.2 Condensed consolidated financial statements of Financial
Security Assurance Inc. and Subsidiaries for the three month
period ended March 31, 1999 (Incorporated by reference from
the Quarterly Report on Form 10-Q of Financial Security
Assurance Holdings Inc. for the quarter ended March 31, 1999
(file #1-12644) as filed on or about May 14, 1999)
20.3 Condensed consolidated financial statements of Financial
Security Assurance Inc. and Subsidiaries for the six month
period ended June 30, 1999 (Incorporated by reference from
the Quarterly Report on Form 10-Q of Financial Security
Assurance Holdings Inc. for the quarter ended June 30, 1999
(file #1-12644) as filed on or about August 14, 1999)
23.1 Consent of Mitchell, Silberberg & Knupp LLP (included as
part of Exhibit 5.1)*
23.2 Consent of Mitchell, Silberberg & Knupp LLP (included as
part of Exhibit 8.1)*
23.3 Consent of Pricewaterhouse Coopers L.L.P.*
24.1 Power of Attorney (included at pages II-5 and II-6)
25.1 Statement of Eligibility and Qualification of Indenture
Trustee*
</TABLE>
- -------------------------
* to be supplied by amendment
** incorporated by reference from the registration statement filed by WFS
Financial Auto Loans, Inc. on June 12, 1996 as file number 33-49422
<PAGE> 1
EXHIBIT 3.3
ARTICLES OF INCORPORATION
OF
WFS RECEIVABLES CORPORATION
---------------------------
FIRST: The name of this Corporation is
WFS Receivables Corporation
SECOND: (a) Subject to paragraph (b) below, the purpose of this Corporation
is to engage in any lawful act or activity for which a corporation may be
organized under the General Corporation Law of California other than the banking
business, the trust company business or the practice of a profession permitted
to be incorporated by the California Corporations Code.
(b) Notwithstanding paragraph (a) above, the purposes of this Corporation
are limited to the following (and activities incidental to and necessary to
accomplish the same): to act as originator of one or more series of grantor or
owner trusts ("Trusts") owning retail installment sales contracts and
installment loans secured by new and used automobiles and light-duty trucks
("Contracts") and to buy, sell or pledge Contracts in connection therewith.
THIRD: The name and address in this State of this Corporation's initial
agent for service of process is:
Guy DuBose, Esq.
23 Pasteur Road
Irvine, CA 92618
FOURTH: The Corporation is authorized to issue only one class of shares of
stock, which shall be common stock; and the total number of shares that this
Corporation is authorized to issue shall be Ten Thousand (10,000).
FIFTH: Notwithstanding any other provision of these Articles of
Incorporation and any provision of law, the Corporation shall not do any of the
following:
1
<PAGE> 2
(a) Without the unanimous affirmative vote of the members of the Board of
Directors of the Corporation (which must include the vote of all duly appointed
Independent Directors (as hereafter defined), (i) dissolve or liquidate pursuant
to Corporations Code Section 1900(b), in whole or in part, or institute
proceedings to be adjudicated bankrupt or insolvent, (ii) consent to the
institution of bankruptcy or insolvency proceedings against it, (iii) file a
petition seeking or consenting to reorganization or relief under any applicable
federal or state law relating to bankruptcy, (iv) consent to the appointment of
a receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Corporation or any substantial part of its property, (v) make a
general assignment for the benefit of creditors, (vi) admit in writing its
inability to pay its debts as they become due, or (vii) take any corporate
action in furtherance of the actions set forth in clauses (i) through (vi) of
this paragraph, provided, however, that no director may be required by any
shareholder of the Corporation to consent to the institution of bankruptcy or
insolvency proceedings against the Corporation so long as it is solvent; or
(b) Without the unanimous affirmative vote of the members of the Board of
Directors of the Corporation, merge or consolidate with any other corporation,
company or entity; or
(c) So long as any outstanding debt of the Corporation or the outstanding
securities issued by any trust of which the Corporation is the originator, in
whole or in part, are rated by any nationally recognized statistical rating
organization, the Corporation shall not issue notes or otherwise incur debt
unless (i) the Corporation has made a written request to the related nationally
recognized statistical rating organization to issue notes or incur borrowings
which notes or borrowings are rated by the related nationally recognized
statistical rating organization the same as or higher than the rating afforded
such rated debt or securities, or (ii) such notes or borrowings (A) are fully
subordinated (and shall provide for payment only after payment in respect of all
outstanding rated debt or securities) and are nonrecourse against any assets of
the Corporation other than the assets pledged to secure such notes or
borrowings, (B) do not constitute a claim against the Corporation in the event
such assets are insufficient to pay such notes or borrowings, and (C) where such
notes or borrowings are secured by the rated debt or securities, are fully
subordinated (and provide for payment only after payment in respect of all
outstanding rated debt and securities) to such rated debt and securities; or
(d) Engage in any business except as permitted under Article SECOND of
these Articles of Incorporation.
SIXTH: The Corporation shall at all times, except as noted hereafter, have
at least two directors (each an "Independent Director") who is not (i) a
director, officer or employee of any affiliate of the Corporation; (ii) a person
related to any officer or director of any
2
<PAGE> 3
affiliate of the Corporation; (iii) a holder (directly or indirectly of more
than 10% of any voting securities of any affiliate of the Corporation; or (iv) a
person related to a holder (directly or indirectly) of more than 10% of any
voting securities of any affiliate of the Corporation. In the event of the
death, incapacity, resignation or removal of all Independent Directors, the
Board of Directors of the Corporation shall promptly appoint an Independent
Director for each Independent Director whose death, incapacity, resignation or
removal caused the related vacancy on the Board of Directors; provided, however,
that the Board of Directors shall not vote on any matter unless and until at
least two Independent Directors have been duly appointed to serve on the Board
of Directors.
SEVENTH: The Corporation shall at all times, except as noted hereafter,
have at least one executive officer (an "Independent Officer") who is not (i) a
director, officer or employee of any affiliate of the Corporation; (ii) a person
related to any officer or director of any affiliate of the Corporation; (iii) a
holder (directly or indirectly) of more than 10% of any voting securities of any
affiliate of the Corporation; or (iv) a person related to a holder (directly or
indirectly) of more than 10% of any voting securities of any affiliate of the
Corporation. In the event of the death, incapacity, resignation or removal of
the Independent Officer, the Board of Directors of the Corporation shall
promptly appoint an Independent Officer for the Independent Officer whose death,
incapacity, resignation or removal caused the related vacancy.
EIGHTH: The Corporation shall insure at all times that (a) it maintains
separate corporate records and books of account from those of Western Financial
Bank (the "Bank") and its affiliates, and (b) none of the Corporation's assets
will be commingled with those of the Bank or any of their affiliates.
NINTH: The Corporation reserves the right to amend, alter, change or repeal
any provision contained in these Articles in any manner now or hereafter
provided herein or by statute; and, all rights, preferences and privileges
conferred by these Articles upon shareholders, directors or any other person are
granted subject to such right; provided, however, that the Corporation shall not
amend, alter, change or repeal any provision of Articles SECOND and FIFTH
through NINTH (the "Restricted Articles") without the unanimous vote of the full
Board of Directors and provided,
3
<PAGE> 4
further, that the Corporation shall not amend or change any Article so as to be
inconsistent with the Restricted Articles without the unanimous vote of the full
Board of Directors.
TENTH: The liability of the Directors of the Corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law.
ELEVENTH: This Corporation is authorized to provide indemnification of
agents (as defined in Section 317 of the California Corporations Code) through
bylaw provisions, agreements with agents, vote of shareholders or disinterested
directors or otherwise, in excess of the indemnification otherwise permitted by
Section 317 of the California Corporations Code, subject only to the applicable
limits set forth in Section 204 of the California Corporations Code with respect
to actions for breach of duty to the corporation and its shareholders.
------------------------------------
Anne Urquhart, Incorporator
4
<PAGE> 1
EXHIBIT 3.4
BYLAWS
OF
WFS RECEIVABLES CORPORATION
ARTICLE I
OFFICES
Principal Executive Office
Section 1.01. The corporation shall have its principal executive office in
Irvine, California, and may have offices at such other places, both within and
without the State of California, as the Board of Directors may from time to time
designate.
Different or Additional Offices
Section 1.02. The Board of Directors may from time to time change the
location of the principal executive office or remove or establish branches or
subordinate offices as the business of the Corporation may require.
ARTICLE II
SHAREHOLDERS' MEETINGS
Place of Meetings
Section 2.01. All meetings of the shareholders shall be held at the
principal executive office of the corporation in the State of California, or at
any other place, within or without this State, as may be designated for that
purpose from time to time by the Board of Directors.
Time of Annual Meeting
Section 2.02. All meetings of shareholders for the election of directors
shall be held in Irvine, California, at such place as may be fixed from time to
time by the Board of Directors, or at such other place either within or without
the State of California as shall be designated from time to time by the Board of
Directors and stated in the notice of the meeting. Annual meetings of
shareholders shall be held on the Third Monday of June if not a legal holiday,
and if a legal holiday, then on the next secular day following at 10:00 a.m., or
at such other date and time as shall be designated from time to time by the
Board of Directors and stated in the notice of the meeting, at which they shall
elect by a plurality vote a Board of Directors and transact such other business
as may properly be brought before the meeting.
Notice of Shareholders' Meetings
<PAGE> 2
Section 2.03. Written notice of all meetings of shareholders, stating the
place, day, and hour of the meeting and a description of the general nature of
each matter intended to be presented for shareholder action at the meeting,
shall be given to each shareholder entitled to vote thereat not less than ten
nor more than 60 days before the date thereof. The notice of any meeting at
which directors are to be elected shall also include the names of nominees
intended to be presented for election by management. Notice of adjourned
meetings is not necessary if the time and place thereof are announced at the
meeting at which the adjournment is taken unless (a) the meeting is adjourned
for more than 45 days or (b) after the adjournment, a new record data for the
adjourned meeting is fixed.
Special Meetings
Section 2.04. Special meetings of the shareholders for any purpose or
purposes whatsoever may be called at any time by the President, by the Board of
Directors, or by one or more of the shareholders entitled to cast not less than
ten percent of the votes at the meeting.
Quorum
Section 2.05. The presence in person or by proxy of the holders of a
majority of the shares entitled to vote constitutes a quorum for the transaction
of business.
Voting
Section 2.06. Only persons in whose names shares appear on the stock
records of the corporation at the close of business on the business day next
preceding either the day on which notice of the meeting is given or, if notice
is waived, the day on which the meeting is held shall be entitled to vote at the
meeting, unless some other day is fixed by the Board of Directors for the
determination of shareholders of record. Any record date so fixed shall be not
more than 60 days nor less than ten days prior to the date of the meeting. Each
shareholder is entitled to one vote for each share held by him on the record
date, except that for the election of directors each shareholder shall be
entitled to a number of votes equal to the number of directors to be elected
multiplied by the number of shares which he is entitled to vote, provided that
no shareholder shall be entitled to cumulate votes unless the name of the
candidate (or candidates) for whom the votes would be cast has been placed in
nomination prior to the voting and any shareholder has given notice at the
meeting, prior to the voting, of his intention to cumulate his votes. Voting for
the election of directors may be by voice unless any shareholder demands a
ballot vote before the voting begins.
Proxies
Section 2.07. Every person entitled to vote shares may do so by written
proxy executed by the person or his agent and filed with the Secretary of the
corporation.
<PAGE> 3
Consent of Absentees
Section 2.08. No defect in the call or notice of a meeting of shareholders
shall affect the validity of any action taken at the meeting if a quorum was
present and each shareholder not present at the meeting in person or by proxy
signs a written waiver of notice, a consent to the holding of the meeting, or an
approval of the minutes, either before or after the meeting. All such waivers,
consents, or approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
Action Without Meeting
Section 2.09. Action may be taken by the shareholders, without a meeting,
if a consent in writing, setting forth the action so taken, is signed by the
holders of outstanding shares having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting. Except as
provided in section 3.04 hereof, directors may not be elected by written consent
except by unanimous written consent. Unless the consents of all shareholders
entitled to vote have been solicited, notice of any approval or action taken
pursuant to this section shall be given in accordance with section 603(b) of the
Corporation Code of the State of California (the "Corporations Code").
ARTICLE III
DIRECTORS
Powers
Section 3.01. All corporate powers of the corporation shall be exercised
by, or under authority of, and the business and affairs of the corporation shall
be controlled by, the Board of Directors, subject, however, to such limitations
as are imposed by law, the articles of incorporation, or these bylaws, as to
actions to be authorized or approved by the shareholders. The Board of Directors
may, by contract or otherwise, give general, limited, or special power and
authority to the officers, employees, or agents of the corporation to transact
the general business, or any special business, of the corporation, and may give
powers of attorney to agents of the corporation to transact any special business
requiring such authorization.
Number of Directors
Section 3.02. The authorized number of directors of this corporation shall
be five until changed by an amendment to the articles of incorporation or by a
bylaw amending this section, subject to the limitations of section 212(a) of the
Corporations Code, duly adopted by the vote of the holders of a majority of the
outstanding shares entitled to vote.
<PAGE> 4
Qualification-Independent Director; Election; Term
Section 3.03.
(1) Of the authorized number of directors provided in Section 3.02
herein, the corporation shall at all times, except as noted hereafter, have at
least two directors (each an "Independent Director") who is not (i) a director,
officer or employee of any affiliate of the corporation; (ii) a person related
to any officer or director of any affiliate of the corporation; (iii) a holder
(directly or indirectly) of more than 10% of any voting securities of any
affiliate of the corporation; or (iv) a person related to a holder (directly or
indirectly) of more than 10% of any voting securities of any affiliate of the
corporation. In the event of the death, incapacity, resignation or removal of
all Independent Directors, the Board of Directors shall promptly appoint an
Independent Director for each Independent Director whose death, incapacity,
resignation or removal caused the related vacancy on the Board of Directors;
provided, however, that the Board of Directors shall not vote on any matter
unless and until at least two Independent Directors have been duly appointed to
serve on the Board of Directors.
(2) At each annual meeting of the stockholders, all directors shall be
elected to hold office until the next annual meeting and until their successors
are elected and qualified.
Vacancies
Section 3.04. Except for a vacancy created by the removal of a director,
vacancies on the Board of Directors may be filled by a majority of the remaining
directors, whether or not less than a quorum, or by a sole remaining director.
The shareholders, by the vote of a majority of the outstanding shares entitled
to vote, may elect a director at any time to fill any vacancy not filled by the
remaining directors.
Place of Meetings
Section 3.05. All meetings of the Board of Directors shall be held at the
principal executive office of the corporation in the State of California or at
such other places, within or without that State, as may be designated from time
to time by resolution of the Board of Directors.
Regular Meetings
Section 3.06. A regular meeting of the Board of Directors shall be held,
without notice, immediately following each annual meeting of the shareholders at
the same place as the annual meeting or at such other place as may be designated
by resolution of the Board of Directors.
Special Meetings - Call and Notice
Section 3.07. Special meetings of the Board of Directors may only be called
by the
<PAGE> 5
President, the Secretary, or any two directors. Notice of a special meeting,
stating the time, date, and place thereof, shall be mailed not less than four
days prior to the meeting, or telegraphed, personally delivered, or telephoned,
not less than 48 hours prior to the meeting.
Quorum
Section 3.08. The presence of a majority of the authorized number of
directors shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors. Every act or decision done or made by a
majority of the directors present shall be regarded as the act of the Board of
Directors, unless a greater number is required by law or by the articles of
incorporation.
Board Action by Conference Telephone
Section 3.09. Directors may participate in a meeting through the use of
conference telephone as long as all directors can hear one another. Telephonic
participation in a meeting shall constitute presence in person at the meeting.
Board Action Without Meeting
Section 3.10. Any action required or permitted to be taken by the Board of
Directors may be taken without a meeting if all members of the Board of
Directors shall individually or collectively consent in writing to the action.
Consent of Absentees
Section 3.11. No defect in the call or notice of a meeting will affect the
validity of any action taken at the meeting if a quorum was present and each
director not present at the meeting signs a written waiver of notice, a consent
to the holding of the meeting, or an approval of the minutes of the meeting,
either before or after the meeting. All waivers, consents, or approvals shall be
filed with the corporate records or made a part of the minutes of the meeting.
Adjournment - Notice
Section 3.12. A majority of the directors present, whether or not
consisting of a quorum, may adjourn any meeting of directors to another time and
place. Notice of the time and place of holding an adjourned meeting need not be
given to absent directors if the time and place is fixed at the meeting
adjourned, unless the meeting is adjourned for more than 24 hours.
Compensation
Section 3.13. Directors and members of committees may receive compensation,
if any, for their services, and reimbursement for expenses, in an amount fixed
or determined by resolution of the Board of Directors.
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ARTICLE IV
EXECUTIVE, PRICING AND OTHER COMMITTEES
Designation of Executive and Pricing Committees
Section 4.01. The Board of Directors may, by resolution adopted by a
majority of the authorized number of directors, designate an Executive Committee
consisting of two or more directors, and may, by resolution adopted by a
majority of the authorized number of directors, designate a Pricing Committee
consisting of two or more directors. Each member of the Executive Committee or
Pricing Committee shall continue in office until his successor shall be
designated, or until he shall cease to be a director, or until his death,
resignation or removal, or until the dissolution of the Executive Committee or
Pricing Committee, as the case may be.
Powers
Section 4.02. Except as may be provided by law or by the resolution
designating such committee, the Executive Committee, if designated, shall have
and may exercise all of the powers of the Board of Directors in the management
of the business and affairs of the corporation, and shall have power to
authorize the seal of the corporation to be affixed to all papers which may
require it. Except as may be provided by law or by the resolution designating
such committee, the Pricing Committee, if designated, shall have any may
exercise all of the powers of the board of directors in the management of the
financial affairs of the corporation, expressly including the power to fix and
determine the terms and conditions of any series of trusts or bonds issued by
the corporation and to take any other action deemed necessary in connection with
the authorization, execution, authentication and delivery of any series of
Notes, Certificates, or Bonds, and shall have the power to authorize the seal of
the corporation to be affixed to all papers which may require it.
Notwithstanding the foregoing, neither the Executive Committee nor the Pricing
Committee shall have power to amend the articles of incorporation, to adopt an
agreement of merger or consolidation, to recommend to the stockholders the sale,
lease or exchange of all, or substantially all of the corporation's property and
assets, or to recommend to the stockholders a dissolution of the corporation or
a revocation of a dissolution.
Meetings of Committees
Section 4.03. The Executive Committee may provide for the holding of
regular meetings at such times and places (within or without the State of
California) as it may from time to time determine by resolution duly adopted at
any meeting of the Executive Committee. A special meeting of the Executive
Committee may be called at any time by the President or by any two members of
the Executive Committee. No notice of any special or regular meeting of the
Executive Committee need be given. Except as expressly provided herein, meetings
of all committees shall be conducted in the manner set forth as to directors
meetings in Article III.
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Quorum
Section 4.04. At the meetings of the Executive Committee or the Pricing
Committee, the presence in person of a majority of the designated members of the
Executive Committee or the Pricing Committee, as the case may be, shall be
deemed necessary and sufficient to constitute a quorum for the transaction of
business at any meeting of such committee. Every act or decision done or made by
a majority of the members present shall be the act of the Executive Committee or
the Pricing Committee, as the case may be.
Other Committees
Section 4.05. The Board of Directors may, in its discretion, by a
resolution duly adopted by a majority of the authorized number of directors,
designate one or more other committees, each consisting of two or more directors
who will serve at the pleasure of the Board of Directors, and shall have any may
exercise such powers, and shall perform such duties, as may be delegated to it
by resolution of the Board of Directors.
ARTICLE V
INDEMNIFICATION OF OFFICERS, DIRECTORS AND AGENTS
Section 5.01. The corporation shall, to the maximum extent permitted by the
Corporations Code, indemnify its officers and directors against expenses,
judgments, fines, settlements, and other amounts actually and reasonably
incurred in connection with any proceeding arising by reason of the fact that
any such person is or was an officer or director of the corporation, and shall
advance to such officer or director expenses incurred in defending any such
proceeding to the maximum extent permitted by law. For purposes of this section,
a "director" or "officer" of the corporation shall mean any person who is a
director or officer of the corporation, or is serving at the request of the
corporation as a director or officer of another corporation, or other
enterprise. The Board of Directors may, in its discretion, provide by resolution
for the indemnification of, or advancement of expenses to, other corporate
"agents", as that term is used in section 317(a) of the Corporations Code, and
may likewise refuse to provide for their indemnification or advancement of
expenses except to the extent any such indemnification is mandatory thereunder.
ARTICLE VI
OFFICERS
Titles and Appointment
Section 6.01. This corporation shall have a president, a secretary, and a
chief financial officer, each of whom shall be chosen by and hold office at the
pleasure of the board of directors. Any two or more offices may be held by the
same person. Officers may be, but need not necessarily be, selected from the
members of the board of directors or from the shareholders.
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Notwithstanding the foregoing, the corporation shall at all times, except as
noted hereafter, have at least one executive officer (an "Independent Officer")
who is not (i) a director, officer or employee of any affiliate of the
corporation; (ii) a person related to any officer or director of any affiliate
of the corporation; (iii) a holder (directly or indirectly) of more than 10% of
any voting securities of any affiliate of the corporation; or (iv) a person
related to a holder (directly or indirectly) of more than 10% of any voting
securities of any affiliate of the corporation. In the event of the death,
incapacity, resignation or removal of the Independent Officer, the Board of
Directors shall promptly appoint an Independent Officer for the Independent
Officer whose death, incapacity, resignation or removal caused the related
vacancy.
President
Section 6.02. The President shall be the chief executive officer of the
corporation, shall perform all duties commonly incident to that office, and
shall preside at all meetings of the shareholders and at all meetings of the
Board of Directors.
Vice-President
Section 6.03. The Vice-President, or the Vice-Presidents in the order of
their seniority, may assume and perform the duties of the President in the
absence or disability of the President or whenever the office of the President
is vacant, and shall perform such other duties incident to his office or as are
assigned to him by the Board of Directors or the President.
Secretary
Section 6.04. The Secretary shall ensure that all notices are duly given in
accordance with the provisions of these bylaws or as required by law, shall
keep, at the principal executive office, the minutes of all proceedings of
meetings of the shareholders and Board of Directors, and shall perform such
other duties as are incident to his office or as are assigned to him by the
Board of Directors or the President.
Chief Financial Officer
Section 6.05. The Chief Financial Officer shall receive and have custody of
all funds and securities of the corporation, shall keep adequate and correct
accounts of the corporation's properties and business transactions, and shall
perform such other duties as are incident to his office or as are assigned to
him by the Board of Directors or the President.
ARTICLE VII
ISSUANCE AND TRANSFER OF SHARES
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Certificates for Paid and Unpaid Shares
Section 7.01. Certificates for shares of the corporation shall be issued
when fully paid, and may be issued prior to full payment under such restrictions
as the Board of Directors may deem proper, provided, however, that any
certificate evidencing party paid shares shall state on its face the total
amount of consideration to be paid therefor and the amount paid thereon.
Share Certificates
Section 7.02. The certificates shall be in the form provided by the Board
of Directors and shall fully comply with the provisions of the Corporation Code.
The certificates shall be signed by the President or a Vice-President, and by
the Secretary or any Assistant Secretary.
Replacement of Certificates
Section 7.03. No new certificates shall be issued until the former
certificate for the shares represented thereby shall have been surrendered and
canceled, except in the case of lost, stolen, or destroyed certificates for
which the Board of Directors may order new certificates to be issued upon such
terms, conditions, and guarantees as the Board of Directors may see fit to
impose, including the filing of sufficient indemnity.
Transfer of Shares
Section 7.04. Subject to any legends or restrictions imposed under the
Corporate Securities Law of 1968, section 418 of the Corporations Code, the
federal securities laws, the bylaws, and any agreement between the corporation
and the issues, the shares of the corporation may be transferred by endorsement
by the signature of the owner or his authorized agent and the delivery of the
certificate, but such transfer is not valid, except as to the parties thereto,
until entered upon the books of the corporation so as to show the names of the
parties by whom and to whom transferred, the number of the certificate, and the
number or designation of the shares and the date of the transfer, and until the
old certificates are surrendered and canceled.
Restriction on Ownership and Transfer of Shares
Section 7.05. The stock of this corporation shall be available for purchase
only by, and nontransferable other than to, domestic and federal savings and
loan associations having their home offices in California. All certificates of
stock issued by this corporation shall bear on the face and back of each
certificate the restrictions set forth in the first sentence of this section
7.05.
ARTICLE VIII
RECORDS AND REPORT
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Inspection of Books and Records
Section 8.01. All books and records provided for by the Corporations Code
shall be open to inspection of the directors and shareholders to the extent
expressly provided by the Corporations Code, and not otherwise.
Annual Report
Section 8.02. The requirement of Section 1501(a) of the Corporations Code
to effect that shareholders of the corporation shall be provided with an annual
report is expressly waived to the fullest extent allowed by law.
ARTICLE IX
AMENDMENT OF BYLAWS
Section 9.01. The Bylaws may be amended or repealed and new or additional
bylaws may be adopted, as follows:
(1) By the affirmative vote of a majority of the outstanding shares
entitled to vote; or
(2) Subject to such right of shareholders, by a majority vote of the
Board of Directors; provided, however, that after the issuance of shares a bylaw
specifying or changing the authorized number of directors may only be adopted by
the shareholders.
ARTICLE X
SEPARATENESS COVENANTS
Section 10.01. The Corporation agrees to abide by the following
separateness covenants as between itself and its affiliated entities:
(1) To observe all corporate formalities;
(2) To pay the salaries of its own employees and maintain a sufficient
number of employees in light of its contemplated business operations;
(3) Not to guarantee or become obligated for the debts of any other
entity or hold out its credit as being available to satisfy the obligations of
others;
(4) Not to acquire obligations or securities of its shareholders;
(5) Not to pledge its assets for the benefit of any other entity or
make any loans or advances to any entity; and
(6) To maintain adequate capital in light of its contemplated business
operations.
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THIS IS TO CERTIFY: That I am the duly elected, qualified and acting
Secretary of said corporation and that the foregoing Bylaws were adopted as set
forth herein on January ___, 2000.
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Secretary
