<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 29, 1997
REGISTRATION NO. 333-21917
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
WORLD OMNI 1997-A AUTOMOBILE LEASE
SECURITIZATION TRUST
(Issuer with respect to the Certificates)
WORLD OMNI LEASE SECURITIZATION L.P.
(Originator of the Trust described herein and Transferor of the 99.8% SUBI
Certificate to the Trust)
WORLD OMNI LT
(Issuer with respect to the SUBI and the 99.8% SUBI Certificate)
AUTO LEASE FINANCE L.P.
(Originator of World Omni LT and transferor of the SUBI and the 99.8% SUBI
Certificate to the Transferor described herein)
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7515 63-1120743
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
---------------------
6150 OMNI PARK DRIVE
MOBILE, ALABAMA 36609
(334) 639-7500
(Address, including zip code, and telephone number, including area code, of
principal executive offices of World Omni Lease Securitization L.P. and Auto
Lease Finance L.P.)
---------------------
A. TUCKER ALLEN
120 NORTHWEST 12TH AVENUE
DEERFIELD BEACH, FLORIDA 33442
(954) 429-2200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
COPIES TO:
<TABLE>
<C> <C>
CHARLES A. SWEET, ESQ. DALE W. LUM, ESQ.
WILLIAMS & CONNOLLY BROWN & WOOD LLP
725 TWELFTH STREET, N.W. 555 CALIFORNIA STREET
WASHINGTON, D.C. 20005 SAN FRANCISCO, CALIFORNIA 94104
</TABLE>
---------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. []
---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. []
---------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. []
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=========================================================================================================================
PROPOSED PROPOSED
TITLE OF EACH CLASS MAXIMUM MAXIMUM
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED PER UNIT(1) PRICE(1) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Automobile Lease Asset Backed Certificates, Class A-1...... $250,000,000 100% $250,000,000 $75,757.58(5)
- -------------------------------------------------------------------------------------------------------------------------
Automobile Lease Asset Backed Certificates, Class A-2...... $290,000,000 100% $290,000,000 $87,878.79(5)
- -------------------------------------------------------------------------------------------------------------------------
Automobile Lease Asset Backed Certificates, Class A-3...... $290,000,000 100% $290,000,000 $87,878.79(5)
- -------------------------------------------------------------------------------------------------------------------------
Automobile Lease Asset Backed Certificates, Class A-4...... $277,297,857 100% $277,297,857 $84,029.65(5)
- -------------------------------------------------------------------------------------------------------------------------
1997-A Special Unit of Beneficial Interest(2).............. (3) (3) (3) (3)
- -------------------------------------------------------------------------------------------------------------------------
99.8% 1997-A Special Unit of Beneficial Interest
Certificate(4)........................................... (3) (3) (3) (3)
=========================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) The 1997-A Special Unit of Beneficial Interest (the "SUBI") issued by World
Omni LT will constitute a beneficial interest in a specified portion of the
assets of World Omni LT, including certain lease contracts and the
automobile and light duty trucks relating to such lease contracts. The SUBI
is not being offered to investors hereunder but will be transferred by Auto
Lease Finance L.P. to World Omni Lease Securitization L.P.
(3) Not applicable.
(4) The 99.8% 1997-A Special Unit of Beneficial Interest Certificate (the "99.8%
SUBI Certificate") issued by World Omni LT will represent a 99.8% undivided
interest in the SUBI. The 99.8% SUBI Certificate is not being offered to
investors hereunder but will be transferred by Auto Lease Finance L.P. to
World Omni Lease Securitization L.P. and then to the Trustee for the World
Omni 1997-A Automobile Lease Securitization Trust issuing the Automobile
Lease Asset Backed Certificates, Class A-1, Class A-2, Class A-3 and Class
A-4.
(5) Previously paid.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
WORLD OMNI 1997-A AUTOMOBILE LEASE SECURITIZATION TRUST
WORLD OMNI LEASE SECURITIZATION L.P.
AUTO LEASE FINANCE L.P.
WORLD OMNI LT
---------------------
CROSS REFERENCE SHEET FURNISHED
PURSUANT TO RULE 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM AND CAPTION IN FORM S-1 CAPTION OR LOCATION IN PROSPECTUS
---------------------------- ---------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and
Outside Cover Page of Prospectus......... Forepart of Registration Statement; Outside
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............. Summary; Risk Factors
4. Use of Proceeds............................ Use of Proceeds
5. Determination of Offering Price............ *
6. Dilution................................... *
7. Selling Security Holders................... *
8. Plan of Distribution....................... Underwriting
9. Description of Securities to be
Registered............................... Summary; The Trust and the SUBI; The
Contracts; Maturity, Prepayment and Yield
Considerations; Description of the
Certificates; Security for the Certificates
10. Interests of Named Experts and Counsel..... *
11. Information With Respect to the
Registrant............................... The Trust and the SUBI; The Origination
Trust; The Transferor
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. *
</TABLE>
- ---------------
* Answer negative or item inapplicable.
<PAGE> 3
PROSPECTUS
$1,107,297,857
WORLD OMNI 1997-A AUTOMOBILE LEASE SECURITIZATION TRUST
$250,000,000
6.60% AUTOMOBILE LEASE ASSET BACKED CERTIFICATES, CLASS A-1
$290,000,000
6.75% AUTOMOBILE LEASE ASSET BACKED CERTIFICATES, CLASS A-2
$290,000,000
6.85% AUTOMOBILE LEASE ASSET BACKED CERTIFICATES, CLASS A-3
$277,297,857
6.90% AUTOMOBILE LEASE ASSET BACKED CERTIFICATES, CLASS A-4
WORLD OMNI LEASE SECURITIZATION L.P.
(TRANSFEROR)
WORLD OMNI FINANCIAL CORP.
(SERVICER)
------------------
The Automobile Lease Asset Backed Certificates (the "Certificates") will
represent undivided interests in the World Omni 1997-A Automobile Lease
Securitization Trust (the "Trust") formed pursuant to a Securitization Trust
Agreement between World Omni Lease Securitization L.P. (the "Transferor") and
First Bank National Association, as trustee (the "Trustee"). The property of the
Trust will consist of an undivided 99.8% interest in a Special Unit of
Beneficial Interest (the "SUBI"), which, in turn, will evidence a beneficial
interest in certain specified assets of World Omni LT, an Alabama trust (the
"Origination Trust"), monies on deposit in the Reserve Fund, the Residual Value
Surplus Account and in certain other accounts and certain other assets, as
described more fully under "The Trust and the SUBI". The assets of the
Origination Trust (the "Origination Trust Assets") will consist of retail
closed-end lease contracts assigned to the Origination Trust by dealers in the
World Omni Financial Corp. ("World Omni") network of dealers, the automobiles
and light duty trucks relating thereto and payments made under certain insurance
policies relating to such lease contracts, the related lessees and such leased
vehicles, including the Residual Value Insurance Policy, and certain other
assets, as more fully described under "The Origination Trust -- Property of the
Origination Trust". World Omni will service the lease contracts included in the
Origination Trust Assets.
(Cover continued on next page)
FOR A DISCUSSION OF MATERIAL RISKS THAT SHOULD BE CONSIDERED IN CONNECTION WITH
AN INVESTMENT IN THE CLASS A CERTIFICATES, SEE "RISK FACTORS" ON PAGE 23 HEREIN.
------------------
THE CLASS A CERTIFICATES WILL REPRESENT BENEFICIAL INTERESTS IN THE TRUST AND
WILL NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF WORLD OMNI LEASE
SECURITIZATION L.P., AUTO LEASE FINANCE L.P., WORLD OMNI LT, WORLD OMNI
FINANCIAL CORP.
OR ANY OF THEIR RESPECTIVE AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR AD-
EQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) THE TRANSFEROR(1)(3)
- -----------------------------------------------------------------------------------------------------------------------------
Per Class A-1 Certificate......................... 99.9921875% .175% 99.8171875%
- -----------------------------------------------------------------------------------------------------------------------------
Per Class A-2 Certificate......................... 100% .2% 99.8%
- -----------------------------------------------------------------------------------------------------------------------------
Per Class A-3 Certificate......................... 99.953125% .2125% 99.740625%
- -----------------------------------------------------------------------------------------------------------------------------
Per Class A-4 Certificate......................... 99.9375% .25% 99.6875%
- -----------------------------------------------------------------------------------------------------------------------------
Total............................................. $1,106,969,077 $2,326,995 $1,104,642,082
=============================================================================================================================
</TABLE>
(1) Plus accrued interest, if any, calculated at the related Certificate Rate
from and including the date of initial issuance.
(2) The Transferor and World Omni have agreed to indemnify the Underwriters
against certain liabilities under the Securities Act of 1933. See
"Underwriting".
(3) Before deducting expenses payable by the Transferor estimated to be
$950,000.
------------------
The Class A Certificates are offered by the Underwriters, subject to prior
sale, when, as and if issued to and accepted by the Underwriters, subject to
approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the Class A Certificates in book-entry form will be made through the
facilities of The Depository Trust Company, Cedel Bank, societe anonyme and the
Euroclear System, on or about May 5, 1997, against payment in immediately
available funds.
------------------
MERRILL LYNCH & CO.
BANCAMERICA SECURITIES, INC.
CREDIT SUISSE FIRST BOSTON
SALOMON BROTHERS INC
------------------
The date of this Prospectus is April 29, 1997.
<PAGE> 4
(Cover continued from previous page)
The SUBI initially will evidence a beneficial interest in a specified
portion of the Origination Trust Assets, including certain lease contracts, the
automobiles and light duty trucks relating to such lease contracts, certain
monies due under or payable in respect of such lease contracts and leased
vehicles on or after March 1, 1997, payments made under certain insurance
policies relating to such lease contracts, the related lessees and such leased
vehicles, including the Residual Value Insurance Policy, and certain other
Origination Trust Assets, as more fully described under "The Trust and the
SUBI -- The SUBI" (collectively, the "SUBI Assets"). From time to time until
principal is first distributed to the Certificateholders, as described below,
principal collections on or in respect of the SUBI Assets will be reinvested in
additional lease contracts assigned to the Origination Trust by dealers in the
World Omni network of dealers, together with the automobiles and light duty
trucks relating thereto, which at the time of reinvestment will become SUBI
Assets. The SUBI will not evidence a direct interest in the SUBI Assets, nor
will it represent a beneficial interest in all of the Origination Trust Assets.
Payments made on or in respect of the Origination Trust Assets not represented
by the SUBI will not be available to make payments on the Certificates. For
further information regarding the Trust, the SUBI and the Origination Trust, see
"The Trust and the SUBI" and "The Origination Trust".
The Certificates will consist of four classes of senior certificates
(respectively, the "Class A-1 Certificates", the "Class A-2 Certificates", the
"Class A-3 Certificates" and the "Class A-4 Certificates", and collectively, the
"Class A Certificates") and one class of subordinated certificates (the "Class B
Certificates"). The Class A Certificates will be the only Certificates offered
hereby. The initial principal amount of the Class B Certificates will be
$65,839,332, and the Class B Certificates will be subordinated to the Class A
Certificates to the extent described herein. The Class A-1 Certificates, Class
A-2 Certificates, Class A-3 Certificates, Class A-4 Certificates and Class B
Certificates initially will respectively evidence in the aggregate 20.88%,
24.23%, 24.23%, 23.16% and 5.50% undivided interests in the 99.8% interest in
the SUBI and the other assets of the Trust to the extent described herein. The
Transferor will own the undivided interest in the Trust not represented by the
Certificates (the "Transferor Interest"). The initial principal amount of the
Transferor Interest will be $23,941,575, and the Transferor Interest will be
subordinated to the Certificates as described herein. For further information
regarding the Certificates, see "Description of the Certificates".
In general, no principal payments will be made on the Class A-2 Certificates
until the Class A-1 Certificates have been paid in full, no principal payments
will be made on the Class A-3 Certificates until the Class A-1 Certificates and
the Class A-2 Certificates have been paid in full, and no principal payments
will be made on the Class A-4 Certificates until the Class A-1 Certificates, the
Class A-2 Certificates and the Class A-3 Certificates have been paid in full.
Interest on the Class A-1 Certificates, the Class A-2 Certificates, the
Class A-3 Certificates and the Class A-4 Certificates will accrue at the
respective fixed per annum interest rates specified herein and will be
distributed to holders of the Class A Certificates on the twenty-fifth day of
each month (or, if such day is not a Business Day, on the next succeeding
Business Day), beginning May 27, 1997 (each, a "Distribution Date"). Principal
will be distributed to holders of the Certificates to the extent described
herein on each Distribution Date beginning in June 1998, or, in certain limited
circumstances, earlier, as more fully described herein. The Final Scheduled
Distribution Date will occur in June 2003.
There currently is no secondary market for the Class A Certificates and
there is no assurance that one will develop. The Underwriters expect, but will
not be obligated, to make a market in each Class of Class A Certificates. There
is no assurance that any such market will develop, or if one does develop, that
it will continue.
As more fully described under "Ratings of the Class A Certificates", it is a
condition of issuance that each of Moody's Investors Service, Inc. and Standard
& Poor's Ratings Services rates each Class of Class A Certificates in its
highest rating category.
------------------------
Certain persons participating in this offering may engage in transactions
that stabilize, maintain or otherwise affect the price of any class of
Certificates. Such transactions may include stabilizing. For a description of
these activities, see "Underwriting".
------------------------
AVAILABLE INFORMATION
The Transferor, as originator of the Trust, has filed with the Securities
and Exchange Commission (the "Commission") on behalf of the Trust a Registration
Statement on Form S-1 (together with all amendments and exhibits thereto, the
"Registration Statement"), of which this Prospectus is a part, under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Class A Certificates being offered hereby. This Prospectus does not contain all
of the information set forth in the Registration Statement, certain parts of
which have been omitted in accordance with the rules and regulations of the
Commission. For further information, reference is made to the Registration
Statement, which is available for inspection without charge at the public
reference facilities of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and the regional offices of the Commission at
Suite 1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois
60661-2511 and Suite 1300, Seven World Trade Center, New York, New York 10048.
Copies of such information can be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission at http://www.sec.gov. The Servicer, on
behalf of the Trust, will also file or cause to be filed with the Commission
such periodic reports as are required under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and the rules and regulations of the Commission
thereunder.
2
<PAGE> 5
INDEX
<TABLE>
<CAPTION>
SECTION PAGE
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<S> <C>
Available Information................................... 2
Index................................................... 3
Overview of Transaction................................. 4
Summary................................................. 5
Risk Factors............................................ 23
Limited Liquidity; Absence of Secondary Market......... 23
Reimbursement of Loss Amounts.......................... 23
Maturity and Prepayment Considerations................. 24
Sequential Payment of Principal on the Certificates.... 25
Geographic, Economic and Other Factors................. 26
Consumer Protection Laws............................... 26
ERISA Liabilities...................................... 27
Vicarious Tort Liability............................... 27
Insolvency of World Omni; Substantive Consolidation
with World Omni...................................... 28
The Trust and the SUBI.................................. 29
General................................................ 29
The Trust.............................................. 29
The SUBI............................................... 30
The Origination Trust................................... 31
General................................................ 31
Allocation of Origination Trust Liabilities............ 31
ALFI and ALFI L.P...................................... 32
The Origination Trustee................................ 32
Property of the Origination Trust...................... 32
Contract Origination; Titling of Leased Vehicles....... 32
Use of Proceeds......................................... 33
The Transferor.......................................... 33
World Omni.............................................. 34
General................................................ 34
Lease Contract Underwriting Procedures................. 35
Insurance.............................................. 36
Collection, Repossession and Disposition Procedures.... 36
Delinquency, Repossession and Loss Data................ 37
The Contracts........................................... 39
General................................................ 39
Characteristics of the Contracts....................... 42
General.............................................. 42
Distribution of the Initial Leased Vehicles by
Make............................................... 42
Distribution of the Initial Contracts by Lease
Rate............................................... 43
Distribution of the Initial Contracts by Maturity.... 43
Distribution of the Initial Contracts by State....... 43
Representations, Warranties and Covenants.............. 43
Maturity, Prepayment and Yield Considerations........... 45
Class A Certificate Factors and Trading Information;
Reports to Class A Certificateholders.................. 50
Description of the Certificates......................... 50
General................................................ 50
Transfer of the SUBI Interest.......................... 51
Reallocation Payments and Reallocation Deposit
Amounts.............................................. 51
Calculation of Investor Percentage and Transferor
Percentage........................................... 52
Certain Payments to the Transferor..................... 53
Distributions on the Certificates...................... 53
General.............................................. 53
Distributions of Interest............................ 53
Application and Distributions of Principal........... 57
Early Amortization Events.............................. 59
Statements to Certificateholders....................... 61
Termination of the Trust; Retirement of the
Certificates......................................... 62
Book-Entry Registration................................ 63
Definitive Certificates................................ 65
Security for the Certificates........................... 66
General................................................ 66
The Accounts........................................... 67
The Distribution Account............................. 67
The SUBI Collection Account.......................... 67
The Residual Value Surplus Account................... 68
Maintenance of the Accounts.......................... 69
Permitted Investments................................ 69
The Reserve Fund..................................... 69
The Residual Value Insurance Policy.................... 73
The Contingent and Excess Liability Insurance
Policies............................................. 74
Additional Document Provisions.......................... 75
Additional Agreement Provisions........................ 75
No Petition.......................................... 75
</TABLE>
<TABLE>
<CAPTION>
SECTION PAGE
------- ----
<S> <C>
Amendment............................................ 75
List of Certificateholders........................... 76
The Trustee.......................................... 76
Governing Law........................................ 77
The SUBI Trust Agreement............................... 77
The SUBI, the Other SUBIs and the UTI................ 77
Special Obligations of ALFI L.P. as Beneficiary and
Grantor............................................ 78
Origination Trustee Duties and Powers; Fees and
Expenses........................................... 78
Indemnity of Trustee and Trust Agents................ 79
Termination.......................................... 80
No Petition.......................................... 80
Amendment............................................ 80
Governing Law........................................ 80
Trustee as Third-Party Beneficiary................... 80
The Servicing Agreement................................ 81
General.............................................. 81
Custody of Contract Documents and Certificates of
Title.............................................. 81
Collections.......................................... 81
Notification of Liens and Claims..................... 82
Advances............................................. 82
Security Deposits.................................... 82
Insurance on Leased Vehicles......................... 83
Realization Upon Charged-off Contracts............... 83
Matured Leased Vehicle Inventory..................... 83
Records, Servicer Determinations and Reports......... 84
Evidence as to Compliance............................ 84
Compliance with ERISA................................ 84
Servicing Compensation............................... 85
Servicer Resignation and Termination................. 85
Indemnification by the Servicer...................... 86
Events of Servicing Termination...................... 86
Rights Upon Event of Servicing Termination........... 86
No Petition.......................................... 87
Amendment............................................ 87
Termination.......................................... 87
Governing Law........................................ 87
Trustee as Third-Party Beneficiary................... 87
Certain Legal Aspects of the Origination Trust and the
SUBI................................................... 88
The Origination Trust.................................. 88
The SUBI............................................... 88
Insolvency Related Matters............................. 89
Legal Proceedings...................................... 89
Certain Legal Aspects of the Contracts and the Leased
Vehicles............................................... 89
Back-up Security Interests............................. 89
Vicarious Tort Liability............................... 90
Repossession of Leased Vehicles........................ 91
Deficiency Judgments................................... 91
Consumer Protection Laws............................... 92
Other Limitations...................................... 93
Material Income Tax Considerations...................... 93
Federal Taxation....................................... 93
General.............................................. 93
Characterization of the Class A Certificates as
Indebtedness....................................... 93
Taxation of Interest and Discount Income............. 94
Sales of Class A Certificates........................ 96
Federal Income Tax Consequences to Foreign
Investors.......................................... 96
Backup Withholding................................... 96
Possible Alternative Treatment of the Class A
Certificates....................................... 97
Florida Income Taxation................................ 97
ERISA Considerations.................................... 97
Underwriting............................................ 100
Notice to Canadian Residents............................ 101
Ratings of the Class A Certificates..................... 102
Legal Matters........................................... 102
Experts................................................. 103
Index of Capitalized Terms.............................. 104
Index to Financial Statements of American International
Specialty Lines Insurance Company...................... 106
Global Clearance, Settlement and Tax Documentation
Procedures............................................. A-1
</TABLE>
3
<PAGE> 6
[OVERVIEW OF TRANSACTION CHART]
4
<PAGE> 7
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus. See the Index of
Capitalized Terms at page 104 for the location herein of certain capitalized
terms.
Overview................... Certain motor vehicle dealers ("Dealers") in the
World Omni Financial Corp. ("World Omni") network
of dealers have assigned, and will assign,
closed-end retail automobile and light duty truck
leases to World Omni LT, an Alabama trust (the
"Origination Trust"). The Origination Trust was
created in 1993 to avoid the administrative
difficulty and expense associated with retitling
leased vehicles in the securitization of automobile
and light duty truck leases. The Origination Trust
has issued to Auto Lease Finance L.P. ("ALFI L.P.")
an Undivided Trust Interest (the "UTI")
representing the entire beneficial interest in the
unallocated assets of the Origination Trust. ALFI
L.P. will instruct the trustee of the Origination
Trust to allocate a separate portfolio of leases
and leased vehicles within the Origination Trust
and create a special unit of beneficial interest
(the "SUBI") which will represent the entire
beneficial interest in such portfolio. Upon its
creation, such portfolio will no longer be a part
of the Origination Trust Assets represented by the
UTI. ALFI L.P. will sell its interest in the SUBI
to World Omni Lease Securitization L.P. (the
"Transferor") and the Transferor will in turn
contribute a 99.8% interest in the SUBI to the
World Omni 1997-A Automobile Lease Securitization
Trust (the "Trust"). In return, the Trust will
issue five classes of Certificates, including the
Class A-1 Certificates, Class A-2 Certificates,
Class A-3 Certificates and Class A-4 Certificates
being offered hereby. The undivided interest in the
Trust not evidenced by the Certificates will be
permanently retained by the Transferor. ALFI L.P.
has caused and from time to time in the future may
cause additional special units of beneficial
interest similar to the SUBI ("Other SUBIs") to be
created out of the UTI and sold to the Transferor
or one or more other entities. The Trust and the
Certificateholders will have no interest in the
UTI, any Other SUBI or any assets of the
Origination Trust evidenced by the UTI or any Other
SUBI.
The Trust.................. The Trust will be formed pursuant to a
securitization trust agreement dated as of May 1,
1997 (the "Agreement"), between the Transferor and
First Bank National Association ("First Bank"), as
trustee (in such capacity, the "Trustee"). The
property of the Trust will consist primarily of an
undivided 99.8% interest (the "SUBI Interest") in
the SUBI, which will evidence a beneficial interest
in certain specified assets of the Origination
Trust (including Insured Residual Value Loss
Amounts paid under the Residual Value Insurance
Policy), and monies on deposit in the Reserve Fund,
the Residual Value Surplus Account and in certain
other accounts established as described herein.
The Origination Trust was formed by ALFI L.P., as
grantor and initial beneficiary, and VT Inc., as
trustee (the "Origination Trustee"). The sole
general partner of ALFI L.P. is Auto Lease Finance,
Inc., a Delaware corporation ("ALFI") which is a
wholly owned, special purpose subsidiary of World
Omni. ALFI may not transfer its general partnership
interest in ALFI L.P. so long as any financings
involving interests in the Origination Trust
(including the transaction described herein) are
outstanding. The sole limited partner of ALFI L.P.
is World
5
<PAGE> 8
Omni. VT Inc. is an Alabama corporation and a
wholly owned, special purpose subsidiary of First
Bank that was organized solely for the purpose of
acting as Origination Trustee. VT Inc. is not
affiliated with World Omni or any affiliate
thereof. For further information regarding the
Origination Trustee, see "The Origination
Trust -- The Origination Trustee".
The Origination Trust Assets consist of retail
closed-end lease contracts assigned to the
Origination Trust by Dealers, the automobiles and
light duty trucks relating thereto and all proceeds
thereof and payments made under certain insurance
policies relating to such contracts, the related
lessees or such leased vehicles, including the
Residual Value Insurance Policy. The SUBI initially
will evidence a beneficial interest in a specified
portion of the Origination Trust Assets, including
certain lease contracts (the "Initial Contracts")
originated by Dealers located throughout the United
States, the automobiles and light duty trucks
relating thereto (the "Initial Leased Vehicles"),
certain monies due under or payable in respect of
the Initial Contracts and the Initial Leased
Vehicles on or after March 1, 1997 (the "Initial
Cutoff Date"), payments made under certain
insurance policies (including Insured Residual
Value Loss Amounts paid under the Residual Value
Insurance Policy) relating to the Initial
Contracts, the related lessees and the Initial
Leased Vehicles and certain related assets and
rights (collectively, the "SUBI Assets"). For
further information regarding the SUBI Assets, see
"The Trust and the SUBI -- The SUBI".
Prior to the time when principal is first
distributed to Certificateholders as described
herein, payments made on or in respect of the SUBI
Assets allocable to principal will be reinvested in
additional retail closed-end lease contracts (the
"Subsequent Contracts" and, together with the
Initial Contracts, the "Contracts") originated and
assigned to the Origination Trust by Dealers
located throughout the United States and the
automobiles and light duty trucks relating thereto
(the "Subsequent Leased Vehicles" and, together
with the Initial Leased Vehicles, the "Leased
Vehicles"). At the time of such reinvestment, the
related Subsequent Contracts and Subsequent Leased
Vehicles, together with certain related Origination
Trust Assets, will become SUBI Assets. For further
information regarding the Subsequent Contracts and
Subsequent Leased Vehicles, see "Summary -- The
Revolving Period; Subsequent Contracts and
Subsequent Leased Vehicles" and "The Trust and the
SUBI -- The SUBI".
The Dealers comprising the sources for Contracts
and Leased Vehicles are members of World Omni's
network of dealers. These Dealers offer automobiles
and light duty trucks for lease pursuant to World
Omni-approved terms and documentation. For further
information regarding World Omni's lease business,
see "World Omni".
The SUBI will evidence an indirect beneficial
interest, rather than a direct legal interest, in
the SUBI Assets. The SUBI will not represent a
beneficial interest in any Origination Trust Assets
other than the SUBI Assets. Payments made on or in
respect of Origination Trust Assets other than the
SUBI Assets will not be available to make payments
on the Certificates.
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<PAGE> 9
The 0.2% interest in the SUBI not transferred to
the Trustee will be permanently retained by the
Transferor (the "Retained SUBI Interest").
Accordingly, the Transferor will be entitled to
receive 0.2% of all payments made on or in respect
of the SUBI Assets and will share in 0.2% of all
losses and liabilities incurred by the SUBI Assets.
Any payments made in respect of the Retained SUBI
Interest will not be available to make payments on
the Certificates. For further information regarding
the SUBI, see "Summary -- Security for the
Certificates -- The SUBI", "The Trust and the
SUBI -- The SUBI" and "The Origination Trust".
The Transferor............. The Transferor is a Delaware limited partnership,
the sole general partner of which is World Omni
Lease Securitization, Inc., a Delaware corporation
("WOLSI"), which is a wholly owned, special purpose
subsidiary of World Omni. WOLSI may not transfer
its general partnership interest in the Transferor
so long as any financings involving interests
formerly or partially held by it in the Origination
Trust (including the transaction described herein)
are outstanding. The sole limited partner of the
Transferor is World Omni.
World Omni................. World Omni is a Florida corporation that is a
wholly owned subsidiary of JM Family Enterprises,
Inc., a Delaware corporation ("JMFE"). JMFE also
wholly owns Southeast Toyota Distributors, Inc.
("SET"), which is the exclusive distributor of
Toyota automobiles and light duty trucks in
Florida, Alabama, Georgia, North Carolina and South
Carolina (the "Five State Area"). As more fully
described under "World Omni", World Omni provides
consumer lease and installment contract financing
to retail customers of, and floorplan and other
dealer financing to, Dealers that are located
throughout the United States. World Omni wholly
owns both ALFI and WOLSI.
Pursuant to an amended and restated servicing
agreement dated as of July 1, 1994, as amended, to
be supplemented by a servicing supplement dated as
of May 1, 1997 (collectively, the "Servicing
Agreement"), each between World Omni and the
Origination Trustee, World Omni will act as the
initial servicer of the Origination Trust Assets,
including the SUBI Assets (in such capacity, the
"Servicer"). The Trustee will be a third party
beneficiary of the Servicing Agreement, as
described under "Additional Document
Provisions -- The Servicing Agreement -- Trustee as
Third-Party Beneficiary".
Securities Offered......... The Automobile Lease Asset Backed Certificates (the
"Certificates") will represent fractional undivided
interests in the Trust. The Certificates will
consist of four classes of senior certificates (the
"Class A-1 Certificates", the "Class A-2
Certificates", the "Class A-3 Certificates" and the
"Class A-4 Certificates", respectively, and
collectively, the "Class A Certificates") and one
class of subordinated certificates (the "Class B
Certificates"). Generally, no principal payments
will be made on the Class A-2 Certificates until
the Class A-1 Certificates have been paid in full,
no principal payments will be made on the Class A-3
Certificates until the Class A-1 Certificates and
the Class A-2 Certificates have been paid in full,
and no principal payments will be made on the Class
A-4 Certificates until the Class A-1 Certificates,
Class A-2 Certificates and Class A-3 Certificates
have been paid in full, in each case as more fully
described under "Description of the
Certificates -- Distributions on the
7
<PAGE> 10
Certificates -- Application and Distributions of
Principal -- Amortization Period". The Class B
Certificates will be subordinated to the Class A
Certificates so that (i) interest payments
generally will not be made in respect of the Class
B Certificates until interest in respect of the
Class A Certificates has been paid, (ii) principal
payments generally will not be made in respect of
the Class B Certificates until the Class A-1, Class
A-2 and Class A-3 Certificates have been paid in
full and (iii) if other sources available to make
payments of principal and interest on the Class A-4
Certificates are insufficient, amounts that
otherwise would be paid in respect of the Class B
Certificates generally will be available for that
purpose, as more fully described under "Description
of the Certificates -- Distributions on the
Certificates". The undivided interest in the Trust
not represented by the Certificates will be
permanently retained by the Transferor (the
"Transferor Interest"). The Transferor Interest
will be subordinated to the Certificates as
described under "Summary -- Security for the
Certificates -- Subordination of the Transferor
Interest". Only the Class A Certificates are being
offered hereby. The Class A Certificates will be
issued in book-entry form in minimum denominations
of $1,000 and integral multiples thereof, as set
forth under "Description of the
Certificates -- Book-Entry Registration" and
"-- Definitive Certificates". The Class B
Certificates will be sold in one or more private
placements.
Each Certificate will represent the right to
receive monthly payments of interest at the related
Certificate Rate and, to the extent described
herein, monthly payments of principal during the
Amortization Period. These payments will be funded
from a portion of the payments received by the
Trust on or in respect of the SUBI Interest (i.e.,
from a portion of 99.8% of the payments received on
or in respect of the Contracts and the Leased
Vehicles) and, in certain circumstances, from
Excess Collections, monies on deposit in the
Residual Value Surplus Account, the Servicing Fee
(so long as World Omni is the Servicer), Transferor
Amounts that otherwise would be distributable in
respect of the Transferor Interest, Insured
Residual Value Loss Amounts paid under the Residual
Value Insurance Policy and monies on deposit in the
Reserve Fund. Interests in the assets of the Trust
will be allocated among the Class A-1
Certificateholders (the "Class A-1 Interest"), the
Class A-2 Certificateholders (the "Class A-2
Interest"), the Class A-3 Certificateholders (the
"Class A-3 Interest"), the Class A-4
Certificateholders (the "Class A-4 Interest" and,
together with the Class A-1 Interest, the Class A-2
Interest and the Class A-3 Interest, the "Class A
Interest"), the Class B Certificateholders (the
"Class B Interest" and, together with the Class A
Interest, the "Investor Interest") and the
Transferor Interest.
On the date of initial issuance of the Certificates
(the "Closing Date"), the Trust will issue
$250,000,000 aggregate principal amount of Class
A-1 Certificates (the "Initial Class A-1
Certificate Balance"), $290,000,000 aggregate
principal amount of Class A-2 Certificates (the
"Initial Class A-2 Certificate Balance"),
$290,000,000 aggregate principal amount of Class
A-3 Certificates (the "Initial Class A-3
Certificate Balance"), $277,297,857 aggregate
principal amount of Class A-4 Certificates (the
"Initial Class A-4 Certificate Balance" and,
together with the Initial Class A-1 Certificate
Balance, the Initial Class A-2 Certifi
8
<PAGE> 11
cate Balance and the Initial Class A-3 Certificate
Balance, the "Initial Class A Certificate Balance")
and $65,839,332 aggregate principal amount of Class
B Certificates (the "Initial Class B Certificate
Balance" and, together with the Initial Class A
Certificate Balance, the "Initial Certificate
Balance"). The aggregate principal amounts of the
Class A-1, Class A-2, Class A-3 and Class A-4
Certificates and the Class B Certificates will,
except in certain circumstances described under
"Summary -- The Revolving Period; Subsequent
Contracts and Subsequent Leased Vehicles", remain
fixed at their respective Initial Certificate
Balances during the Revolving Period and, to the
extent described herein, will decline thereafter
during the Amortization Period as principal is paid
on the Certificates. The "Class Certificate
Balance" of any Class of Certificates on any day
will equal the Initial Class Certificate Balance,
reduced by the sum of all distributions made in
respect of principal (including any reimbursements
of Loss Amounts allocable to such Class and
Certificate Principal Loss Amounts in respect of
such Class) on or prior to such day on the related
Class of Certificates and those Certificate
Principal Loss Amounts in respect of such Class, if
any, which have not been reimbursed as described
herein. The "Class A Certificate Balance" will mean
the sum of the Class A-1, Class A-2, Class A-3 and
Class A-4 Certificate Balances. The "Certificate
Balance" with respect to the Certificates will mean
the sum of the Class A Certificate Balance and the
Class B Certificate Balance.
The amount of the Transferor Interest will
initially equal $23,941,575 (which amount will
equal 2.0% of 99.8% of the Aggregate Net Investment
Value as of the Initial Cutoff Date) and on any day
will equal the difference between 99.8% of the
Aggregate Net Investment Value, calculated as
described under "Summary -- Security for the
Certificates -- The SUBI -- The Contracts", and the
Certificate Balance. As more fully described under
"Description of the Certificates -- General", the
Aggregate Net Investment Value can change daily.
Because the Transferor Interest will represent the
interest in the Trust not represented by the
Certificates, the amount of the Transferor Interest
can decrease daily as the Aggregate Net Investment
Value decreases and can increase on a Distribution
Date to reflect reductions in the Certificate
Balance, but will never exceed the initial amount
of the Transferor Interest.
Registration of the
Certificates............... Each Class of Class A Certificates initially will
be represented by one or more certificates
registered in the name of Cede & Co. ("Cede"), as
the nominee of The Depository Trust Company
("DTC"). A person acquiring an interest in the
Class A Certificates (each, a "Certificate Owner")
may elect to hold his or her interest through DTC,
in the United States, or Cedel Bank, societe
anonyme ("Cedel") or the Euroclear System
("Euroclear"), in Europe. Transfers within DTC,
Cedel or Euroclear, as the case may be, will be in
accordance with the usual rules and operating
procedures of the relevant system. Cross-market
transfers between persons holding directly or
indirectly through DTC, on the one hand, and
counterparties holding directly or indirectly
through Cedel or Euroclear, on the other, will be
effected in DTC through Citibank, N.A. or Morgan
Guaranty Trust Company of New York, the relevant
depositaries (collectively, the "Depositaries") of
Cedel or Euroclear, respectively, and each a
participating member of DTC. No Certificate Owner
will be able
9
<PAGE> 12
to receive a definitive certificate representing
such person's interest, except in the limited
circumstances described under "Description of the
Certificates -- Definitive Certificates". Unless
and until definitive certificates are issued,
Certificate Owners will not be recognized as
holders of record of Class A Certificates and will
be permitted to exercise the rights of such holders
only indirectly through DTC. For further
information regarding book-entry registration of
the Class A Certificates, see "Description of the
Certificates -- General" and "-- Book-Entry
Registration".
Interest................... On the twenty-fifth day of each month or, if such
day is not a Business Day, on the next succeeding
Business Day, beginning May 27, 1997 (each, a
"Distribution Date"), distributions in respect of
the Class A Certificates will be made to the
holders of record of the Class A-1, Class A-2,
Class A-3 and Class A-4 Certificates (respectively,
the "Class A-1 Certificateholders", the "Class A-2
Certificateholders", the "Class A-3
Certificateholders" and the "Class A-4
Certificateholders", and collectively, the "Class A
Certificateholders") as of the day immediately
preceding such Distribution Date or, if Definitive
Certificates are issued, the last day of the
immediately preceding calendar month (each such
date, a "Record Date"). On each Distribution Date,
the Trustee will distribute interest for the
related Interest Period to the Class A
Certificateholders, based on the related Class
Certificate Balance as of the immediately preceding
Distribution Date (after giving effect to
reductions in such Class Certificate Balance as of
such immediately preceding Distribution Date) or,
in the case of the first Distribution Date, on the
Initial Class Certificate Balance, in the case of
(i) the Class A-1 Certificates, at an annual
percentage rate equal to 6.60% (the "Class A-1
Certificate Rate"), (ii) the Class A-2
Certificates, at an annual percentage rate equal to
6.75% (the "Class A-2 Certificate Rate"), (iii) the
Class A-3 Certificates, at an annual percentage
rate equal to 6.85% (the "Class A-3 Certificate
Rate") and (iv) the Class A-4 Certificates, at an
annual percentage rate equal to 6.90% (the "Class
A-4 Certificate Rate"). Interest in respect of the
Class A Certificates will accrue for the period
from and including the Distribution Date in each
month to but excluding the Distribution Date in the
immediately succeeding month (or, in the case of
the first Distribution Date, from and including May
5, 1997) (each, an "Interest Period"). All such
payments will be calculated on the basis of a
360-day year consisting of twelve 30-day months.
The final scheduled Distribution Date for the
Certificates (the "Final Scheduled Distribution
Date") will be the June 2003 Distribution Date. A
"Business Day" will be a day other than a Saturday
or Sunday or a day on which banking institutions in
the States of Alabama, Florida, Illinois or New
York are authorized or obligated by law, executive
order or government decree to be closed. As
described under "Description of the
Certificates -- Distributions on the
Certificates -- Distributions of Interest",
distributions in respect of interest on the Class B
Certificates will be subordinated to distributions
in respect of interest on the Class A Certificates
under certain circumstances.
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<PAGE> 13
The Revolving Period;
Subsequent Contracts and
Subsequent Leased
Vehicles................. No principal will be payable on the Certificates
until the June 1998 Distribution Date or, upon the
occurrence of an Early Amortization Event, until
the Distribution Date in the month immediately
succeeding the month in which such Early
Amortization Event occurs. From and including the
Closing Date and ending on the day immediately
preceding the commencement of the Amortization
Period (i.e., the earlier of May 1, 1998 or the
date of an Early Amortization Event) (the
"Revolving Period"), all Principal Collections and
reimbursements of Loss Amounts will be reinvested
in Subsequent Contracts and Subsequent Leased
Vehicles so as to maintain the Class A-1, Class
A-2, Class A-3, Class A-4 and Class B Certificate
Balances at constant levels during the Revolving
Period, except to the extent there are unreimbursed
Certificate Principal Loss Amounts in respect of
any such Class, in which case the Certificate
Balance of the related Class of Certificates will
decrease until such time, if any, as such
Certificate Principal Loss Amounts are reimbursed
as described under "Description of the
Certificates -- Distributions on the
Certificates -- Distributions of Interest". The
events that might lead to the termination of the
Revolving Period prior to its scheduled termination
date are described under "Description of the
Certificates -- Early Amortization Events".
Prior to the twenty-fifth calendar day (i) in each
month (beginning May 1997) during the Revolving
Period and (ii) if no Early Amortization Event has
occurred, in the month in which the Amortization
Date occurs, on one or more days selected by the
Servicer (each, a "Transfer Date"), the Servicer
will direct the Origination Trustee to reinvest
Principal Collections and certain Loss Amounts that
otherwise would be reimbursed to the
Certificateholders in certain lease contracts and
the related leased vehicles of the Origination
Trust that are not evidenced by the SUBI or any
Other SUBI. Upon such reinvestment, the related
Subsequent Contracts and Subsequent Leased Vehicles
will become SUBI Assets. If on the twenty-fifth
calendar day of any month (beginning May 1997)
during the Revolving Period the amount of Principal
Collections and such otherwise reimbursable Loss
Amounts as of the last day of the immediately
preceding month that have not been reinvested in
Subsequent Contracts and Subsequent Leased Vehicles
exceeds $1,000,000, an Early Amortization Event
will occur, the Revolving Period will terminate as
of such day and all unreinvested Principal
Collections and all such Loss Amounts will be
distributed as principal to Certificateholders on
the immediately succeeding Distribution Date. For
further details concerning the application of
Principal Collections and Loss Amounts, see
"Summary -- Amortization Period; Principal
Payments", "Risk Factors -- Reimbursement of Loss
Amounts", "The Trust and the SUBI -- The SUBI" and
"Description of the Certificates -- Distributions
on the Certificates -- Application and
Distributions of Principal -- Revolving Period".
The Subsequent Contracts and Subsequent Leased
Vehicles will be selected from the Origination
Trust's portfolio of lease contracts and related
vehicles that are not allocated to (or reserved for
allocation to) any Other SUBI, based on the same
criteria as are applicable to the Initial Contracts
and the other criteria described under "The Con-
11
<PAGE> 14
tracts -- Representations, Warranties and
Covenants". The reinvestment of Principal
Collections (and reimbursement of Loss Amounts)
will be made in the available lease contracts with
the earliest origination dates, except that certain
lease contracts booked from February 28, 1997
through April 7, 1997 shall be reserved for
allocation to the SUBI and will be used first, and
if allocations are being made in respect of any one
or more previous Other SUBIs at the same time out
of the Origination Trust's general pool of
unreserved lease contracts, reinvestment will be
made first in respect of such previous Other
SUBI(s). For further information regarding the
Subsequent Contracts and Subsequent Leased
Vehicles, see "The Contracts".
"Principal Collections" will mean, with respect to
any Collection Period, all Collections allocable to
the principal component of any Contract (including
any payment in respect of the related Leased
Vehicle, but other than any payment as to which a
Loss Amount has been realized and allocated during
any prior Collection Period), discounted to the
extent required below. A "Collection Period" will
be each calendar month (or, with respect to the
first Collection Period, the months of March and
April 1997). For purposes of determining Principal
Collections, the principal component of all
payments made on or in respect of a Contract (or
the related Leased Vehicle) with a Lease Rate less
than 9.25% (each, a "Discounted Contract") will be
discounted at a rate of 9.25%, thereby effectively
reallocating a portion of the payments received in
respect of the principal component of the Contracts
to Interest Collections and providing additional
credit enhancement for the benefit of the
Certificateholders. "Collections" with respect to
any Collection Period will include all net
collections collected or received in respect of the
Contracts and Leased Vehicles during such
Collection Period other than Insured Residual Value
Loss Amounts paid under the Residual Value
Insurance Policy, such as Monthly Payments
(including amounts in the SUBI Collection Account
that previously constituted Payments Ahead but
which represent Monthly Payments due during such
Collection Period), Prepayments, Advances, Net
Matured Leased Vehicle Proceeds (including amounts
withdrawn from the Residual Value Surplus Account
to offset certain Residual Value Losses in respect
of Leased Vehicles relating to Matured Contracts
and certain Matured Leased Vehicle Expenses, but
not including any Residual Value Surplus deposited
into the Residual Value Surplus Account in respect
of such Collection Period), Net Repossessed Vehicle
Proceeds and other Net Liquidation Proceeds and any
Undistributed Transferor Excess Collections in
respect of the immediately preceding Collection
Period, less an amount equal to the sum of (i)
Payments Ahead with respect to one or more future
Collection Periods, (ii) amounts paid to the
Servicer in respect of outstanding Advances and
(iii) Additional Loss Amounts in respect of such
Collection Period. In addition, if such Collection
Period occurs during the Revolving Period, amounts
otherwise payable to the Certificateholders on the
related Distribution Date as reimbursement of Loss
Amounts allocable to the Investor Interest (as
described under "Description of the
Certificates -- Distributions on the
Certificates -- Distributions of Interest") will be
treated as Principal Collections and reinvested in
Subsequent Contracts and Subsequent Leased Vehicles
as described above. "Interest Collections" with
respect to any Collection
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<PAGE> 15
Period generally will equal the amount by which
Collections exceed Principal Collections. "Net
Repossessed Vehicle Proceeds" will equal
Repossessed Vehicle Proceeds net of Repossessed
Vehicle Expenses, and "Net Liquidation Proceeds"
will equal Liquidation Proceeds net of Liquidation
Expenses.
Amortization Period;
Principal Payments....... The "Amortization Period" will commence on the
earlier of May 1, 1998 (the "Amortization Date") or
the day on which an Early Amortization Event
occurs, and will end when each Class of
Certificates has been paid in full and all
Certificate Principal Loss Amounts and Class B
Certificate Principal Carryover Shortfalls, if any,
have been repaid in full, together with accrued
interest thereon, or when the Trust otherwise
terminates. During the Amortization Period,
Principal Collections and certain reimbursed Loss
Amounts will no longer be reinvested in Subsequent
Contracts and Subsequent Leased Vehicles as
described above. Instead, on each Distribution Date
beginning with the Distribution Date in the month
following the month in which the Amortization
Period commences and ending on the Distribution
Date on which the Class A-3 Certificates have been
paid in full, all Principal Collections for the
related Collection Period that are allocable to the
Investor Interest will be distributed as principal
payments first to the Class A-1 Certificateholders
until the Class A-1 Certificates have been paid in
full, second, to the Class A-2 Certificateholders
until the Class A-2 Certificates have been paid in
full, third, to the Class A-3 Certificateholders
until the Class A-3 Certificates have been paid in
full and thereafter the Class A Percentage and the
Class B Percentage of any remaining such Principal
Collections will be distributed as principal
payments to the Class A-4 Certificateholders and to
the holders of record of the Class B Certificates
(the "Class B Certificateholders" and, together
with the Class A Certificateholders, the
"Certificateholders"), respectively. On each
Distribution Date after the Class A-3 Certificates
have been paid in full, the Class A Percentage and
the Class B Percentage of Principal Collections for
the related Collection Period allocable to the
Investor Interest will be distributed to the Class
A-4 Certificateholders and the Class B
Certificateholders, respectively, until the related
Class of Certificates has been paid in full.
Certain Loss Amounts incurred during the
Amortization Period will be reimbursed to the
Certificateholders as described below. The "Class A
Percentage" will mean the Class A Certificate
Balance immediately after the Class A-3
Certificates have been paid in full, as a
percentage of the Certificate Balance at such time,
and the "Class B Percentage" will mean the Class B
Certificate Balance immediately after the Class A-3
Certificates have been paid in full, as a
percentage of the Certificate Balance at such time.
The Class A Percentage and the Class B Percentage
will not change after they are set.
In no event will the principal distributed in
respect of any Class of Certificates exceed its
Certificate Balance. In addition, under certain
circumstances, (i) Class A Certificateholders will
be entitled to receive reimbursement of an
allocable percentage of Loss Amounts as a
distribution of principal from sources other than
Principal Collections and (ii) principal allocable
to the Class B Certificates may instead be
distributed in respect of Loss Amounts allocable to
the Class A-4 Certificates, Class A-4 Certificate
Principal Loss Amounts and accrued
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<PAGE> 16
and unpaid interest thereon, as described under
"Description of the Certificates -- Distributions
on the Certificates -- Distributions of Interest",
"-- Application and Distributions of Principal" and
"Risk Factors -- Reimbursement of Loss Amounts".
See "Description of the Certificates -- Early
Amortization Events" for a description of the
events that might lead to the commencement of the
Amortization Period prior to the Amortization Date.
During the Amortization Period, the amount of
Principal Collections allocable to the Investor
Interest in respect of a Collection Period (the
"Principal Allocation") generally will mean the
Principal Collections in respect of such Collection
Period allocable to the SUBI Interest multiplied by
the Investor Percentage for such Principal
Collections. The "Investor Percentage" for purposes
of the Principal Allocation will equal the
percentage equivalent of a fraction (not to exceed
100%), the numerator of which is the Certificate
Balance and the denominator of which is 99.8% of
the Aggregate Net Investment Value, calculated as
described under "Summary -- Security for the
Certificates -- The SUBI -- The Contracts", as of
the last day of the last Collection Period (i)
preceding the Amortization Date or (ii) preceding
the month, if any, during which an Early
Amortization Event occurs. See "Description of the
Certificates -- Calculation of Investor Percentage
and Transferor Percentage" for a description of
calculation of the Investor Percentage relating to
Interest Collections and Loss Amounts.
Allocations based upon the Principal Allocation for
Principal Collections during the Amortization
Period may result in distributions of principal
with respect to a Collection Period during the
Amortization Period to Certificateholders in
amounts that are greater relative to the declining
balance of the Certificate Balance than would be
the case if no fixed Investor Percentage were used
to determine the percentage of Principal
Collections distributed in respect of the
Certificates. Additionally, to the extent that on
any Distribution Date during the Amortization
Period any portion of the Investor Percentage of
Interest Collections in respect of the related
Collection Period allocable to the SUBI Interest
remains after required distributions have been
made, such excess interest will be deposited into
the Reserve Fund until the amount on deposit
therein equals the Reserve Fund Cash Requirement.
Any remaining excess interest, up to but not
exceeding the product of (i) one-twelfth of 0.25%,
(ii) 99.8% and (iii) the Aggregate Net Investment
Value as of the last day of such Collection Period
(the "Accelerated Principal Distribution Amount"),
will be distributed as an additional payment of
principal to the Certificateholders in the same
manner and priority as principal is distributed in
respect of the Certificates as described in the
preceding paragraphs. See "Description of the
Certificates -- Distributions on the
Certificates -- Distributions of Interest" and
"Security for the Certificates -- The
Accounts -- The SUBI Collection
Account -- Withdrawals from the SUBI Collection
Account" for further information regarding the
foregoing matters.
Optional Purchase.......... The Certificates will be subject to purchase at the
option of the Transferor on any Distribution Date
if, either before or after giving effect to any
payment of principal required to be made on such
Distribution Date, the Certificate Balance has been
reduced to an amount less than or
14
<PAGE> 17
equal to 10% of the Initial Certificate Balance, at
a purchase price determined as described under
"Description of the Certificates -- Termination of
the Trust; Retirement of the Certificates".
Security for the
Certificates............... The security for the Certificates will consist
primarily of the following:
A. The SUBI.............. The SUBI will evidence a beneficial interest in the
SUBI Assets. The Origination Trust was created
pursuant to a trust agreement (the "Origination
Trust Agreement"), among ALFI L.P., as grantor and
initial beneficiary, the Origination Trustee and
First Bank, as trust agent (in such capacity, the
"Trust Agent"). The SUBI Interest will be evidenced
by a certificate (the "SUBI Certificate")
evidencing a 99.8% beneficial interest in the SUBI
Assets that will be issued by the Origination Trust
pursuant to a supplement to the Origination Trust
Agreement dated as of May 1, 1997 (the "SUBI
Supplement" and, together with the Origination
Trust Agreement, the "SUBI Trust Agreement"). The
Trustee will be a third party beneficiary of the
SUBI Trust Agreement. The Transferor will
permanently hold the Retained SUBI Interest,
representing the 0.2% beneficial interest in the
SUBI Assets not evidenced by the SUBI Certificate.
The Origination Trust Assets evidenced by the SUBI
will primarily include the Contracts and the Leased
Vehicles. The SUBI will not evidence an interest in
any Origination Trust Assets other than the SUBI
Assets, and payments made on or in respect of all
other Origination Trust Assets will not be
available to make payments on the Certificates. For
more information regarding the SUBI, see "The Trust
and the SUBI" and "The Origination Trust".
1. The Contracts......... The Contracts will consist of a pool of retail
closed-end lease contracts originated by Dealers
located throughout the United States, each of which
will have an original term of not more than 60
months. Each Contract will be a finance lease for
accounting purposes and will have been written for
a "capitalized cost" (which may exceed the
manufacturer's suggested retail price), plus an
implicit rate in each Lease calculated as an annual
percentage rate (the "Lease Rate") on a constant
yield basis. The Contracts will provide for equal
monthly payments (the "Monthly Payments") such that
at the end of the related Contract term such
capitalized cost will have been amortized to an
amount equal to the residual value of the related
Leased Vehicle established at the time of
origination of such Contract (the "Residual
Value"). The amount to which the capitalized cost
of a Contract has been amortized at any point in
time is referred to herein as its "Outstanding
Principal Balance".
The Initial Contracts consist of 51,898 lease
contracts. As of the Initial Cutoff Date, the Lease
Rate of the Initial Contracts ranged from 2.14% to
12.95%, with a weighted average Lease Rate of
8.30%. The aggregate of the original principal
balances of the Initial Contracts as of their
respective dates of origination was $1,269,396,602.
As of the Initial Cutoff Date, the aggregate
Outstanding Principal Balance of the Initial
Contracts was $1,227,193,400, the aggregate
Residual Value of the Initial Leased Vehicles was
$804,381,005 and the Initial Contracts had a
weighted average original term of 40.99 months and
a weighted average
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<PAGE> 18
remaining term to scheduled maturity of 36.98
months. See "The Contracts" for further information
regarding the Initial Contracts.
The Initial Contracts were, and the Subsequent
Contracts will be, identified by the Servicer from
the Origination Trust's portfolio of lease
contracts originated by Dealers located throughout
the United States that are not evidenced by (or
reserved for allocation to) any Other SUBI, based
upon the criteria specified in the SUBI Trust
Agreement and described under "The
Contracts -- Characteristics of the Contracts" and
"-- Representations, Warranties and Covenants".
The "Aggregate Net Investment Value" as of any day
will equal the sum of (i) the Discounted Principal
Balance of all Contracts other than Charged-off,
Liquidated, Matured and Additional Loss Contracts,
(ii) the aggregate Residual Value of all Leased
Vehicles to the extent that the related Contracts
have reached their scheduled maturities (each, a
"Matured Contract") within the three immediately
preceding Collection Periods but which Leased
Vehicles as of the last day of the most recent
Collection Period have remained unsold and not
otherwise disposed of by the Servicer for no more
than two full Collection Periods (the "Matured
Leased Vehicle Inventory") and (iii) during the
Revolving Period, the amount of Principal
Collections and Loss Amounts that otherwise would
be reimbursed to the Certificateholders, if any,
that have not been reinvested in Subsequent
Contracts and Subsequent Leased Vehicles. The
"Discounted Principal Balance" of (i) a Discounted
Contract will equal its Outstanding Principal
Balance, discounted by 9.25%, and (ii) all
Contracts other than Discounted Contracts will
equal their Outstanding Principal Balance. As of
the Initial Cutoff Date, the aggregate Discounted
Principal Balance of the Initial Contracts and the
Aggregate Net Investment Value was $1,199,477,720.
2. The Leased Vehicles... The Leased Vehicles will be comprised of
automobiles and light duty trucks. As of the times
of origination of the Contracts, the related Leased
Vehicles will be either new vehicles, dealer
demonstrator vehicles or manufacturers' program
vehicles, as described under "The Contracts --
General". Manufacturers' program vehicles are
vehicles which have been sold directly by
manufacturers to rental car companies and returned
to the manufacturer for resale.
The certificates of title to the Initial Leased
Vehicles have been, and the certificates of title
to the Subsequent Leased Vehicles will be,
registered at all times in the name of the
Origination Trustee (in its capacity as trustee of
the Origination Trust). Such certificates of title
will not reflect the indirect interest of the
Trustee in the Leased Vehicles by virtue of its
beneficial interest in the SUBI. Therefore, if the
Class A Certificates were recharacterized as
secured loans, the Trustee would not have a
perfected lien in the Leased Vehicles, although it
would be deemed to have a perfected security
interest in the SUBI Certificate and the Contracts
and certain related rights. For further information
regarding the titling of the Leased Vehicles and
the interest of the Trustee therein, see "The
Origination Trust -- Contract Origination; Titling
of Leased Vehicles" and "Certain Legal Aspects of
the Contracts and the Leased Vehicles -- Back-up
Security Interests".
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<PAGE> 19
B. The Accounts.......... The Origination Trustee will maintain the SUBI
Collection Account and the Residual Value Surplus
Account for the benefit of the holders of interests
in the SUBI. Within two Business Days of receipt,
payments made on or in respect of the Contracts or
the Leased Vehicles generally will be deposited by
the Servicer into the SUBI Collection Account. Such
payments will include, but will not be limited to,
Monthly Payments made by lessees, Monthly Payments
determined by the Servicer to be due in one or more
future Collection Periods (each, a "Payment
Ahead"), Prepayments, proceeds from the sale or
other disposition of Leased Vehicles relating to
Matured Contracts (including payments for excess
mileage and excess wear and use, but excluding
Insured Residual Value Loss Amounts paid under the
Residual Value Insurance Policy) ("Matured Leased
Vehicle Proceeds"), proceeds received in connection
with the sale or other disposition of Leased
Vehicles that have been repossessed ("Repossessed
Vehicle Proceeds") and other amounts received in
connection with the realization of the amounts due
under any Contract (excluding Insured Residual
Value Loss Amounts paid under the Residual Value
Insurance Policy) (together with Matured Leased
Vehicle Proceeds and Repossessed Vehicle Proceeds,
"Liquidation Proceeds"). The Servicer will be
entitled to reimbursement for expenses incurred in
connection with the realization of Matured Leased
Vehicle Proceeds ("Matured Leased Vehicle
Expenses"), Repossessed Vehicle Proceeds
("Repossessed Vehicle Expenses") and other
Liquidation Proceeds (such expenses, together with
Matured Leased Vehicle Expenses and Repossessed
Vehicle Expenses, "Liquidation Expenses"), either
from amounts on deposit in the SUBI Collection
Account or, to the extent described herein, the
Residual Value Surplus Account, or as a deduction
from Matured Leased Vehicle Proceeds, Repossessed
Vehicle Proceeds or other Liquidation Proceeds, as
appropriate, deposited into the SUBI Collection
Account. For further details regarding these
deposits and reimbursements, see "Security for the
Certificates -- The Accounts -- The SUBI Collection
Account" and "-- The Residual Value Surplus
Account".
On the Business Day immediately preceding each
Distribution Date (each, a "Deposit Date"), the
following amounts will be deposited into the SUBI
Collection Account: (i) Advances by the Servicer,
(ii) Reallocation Payments by World Omni (together
with, under certain circumstances during the
Amortization Period, Reallocation Deposit Amounts)
in respect of certain Contracts as to which an
uncured breach of certain representations and
warranties or certain servicing covenants has
occurred and (iii) certain amounts in respect of
the Residual Value of Leased Vehicles relating to
Matured Contracts withdrawn from the Residual Value
Surplus Account. Thereafter, 99.8% of Interest
Collections (and, with respect to the Deposit Date
in any month following the month during which the
Amortization Period commences, 99.8% of Principal
Collections) on deposit in the SUBI Collection
Account in respect of the related Collection Period
will be allocable to the SUBI Interest and
deposited into the Distribution Account maintained
with the Trustee for the benefit of the
Certificateholders and the Transferor. Any Insured
Residual Value Loss Amount paid under the Residual
Value Insurance Policy will be deposited into the
SUBI Collection Account (if it relates to the
Revolving Period) or
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<PAGE> 20
the Distribution Account (if it relates to the
Amortization Period) within one Business Day of
receipt by the Servicer. Any Required Amount will
be withdrawn from the Reserve Fund and deposited
into the Distribution Account on each Distribution
Date. All payments to Certificateholders will be
made from the Distribution Account. The remaining
0.2% of Collections will be distributed on such
Distribution Date to the Transferor in respect of
the Retained SUBI Interest, which amounts in no
event will be available to make payments on the
Certificates. Any funds remaining in the
Distribution Account on a Distribution Date in
respect of the related Collection Period following
the payment of amounts required to be paid
therefrom generally will be paid to the Transferor.
For further information regarding these deposits
and payments, see "Security for the
Certificates -- The Accounts -- The Distribution
Account" and "-- The SUBI Collection Account".
On each Deposit Date, if Matured Leased Vehicle
Proceeds received during the related Collection
Period with respect to Leased Vehicles relating to
Matured Contracts that were sold or otherwise
disposed of during such Collection Period, net of
related Matured Leased Vehicle Expenses incurred
during such Collection Period ("Net Matured Leased
Vehicle Proceeds"), exceed the aggregate Residual
Value of the related Leased Vehicles (the "Residual
Value Surplus"), then such excess will be deposited
into the Residual Value Surplus Account maintained
with the Origination Trustee for the benefit of
holders of interests in the SUBI. On each Deposit
Date, funds on deposit in the Residual Value
Surplus Account, if any, will be withdrawn and
deposited into the SUBI Collection Account up to an
amount equal to the sum of (a) the aggregate of the
Residual Values of those Leased Vehicles that were
a part of Matured Leased Vehicle Inventory but that
had remained unsold and not otherwise disposed of
for at least two full Collection Periods as of the
last day of the most recent Collection Period, (b)
the amount by which Net Matured Leased Vehicle
Proceeds (after application of amounts withdrawn
pursuant to the next sentence) for the related
Collection Period are less than the aggregate of
the Residual Values of all Leased Vehicles included
in Matured Leased Vehicle Inventory that were sold
or otherwise disposed of during such Collection
Period and (c) any losses on Contracts terminated
on or prior to their Maturity Dates during the
related Collection Period by agreement between the
Servicer and the lessee in connection with the
payment of less than their respective Outstanding
Principal Balances. Also on each Deposit Date,
funds on deposit in the Residual Value Surplus
Account will be withdrawn and paid to the Servicer
in reimbursement for any Matured Leased Vehicle
Expenses incurred during such Collection Period,
but only to the extent that, after such
reimbursement (but exclusive of any other
reimbursement from any other source), Net Matured
Leased Vehicle Proceeds would be no more than the
aggregate of the Residual Values of all Leased
Vehicles sold or otherwise disposed of during such
Collection Period. For further information
regarding the Residual Value Surplus Account, see
"Security for the Certificates -- The Accounts --
The Residual Value Surplus Account".
C. The Residual Value
Insurance Policy...... Automobile and light duty truck leasing companies
such as World Omni sometimes obtain residual value
insurance to minimize losses in respect
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<PAGE> 21
of the residual values of leased vehicles. Although
many forms of such insurance are available, in
general, claims are made if the proceeds of the
sale of a leased vehicle are less than its residual
value established at the time of origination of the
related closed-end lease contract.
On the Closing Date, American International
Specialty Lines Insurance Company ("AISLIC"), an
indirect subsidiary of American International
Group, Inc. ("AIG"), will issue an insurance policy
(the "Residual Value Insurance Policy") to the
Transferor (with the Origination Trustee, the
Trustee, the Servicer and ALFI L.P. also named as
insureds), which will provide coverage for the
Insured Residual Value Loss Amount for any
Collection Period. The aggregate maximum amount
payable under the Residual Value Insurance Policy
with respect to any Leased Vehicle will be the
lesser of $60,000 and its insured residual value,
calculated as described under "Security for the
Certificates -- The Residual Value Insurance
Policy". Additionally, the aggregate maximum amount
payable under the Residual Value Insurance Policy
will not exceed the aggregate insured residual
values of all Leased Vehicles.
Prior to each Distribution Date, the Servicer will
make a claim for any Insured Residual Value Loss
Amount under the Residual Value Insurance Policy.
The proceeds of any such claim will be used to make
the payments described under "Description of the
Certificates -- Distributions on the
Certificates -- Distributions of Interest". For a
fuller description of these mechanics, see
"Security for the Certificates -- The Residual
Value Insurance Policy".
The "Insured Residual Value Loss Amount" for any
Collection Period will be the lesser of (i) the
Investor Percentage of the Residual Value Loss
Amount allocable to the SUBI Interest, and (ii) any
shortfall in the amount required to make all
payments (other than deposits into the Reserve
Fund) required to be made on the related
Distribution Date that are described under
"Description of the Certificates -- Distributions
on the Certificates -- Distributions of Interest",
after application of the Investor Percentage of
Interest Collections allocable to the SUBI Interest
and Transferor Amounts otherwise payable in respect
of the Transferor Interest, as described below
under "Summary -- Security for the
Certificates -- Subordination of the Transferor
Interest".
D. The Reserve Fund...... The Trust will have the benefit of the Reserve Fund
maintained with the Trustee for the benefit of the
Certificateholders and the Transferor (as holder of
the Transferor Interest). The Reserve Fund is
designed to provide additional funds for the
benefit of the Certificateholders in the event that
on any Distribution Date Interest Collections
allocable to the Investor Interest for the related
Collection Period, plus Transferor Amounts
otherwise distributable in respect of the
Transferor Interest, plus any Insured Residual
Value Loss Amount paid under the Residual Value
Insurance Policy for the related Collection Period,
are insufficient to pay, among other things, the
sum of (i) accrued interest and any overdue
interest (with interest thereon) at the applicable
Certificate Rate on the Certificates on such
Distribution Date, (ii) any Loss Amount for such
Collection Period allocable to the Investor
Interest, calculated as described under
"Description of the Certificates -- Calculation of
Investor Percentage and Transferor Percentage", and
(iii) any
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<PAGE> 22
unreimbursed Certificate Principal Loss Amounts,
together with interest thereon at the applicable
Certificate Rate. Monies on deposit in the Reserve
Fund also will be available to Certificateholders
should Collections ultimately be insufficient to
pay in full any Class of Certificates. For further
information regarding the Reserve Fund, see
"Security for the Certificates -- The
Accounts -- The Reserve Fund".
The Reserve Fund will be created with an initial
deposit by the Transferor of $11,970,788 (the
"Initial Deposit") (which amount will equal 1.0% of
99.8% of the Aggregate Net Investment Value as of
the Initial Cutoff Date). On each Distribution
Date, the funds in the Reserve Fund will be
supplemented by (i) certain Interest Collections,
as more fully described under "Description of the
Certificates -- Distributions on the
Certificates -- Distributions of Interest", (ii)
income realized on the investment of amounts on
deposit in the Reserve Fund and (iii) in certain
circumstances, the deposit of monies in respect of
the related Collection Period remaining in the
Distribution Account after making all payments
required to be made therefrom on such Distribution
Date prior to such deposit, including monies that
would otherwise be distributed or applied in
respect of the Transferor Interest, until the
amount on deposit in the Reserve Fund equals the
Reserve Fund Cash Requirement then in effect,
calculated as described under "Security for the
Certificates -- The Accounts -- The Reserve
Fund -- The Reserve Fund Cash Requirement".
The Transferor may be required under certain
circumstances to deposit funds into the Reserve
Fund in an amount equal to certain Reserve Fund
supplemental requirements. For a description of the
circumstances under which the Transferor will be
required to make such deposits, see "Security for
the Certificates -- The Accounts -- The Reserve
Fund". For further information regarding deposits
into the Reserve Fund, see "Description of the
Certificates -- Distributions on the
Certificates -- Distributions of Interest".
After giving effect to all payments from the
Reserve Fund on a Distribution Date, monies on
deposit therein that are in excess of the Reserve
Fund Cash Requirement generally will be paid to the
Transferor, free and clear of any lien of the
Trust.
E. Subordination of the
Transferor Interest... The Transferor Interest will initially equal
$23,941,575, and will represent the interest in the
Trust not represented by the Investor Interest.
However, to provide additional credit enhancement
for the Certificates, on each Distribution Date, no
payments will be made to the Transferor in respect
of the Transferor Interest until all payments
required to be made on such Distribution Date that
are described under "Description of the
Certificates -- Distributions on the
Certificates -- Distributions of Interest" have
been made and the amount on deposit in the Reserve
Fund equals the Reserve Fund Cash Requirement. For
a description of certain payments made to the
Transferor, see "Description of the Certificates --
Certain Payments to the Transferor".
Advances................... On each Deposit Date the Servicer will be obligated
to make, by deposit into the SUBI Collection
Account, an advance equal to the aggregate Monthly
Payments due but not received during the related
Collection
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<PAGE> 23
Period with respect to Contracts that are 31 days
or more past due as of the end of such Collection
Period, and the Servicer may (but shall not be
required to) make such an advance with respect to
Contracts that are one or more days, but less than
31 days, past due as of the end of such Collection
Period (each, an "Advance"). The Servicer will not
be required to make any Advance to the extent that
it determines that such Advance may not be
ultimately recoverable by the Servicer from Net
Liquidation Proceeds or otherwise. For further
information regarding Advances, see "Additional
Document Provisions -- The Servicing
Agreement -- Advances".
Servicing Compensation..... The Servicer will be entitled to receive a monthly
fee with respect to the SUBI Assets allocable to
the SUBI Interest (the "Servicing Fee"), payable on
each Distribution Date, equal to one-twelfth of 1%
of 99.8% of the Aggregate Net Investment Value as
of the first day of the related Collection Period
(or, in the case of the first Distribution Date,
one-twelfth of 1% of 99.8% of the Aggregate Net
Investment Value as of the Initial Cutoff Date).
The Servicer also will be entitled to additional
servicing compensation in the form of, among other
things, late fees and other administrative fees or
similar charges under the Contracts. For further
information regarding Servicer compensation, see
"Additional Document Provisions -- The Servicing
Agreement -- Servicing Compensation".
Tax Status................. Brown & Wood LLP, special federal income tax
counsel to the Transferor and counsel for the
Underwriters, is of the opinion that the Class A
Certificates will be characterized as indebtedness
for federal income tax purposes, as described under
"Material Income Tax Considerations -- Federal
Taxation". Each Class A Certificateholder, by its
acceptance of a Class A Certificate, and each
Certificate Owner, by its acquisition of an
interest in the Class A Certificates, will agree to
treat the Class A Certificates as indebtedness for
federal, state and local income tax purposes.
Prospective investors are advised to consult their
own tax advisors regarding the federal income tax
consequences of the purchase, ownership and
disposition of Class A Certificates, and the tax
consequences arising under the laws of any state or
other taxing jurisdiction. For further information
regarding material federal income tax
considerations with respect to the Class A
Certificates, see "Material Income Tax
Considerations -- Federal Taxation".
ERISA Considerations....... As more fully described under "ERISA
Considerations", an employee benefit plan subject
to the requirements of the fiduciary responsibility
provisions of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or the
provisions of Section 4975 of the Internal Revenue
Code of 1986, as amended, contemplating the
purchase of Class A Certificates should consult its
counsel before making a purchase, and the fiduciary
of such plan and such legal advisors should
consider the application of the ERISA prohibited
transaction exemption described herein.
Ratings.................... It is a condition of issuance of the Class A
Certificates that each of Moody's Investors
Service, Inc. ("Moody's") and Standard & Poor's
Ratings Services ("Standard & Poor's" and, together
with Moody's, the "Rating Agencies") rates each
Class of Class A Certificates in its highest rating
category. The ratings of the Class A Certificates
should be
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<PAGE> 24
evaluated independently from similar ratings on
other types of securities. A rating is not a
recommendation to buy, sell or hold the related
Class A Certificates, inasmuch as such rating does
not comment as to market price or suitability for a
particular investor. The ratings of the Class A
Certificates address the likelihood of the payment
of principal of and interest on the Class A
Certificates pursuant to their terms. For further
information concerning the ratings assigned to the
Class A Certificates, including the limitations of
such ratings, see "Ratings of the Class A
Certificates".
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<PAGE> 25
RISK FACTORS
LIMITED LIQUIDITY; ABSENCE OF SECONDARY MARKET
There is currently no market for the Class A Certificates. The Underwriters
expect, but will not be obligated, to make a market in each Class of Class A
Certificates. There can be no assurance that a secondary market for the Class A
Certificates will develop or, if one does develop, that it will provide the
related Certificateholders with liquidity of investment or will continue for the
life of the related Class A Certificates.
REIMBURSEMENT OF LOSS AMOUNTS
In the event that Loss Amounts are incurred in respect of the Contracts and
the Leased Vehicles during a Collection Period, if the related Distribution Date
occurs during the Revolving Period, an amount equal to the Investor Percentage
of such Loss Amounts will not be reimbursed to the Certificateholders but will
be treated as if such amount constituted Principal Collections received during
the Collection Period in which such Distribution Date occurs. Accordingly, to
the extent covered by Excess Collections or otherwise, as described herein, such
amount will be available for reinvestment in Subsequent Contracts and Subsequent
Leased Vehicles. If the related Distribution Date occurs during the Amortization
Period, the Class A-1 Certificateholders will be entitled to receive the Class
A-1 Allocation Percentage of the Investor Percentage of such Loss Amounts, the
Class A-2 Certificateholders will be entitled to receive the Class A-2
Allocation Percentage of the Investor Percentage of such Loss Amounts, the Class
A-3 Certificateholders will be entitled to receive the Class A-3 Allocation
Percentage of the Investor Percentage of such Loss Amounts and the Class A-4
Certificateholders will be entitled to receive the Class A-4 Allocation
Percentage of the Investor Percentage of such Loss Amounts. Such distributions
of principal will be made from, to the extent available: (i) Excess Collections
(which may include Undistributed Transferor Excess Collections in respect of the
previous Collection Period); (ii) amounts on deposit in the Residual Value
Surplus Account (which will be deposited into the Distribution Account, to the
extent available, to reduce the Residual Value Loss Amount); (iii) the Servicing
Fee (so long as World Omni is the Servicer); (iv) Transferor Amounts otherwise
payable to the Transferor in respect of the Transferor Interest; (v) Insured
Residual Value Loss Amounts paid under the Residual Value Insurance Policy; (vi)
amounts on deposit in the Reserve Fund; (vii) amounts otherwise payable as
interest to the Class B Certificateholders; and (viii) in the case of the Class
A-4 Certificates, amounts otherwise payable as principal to the Class B
Certificateholders. With respect to any Distribution Date, the "Class A-1
Allocation Percentage" will mean the Class A-1 Certificate Balance as a
percentage of the Certificate Balance, calculated as of the last day of the
related Collection Period. The "Class A-2 Allocation Percentage", the "Class A-3
Allocation Percentage" and the "Class A-4 Allocation Percentage" will be
calculated in the same manner as the Class A-1 Allocation Percentage,
appropriately modified to relate to the Class A-2, Class A-3 or Class A-4
Certificates, as the case may be. Higher Loss Amounts that occur during the
Amortization Period may therefore accelerate the rate of return of principal on
the Certificates. To the extent that Principal Collections and Loss Amounts that
otherwise would be reimbursed to the Certificateholders are reinvested in
Subsequent Contracts during the Revolving Period, the aggregate Residual Value
of the Leased Vehicles as a percentage of the Aggregate Net Investment Value
will increase. Furthermore, to the extent that Loss Amounts (including Residual
Value Loss Amounts) ultimately exceed the sources available for repayment
thereof, investors in the Class A Certificates could incur a loss on their
investment. World Omni's agreements with its Dealers generally do not provide
for recourse to the Dealer for unpaid amounts in respect of a defaulted lease
contract. For further information on Dealer repurchase obligations, see "The
Origination Trust -- Contract Origination; Titling of Leased Vehicles".
"Loss Amounts" will include Charged-off Amounts, Residual Value Loss
Amounts and Additional Loss Amounts. The "Residual Value Loss Amount" for any
Collection Period generally will represent the aggregate net losses on
dispositions of Matured Leased Vehicle Inventory, and will be equal to the sum
of (a) the aggregate of the Residual Values of all those Leased Vehicles that
were included in Matured Leased Vehicle Inventory but that had remained unsold
and not otherwise disposed of by the Servicer for at least two full Collection
Periods as of the last day of such Collection Period, (b) the excess, if any, of
(i) the aggregate of the Residual Values of all Leased Vehicles previously
included in Matured Leased Vehicle Inventory but
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<PAGE> 26
that were sold or otherwise disposed of during such Collection Period, over (ii)
Net Matured Leased Vehicle Proceeds for such Collection Period, and (c) any
losses on Contracts terminated on or prior to their Maturity Dates during such
Collection Period by agreement between the Servicer and the lessee in connection
with the payment of less than their respective Outstanding Principal Balances,
but only to the extent that such sum exceeds the amount transferred from the
Residual Value Surplus Account to the SUBI Collection Account on the related
Deposit Date.
As more fully described under "Security for the Certificates -- The
Residual Value Insurance Policy", the Residual Value Insurance Policy will be
drawn upon to pay the Investor Percentage of any Residual Value Loss Amount
allocable to the SUBI Interest, to the extent necessary to make up any shortfall
in the amount required to make all payments required to be made on the related
Distribution Date that are described under "Description of the
Certificates -- Distributions on the Certificates -- Distributions of Interest",
after application of the Investor Percentage of Interest Collections allocable
to the SUBI Interest and Transferor Amounts otherwise payable in respect of the
Transferor Interest.
For a discussion of the recent leased vehicle residual value loss
experience of World Omni, see "World Omni -- Delinquency, Repossession and Loss
Data". The amount of Residual Value losses will vary based on a variety of
factors, including the effect of World Omni's pro-active lease termination
program, more fully described under "Maturity, Prepayment and Yield
Considerations", and the supply of, and demand for, vehicles similar to the
Leased Vehicles in the used car market. No assurance can be given as to the
likely levels of Residual Value losses over the life of the Certificates.
MATURITY AND PREPAYMENT CONSIDERATIONS
No principal will be paid to any Class A Certificateholders until the June
1998 Distribution Date or, upon the occurrence of an Early Amortization Event,
until the Distribution Date in the month immediately succeeding the month in
which such Early Amortization Event occurs. During the Revolving Period,
Principal Collections and reimbursements of Loss Amounts will be reinvested in
Subsequent Contracts and Subsequent Leased Vehicles. Accordingly, the
continuation of the Revolving Period will be dependent, in part, upon the
continued origination and assignment to the Origination Trust of lease contracts
and leased vehicles meeting the eligibility criteria described herein. An
unexpectedly high rate of Principal Collections (including Prepayments) received
during the Revolving Period or a significant decline in the number of qualifying
lease contracts available to be assigned to the Origination Trust could result
in the occurrence of an Early Amortization Event and the commencement of the
Amortization Period prior to the Amortization Date. The retail automobile and
light duty truck leasing business in the United States may be affected by a
variety of social, economic and geographic factors. Economic factors include
interest rates, unemployment levels, the rate of inflation and consumer
perceptions of economic conditions. However, it is not possible to determine or
predict whether or to what extent economic, geographic or social factors will
affect retail automobile and light duty truck leasing in general, or that of
World Omni or its Dealers in particular. As a result, there can be no assurance
that the Revolving Period will not terminate prior to the Amortization Date due
to the occurrence of an Early Amortization Event. Since an Early Amortization
Event would result in the commencement of distributions of principal to Class
A-1 Certificateholders on the Distribution Date in the succeeding month, it
could shorten the final maturity of and affect the yield on each Class of Class
A Certificates. See "Description of the Certificates -- Early Amortization
Events" for a description of the events that might lead to the early
commencement of the Amortization Period and a description of the results of an
Early Amortization Event.
The rate of payment of principal on the Certificates during the
Amortization Period will depend on the rate of payments on or in respect of the
Contracts and the Leased Vehicles (including scheduled payments on and
prepayments and liquidations of the Contracts) and losses with respect thereto,
which cannot be predicted with certainty. In addition, because payments made on
or in respect of the Contracts and the Leased Vehicles that are allocable to the
SUBI Interest will ordinarily be distributed to Certificateholders during the
Amortization Period according to the timing of their receipt, the rate of
principal payments on the Class A Certificates and the yield to maturity of the
Class A Certificates generally will be directly related to the rate at which
payments on or in respect of the Contracts and the Leased Vehicles are made.
Moreover, if on any Distribution Date relating to the Amortization Period any
Excess Collections exist at a time when the amount
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<PAGE> 27
on deposit in the Reserve Fund is at least equal to the Reserve Fund Cash
Requirement, the related Accelerated Principal Distribution Amount will be
distributed as principal to Certificateholders as more fully described under
"Description of the Certificates -- Distributions on the
Certificates -- Distributions of Interest". The rate of payment of principal of
the Class A Certificates may also be affected by payment by World Omni of
Reallocation Payments (together with, under certain circumstances during the
Amortization Period, Reallocation Deposit Amounts) in respect of certain
Contracts as to which an uncured breach of certain representations and
warranties or certain servicing covenants has occurred and the exercise by the
Transferor of its right to purchase the SUBI Interest represented by the SUBI
Certificate at its option under certain circumstances pursuant to the Agreement,
thereby retiring the Certificates. A substantial increase in the rate of
payments on or in respect of the Contracts and Leased Vehicles (including
prepayments and liquidations of the Contracts) during the Amortization Period
may shorten the final maturity of and may significantly affect the yields on
each Class of Class A Certificates. See "Description of the Certificates --
Termination of the Trust; Retirement of the Certificates", "The
Contracts -- Representations, Warranties and Covenants" and "Additional Document
Provisions -- The Servicing Agreement -- Collections" for further information
regarding these matters.
Each of the Contracts may be prepaid by the related lessee without penalty
in full or in part at any time upon payment of a $250 processing fee. As more
fully described under "Maturity, Prepayment and Yield Considerations", World
Omni actively encourages lessees under lease contracts with remaining terms of
less than one year to either buy, trade in or refinance the related leased
vehicles prior to the scheduled maturities of such lease contracts. As a part of
this program, during the last several months of a lease contract World Omni may
selectively offer certain incentives to encourage lease terminations, which may
result in residual value losses. As also more fully described under "Maturity,
Prepayment and Yield Considerations", World Omni estimates that over calendar
years 1994, 1995 and 1996, an average of approximately 86% of the number of
retail automobile and light duty truck lease contracts in its portfolio
(including lease contracts owned by the Origination Trustee on behalf of the
Origination Trust and by certain special purpose finance subsidiaries of World
Omni) with scheduled maturities during this period terminated prior to maturity.
Such early terminations primarily were due either to voluntary prepayments or to
repossession of the leased vehicles due to default by the lessees under the
related lease contracts. No assurance can be given that the Contracts will
experience the same rate of prepayment or default or any greater or lesser rate
than World Omni's historical rate for the retail automobile and light duty truck
lease contracts in its portfolio (including lease contracts owned by the
Origination Trustee on behalf of the Origination Trust and by certain special
purpose finance subsidiaries of World Omni).
For further information regarding these topics and related yield
information, see "Maturity, Prepayment and Yield Considerations".
SEQUENTIAL PAYMENT OF PRINCIPAL ON THE CERTIFICATES
In general, no principal payments will be made on the Class A-2, Class A-3,
Class A-4 or Class B Certificates until the Class A-1 Certificates have been
paid in full, on the Class A-3, Class A-4 or Class B Certificates until the
Class A-1 and Class A-2 Certificates have been paid in full, or on the Class A-4
or Class B Certificates until the Class A-1, Class A-2 and Class A-3
Certificates have been paid in full. On each Distribution Date during the
Amortization Period, all Principal Collections for the related Collection Period
that are allocable to the Investor Interest will be distributed first to the
Class A-1 Certificateholders until the Class A-1 Certificates have been paid in
full, second to the Class A-2 Certificateholders until the Class A-2
Certificates have been paid in full, third to the Class A-3 Certificateholders
until the Class A-3 Certificates have been paid in full and thereafter the Class
A Percentage and the Class B Percentage of any such remaining Principal
Collections will then be distributed as principal payments to the Class A-4
Certificateholders and the Class B Certificateholders, respectively.
Principal payments in respect of the Class A-4 and Class B Certificates
will be based on the fixed Class A Percentage and Class B Percentage, which will
be calculated when the Class A-1, Class A-2 and Class A-3 Certificates have been
paid in full. The Investor Percentage of Loss Amounts will be allocated among
the Certificateholders on a pro rata basis, based on the Class A-1, Class A-2,
Class A-3, Class A-4 and Class B
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Allocation Percentages, as the case may be, and then reimbursed out of available
funds in the amounts and order of priority described in "Description of the
Certificates -- Distributions on the Certificates -- Distributions of Interest".
As a result, Class A-2 Certificates may be allocated more Loss Amounts than the
Class A-1 Certificates as a relative percentage of their respective Initial
Certificate Balances, Class A-3 Certificates may be allocated more Loss Amounts
than the Class A-1 or Class A-2 Certificates as a relative percentage of their
respective Initial Certificate Balances, and Class A-4 Certificates may be
allocated more Loss Amounts than the Class A-1, Class A-2 or Class A-3
Certificates as a relative percentage of their respective Initial Certificate
Balances, primarily because Loss Amounts will be allocated on each Distribution
Date based on the then-current Class A-2, Class A-3 and Class A-4 Allocation
Percentages, which will increase as the Certificate Balance of each Class of
Class A Certificates senior in priority of payment decreases during the
Amortization Period.
In addition, the Investor Percentage of the net proceeds of any sale or
other disposition of the SUBI Interest, the SUBI Certificate or other property
of the Trust, which may occur under certain circumstances involving an
Insolvency Event with respect to the Transferor (as described under "Description
of the Certificates -- Early Amortization Events"), to the extent such net
proceeds constitute Principal Collections, will be distributed first, on a pro
rata basis, to the Class A Certificateholders based on their respective Class
Certificate Balances until the Class A Certificates have been paid in full, and
second, to the Class B Certificateholders.
GEOGRAPHIC, ECONOMIC AND OTHER FACTORS
The Dealers which originated and will originate the Contracts are located
(and, therefore, the lessees generally are and will be located) throughout the
United States, with the largest percentage of Initial Contracts originated in
(and the largest percentage of Subsequent Contracts expected to be originated
in) the Five State Area. Less than 5% of the total number of Initial Contracts
were originated in any State other than a State in the Five State Area. For a
further breakdown of these percentages, see "The Contracts -- Characteristics of
the Contracts -- Distribution of the Initial Contracts by State". Due to the
geographic concentration of Contracts in the Five State Area, adverse economic
conditions in one of more of the States therein may have a disproportionate
impact on the performance of the SUBI Assets. Economic factors such as
unemployment, interest rates, the rate of inflation and consumer perceptions of
the economy may affect the rate of prepayment and defaults on the Contracts and
the ability to sell or otherwise dispose of Leased Vehicles relating to Matured
Contracts for an amount at least equal to their respective Residual Values.
These economic factors, as well as other factors such as consumer perceptions of
used vehicle values, also may affect the ability to realize the Residual Values
of Leased Vehicles upon sale. Certain shortfalls in respect of the Residual
Values of Leased Vehicles relating to Matured Contracts will be covered by the
Residual Value Insurance Policy, as and to the extent described under "Security
for the Certificates -- The Residual Value Insurance Policy".
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws, including the federal
Consumer Leasing Act of 1976 and Regulation M promulgated by the Board of
Governors of the Federal Reserve System, impose requirements on retail lease
contracts such as the Contracts. These laws apply to the Origination Trust as
the assignee and co-lessor of the Contracts and may also apply to the Trust as
owner of the SUBI Certificate which represents a beneficial interest in, among
other things, the Contracts. The failure by the Origination Trust to comply with
such requirements may give rise to liabilities on the part of the Origination
Trust, and claims by such parties may be subject to set-off as a result of such
noncompliance. Many States, including each of the States in the Five State Area,
have adopted Lemon Laws that provide vehicle users certain rights in respect of
substandard vehicles which may apply to one or more of the Leased Vehicles. A
successful claim under a Lemon Law could result in, among other things, the
termination of the related Contract and/or require the refunding of a portion of
payments that previously have been paid. World Omni will make representations
and warranties that each Contract complies with all requirements of law in all
material respects. If any such representation and warranty proves incorrect, has
certain material adverse effects and is
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not timely cured, World Omni will be required to make a Reallocation Payment
(together with, under certain circumstances during the Amortization Period,
Reallocation Deposit Amounts) into the SUBI Collection Account and reallocate
the related Contract and Leased Vehicle out of the SUBI, as described under "The
Contracts -- Representations, Warrants and Covenants" and "Description of the
Certificates -- Reallocation Payments and Reallocation Deposit Amounts". For
further information regarding consumer protection laws, see "Certain Legal
Aspects of the Contracts and the Leased Vehicles -- Consumer Protection Laws".
ERISA LIABILITIES
The Origination Trust Assets, including the SUBI Assets, could become
subject to liens in favor of the PBGC to satisfy unpaid ERISA obligations of any
member of an "affiliated group" that includes World Omni, SET, JMFE and their
respective affiliates. The ratings of the Class A Certificates may be downgraded
in the event of any unfunded ERISA liability of any member of such affiliated
group, as described under "Additional Document Provisions -- The Servicing
Agreement -- Compliance with ERISA". The ratings of the Class A Certificates
address the likelihood of the payment of principal of and interest on the Class
A Certificates pursuant to their terms, as described under "Ratings of the Class
A Certificates". However, the Transferor believes that the likelihood of any
such liability being asserted against the Origination Trust Assets or, if so
asserted, being successfully pursued, is remote. In particular, the Transferor
believes that the Origination Trust should, as a legal matter, be treated as a
distinct entity separate and apart from such affiliated group, and not
considered part of such affiliated group under ERISA's "common control"
provisions. Additionally, such affiliated group maintains only one plan (which
is neither a multi-employer or multiple employer plan) that would subject it to
a lien if the plan were to terminate with assets insufficient to cover its
liabilities. That plan historically has had assets that significantly exceeded
its liabilities. However, no assurance can be given that any of these conditions
will continue in the future.
VICARIOUS TORT LIABILITY
Although the Origination Trust will own the Leased Vehicles and the Trust
will have an interest therein evidenced by the SUBI, they will be operated by
the related lessees and their respective invitees. State laws differ as to
whether anyone suffering injury to person or property involving a leased vehicle
may bring an action against the owner of the vehicle merely by virtue of that
ownership. To the extent that applicable State law permits such an action, the
Origination Trust and the Origination Trust Assets may be subject to liability
to such an injured party. However, the laws of many States, including each of
the States in the Five State Area, either do not permit such suits, or the
lessor's liability is capped at the amount of any liability insurance that the
lessee was required to, but failed to, maintain. For further information in this
regard, see "Certain Legal Aspects of the Contracts and the Leased
Vehicles -- Vicarious Tort Liability". Notwithstanding the foregoing, in the
event that vicarious liability on the Origination Trust as owner of a Leased
Vehicle were imposed and the coverage provided by the Contingent and Excess
Liability Insurance Policies were insufficient to cover such a loss with respect
to a Leased Vehicle or, in certain circumstances, a leased vehicle that is an
Other SUBI Asset or a UTI Asset, investors in the Class A Certificates could
incur a loss on their investment. See "Security for the Certificates -- The
Contingent and Excess Liability Insurance Policies" and "Certain Legal Aspects
of the Origination Trust and the SUBI -- The SUBI".
All of the Contracts will contain provisions requiring the lessees to
maintain levels of insurance satisfying applicable state law, and the Servicing
Agreement will require the Servicer to police compliance by the lessees
therewith. In addition, in the event that any such insurance has lapsed or has
not been maintained in full force and effect or the Servicer has failed to
maintain the right to receive the proceeds of such insurance, the Servicing
Agreement will require World Omni to pay all such amounts as would otherwise
have been recoverable as Insurance Proceeds. For further information regarding
insurance matters, see "World Omni -- Insurance" and "Additional Document
Provisions -- The Servicing Agreement -- Insurance on Leased Vehicles".
Under Florida law, the owner of a motor vehicle that is subject to a lease
having an initial term of at least one year is exempt from liability arising out
of an accident in which the leased vehicle is involved if the lessee is required
by the lease to maintain certain specific levels of insurance, and such
insurance is maintained either
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by the lessee or the lessor, as further described under "Certain Legal Aspects
of the Contracts and the Leased Vehicles -- Vicarious Tort Liability". However,
a court applying the law of another jurisdiction might reach another result.
Moreover, actions by third parties might arise against the owner of a leased
vehicle based on legal theories other than negligence, such as a product defect
or improper vehicle preparation prior to the origination of the related lease
contract. Even if the Origination Trust were to be the subject of an action for
damages as a result of its ownership of a Leased Vehicle, however, it will be
the beneficiary of the Contingent and Excess Liability Insurance Policies with
respect thereto, as more fully described under "Security for the
Certificates -- The Contingent and Excess Liability Insurance Policies".
Although the Origination Trust's insurance coverage exceeds $10 million per
claim, with an allowance for multiple claims in any policy period, in the event
that all such insurance coverage were exhausted and damages were assessed
against the Origination Trust, claims could be imposed against the assets of the
Origination Trust, including the Leased Vehicles. If any such claims are imposed
against any SUBI Assets or, in certain limited circumstances, any Other SUBI
Assets or UTI Assets, investors in the Class A Certificates could incur a loss
on their investment. For further information regarding the potential for
third-party claims against the Origination Trust Assets, see "The Origination
Trust -- Allocation of Origination Trust Liabilities", "Certain Legal Aspects of
the Origination Trust and the SUBI -- The SUBI", "Certain Legal Aspects of the
Contracts and the Leased Vehicles -- Vicarious Tort Liability" and "ERISA
Considerations".
INSOLVENCY OF WORLD OMNI; SUBSTANTIVE CONSOLIDATION WITH WORLD OMNI
The Transferor has taken steps in structuring the transactions contemplated
hereby that are intended to ensure that the voluntary or involuntary application
for relief under the United States Bankruptcy Code or similar applicable state
laws ("Insolvency Laws") by World Omni will not result in the consolidation of
the assets and liabilities of ALFI, ALFI L.P., WOLSI, the Transferor, the
Origination Trust or the Trust with those of World Omni. With respect to WOLSI
and ALFI, these steps include their creation as separate, special purpose
finance subsidiaries of World Omni pursuant to articles of incorporation
containing certain limitations (including the requirement that each must have at
all times at least two "independent directors" and restrictions on the nature of
their respective businesses and on their ability to commence a voluntary case or
proceeding under any Insolvency Law without the affirmative vote of a majority
of their respective directors, including each independent director). With
respect to the Transferor and ALFI L.P., these steps include their creation as
separate, special purpose limited partnerships of which WOLSI and ALFI,
respectively, are the sole general partners, pursuant to limited partnership
agreements containing certain limitations (including restrictions on the nature
of their respective businesses and on their ability to commence a voluntary case
or proceeding under any Insolvency Law without the affirmative vote of all of
the directors of their respective general partners, including each independent
director).
Reallocation Payments made by World Omni in respect of certain Contracts as
to which an uncured breach of certain representations and warranties or certain
servicing covenants has occurred (and, if during the Amortization Period such
payment would cause the Transferor Interest to be less than zero, payment of the
related Reallocation Deposit Amount), payments made by World Omni in respect of
certain insurance policies required to be obtained and maintained by lessees
pursuant to the Contracts, unreimbursed Advances made by World Omni, as
Servicer, pursuant to the Servicing Agreement, and payments made by World Omni
to the Transferor, pursuant to the Support Agreement or otherwise, may be
recoverable by World Omni as debtor-in-possession or by a creditor or a trustee
in bankruptcy of World Omni as a preferential transfer from World Omni if such
payments were made within one year prior to the filing of a bankruptcy case in
respect of World Omni. In addition, the insolvency of World Omni could result in
the replacement of World Omni as Servicer, which could result in a temporary
interruption of payments on the Certificates and an Event of Servicing
Termination under the Servicing Agreement.
Additionally, if prior to the Amortization Date a conservator, receiver or
bankruptcy trustee were appointed by the Transferor, or if certain other events
relating to the bankruptcy or insolvency of the Transferor were to occur (each,
an "Insolvency Event"), the Amortization Period would commence and the Trustee
may, and upon receipt of written instructions from holders of Certificates
evidencing Voting Interests of not less than 51% of the Class A Certificates
(voting together as a single class) or 51% of the Class A
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Certificates and the Class B Certificates (voting together as a single class)
will, attempt to sell the SUBI Interest, the SUBI Certificate and the other
property of the Trust. The consummation of such sale would result in an early
termination of the Trust and a pro rata loss to the Class A-1, Class A-2, Class
A-3 and Class A-4 Certificateholders if the Investor Percentage of the net
proceeds of such sale were insufficient to pay in full the Class A-1, Class A-2,
Class A-3 and Class A-4 Certificate Balances, together with any unreimbursed
Class A-1, Class A-2, Class A-3 and Class A-4 Certificate Principal Loss
Amounts, with accrued and unpaid interest thereon at the Class A-1, Class A-2,
Class A-3 and Class A-4 Certificate Rates, respectively.
On the Closing Date, Williams & Connolly, counsel to ALFI, ALFI L.P., the
Transferor, WOLSI and World Omni, will render an opinion based on a reasoned
analysis of analogous case law (although there is no precedent based on directly
similar facts) that, subject to certain facts, assumptions and qualifications
specified therein, under present reported decisional authority and statutes
applicable to federal bankruptcy cases, if World Omni were to become a debtor in
a case under the Bankruptcy Code, it would not be a proper exercise by a federal
bankruptcy court of its equitable discretion to disregard the independent forms
so as to substantively consolidate the assets and liabilities of ALFI, ALFI
L.P., the Transferor, WOLSI, the Origination Trust or the Trust with those of
World Omni. In addition, on the Closing Date, counsel to the Transferor will
render an opinion to the effect that (i) the transfer of the SUBI Certificate by
the Transferor to the Trust constitutes a sale of the SUBI Certificate and the
SUBI Assets evidenced thereby, subject in each case to the rights of the
Transferor as the holder of the Transferor Interest and the Retained SUBI
Interest, or (ii) if such transfer does not constitute a sale, then the
Agreement creates a valid perfected security interest, for the benefit of
Certificateholders, in the Transferor's right, title and interest in the SUBI
Certificate. For further information regarding the risk of insolvency, see
"Certain Legal Aspects of the Origination Trust and the SUBI -- Insolvency
Related Matters".
The Origination Trust has been registered under the business trust
provisions of certain state laws, including those of Alabama and Florida. As
such, the Origination Trust may be subject to the Insolvency Laws, and claims
against the Origination Trust Assets could have priority over the beneficial
interest therein represented by the SUBI. In addition, claims of a third party
against the Origination Trust Assets, including the SUBI Assets, to the extent
such claims are not covered by insurance, would take priority over the holders
of beneficial interests in the Origination Trust, such as the Trustee, as more
fully described under "Security for the Certificates -- The Contingent and
Excess Liability Insurance Policies" and "Certain Legal Aspects of the Contracts
and Leased Vehicles -- Vicarious Tort Liability".
THE TRUST AND THE SUBI
GENERAL
The Trust and the Certificateholders will have no interest in the UTI, any
Other SUBI or any assets of the Origination Trust evidenced by the UTI or any
Other SUBI. Payments made on or in respect of the Origination Trust Assets not
represented by the SUBI will not be available to make payments on the
Certificates. For further information regarding the Origination Trust, see "The
Origination Trust".
THE TRUST
Pursuant to the Agreement, the Transferor will establish the Trust by
transferring and assigning the SUBI Interest, represented by the SUBI
Certificate, to the Trustee in exchange for the Certificates and a certificate
evidencing the Transferor Interest. (Agreement, Section 2.02). The property of
the Trust will primarily include (i) the SUBI Interest which evidences a
beneficial interest in certain specified Origination Trust Assets (i.e., the
SUBI Assets), (ii) such amounts as from time to time may be held in the
Distribution Account and the Reserve Fund, and investments of such amounts and
(iii) the Trustee's rights as a third-party beneficiary to the Servicing
Agreement and the SUBI Trust Agreement. The Trust also will have a beneficial
interest in such amounts as from time to time may be held in the SUBI Collection
Account and the Residual Value Surplus Account and investments of such amounts.
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If the protection provided to the Class A Certificateholders by (i) the
Investor Percentage of certain excess Interest Collections; (ii) available
monies on deposit in the Residual Value Surplus Account; (iii) amounts otherwise
payable to the Transferor in respect of the Transferor Interest; (iv) so long as
World Omni is the Servicer, amounts otherwise payable in respect of the
Servicing Fee; (v) Insured Residual Value Loss Amounts paid under the Residual
Value Insurance Policy; (vi) available monies on deposit in the Reserve Fund;
(vii) the subordination of interest payments otherwise payable to the Class B
Certificateholders; and (viii) in the case of the Class A-4 Certificates, the
subordination of principal payments otherwise payable to the Class B
Certificateholders is insufficient, the Class A Certificateholders ultimately
will have to look to (a) payments made on or in respect of the Contracts and the
Leased Vehicles (including under certain related insurance policies) and (b) the
proceeds of Dealer repurchase obligations, if any, to make distributions on or
in respect of the SUBI Assets allocable to the SUBI Interest to the Trustee
which in turn will be distributed to the Certificateholders. In such event,
certain factors, such as the fact that the Trust will not have a direct
ownership interest in the Contracts or the Leased Vehicles or a perfected
security interest in the Leased Vehicles (which will be titled in the name of
the Origination Trustee, in its capacity as trustee of the Origination Trust)
may limit the amount realized to less than the amount due from the related
lessees. Investors in the Class A Certificates may thus be subject to delays in
payment and may incur losses on their investment in the Class A Certificates as
a result of defaults or delinquencies by lessees and because of depreciation in
the value of the related Leased Vehicles. See "The Origination
Trust -- Allocation of Origination Trust Liabilities", "Security for the
Certificates -- The Accounts -- The Reserve Fund", "Additional Document
Provisions -- The Servicing Agreement -- Insurance on Leased Vehicles", "Certain
Legal Aspects of the Origination Trust and the SUBI -- The SUBI" and "Certain
Legal Aspects of the Contracts and the Leased Vehicles" for a discussion of
these matters.
THE SUBI
The SUBI will be issued pursuant to the SUBI Trust Agreement and will
evidence a beneficial interest in certain specified Origination Trust Assets
consisting of (i) the Contracts, the Leased Vehicles and all proceeds or
payments received or due on or after the related Cutoff Date; and (ii) all other
related Origination Trust Assets, including (A) the SUBI Collection Account and
Residual Value Surplus Account, (B) the right to receive payments made to World
Omni, the Origination Trust or the Origination Trustee under any insurance
policy relating to the Contracts, the related lessees or the Leased Vehicles,
including Insured Residual Value Loss Amounts payable under the Residual Value
Insurance Policy, (C) the right to receive the proceeds of any Dealer repurchase
obligations in respect of the Contracts or Leased Vehicles, and (D) all proceeds
of the foregoing (collectively, the "SUBI Assets"). (SUBI Trust Agreement,
Sections 4.02, 11.01 and 11.02).
As described under "Summary -- The Revolving Period; Subsequent Contracts
and Subsequent Leased Vehicles" and "Description of the
Certificates -- Distributions on the Certificates -- Application and
Distributions of Principal", during the Revolving Period, Principal Collections
and reimbursement of Loss Amounts will be reinvested in Subsequent Contracts and
Subsequent Leased Vehicles which will become SUBI Assets at the time of such
reinvestment. The SUBI will not represent a direct interest in the SUBI Assets,
nor will it represent an interest in any Origination Trust Assets other than the
SUBI Assets. Payments made on or in respect of such other Origination Trust
Assets will not be available to make payments on the Certificates or to cover
expenses of the Origination Trust allocable to the SUBI Assets.
Pursuant to the SUBI Trust Agreement, on the Closing Date the Origination
Trustee will issue the SUBI Certificate, which will evidence the SUBI Interest,
to the Transferor. Simultaneously therewith, the Origination Trustee will issue
to the Transferor a certificate evidencing the Retained SUBI Interest, which
will represent the 0.2% interest in the SUBI not evidenced by the SUBI
Certificate, and the Transferor will transfer and assign the SUBI Certificate to
the Trustee pursuant to the Agreement. The certificate evidencing the Retained
SUBI Interest will be permanently retained by the Transferor and payments made
in respect thereof will not be available to make payments on the Certificates.
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THE ORIGINATION TRUST
GENERAL
The Origination Trust is an Alabama trust formed pursuant to the
Origination Trust Agreement. The primary business purpose of the Origination
Trust is to take assignments of, and serve as record holder of title to,
substantially all of the fixed rate retail closed-end lease contracts and the
related leased vehicles originated through Dealers in the World Omni network of
dealers since November 1993. Pursuant to the Servicing Agreement, World Omni
will service the lease contracts included in the Origination Trust Assets,
including the Contracts. For further information regarding the Origination Trust
and the servicing of the Origination Trust Assets, see "Additional Document
Provisions -- The SUBI Trust Agreement" and "-- The Servicing Agreement" and
"Certain Legal Aspects of the Origination Trust and the SUBI -- The Origination
Trust".
Except as otherwise described under "Additional Document Provisions -- The
SUBI Trust Agreement", pursuant to the Origination Trust Agreement the
Origination Trust has not and will not (i) issue interests therein or securities
thereof other than the SUBI Interest, the Retained SUBI Interest, the SUBI
Certificate, the certificate representing the Retained SUBI Interest, Other
SUBIs representing divided interests in other portfolios of Origination Trust
Assets (the "Other SUBI Assets") and certificates representing Other SUBIs or
portions thereof (the "Other SUBI Certificates"), the UTI representing a divided
interest in the remaining portfolio of Origination Trust Assets not allocated as
SUBI Assets or Other SUBI Assets (the "UTI Assets") and one or more certificates
representing the UTI or portions thereof (the "UTI Certificates"); (ii) borrow
money (except from World Omni) in connection with funds used to acquire lease
contracts and the related leased vehicles; (iii) make loans; (iv) invest in or
underwrite securities, other than Permitted Investments or as otherwise
permitted by the Origination Trust Agreement or the SUBI Trust Agreement; (v)
offer securities in exchange for property (other than the SUBI Certificate, the
Other SUBI Certificates and the UTI Certificates); or (vi) repurchase or
otherwise reacquire its securities except in connection with financing or
refinancing the acquisition of lease contracts and the related leased vehicles
or as otherwise permitted by each such financing or refinancing. (SUBI Trust
Agreement, Section 5.01). The Origination Trust will not be permitted to acquire
lease contracts otherwise than through dealers in the World Omni network of
Dealers, unless such lease contracts are (in World Omni's reasonable judgment)
originated generally in accordance with World Omni's then-current lease contract
underwriting standards. (SUBI Trust Agreement, Section 2.01).
ALLOCATION OF ORIGINATION TRUST LIABILITIES
The Origination Trust Assets are comprised of several portfolios of assets
other than the SUBI Assets, including five portfolios of Other SUBI Assets and
the remaining portfolio of UTI Assets. ALFI L.P. has pledged (and may in the
future pledge) the UTI as security for obligations to third-party lenders, and
has created and sold and may in the future create and sell or pledge Other SUBIs
in connection with other financings. The Origination Trust Agreement will permit
the Origination Trust, in the course of its activities, to incur certain
liabilities relating to its assets other than the SUBI Assets, or relating to
its assets generally, and to which, in certain circumstances, the SUBI Assets
may be subject. Pursuant to the Origination Trust Agreement, as among the
beneficiaries of the Origination Trust and their pledgees, an Origination Trust
liability relating to a particular Origination Trust Asset will be allocated to
and charged against the allocated portfolio of Origination Trust Assets to which
it belongs. Origination Trust liabilities that are incurred with respect to the
Origination Trust Assets generally will be borne pro rata among all portfolios
of Origination Trust Assets. The Origination Trustee, the beneficiaries of the
Origination Trust (including the Trustee and the Certificateholders) and their
pledgees will be bound by this allocation. In particular, the Origination Trust
Agreement will require the holders from time to time of Other SUBI Certificates
and any UTI Certificates to waive any claim that they might otherwise have with
respect to the SUBI Assets and to fully subordinate any claims to the SUBI
Assets in the event that this waiver is not given effect. Similarly, by virtue
of holding Certificates or a beneficial interest in the Certificates,
Certificateholders and Certificate Owners will be deemed to have waived any
claim that they might otherwise have with respect to Other SUBI Assets and the
UTI Assets. For further information regarding these matters, see "The SUBI Trust
Agreement -- The SUBI,
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<PAGE> 34
the Other SUBIs and the UTI" and "Certain Legal Aspects of the Origination Trust
and the SUBI -- The SUBI".
ALFI AND ALFI L.P.
ALFI is a wholly owned, special purpose finance subsidiary of World Omni
and was incorporated under the laws of Delaware in September 1993, solely for
the purpose of acting as general partner of ALFI L.P. ALFI L.P. was formed as a
limited partnership under the laws of Delaware in June 1994 solely for the
purpose of being grantor and initial beneficiary of the Origination Trust,
holding the UTI and the UTI Certificates, acquiring interests in the SUBI and
the Other SUBIs and engaging in related transactions. ALFI's articles of
incorporation and ALFI L.P.'s limited partnership agreement limit their
respective activities to the foregoing purposes and to any activities incidental
to and necessary for such purposes. ALFI may not transfer its general
partnership interest in ALFI L.P. so long as any financings involving interests
in the Origination Trust (including the transaction described herein) are
outstanding. World Omni is the sole limited partner of ALFI L.P. The principal
office of ALFI L.P. is located at 6150 Omni Park Drive, Mobile, Alabama and its
telephone number is (334) 639-7500.
THE ORIGINATION TRUSTEE
The Origination Trustee is a wholly owned, special purpose subsidiary of
First Bank that was organized in 1993 solely for the purpose of acting as
Origination Trustee. First Bank, as Trust Agent, serves as agent for the
Origination Trustee to perform certain functions of the Origination Trustee
pursuant to the Origination Trust Agreement. (Origination Trust Agreement,
Section 5.03). The Origination Trust Agreement provides that in the event that
First Bank no longer can be the Trust Agent, the designee of ALFI L.P. (who may
not be ALFI L.P. or any affiliate thereof) will have the option to purchase the
stock of the Origination Trustee for a nominal amount. If ALFI L.P.'s designee
does not timely exercise this option, then the Origination Trustee will appoint
a new trust agent, and that new trust agent (or its designee) will next have the
option to purchase the stock of the Origination Trustee. If none of these
options is timely exercised, First Bank may sell the stock of the Origination
Trustee to another party. (Origination Trust Agreement, Section 6.10).
PROPERTY OF THE ORIGINATION TRUST
The property of the Origination Trust consists of (i) fixed rate retail
closed-end lease contracts originated throughout the United States and assigned
to the Origination Trust by World Omni or Dealers since November 1993 and all
monies due from lessees thereunder; (ii) the automobiles and light duty trucks
leased pursuant thereto and all proceeds thereof; (iii) all of World Omni's
rights (but not its obligations) with respect to such lease contracts and leased
vehicles, including the right to receive proceeds of Dealer repurchase
obligations, if any; (iv) the rights to proceeds from residual value, physical
damage, credit life, disability and all other insurance policies, if any,
covering the lease contracts, the related lessees or the leased vehicles,
including, but not limited to, the Contingent and Excess Liability Insurance
Policies, the Residual Value Insurance Policy and other residual value insurance
policies that may relate to Other SUBI Assets or the UTI Assets; (v) all
security deposits with respect to such lease contracts to the extent due to the
lessor thereunder; and (vi) all proceeds of the foregoing (collectively, the
"Origination Trust Assets"). From time to time after the date of this
Prospectus, World Omni will cause Dealers to originate additional retail
closed-end lease contracts and to assign such lease contracts to the Origination
Trustee on behalf of the Origination Trust and, as described below, title the
related leased vehicles in the name of the Origination Trustee on behalf of the
Origination Trust. (Origination Trust Agreement, Section 2.01).
CONTRACT ORIGINATION; TITLING OF LEASED VEHICLES
All lease contracts originated by the Origination Trust have been, or will
be, underwritten using the underwriting criteria described under "World
Omni -- Lease Contract Underwriting Procedures". In connection with the
origination of each lease contract, the Origination Trustee, on behalf of the
Origination Trust, will be listed as the owner of the related leased vehicle on
the related certificate of title. Liens will not be placed on such certificates
of title, and new certificates of title will not be issued, to reflect the
interest of the
32
<PAGE> 35
Trustee, as holder of the SUBI Certificate, in the Leased Vehicles. The
certificates of title to the Leased Vehicles will, however, reflect a first lien
recorded in favor of Bank of America Trust Company of Florida, N.A. or AL
Holding Corp. (collectively, the "Administrative Lienholders"). Such lien (the
"Administrative Lien") will exist solely to assure delivery of the certificates
of title to the Leased Vehicles to the Servicer. Neither of the Administrative
Lienholders will have any interest in any of the Leased Vehicles.
Pursuant to agreements between World Omni and the Dealers, each Dealer is
obligated, after origination of lease contracts and assignment thereof to the
Origination Trustee on behalf of the Origination Trust, to repurchase such lease
contracts which do not meet certain representations and warranties made by such
Dealer. These representations and warranties relate primarily to the origination
of the lease contracts and the titling of the related leased vehicles, and do
not typically relate to the creditworthiness of the related lessees or the
collectibility of such lease contracts. The Dealer agreements do not generally
provide for recourse to the Dealer for unpaid amounts in respect of a defaulted
lease contract, other than in connection with the breach of the foregoing
representations and warranties. The rights of World Omni to receive proceeds of
such Dealer repurchase obligations will constitute Origination Trust Assets (and
accordingly will constitute SUBI Assets to the extent they relate to the
Contracts and Leased Vehicles), although the related Dealer agreements will not
constitute Origination Trust Assets.
USE OF PROCEEDS
The net proceeds from the sale of the Class A Certificates (i.e., the
proceeds of the public offering of the Class A Certificates minus expenses
relating thereto) will be applied by the Transferor to purchase the SUBI
Certificate from ALFI L.P.
THE TRANSFEROR
The Transferor is a limited partnership formed under the laws of Delaware
in June 1994. The sole general partner of the Transferor, WOLSI, is a wholly
owned, special purpose finance subsidiary of World Omni and was incorporated
under the laws of Delaware in March 1994. WOLSI may not transfer its general
partnership interest in the Transferor so long as any financings involving
interests formerly or partially held by it in the Origination Trust (including
the transaction described herein) are outstanding. World Omni is the sole
limited partner of the Transferor. The principal office of the Transferor is
located at 6150 Omni Park, Mobile, Alabama 36609 and its telephone number is
(334) 639-7500.
The Transferor and WOLSI were organized solely for the purpose of acquiring
interests in the SUBI and the Other SUBIs, issuing certificates similar to the
Certificates and engaging in related transactions. The limited partnership
agreement of the Transferor and the certificate of incorporation of WOLSI limit
their respective activities to the foregoing purposes and to any activities
incidental to and necessary for such purposes.
A support agreement dated as of October 1, 1995, as amended (the "Support
Agreement"), between the Transferor and World Omni provides that World Omni
will, directly or indirectly, retain 100% ownership of the Transferor and that
under certain circumstances World Omni will make contributions or loans or
provide or arrange for financial assistance to the Transferor in order to ensure
that the Transferor maintains positive partners' capital. The Support Agreement
will provide that World Omni's total obligations thereunder will not exceed
$60.0 million. The Support Agreement does not constitute a guarantee by World
Omni of the Certificates or any other obligations of the Transferor. The Support
Agreement provides that no person other than the Transferor and WOLSI may take
any action to enforce the Support Agreement. Although World Omni intends to
comply with all of its obligations under the Support Agreement, because (as
described above) it can only be enforced by the Transferor and WOLSI, there can
be no assurance that the Trustee or the Certificateholders would be able to
enforce the Support Agreement directly against World Omni.
33
<PAGE> 36
WORLD OMNI
GENERAL
The Initial Contracts were, and the Subsequent Contracts will be, assigned
to the Origination Trust by Dealers. World Omni is a Florida corporation and a
wholly owned subsidiary of JM Family Enterprises, Inc. ("JMFE"), a Delaware
corporation. JMFE is primarily engaged, through its subsidiaries, in providing
Toyota dealerships in the Five State Area, as well as other automotive
dealerships throughout the United States, with a full range of distribution and
financial services. In January 1993, a predecessor corporation to World Omni
merged with its sister automobile leasing company, World Omni Leasing, Inc., in
connection with which the name World Omni Financial Corp. was retained. WOLSI
and ALFI are wholly owned, special purpose finance subsidiaries of World Omni.
In addition to the lease contract financing described below, World Omni
provides retail installment contract financing to retail customers of certain
automotive dealers and wholesale floorplan financing and capital and mortgage
loans to dealers and customers of Southeast Toyota Distributors, Inc. ("SET"),
World Omni's sister corporation, as well as to other automotive dealers within
and outside the Five State Area.
SET is the exclusive distributor of Toyota cars and light duty trucks,
parts and accessories in the Five State Area. As such, SET is the sole provider
of Toyotas to Dealers in the Five State Area. SET distributes Toyota vehicles
pursuant to a Distributor Agreement, which first was entered into in 1968 and
has been renewed through October 1999, with Toyota Motor Sales, USA, Inc.
("TMS"), a California corporation that is wholly owned by Toyota Motor
Corporation, the largest automotive company in Japan. Lexus cars, parts and
accessories are distributed in the Five State Area directly by TMS and not by
SET. SET's consolidated revenues for the years ended December 31, 1996, December
31, 1995 and December 31, 1994 were approximately $4.2 billion, approximately
$3.8 billion and approximately $3.5 billion, respectively. Since March 1996,
substantially all financial services provided by World Omni to, by and through
SET's Toyota Dealers in the Five State Area have been provided under the name
"Southeast Toyota Finance".
World Omni (either directly or through the Origination Trust and certain
special purpose finance subsidiaries of World Omni) owns and leases vehicles
primarily through more than 1000 Dealers located throughout the United States.
Pursuant to written agreements with World Omni, each Dealer offers automobiles
and light duty trucks for set lease periods pursuant to World Omni-approved
terms and a World Omni-supplied form of closed-end retail motor vehicle lease
and disclosure statement. Each Dealer is responsible for obtaining certain
credit-related information about a prospective lessee and for forwarding such
information to World Omni's central operations center in Mobile, Alabama (the
"Mobile Center") or to Southeast Toyota Finance's offices in Deerfield Beach,
Florida (the "Deerfield Office"), as applicable. At the Mobile Center or the
Deerfield Office, each application is reviewed, evaluated and "scored" as
described under "World Omni -- Lease Contract Underwriting Procedures". The
results of this computer-based evaluation are then sent to one of World Omni's
purchase offices for final review and credit evaluation. The related purchase
office then advises the Dealer if such applicant is acceptable to World Omni. If
a prospective lessee is accepted, the Dealer will prepare all necessary
paperwork to sell the vehicle from its inventory to World Omni or its designee,
and to enter into a lease contract with its customer and assign the lease
contract to World Omni or, at World Omni's direction, a different assignee.
Substantially all retail lease contracts originated by World Omni Dealers are
assigned to, and the related leased vehicles are titled in the name of, the
Origination Trustee on behalf of the Origination Trust. For further information
regarding the underwriting of lease contracts, see "World Omni -- Lease Contract
Underwriting Procedures".
World Omni's lease contracts are serviced primarily through the Mobile
Center, which handles collection activities, operational accounting, insurance
verification and dealer and customer inquiries for World Omni. In addition, the
Mobile Center and the Deerfield Office verify that all documents supplied by a
Dealer with respect to a lease contract conform with World Omni's requirements.
World Omni recently opened a national customer service center located in
St. Louis, Missouri (the "St. Louis Center"). None of the Initial Contracts were
(although some of the Subsequent Contracts may
34
<PAGE> 37
be) originated through the St. Louis Center. It currently is anticipated that
none of the Initial Contracts will be, although some of the Subsequent Contracts
may be, serviced through the St. Louis Center.
World Omni initiated operations in 1982, and as of December 31, 1996,
December 31, 1995 and December 31, 1994, World Omni and its affiliates had
approximately 232,000, 156,900 and 115,900 retail lease contracts outstanding,
respectively. Aggregate net outstanding principal balances of retail lease
contracts at such dates (including retail lease contracts that were sold but are
still being serviced by World Omni), were $4.6 billion, $2.8 billion and $1.8
billion, respectively. Of these amounts, the related leased vehicles had an
estimated aggregate residual value as of the end of their lease terms of
approximately $3.3 billion, $2.0 billion and $1.2 billion, respectively. For the
years ended December 31, 1996, December 31, 1995 and December 31, 1994, World
Omni's consolidated gross revenues were approximately $275 million,
approximately $228 million and approximately $199 million, respectively.
The principal executive offices of World Omni are located at 120 Northwest
12th Avenue, Deerfield Beach, Florida 33442 and its telephone number is (954)
429-2200.
LEASE CONTRACT UNDERWRITING PROCEDURES
World Omni has underwritten retail motor vehicle lease contracts since
February 1983. The Initial Contracts were, and the Subsequent Contracts will be,
underwritten by the Origination Trust, in each case through World Omni's
purchase offices.
The World Omni underwriting standards are intended to evaluate a
prospective lessee's credit standing and repayment ability. Generally, a
prospective lessee is required by the Dealer to complete a credit application on
a form prepared or approved by World Omni. As part of the description of the
applicant's financial condition, the applicant is required to provide current
information enumerating, among other things, employment history, residential
status, bank account information, annual income and credit references. The
Dealer then transmits the completed application to the Mobile Center, the
Deerfield Office or the St. Louis Center, as applicable. Upon receipt, all
application data is entered into a centralized computer network (owned and
maintained by a division of JMFE) that automatically obtains an independent
credit bureau report and then "scores" the application with the use of a
scorecard. The scorecard enables World Omni to review an application and
establish the probability that the proposed lease contract will be paid in
accordance with its terms. The credit scores rank-order applications according
to credit risk, which is the likelihood that the account will be delinquent or
repossessed. The application also is evaluated against a "cutoff score"
established by World Omni as the minimum acceptable score to purchase a lease
contract, which is revised from time to time as changes occur in economic
conditions and World Omni's lease contract portfolio.
This numerical credit scoring system was developed by Fair, Isaac & Company
("Fair, Isaac"), a lending and leasing consulting firm, specifically for World
Omni based upon an analysis of the historical performance of the retail
automobile and light duty truck lease and installment sale contract portfolios
of World Omni. To determine the appropriate characteristics for credit scoring,
Fair, Isaac reviewed a random sample of 10,000 retail lease contracts and 10,000
retail installment sale contracts from World Omni's portfolio. Fair, Isaac then
compiled a list of ten to twelve characteristics that cumulatively carried the
most weight in predicting historical performance and assigned point values and
weighting to each of these characteristics. The weighting system is particularly
significant because the weightings are beyond the control of a dealer and cannot
be manipulated. Fair, Isaac determined that the most accurate determinant of the
performance of a lease or installment sale contract was the credit bureau
report. Based on such historical performance, Fair, Isaac prepared two retail
credit and two lease scorecards (which differ according to the geographical
location of the dealer and whether the vehicle is new or used), each of which
assigned at least a 50% weighting to the credit bureau report. The Fair, Isaac
scorecard system was implemented in the fourth quarter of 1990 and was used for
substantially all lease contracts originated from that time until February 1997.
In an effort to increase the predictiveness of the scorecards developed by
Fair, Isaac, World Omni implemented an updated scorecard system in February
1997, which includes three retail credit and two lease scorecards (which, for
lease scorecards, differ according to the geographic location of the dealer and,
for retail
35
<PAGE> 38
scorecards, whether the vehicle is new or used and the credit "depth" of the
applicant). The revised scorecards are primarily weighted to the credit bureau
report.
Each of these numerical scoring models is intended to provide a means of
analysis to assist in decision making, but the final decision rests with World
Omni's credit specialists. Under World Omni's guidelines, a credit specialist
generally may not override the scorecard analysis of applications above or below
the cutoff score by more than a limited percentage of such applications
(depending on vehicle make and geographic location). Both the number of
overrides granted by each credit specialist and the aggregate number of
overrides granted by all credit specialists are tracked by World Omni daily in
order to insure the statistical validity of the scoring models. Detailed
reporting on all aspects of the numerical scoring model is utilized to track
performance of World Omni's retail automobile and light duty truck lease
contract portfolio and to enable World Omni to fine tune the scoring model
according to statistical indications in order to continually assure the
statistical validity of the scoring models. In limited circumstances, lessees
with established credit histories with World Omni may be pre-approved for new
leases without the use of a numerical scorecard.
For the years ended December 31, 1996, December 31, 1995 and December 31,
1994, World Omni, either directly or through the Origination Trust or certain
special purpose finance subsidiaries of World Omni, on average, booked
approximately 70%, approximately 71% and approximately 75%, respectively, of all
credit applications relating to leased vehicles. These averages generally
reflect adjustments in underwriting criteria in connection with the use of the
Fair, Isaac scorecard system. Substantially all of the Initial Contracts were,
and substantially all Subsequent Contracts will be, underwritten using the Fair,
Isaac numerical scorecard. See "The Contracts -- Characteristics of the
Contracts" for further information on the identity and characteristics of the
Contracts.
After an application has been approved by a World Omni purchase office and
the prospective lessee has agreed to the terms of the related lease contract,
including an assignment of the lease contract from the Dealer to World Omni (or,
at the direction of World Omni, an assignee thereof), World Omni receives from
the Dealer a lease contract package containing, among other things, the standard
form lease contract between the Dealer and the lessee, the customer's
application, applicable insurance information (company, agent and additional
insured(s), with the lessor named as loss payee) and the customer's first
payment and security deposit. World Omni determines whether such package
complies with its requirements. The specifics of the lease contract are compared
to the application approved by the purchasing department, and the rate,
truth-in-leasing disclosures and purchase price from the Dealer are verified.
INSURANCE
Each lease contract requires the lessee to maintain automobile bodily
injury and property damage liability insurance which must name the Dealer's
assignee (with respect to the Contracts, the Origination Trustee on behalf of
the Origination Trust) as an additional insured. Each lease contract further
requires the lessee to maintain (all risks) comprehensive and collision
insurance covering damage to the leased vehicle and naming the Dealer's assignee
(with respect to the Contracts, the Origination Trustee on behalf of the
Origination Trust) as loss payee. The insurance coverage is verified
independently and tracked by World Omni (through its third-party contracted
agents) throughout the term of the lease contract. If at any point during the
term of the lease contract World Omni cannot verify within 60 days that the
required insurance is in place, such lease contract would, by its terms, be in
default and World Omni generally would repossess the related leased vehicle.
COLLECTION, REPOSSESSION AND DISPOSITION PROCEDURES
Collection efforts are primarily performed through the Mobile Center. These
efforts are enhanced by the use of an automated dialing system. Notwithstanding
the centralization of collection efforts, repossessions
36
<PAGE> 39
continue to be handled locally, as independent contractors are employed in
connection with repossessions. General guidelines for collection of lease
contracts and repossession of leased vehicles include the following:
<TABLE>
<CAPTION>
NUMBER OF
DAYS DELINQUENT ACTION
- --------------- ------
<S> <C> <C>
22-45................................ Telephone contact with the lessee is initiated
46-89................................ Telephone and/or field collections continue
60-90................................ The leased vehicle is normally repossessed
</TABLE>
Occasionally, situations occur in the collection process when a lessee has
become delinquent and is willing but unable to bring the related account current
(i.e., a skipped payment). In this situation, at the discretion of collection
department management, but subject to extensive guidelines, the lease contract
may be extended, provided that the lessee pays an extension fee (each, an
"Extension Fee") equal to the lesser of (i) the product of 1.15% multiplied by
the outstanding principal balance of such lease contract, and (ii) one-half of
the related monthly contract payment. In circumstances deemed appropriate by
collection department management, World Omni may reduce or waive the payment by
the lessee of an Extension Fee. However, the Servicing Agreement will require
that all Extension Fees relating to the Contracts be deposited into the SUBI
Collection Account and that a Contract may not be extended more than five times.
Moreover, no extensions of a Contract may be made for more than five months in
the aggregate or to a date later than the last day of the month immediately
preceding the month in which the Final Scheduled Distribution Date occurs, as
described under "Additional Document Provisions -- The Servicing
Agreement -- Collections".
World Omni disposes of off-lease vehicles through several outlets,
including a Toyota "certified" program, in which vehicles are inspected and
given body work, repairs and maintenance as needed, certified as meeting the
program standards, and then sold to automobile dealers primarily in World Omni's
dealer network for retail sale; large regional automobile auctions which are
utilized for off-lease vehicle sales in addition to liquidation of repossessed
vehicles; and negotiated sales of groups of vehicles to rental companies, fleet
lessors and others.
DELINQUENCY, REPOSSESSION AND LOSS DATA
The following tables set forth certain delinquency, repossession and loss
data with respect to World Omni's retail automobile and light duty truck lease
contract portfolio originated by Dealers located throughout the United States,
including lease contracts assigned to the Origination Trust and lease contracts
originated by World Omni and assigned to special purpose finance subsidiaries of
World Omni, as of and for the years ended December 31, 1992 through December 31,
1996.
As shown on these tables, World Omni's delinquency rates during 1993 and
1994 were generally consistent, decreasing from 1992 largely due to improved
credit quality resulting from stricter underwriting standards (including the
implementation of a new computerized credit evaluation system and the effects of
the implementation of the Fair, Issac credit scoring system in the fourth
quarter of 1990), an improved collection system and the implementation of
centralized collection efforts through the Mobile Center. Delinquencies trended
up in 1995 and 1996, consistent with recent trends in overall consumer credit
and, to a lesser extent, due to some disruption in collection activity caused by
the implementation of a new collection system at the Mobile Center in 1996. The
new collection system is now fully operational.
Net Repossession Losses as a percentage of the Average Net Receivables
Outstanding decreased in 1993 and 1994 versus 1992 primarily as a result of a
decreasing number of repossessions as a result of improved credit quality for
the reasons mentioned previously. General economic trends were also positive
during this period as was the used car market in general.
Total Net Repossession Losses increased in 1995 and 1996 compared to 1994
primarily as a result of the increasing number of lease contracts outstanding
and the higher Average Net Repossession Loss per Liquidated Lease Contract. The
higher Average Net Repossession Loss per Liquidated Lease Contract in 1995 as
well as in 1996 was generally due to higher average amounts being financed and
generally higher residual values. The higher average loss per Liquidated Lease
Contract as well as a somewhat higher
37
<PAGE> 40
repossession frequency percentage in 1996 resulted in higher Net Repossession
Losses as a percentage of Average Net Receivables. The higher frequency of
repossession in 1996 was due to a general trend of weaker overall consumer
credit quality nationally as well as World Omni adjusting, to a limited extent,
its credit policies.
World Omni's total losses and average loss per vehicle realized on the
disposition of vehicles in connection with leases that reached scheduled
termination substantially decreased from 1992 to 1994. Management attributes
this decrease primarily to an improved used car market during the same period
and World Omni's pro-active lease termination programs implemented in 1990.
Residual value losses and the number of vehicles returned to and sold by
World Omni increased in 1995 and 1996. 1995 losses and returns increased as a
result of special programs on shorter term leases. Losses in 1996 increased over
1995 as a result of generally higher residual values, higher losses on shorter
term leases (i.e., leases with terms 24 months or shorter) and an increase in
the losses on leases with other maturities. In addition, there was some
weakening in the used car market relative to the prior three years. There are no
short term leases included in the Initial Contracts nor will any be included in
the Subsequent Contracts.
The new and used car market has experienced growth over the last five
years, showing some weakness towards the end of 1996. This overall growth in the
new and used car market may not continue, which could negatively affect World
Omni's returns and losses in the future. World Omni believes that the number of
vehicles returned and losses relating to residual value will continue to trend
upward in the future. As a result, losses on returned and sold vehicles may
increase and the Full Termination Ratio may increase. Based upon prior
experience, however, World Omni does not believe that World Omni's loss
experience or these recent negative trends will materially adversely affect
Class A Certificateholders or World Omni's business. However, no assurances can
be given in this regard.
The data presented in the following tables are for illustrative purposes
only. Delinquency, repossession and loss experience may be influenced by a
variety of economic, social, geographic and other factors. There is no assurance
that World Omni's delinquency, repossession and loss experience with respect to
its retail automobile and light duty truck lease contracts and the related
leased vehicles in the future, or the experience with respect to the Contracts
and the Leased Vehicles, will be similar to that set forth below.
RETAIL VEHICLE LEASE CONTRACT DELINQUENCY EXPERIENCE
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------------
1996 1995 1994 1993
--------------- --------------- --------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dollar Amount of Lease Contracts(1).... $4,641,992 $2,798,830 $1,823,823 $1,039,888
Ending Number of Lease Contracts....... 231,942 156,471 114,298 71,198
Number and Percentage of Lease
Contracts
Delinquent (2)(3)(4)
31-60 Days........................... 3,294 1.42% 1,745 1.12% 1,114 0.97% 625 0.88%
61-90 Days........................... 297 0.13 118 0.08 38 0.03 27 0.04
91 Days or More...................... 64 0.03 18 0.01 7 0.01 3 0.00
------ ------ ------ ------ ------ ------ ---- ------
Total.......................... 3,655 1.58% 1,881 1.21% 1,159 1.01% 655 0.92%
<CAPTION>
AT DECEMBER 31,
----------------
1992
----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Dollar Amount of Lease Contracts(1).... $624,017
Ending Number of Lease Contracts....... 48,646
Number and Percentage of Lease
Contracts
Delinquent (2)(3)(4)
31-60 Days........................... 756 1.55%
61-90 Days........................... 16 0.03
91 Days or More...................... 2 0.00
------- ------
Total.......................... 774 1.58%
</TABLE>
- ---------------
(1) Based on the sum of all principal amounts outstanding under lease contracts
(inclusive of the residual values of the related leased vehicles).
(2) Excludes lease contracts the related lessees of which are bankrupt or have
commenced bankruptcy proceedings. As of December 31, 1996, approximately 213
lease contracts involving bankrupt lessees were delinquent for at least 61
days.
(3) The period of delinquency is based on the number of days payments are
contractually past due.
(4) As a percentage of the total number of lease contracts at period end.
38
<PAGE> 41
RETAIL VEHICLE LEASE CONTRACT REPOSSESSION AND LOSS EXPERIENCE
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ---------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Dollar Amount of Lease Contracts(1)....................... $ 4,641,992 $2,798,830 $1,823,823 $1,039,888 $624,017
Ending Number of Lease Contracts.......................... 231,942 156,471 114,298 71,198 48,646
Average Lease Contracts Outstanding....................... 194,492 133,069 93,023 58,605 46,013
Repossessions:
Number of Repossessions................................. 4,297 2,519 1,776 1,287 1,916
Number of Repossessions as a
Percentage of:
Lease Contracts Outstanding............................. 1.85% 1.61% 1.55% 1.81% 3.94%
Average Lease Contracts Outstanding..................... 2.21% 1.89% 1.91% 2.20% 4.16%
Losses:
Average Net Receivables Outstanding..................... $ 3,718,336 $2,243,790 $1,426,382 $ 817,452 $548,852
Net Repossession Losses(2).............................. $ 23,196 $ 11,347 $ 6,283 $ 3,811 $ 5,759
Average Net Repossession Loss per Liquidated Lease
Contract(1)(3)........................................ $ 5,398 $ 4,505 $ 3,538 $ 2,961 $ 3,006
Net Repossession Losses as a Percentage of Average Net
Receivables........................................... 0.62% 0.51% 0.44% 0.47% 1.05%
</TABLE>
- ---------------
(1) Based on the sum of all principal amounts outstanding under lease contracts
(inclusive of the residual values of the related leased vehicles).
(2) Includes losses on charged-off accounts, but does not include expenses
incurred to dispose of vehicles.
(3) Dollars not in thousands.
RESIDUAL VALUE LOSS EXPERIENCE(1)
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total Number of Leased Vehicles Scheduled to Terminate...... 36,413 25,677 14,775 17,218 15,155
Number of Leased Vehicles Returned to and Sold by World
Omni...................................................... 5,018 4,611 779 2,050 2,142
Full Termination Ratio(2)................................... 13.8% 18.0%(3) 5.3% 11.9% 14.1%
Total Losses/(Gains) on Vehicles that Reached Scheduled
Term(4)................................................... $ 3,700(5) $ 1,893 $ (168) $ 503 $ 894
Average Loss/(Gain)(4)(6)................................... $ 737 $ 411 $ (216) $ 245 $ 417
</TABLE>
- ---------------
(1) Because the terms of the retail closed-end lease contracts originated by
World Omni have gradually shifted from five years to three years since 1992,
the residual value loss experience for the periods in the table may not be
fully comparable.
(2) The ratio of line 2 over line 1 expressed as a percentage.
(3) The ratio for the year ended December 31, 1995 includes special program
short-term lease contracts referenced under "Delinquency, Repossession and
Loss Data" above. Excluding those vehicles, the ratio would have been 7.1%.
(4) Figures do not include expenses incurred in disposal of vehicles returned to
World Omni, as such information is not readily available.
(5) Does not include losses related to World Omni's incentive programs of
approximately $222,303.
(6) Dollars not in thousands.
THE CONTRACTS
GENERAL
The Initial Contracts will consist of a pool of 51,898 closed-end retail
lease contracts, having an aggregate Outstanding Principal Balance as of the
Initial Cutoff Date of $1,227,193,400, selected from the Origination Trust's
portfolio of retail closed-end automobile and light duty truck lease contracts
that are not evidenced by or reserved for allocation to an Other SUBI. During
the Revolving Period, Principal Collections (and reimbursement of Loss Amounts)
will be reinvested in Subsequent Contracts and Subsequent Leased Vehicles, which
at the time of such reinvestment will become SUBI Assets. See "Description of
the Certificates -- Distributions on the Certificates -- Application and
Distributions of Principal -- Revolving Period". The Initial Contracts were
originated by Dealers located throughout the United States and assigned to the
Origination Trust, and the Subsequent Contracts will be originated by Dealers
located in the United States and assigned to the Origination Trust, in
accordance with the underwriting procedures described under "World Omni -- Lease
Contract Underwriting Procedures". The Initial Contracts have been selected
based
39
<PAGE> 42
upon the criteria specified in the SUBI Trust Agreement and described under "The
Contracts -- Characteristics of the Contracts -- General" and
"-- Representations, Warranties and Covenants". The Subsequent Contracts will be
selected from the other lease contracts of the Origination Trust that were
originated after the Initial Cutoff Date that also meet the foregoing criteria.
Principal Collections (and reimbursements of Loss Amounts) will first be
reinvested in the eligible lease contract with the earliest origination date,
then with the eligible lease contract with the next earliest origination date
and so forth, except that (i) certain leases booked from February 28, 1997
through April 7, 1997 have been reserved for allocation to the SUBI, so that
reinvestment of Principal Collections and reimbursement of Loss Amounts will
first be made in such leases to the extent available, (ii) certain leases have
been, and may in the future be, allocated to (or reserved for allocation to)
Other SUBIs and therefore not be available for reinvestment of such amounts from
the SUBI, and (iii) to the extent that reinvestment of such amounts from the
SUBI and any one or more previous Other SUBIs are at any time being made out of
the Origination Trust's general pool of available lease contracts that have not
been so reserved, such reinvestment will first be made with respect to such
previous Other SUBI(s). World Omni will represent and warrant that, except as
otherwise described in the immediately preceding sentence, no adverse selection
procedures were employed or will be employed in selecting the Initial Contracts
or the Subsequent Contracts for inclusion in the SUBI Assets and that it is not
aware of any bias in the selection of such Contracts that would cause the
delinquencies or losses on such Contracts to be worse than other retail
closed-end automobile and light duty truck lease contracts held in the
Origination Trust's portfolio; however, there can be no assurance that the
delinquencies or losses on the Contracts will not be worse. Subsequent Contracts
may be originated by World Omni using different underwriting criteria than those
which were applied to the Initial Contracts. For this reason, the
characteristics of the Subsequent Contracts may vary from those of the Initial
Contracts.
Each Contract will have been written for an original term of not more than
60 months, for a "capitalized cost" (which may exceed the manufacturer's
suggested retail price), plus an implicit Lease Rate. The Initial Contracts
were, and the Subsequent Contracts will be, written on a constant yield basis
and provide for equal Monthly Payments such that at the end of the lease term
the capitalized cost has been amortized to an amount equal to the Residual Value
of the related Leased Vehicle.
At the times of origination of the related Contracts, the related Leased
Vehicles were, in the case of the Initial Contracts, or will be, in the case of
the Subsequent Contracts, new vehicles, dealer demonstrator vehicles driven
fewer than 6,000 miles or manufacturers' program vehicles. Manufacturers'
program vehicles are vehicles which have been sold directly by manufacturers to
rental car companies and returned to the manufacturer for resale, generally
after a period of eight to twelve months. Such vehicles generally are then
resold to dealers through an automobile auction.
All of the Contracts will be closed-end leases. Under a "closed-end lease",
at the end of its term, if the lessee does not elect to purchase the related
leased vehicle by exercise of the purchase option contained in such lease
contract, the lessee is required to return the leased vehicle to or upon the
order of the lessor, at which time the lessee will then owe only incidental
charges for excess mileage, excessive wear and use and other items as may be due
under such lease. In contrast, under an "open-end lease", the lessee is also
obligated to pay at the end of the lease term any deficit between the fair
market value of the leased vehicle at that time and the residual value
established at the time of origination of such lease.
Each lessee will be permitted to purchase the Leased Vehicle at the end of
the term of the related Contract. The purchase price will be a fixed dollar
amount equal to the Residual Value plus any applicable taxes and all other
incidental charges which may be due under the Contract. In addition, each
Contract will allow the related lessee voluntarily to terminate such Contract by
paying certain miscellaneous charges and a termination amount more fully
described below. In most instances, the Contracts are not expected to run to
their full terms, as more fully described under "Risk Factors -- Maturity and
Prepayment Considerations" and "Maturity, Prepayment and Yield Considerations".
Each Contract will provide that the lessor may terminate such Contract and
repossess the Leased Vehicle in the event of a default by the lessee. Events of
default under the Contracts will include, but will not be limited to, failure to
make payment when due, certain events of bankruptcy or insolvency, failure to
maintain
40
<PAGE> 43
the insurance required by the Contract, failure to maintain or repair the Leased
Vehicle as required or to comply with any other term or condition of the
Contract and the making of a material misrepresentation by the lessee in the
lease application. World Omni (or, with respect to insurance, its third-party
contracted agents) regularly tracks lessees' compliance with their payment and
insurance obligations and monitors the related leases for noncompliance as more
fully described under "World Omni -- Insurance" and "-- Collection, Repossession
and Disposition Procedures".
In the forms of contract used by the Dealers to evidence the Contracts,
upon early termination where the lessee is not in default and does not exercise
its option to purchase the Leased Vehicle, the amount owed by the lessee (the
"Early Termination Charge") will be determined by adding (i) the future Monthly
Payments and any incidental charges owing under the Contract, less unearned
lease charges, (ii) the Residual Value and (iii) a $250 processing fee,
subtracting the "Realized Value" (as described below), from the sale or other
disposition of the related Leased Vehicle and applying the Security Deposit to
reduce any deficiency. In calculating the amount of unearned lease charges under
clause (i) above, the Contracts will provide that the constant yield method will
be used, in which lease charges are earned on a daily basis through the payment
date immediately following the date of early termination. If, instead, there is
an early termination and the lessee is in default, the amount owed by a lessee
in default will be determined by adding (i) the Early Termination Charge, (ii)
payments accrued under the Contract through the date of termination, (iii)
collection, repossession, storage, preparation and sale expenses, (iv)
attorneys' fees and disbursements incurred after default (not exceeding 15% of
the amount owed by the lessee) and (v) simple interest at a 15% annual rate.
The "Realized Value" of a Leased Vehicle is the actual wholesale price or
the wholesale price otherwise determined by World Omni in a commercially
reasonable manner. However, each Contract provides that the lessee has the right
to obtain from an independent third party acceptable to the lessor a
professional appraisal of the wholesale value of the Leased Vehicle that could
be realized at sale. This appraised value then would be used as the wholesale
value for purposes of calculating sums due from the lessee. Although World Omni
cannot predict whether any lessee will challenge the wholesale sale price
determined by World Omni, management of World Omni is unaware of any successful
such challenge by any lessee under its retail closed-end automobile and light
duty truck lease contracts. See "Maturity, Prepayment and Yield Considerations"
for further information relating to the relationship between payments on the
Contracts and the effective yield on the Certificates.
In the event of early termination of a Contract where the lessee is in
default, the amounts collected with respect to such Contract and the related
Leased Vehicle (after deducting the costs and other sums retained by the
Servicer in connection therewith) may be less than the Outstanding Principal
Balance of such Contract, which shortfall can be due to, among other things, the
use of wholesale appraisal of a Leased Vehicle as described above. In the event
that a Contract reaches the date on which the last Monthly Payment is due, as
such date may have been extended (the "Maturity Date"), but the related Leased
Vehicle cannot be sold or otherwise disposed of for a net amount at least equal
to its Residual Value, there may be an additional shortfall in amounts otherwise
expected to be received in respect of the SUBI Interest. In the event that any
of the foregoing shortfalls are not covered from the Investor Percentage of
certain excess Interest Collections, available monies on deposit in the Residual
Value Surplus Account, amounts otherwise payable to the Transferor in respect of
the Transferor Interest, the Servicing Fee otherwise payable to the Servicer (so
long as World Omni is the Servicer), Insured Residual Value Loss Amounts paid
under the Residual Value Insurance Policy, amounts on deposit in the Reserve
Fund, the subordination of interest payments otherwise payable to the Class B
Certificateholders and, in the case of the Class A-4 Certificates, the
subordination of principal payments otherwise payable to the Class B
Certificateholders, in each case to the extent described herein, investors in
the Class A Certificates could suffer a loss on their investment.
41
<PAGE> 44
CHARACTERISTICS OF THE CONTRACTS
General
The Initial Contracts were, and the Subsequent Contracts will be, selected
by reference to several criteria, including, as of the related Cutoff Date, that
each Contract (i) is written with respect to a Leased Vehicle that was at the
time of the origination of the related lease contract a new vehicle, a limited
mileage dealer demonstrator vehicle, or a manufacturers' program vehicle; (ii)
was originated in the United States after November 1, 1993 in the case of the
Initial Contracts, and on or before April 30, 1998 in the case of the Subsequent
Contracts; (iii) has a Maturity Date on or after February 5, 1999 and no later
than February 24, 2002 in the case of the Initial Contracts, and no later than
April 30, 2003 in the case of the Subsequent Contracts; (iv) fully amortizes to
an amount equal to the Residual Value of the related Leased Vehicle based on a
fixed Lease Rate calculated on a constant yield basis and provides for level
payments over its term (except for payment of the Residual Value); (v) was not
more than 60 days past due as of the Initial Cutoff Date or the related
Subsequent Cutoff Date, as the case may be; and (vi) has never been extended for
more than five months in the aggregate. (SUBI Trust Agreement, Section 10.01).
Appearing below is some additional information regarding the characteristics of
the Initial Contracts:
INITIAL CONTRACTS
<TABLE>
<CAPTION>
AVERAGE MINIMUM MAXIMUM
---------- --------- ----------
<S> <C> <C> <C>
Original Principal Balance........................... $24,459.45 $7,060.00 $71,907.93
Outstanding Principal Balance(1)..................... $23,646.26 $6,850.12 $70,281.27
Residual Value....................................... $15,499.27 $3,350.00 $48,392.90
Lease Rate(1)........................................ 8.30%(2) 2.14% 12.95%
Seasoning (months)(1)................................ 4.01(2) 1 12
Remaining Term (months)(1)........................... 36.98(2) 23 59
</TABLE>
- ---------------
(1) As of the Initial Cutoff Date.
(2) Weighted by Outstanding Principal Balance as of the Initial Cutoff Date.
Distribution of the Initial Leased Vehicles by Make
As of the Initial Cutoff Date, the composition of the Initial Leased Vehicles
by make of vehicle was as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF NUMBER OF
VEHICLE MAKE INITIAL CONTRACTS INITIAL CONTRACTS
- ------------ ----------------- -----------------
<S> <C> <C>
Toyotas................................................ 31,603 60.89%
United States manufacturers............................ 16,911 32.59
Other Japanese manufacturers........................... 336 0.65
Other foreign manufacturers............................ 3,048 5.87
------- -------
Total........................................ 51,898 100.00%
======= =======
</TABLE>
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<PAGE> 45
Distribution of the Initial Contracts by Lease Rate
The distribution of the Initial Contracts as of the Initial Cutoff Date by
Lease Rate was as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF AGGREGATE
PERCENTAGE OF INITIAL CUTOFF DATE INITIAL CUTOFF DATE
NUMBER OF NUMBER OF OUTSTANDING PRINCIPAL OUTSTANDING PRINCIPAL
LEASE RATE RANGE INITIAL CONTRACTS INITIAL CONTRACTS BALANCE BALANCE
---------------- ----------------- ----------------- --------------------- -----------------------
<S> <C> <C> <C> <C>
2.00% to 2.99%..... 110 0.21% $ 2,245,918.04 0.18%
3.00% to 3.99%..... 580 1.12 9,576,202.43 0.78
4.00% to 4.99%..... 2,166 4.17 34,058,800.38 2.77
5.00% to 5.99%..... 3,992 7.69 70,104,271.67 5.71
6.00% to 6.99%..... 4,511 8.69 85,283,239.16 6.95
7.00% to 7.99%..... 4,734 9.12 109,818,632.19 8.95
8.00% to 8.99%..... 20,899 40.27 565,730,927.79 46.10
9.00% to 9.99%..... 11,830 22.80 276,957,562.45 22.57
10.00% to 10.99%..... 1,941 3.74 47,438,835.51 3.87
11.00% to 11.99%..... 1,030 1.99 24,128,970.53 1.97
12.00% to 12.99%..... 105 0.20 1,850,039.39 0.15
------- ------- ----------------- -------
Total...... 51,898 100.00% $1,227,193,399.54 100.00%
======= ======= ================= =======
</TABLE>
Distribution of the Initial Contracts by Maturity
The distribution of the Initial Contracts as of the Initial Cutoff Date by
year of maturity was as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF AGGREGATE
PERCENTAGE OF INITIAL CUTOFF DATE INITIAL CUTOFF DATE
NUMBER OF NUMBER OF OUTSTANDING PRINCIPAL OUTSTANDING PRINCIPAL
YEAR OF MATURITY INITIAL CONTRACTS INITIAL CONTRACTS BALANCE BALANCE
---------------- ----------------- ----------------- --------------------- -----------------------
<S> <C> <C> <C> <C>
1999................. 14,333 27.62% $ 321,589,773.57 26.20%
2000................. 31,888 61.44 751,111,699.40 61.21
2001................. 5,250 10.12 141,205,908.99 11.51
2002................. 427 0.82 13,286,017.58 1.08
------- ------- ----------------- -------
Total...... 51,898 100.00% $1,227,193,399.54 100.00%
======= ======= ================= =======
</TABLE>
Distribution of the Initial Contracts by State
The distribution of the Initial Contracts as of the Initial Cutoff Date by
State of origination, broken out for States representing 5% or more of the
number of Initial Contracts, was as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF AGGREGATE
PERCENTAGE OF INITIAL CUTOFF DATE INITIAL CUTOFF DATE
NUMBER OF NUMBER OF OUTSTANDING PRINCIPAL OUTSTANDING PRINCIPAL
STATE INITIAL CONTRACTS INITIAL CONTRACTS BALANCE BALANCE
----- ----------------- ----------------- --------------------- -----------------------
<S> <C> <C> <C> <C>
Alabama.............. 4,186 8.07% $ 93,928,060.32 7.65%
Florida.............. 19,599 37.76 432,895,340.95 35.28
Georgia.............. 7,858 15.14 177,250,781.23 14.44
North Carolina....... 10,138 19.53 223,183,483.42 18.19
South Carolina....... 2,693 5.19 61,626,556.29 5.02
All other states..... 7,424 14.31 238,309,177.33 19.42
------- ------- ----------------- -------
Total...... 51,898 100.00% $1,227,193,399.54 100.00%
======= ======= ================= =======
</TABLE>
REPRESENTATIONS, WARRANTIES AND COVENANTS
The Initial Contracts and Initial Leased Vehicles will be described in a
schedule appearing as an exhibit to the SUBI Trust Agreement, which schedule
will be amended from time to time as Subsequent Contracts
43
<PAGE> 46
and Subsequent Leased Vehicles become SUBI Assets during the Revolving Period
(collectively, the "Schedule of Contracts and Leased Vehicles").
The Schedule of Contracts and Leased Vehicles will identify each Contract
by identification number, will identify each Leased Vehicle by its vehicle
identification number and will set forth as to each such Contract, among other
things, its: (i) date of origination; (ii) Maturity Date; (iii) Monthly Payment;
(iv) original Outstanding Principal Balance; (v) Outstanding Principal Balance
and Discounted Principal Balance as of the related Cutoff Date; and (vi)
Residual Value. (Servicing Agreement, Sections 1.01 and 10.01). In the Servicing
Agreement, representations and warranties will be made with respect to each
Contract and Leased Vehicle to the effect described in the text of the first
paragraph under "The Contracts -- Characteristics of the Contracts -- General",
and certain other representations and warranties will be made, including, among
other things, that each such Contract and, to the extent applicable, the related
Leased Vehicle or lessee: (a) was originated by a Dealer located in the United
States in the ordinary course of its business and in compliance with World
Omni's normal credit and collection policies and practices; (b) is owned by the
Origination Trustee, on behalf of the Origination Trust, free of all liens,
encumbrances or rights of others (other than the Administrative Lien); (c) was
originated in compliance with, and complies with, all material applicable legal
requirements; (d) all material consents, licenses, approvals or authorizations
of, or registrations or declarations with, any governmental authority required
to be obtained, effected or given by the originator of such Contract and the
Origination Trustee in connection with (i) the origination of such Contract,
(ii) the execution, delivery and performance by such originator of the Contract
and (iii) the acquisition by the Origination Trust of such Contract and Leased
Vehicle, have been duly obtained, effected or given and are in full force and
effect as of such date of creation or acquisition; (e) is the legal, valid and
binding obligation of the lessee; (f) to the knowledge of the Servicer, is not
subject to any right of rescission, setoff, counterclaim or any other defense of
the related lessee to pay the Outstanding Principal Balance due under such
Contract and no such right of rescission, offset, defense or counterclaim has
been asserted or threatened; (g) the related Dealer, the Servicer and the
Origination Trustee have each satisfied all obligations required to be fulfilled
on its part with respect thereto; (h) is payable solely in United States dollars
in the United States; (i) the lessee thereunder is located in the United States
and is not (i) ALFI, ALFI L.P., WOLSI, the Transferor or any of their respective
affiliates or (ii) the United States or any state or local government thereof,
or any agency, department or instrumentality of the United States or any state
or local government thereof; (j) requires the lessee to maintain insurance
against loss or damage to the related Leased Vehicle under an insurance policy
that names the Origination Trustee as loss payee, and the related Leased Vehicle
is covered by the Residual Value Insurance Policy; (k) the related certificate
of title therefor is registered in the name of the Origination Trustee (or a
properly completed application for such title has been submitted to the
appropriate titling authority); (l) is a closed-end lease that (i) requires
equal monthly payments to be made within 60 months of the date of origination of
such Contract and (ii) requires such payments to be made by the lessee thereof
within 30 days after the billing date for such payment; (m) is fully assignable
and does not require the consent of the lessee as a condition to any transfer,
sale or assignment of the rights of the originator; (n) has a Residual Value
that does not exceed the lesser of (i) $60,000 and (ii) an amount reasonably
established by the Servicer consistent with its policies and practices regarding
the setting of residual values as applied with respect to closed-end retail
automobile and light duty truck leases; (o) has never been extended by more than
five months in the aggregate or otherwise modified except in accordance with
World Omni's normal credit and collection policies and practices; (p) the lessee
thereunder has not made a claim under the Soldiers' and Sailors' Civil Relief
Act of 1940; (q) is not an Other SUBI Asset; (r) the lessee thereunder is not
bankrupt or currently the subject of a bankruptcy proceeding; (s) is not more
than 60 days past due; (t) is a finance lease for accounting purposes; and (u)
is a "true lease" for applicable state law purposes. (SUBI Trust Agreement,
Section 10.01; Servicing Agreement, Sections 8.01 and 9.01).
The Servicing Agreement will provide that the reinvestment of Principal
Collections (and Loss Amounts that otherwise would be reimbursed to the
Certificateholders) in Subsequent Contracts and Subsequent Leased Vehicles
during the Revolving Period will be subject to the satisfaction of certain
conditions precedent, including, among other things, that, unless the Trustee
receives confirmation (written or oral) from each Rating Agency to the effect
that the use of a different criteria will not result in the qualification,
reduction or withdrawal of its then-current rating on any Class of Class A
Certificates or the Class B Certificates, after
44
<PAGE> 47
giving effect to such reinvestment, (i) each Subsequent Contract will be
allocated as a SUBI Asset based upon its Discounted Principal Balance as of the
relevant Cutoff Date (i.e., for a Discounted Contract, its Outstanding Principal
Balance discounted by 9.25%, and for each other Contract, its Outstanding
Principal Balance), (ii) the weighted average remaining term of the Contracts
(including the Subsequent Contracts) is not greater than 38 months and (iii) the
weighted average Residual Value of the Leased Vehicles relating to the Contracts
(including the Subsequent Contracts), as a percentage of the aggregate
Outstanding Principal Balance of the Contracts (including the Subsequent
Contracts), in each case as of the related dates of origination, is not greater
than 65%. (Servicing Agreement, Section 8.02).
The Servicing Agreement will provide that upon the discovery by the
Origination Trustee, World Omni, the Trustee or the Transferor of a breach of
any representation, warranty or covenant referred to in the second preceding
paragraph that materially and adversely affects the owners of interests in the
SUBI or the Certificateholders in the related Contract or Leased Vehicle, which
breach is not cured in all material respects within 60 days after World Omni
discovers such breach or is given notice thereof, World Omni will be required to
deposit (or cause to be deposited) into the SUBI Collection Account an amount
(the "Reallocation Payment") equal to the Discounted Principal Balance of such
Contract as of the last day of the Collection Period during which the related
cure period ended, plus an amount equal to any imputed lease charge on such
Contract at the related Lease Rate that was delinquent as of the end of such
Collection Period. The foregoing payment obligation will survive any termination
of World Omni as Servicer under the Servicing Agreement. (Servicing Agreement,
Sections 8.03 and 11.01).
MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS
All of the Contracts will be prepayable, in whole or in part, at any time
without penalty. The prepayment experience with respect to the Contracts will
affect the life of the Class A Certificates.
In general, the rate of prepayments on the Contracts may be influenced by a
variety of economic, social, geographic and other factors. The Origination Trust
was formed and began to accept assignments of lease contracts in November 1993.
All of the lease contracts assigned to the Origination Trust for allocation as
SUBI Assets since that time have been, and all of the lease contracts to be
assigned to the Origination Trust subsequent to the date of this Prospectus will
be, assigned by Dealers using World Omni's underwriting standards. Under its
pro-active lease termination program, World Omni actively encourages lessees
under lease contracts with remaining terms of less than one year to either buy,
trade in or refinance the related leased vehicles prior to the related scheduled
maturities of such lease contracts. World Omni estimates that on average over
calendar years 1994, 1995 and 1996, an average of approximately 86% of the
number of retail automobile and light duty truck lease contracts in its
portfolio (including those owned by the Origination Trustee on behalf of the
Origination Trust and by certain special purpose finance subsidiaries of World
Omni) that were scheduled to mature during such period were terminated prior to
maturity, either because of voluntary prepayments or repossession of the leased
vehicles due to default by the lessees under the related lease contracts. World
Omni is not aware of any publicly available industry statistics that set forth
termination rates for retail closed-end automobile and light duty truck lease
contracts similar to the Contracts.
As a part of its pro-active lease termination program, World Omni actively
monitors its overall portfolio, and selectively offers incentives to encourage
customer loyalty and to minimize anticipated residual value losses on lease
contracts scheduled to reach maturity in the near term. These incentives
generally occur during the last year of a lease contract (typically, the last
six months), and through December 31, 1996 the losses relating to these
incentives have been immaterial. There can be no assurance as to the amount of
any losses that may arise from these incentives in the future. However, all such
losses relating to the Contracts will constitute Residual Value Loss Amounts
and, therefore, will be covered by the Residual Value Insurance Policy.
The distribution of the Initial Contracts by year of maturity is set forth
under "The Contracts -- Characteristics of the Contracts -- Distribution of the
Initial Contracts by Maturity", and historical levels of lease contract
defaults, leased vehicle repossessions and losses and residual value losses are
discussed under "World Omni -- Delinquency, Repossession and Loss Data". No
assurances can be given that the Contracts
45
<PAGE> 48
will experience the same rate of prepayment or default or any greater or lesser
rate than World Omni's historical rate, or that the Residual Value experience of
Leased Vehicles related to Contracts that have reached their Maturity Dates will
differ from World Omni's historical residual value loss experience, for all of
the retail automobile and light duty truck lease contracts in its portfolio
(including those owned by the Origination Trustee on behalf of the Origination
Trust and by certain special purpose finance subsidiaries of World Omni).
The effective yield on, and average life of, each Class of Class A
Certificates will depend upon, among other things, the amount of scheduled and
unscheduled payments on or in respect of the Contracts and the Leased Vehicles
and the rate at which such payments are paid to the Class A Certificateholders.
In the event of prepayments of the Contracts (and payment of the Residual Value
of the related Leased Vehicles) or payment of any Accelerated Principal
Distribution Amounts during the Amortization Period, Class A Certificateholders
who receive such amounts may not be able to reinvest the related payments of
principal received on the Class A Certificates at yields as high as the related
Certificate Rate. The timing of changes in the rate of prepayments on the
Contracts and payments in respect of the Leased Vehicles may also affect
significantly an investor's actual yield to maturity and the average life of the
related Class of Class A Certificates. A substantial increase in the rate of
payments on or in respect of the Contracts and Leased Vehicles (including
prepayments and liquidations of the Contracts) during the Amortization Period
may shorten the final maturity of and may significantly affect the yield on the
Class A Certificates.
Additionally, although monies on deposit in the Accounts and Principal
Collections (and Loss Amounts that otherwise would be reimbursed to the
Certificateholders) that have not been reinvested in Subsequent Contracts and
Subsequent Leased Vehicles during the Revolving Period will be invested in
Permitted Investments, and all gain on other income from such investments will
be available for making the distributions described under "Description of the
Certificates -- Distributions on the Certificates -- Distributions of Interest",
no assurance can be made as to the rate of return that will be realized on such
Permitted Investments. Any reinvestment risk resulting from the rate of
prepayment of the Contracts (and payment of the Residual Value of the related
Leased Vehicles), the making of the foregoing investments or payment of any
Accelerated Principal Distribution Amounts and the distribution of any such
amounts to Class A Certificateholders will be borne entirely by the Class A
Certificateholders.
The yield to an investor who purchases Class A Certificates in the
secondary market at a price other than par will vary from the anticipated yield
if the rate of prepayment on the Contracts is actually different than the rate
anticipated by such investor at the time such Class A Certificates were
purchased.
In sum, an investor's expected yield will be affected by the following
factors: (i) the price the investor paid for the Class A Certificates, (ii) the
rate of prepayments in respect of the Contracts and Leased Vehicles and (iii)
the investor's assumed reinvestment rate. These factors do not operate
independently, but are interrelated. For example, if the rate of prepayments on
or in respect of the Contracts and Leased Vehicles is slower than anticipated,
the investor's yield will be lower if interest rates are higher than the
investor anticipated and higher if interest rates are lower than the investor
anticipated. Conversely, if the rate of prepayments on or in respect of the
Contracts and Leased Vehicles is faster than anticipated, the investor's yield
will be higher if interest rates are higher than the investor anticipated and
lower if interest rates are lower than the investor anticipated.
In general, during the Amortization Period, no principal payments will be
received by Class A-2 Certificateholders until the Class A-1 Certificates have
been paid in full, by Class A-3 Certificateholders until the Class A-1 and Class
A-2 Certificates have been paid in full or by Class A-4 and Class B
Certificateholders until the Class A-1, Class A-2 and Class A-3 Certificates
have been paid in full. In addition, the Class A Percentage and the Class B
Percentage of Principal Collections allocable to the Investor Interest will be
calculated when the Class A-1, Class A-2 and Class A-3 Certificates have been
paid in full, and then used to determine the distribution of principal payments
on the Class A-4 Certificates and the Class B Certificates, as described under
"Risk Factors -- Maturity and Prepayment Considerations" and "-- Sequential
Payment of Principal on the Certificates", which may affect the maturity and
yield on the Class A-4 Certificates. The Investor Percentage of Loss Amounts
will be allocated among the Certificateholders on a pro rata basis, based on the
Class A-1, Class A-2, Class A-3, Class A-4 and Class B Allocation Percentages,
as the case may be,
46
<PAGE> 49
and then reimbursed out of available funds in the amounts and order of priority
described in "Description of the Certificates -- Distributions on the
Certificates -- Distributions of Interest". In addition, the Investor Percentage
of the net proceeds of any sale or other disposition of the SUBI Interest, the
SUBI Certificate and other property of the Trust, which may occur under certain
circumstances involving an Insolvency Event with respect to the Transferor (as
described under "Description of the Certificates -- Early Amortization Events"),
to the extent such net proceeds constitute Principal Collections, will be
distributed first, on a pro rata basis, to the Class A Certificateholders based
on their respective Class Certificate Balances until the Class A Certificates
have been paid in full, and second, to the Class B Certificateholders.
The following information is provided solely to illustrate the effect of
prepayments of the Contracts on the Class A-1 Certificate Balance, the Class A-2
Certificate Balance, the Class A-3 Certificate Balance and the Class A-4
Certificate Balance and the weighted average life of each Class of Class A
Certificates under the assumptions stated below and is not a prediction of the
prepayment rates that might actually be experienced with respect to the
Contracts.
Prepayments on automobile lease contracts may be measured by a prepayment
standard or model. The prepayment model used with respect to the Contracts is
based on a prepayment assumption (the "Prepayment Assumption") expressed in
terms of percentages of ABS. "ABS" refers to a prepayment model which assumes a
constant percentage of the original number of Contracts in a pool prepay each
month. However, as used herein, a 100% Prepayment Assumption assumes that, based
on the assumptions in the next paragraph, the original Outstanding Principal
Balance of a Contract will prepay as follows: (i) 0.55% ABS for the first six
months of the life of the Contract, (ii) 0.70% ABS for the seventh through
twelfth month of the life of the Contract, (iii) 0.85% ABS for the thirteenth
through eighteenth month of the life of the Contract, (iv) 1.15% ABS for the
nineteenth through twenty-fourth month of the life of the Contract and (v) 1.70%
ABS following the twenty-fourth month of the life of the Contract until the
original Outstanding Principal Balance of the Contract has been paid in full.
Neither ABS nor the Prepayment Assumption purports to be a historical
description of prepayment experience or a prediction of the anticipated rate of
prepayment of lease contracts, including the Contracts. There can be no
assurance that the Contracts will prepay at the indicated levels of the
Prepayment Assumption or at any other rate.
The tables below were prepared on the basis of certain assumptions,
including that: (i) all Collections (including Monthly Payments and net sale
proceeds in respect of the Leased Vehicles relating to Matured Contracts) are
timely received, and that no Contracts are ever delinquent; (ii) no Reallocation
Payment or Reallocation Deposit Amount is made in respect of any Contract; (iii)
there are no Loss Amounts; (iv) the Transferor exercises its optional purchase
option of the Certificates as described herein; (v) all distributions of
principal (including any Accelerated Principal Distribution Amount) and interest
on the Class A Certificates are made on the dates specified herein; (vi) the
Servicing Fee is 1% per annum of 99.8% of the Aggregate Net Investment Value;
(vii) all prepayments are full Prepayments; (viii) the Revolving Period ends on
April 30, 1998; (ix) the Initial Contracts have assumed Lease Rates of 9.25% and
were originated four months prior to the Initial Cutoff Date; and (x) all
Principal Collections in respect of each Collection Period during the Revolving
Period are reinvested, on a Transfer Date that is the fifteenth day of the
following calendar month, in Subsequent Contracts that have stated terms of
three years, Lease Rates of 9.25% and Residual Values equal to 65% of the
original Outstanding Principal Balances thereof, were originated on the Initial
Cutoff Date and that otherwise have terms that are substantially similar to
those of the Initial Contracts.
No representation is made as to what the actual levels of losses and
delinquencies on the Contracts will be. Since the tables below were prepared on
the basis of the foregoing assumptions, there will be discrepancies between the
characteristics of the Contracts that actually will be allocated as SUBI Assets
in respect of Principal Collections made during the Revolving Period and Loss
Amounts with respect to the Revolving Period that otherwise would be reimbursed
to the Certificateholders, and the characteristics of the Contracts assumed in
preparing the tables to be allocated as SUBI Assets in respect of Principal
Collections made during the Revolving Period and Loss Amounts with respect to
the Revolving Period that otherwise would be reimbursed to the
Certificateholders, as well as other discrepancies between the foregoing
assumptions and the actual experience in respect of the Contracts. Any such
discrepancy may increase or decrease the percentage of the outstanding Class A-1
Certificate Balance, the Class A-2 Certificate Balance, the Class A-3
Certificate
47
<PAGE> 50
Balance or the Class A-4 Certificate Balance, as the case may be, and the
weighted average lives of each Class of Class A Certificates set forth in the
tables. In addition, since the Contracts will have characteristics which differ
from those assumed in preparing the tables, distributions of principal on the
Class A Certificates may be made earlier or later than set forth in the tables.
Investors are urged to make their investment decisions on a basis that includes
their determination as to anticipated prepayment rates under a variety of the
assumptions discussed herein.
The following tables set forth the percentages of the Initial Certificate
Balance of each Class of Class A Certificates that would be outstanding after
each of the dates shown, based on a rate equal to 0%, 50%, 100%, 150% and 200%
of the Prepayment Assumption. As used in the table, "0% Prepayment Assumption"
assumes no prepayments on a Contract, "50% Prepayment Assumption" assumes that a
Contract will prepay at 50% of the Prepayment Assumption, and so forth.
PERCENTAGE OF INITIAL CLASS A PRINCIPAL BALANCE REMAINING
AND WEIGHTED AVERAGE LIFE OF CLASS A-1 CERTIFICATES
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION
----------------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200%
- ----------------- --- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
May 1997................................................. 100% 100% 100% 100% 100%
November 1997............................................ 100 100 100 100 100
May 1998................................................. 100 100 100 100 100
November 1998............................................ 71 55 34 9 0
May 1999................................................. 40 0 0 0 0
November 1999............................................ 0 0 0 0 0
May 2000................................................. 0 0 0 0 0
November 2000............................................ 0 0 0 0 0
May 2001................................................. 0 0 0 0 0
Weighted Average Life (Years)(1)......................... 1.89 1.62 1.47 1.37 1.30
=== === === === ===
</TABLE>
- ---------------
(1) The weighted average life of the Class A-1 Certificates is determined by (i)
multiplying the amount of each principal payment by the number of years
from the Closing Date to the related Distribution Date, (ii) adding the
results, and (iii) dividing the sum by the Initial Class A-1 Certificate
Balance.
PERCENTAGE OF INITIAL CLASS A PRINCIPAL BALANCE REMAINING
AND WEIGHTED AVERAGE LIFE OF CLASS A-2 CERTIFICATES
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION
----------------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200%
----------------- --- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
May 1997................................................. 100% 100% 100% 100% 100%
November 1997............................................ 100 100 100 100 100
May 1998................................................. 100 100 100 100 100
November 1998............................................ 100 100 100 100 80
May 1999................................................. 100 100 53 0 0
November 1999............................................ 66 23 0 0 0
May 2000................................................. 0 0 0 0 0
November 2000............................................ 0 0 0 0 0
May 2001................................................. 0 0 0 0 0
Weighted Average Life (Years)(1)......................... 2.65 2.44 2.11 1.82 1.65
=== === === === ===
</TABLE>
- ---------------
(1) The weighted average life of the Class A-2 Certificates is determined by (i)
multiplying the amount of each principal payment by the number of years
from the Closing Date to the related Distribution Date, (ii) adding the
results, and (iii) dividing the sum by the Initial Class A-2 Certificate
Balance.
48
<PAGE> 51
PERCENTAGE OF INITIAL CLASS A PRINCIPAL BALANCE REMAINING
AND WEIGHTED AVERAGE LIFE OF CLASS A-3 CERTIFICATES
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION
----------------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200%
- ----------------- --- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
May 1997................................................. 100% 100% 100% 100% 100%
November 1997............................................ 100 100 100 100 100
May 1998................................................. 100 100 100 100 100
November 1998............................................ 100 100 100 100 100
May 1999................................................. 100 100 100 79 0
November 1999............................................ 100 100 59 0 0
May 2000................................................. 0 0 0 0 0
November 2000............................................ 0 0 0 0 0
May 2001................................................. 0 0 0 0 0
Weighted Average Life (Years)(1)......................... 2.94 2.87 2.64 2.21 1.85
=== === === === ===
</TABLE>
- ---------------
(1) The weighted average life of the Class A-3 Certificates is determined by (i)
multiplying the amount of each principal payment by the number of years
from the Closing Date to the related Distribution Date, (ii) adding the
results, and (iii) dividing the sum by the Initial Class A-3 Certificate
Balance.
PERCENTAGE OF INITIAL CLASS A PRINCIPAL BALANCE REMAINING
AND WEIGHTED AVERAGE LIFE OF CLASS A-4 CERTIFICATES
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION
----------------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200%
- ----------------- --- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
May 1997................................................. 100% 100% 100% 100% 100%
November 1997............................................ 100 100 100 100 100
May 1998................................................. 100 100 100 100 100
November 1998............................................ 100 100 100 100 100
May 1999................................................. 100 100 100 100 40
November 1999............................................ 100 100 100 57 0
May 2000................................................. 75 55 0 0 0
November 2000............................................ 0 0 0 0 0
May 2001................................................. 0 0 0 0 0
Weighted Average Life (Years)(1)......................... 3.29 3.08 2.99 2.61 2.06
=== === === === ===
</TABLE>
- ---------------
(1) The weighted average life of the Class A-4 Certificates is determined by (i)
multiplying the amount of each principal payment by the number of years
from the Closing Date to the related Distribution Date, (ii) adding the
results, and (iii) dividing the sum by the Initial Class A-4 Certificate
Balance.
49
<PAGE> 52
CLASS A CERTIFICATE FACTORS AND TRADING INFORMATION;
REPORTS TO CLASS A CERTIFICATEHOLDERS
The "Class A-1 Certificate Factor", the "Class A-2 Certificate Factor", the
"Class A-3 Certificate Factor" and the "Class A-4 Certificate Factor" will each
be a seven-digit decimal that the Servicer will compute each month indicating
the Class A-1, Class A-2, Class A-3 or Class A-4 Certificate Balance, as the
case may be, as of the close of business on the Distribution Date in such month
as a fraction of the Initial Certificate Balance of the related Class of Class A
Certificates. Each Certificate Factor will initially be 1.0000000 and will
remain unchanged during the Revolving Period, except in certain limited
circumstances where there are unreimbursed Class A-1, Class A-2, Class A-3 or
Class A-4 Certificate Principal Loss Amounts. During the Amortization Period,
each Certificate Factor will decline to reflect reductions in the related
Certificate Balance resulting from distributions of principal and unreimbursed
Class A-1, Class A-2, Class A-3 or Class A-4 Certificate Principal Loss Amounts,
if any. The portion of the Class A Certificate Balance for a given month
allocable to a Class A Certificateholder can be determined by multiplying the
original denomination of the holder's Class A Certificate by the related
Certificate Factor for that month.
Pursuant to the Agreement, First Bank, as Trustee, will provide to all
registered holders of the Class A Certificates (which shall be Cede as the
nominee of DTC unless Definitive Certificates are issued under the limited
circumstances described herein) unaudited monthly reports concerning payments
received on or in respect of the Contracts and the Leased Vehicles, the
Aggregate Net Investment Value, the Investor Percentage, the Class A-1, Class
A-2, Class A-3 and Class A-4 Certificate Factors and various other items of
information. Certificate Owners may obtain copies of such reports upon a request
in writing to the Trustee. In addition, Class A Certificateholders during each
calendar year will be furnished information for tax reporting purposes not later
than the latest date permitted by law. For further details concerning
information furnished to Certificateholders and Certificate Owners, see
"Description of the Certificates -- Statements to Certificateholders" and
"-- Book-Entry Registration".
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Agreement, a form of which,
together with forms of the SUBI Trust Agreement and the Servicing Agreement, has
been filed as an exhibit to the Registration Statement of which this Prospectus
is a part. The following summaries of all material provisions of the foregoing
documents and the summaries of all material provisions included under "The Trust
and the SUBI", "The Origination Trust -- Property of the Origination Trust",
"The Contracts -- Characteristics of the Contracts -- General" and
"-- Representations, Warranties and Covenants", "Security for the Certificates"
and "Additional Document Provisions" do not purport to be complete and are
subject to, and qualified in their entirety by reference to, the provisions of
such documents. Where particular provisions of or terms used in the Agreement,
the SUBI Trust Agreement and the Servicing Agreement are referred to, the actual
provisions (including definitions of terms and Section references) are
incorporated by reference as part of such summaries.
GENERAL
The Class A Certificates will be issued in denominations of $1,000 and
integral multiples thereof in book-entry form. (Agreement, Section 4.01). The
Class A Certificates will initially be represented by certificates registered in
the name of Cede, the nominee of DTC. No Certificate Owner will be entitled to
receive a certificate representing such owner's Certificate, except as set forth
below. Unless and until Class A Certificates are issued in fully registered
certificated form ("Definitive Certificates") under the limited circumstances
described below, all references herein to distributions, notices, reports and
statements to Class A Certificateholders will refer to the same actions made
with respect to DTC or Cede, as the case may be, for the benefit of Certificate
Owners in accordance with DTC procedures. (Agreement, Section 4.09). See
"Description of the Certificates -- Book-Entry Registration" and "-- Definitive
Certificates".
The outstanding principal amount of each class of Certificates (each, a
"Class") at any time will be equal to the initial principal amount of such Class
of Certificates, less the sum of (i) all principal payments made on
50
<PAGE> 53
or prior to such date allocable to principal, (ii) the amount of Certificate
Principal Loss Amounts allocable to such Class of Certificates, if any, which
have not been reimbursed as described herein and (iii) in the case of the Class
B Certificates, any unreimbursed Class B Certificate Principal Carryover
Shortfall. (Agreement, Section 1.01). See "Description of the
Certificates -- Distributions on the Certificates". Each Certificate will
represent the right to receive payments of interest at the related Certificate
Rate and, to the extent described herein, payments of principal during the
Amortization Period funded from the Investor Percentage of distributions to the
Trust of Interest Collections and Principal Collections allocable to the SUBI
Interest and Accelerated Principal Distribution Amounts allocable to
Certificates of the related Class, amounts on deposit in the Residual Value
Surplus Account, Transferor Amounts otherwise payable to the Transferor in
respect of the Transferor Interest, the Servicing Fee (so long as World Omni is
the Servicer) and Insured Residual Value Loss Amounts payable under the Residual
Value Insurance Policy, in each case to the extent described herein. As
described under "Description of the Certificates -- Distributions on the
Certificates", the right of the Class B Certificates to receive payments of
interest and principal also will be subordinated to the right of the Class A
Certificates to receive such payments.
The Transferor will permanently retain the Transferor Interest, which will
represent the interest in the Trust not represented by the Certificates. The
Transferor Interest will represent an undivided interest in the Trust, including
the right to receive the Transferor Percentage of Interest Collections and
Principal Collections calculated as described under "Description of the
Certificates -- Calculation of Investor Percentage and Transferor Percentage".
The Transferor Interest will be subordinated to the Certificates to the extent
described under "Description of the Certificates -- Certain Payments to the
Transferor" and on any day will equal the difference between 99.8% of the
Aggregate Net Investment Value and the Certificate Balance.
During the Revolving Period, the Certificate Balance will remain constant
except in certain limited circumstances where there are unreimbursed Certificate
Principal Loss Amounts. During the Amortization Period, the Certificate Balance
will decline as the Investor Percentage of Principal Collections allocable to
the SUBI Interest and Accelerated Principal Distribution Amounts are distributed
to the Certificateholders and as Certificate Principal Loss Amounts are incurred
and not reimbursed. The Aggregate Net Investment Value can change daily as
principal is paid on or in respect of the Contracts and the Leased Vehicles, as
Reallocation Payments in respect of certain Contracts as to which an uncured
breach of certain representations and warranties or certain servicing covenants
has occurred are paid by World Omni during the Amortization Period, together
with, under certain circumstances, Reallocation Deposit Amounts, as liquidation
losses and other losses in respect of the Contracts and Leased Vehicles are
incurred and as Leased Vehicles in Matured Leased Vehicle Inventory are sold or
otherwise disposed of. Consequently, the amount of the Transferor Interest can
change daily as the Aggregate Net Investment Value changes and may increase on
any Distribution Date to reflect reductions in the Certificate Balance, but will
never exceed the initial amount of the Transferor Interest.
TRANSFER OF THE SUBI INTEREST
On the Closing Date, pursuant to the Agreement, the Transferor will deliver
the SUBI Certificate to the Trustee and transfer and assign to the Trustee,
without recourse, all of its right, title and interest in and to the SUBI
Interest represented by the SUBI Certificate. The Trustee will, concurrently
with such delivery, transfer and assignment, execute, authenticate and deliver
the Certificates to or upon the order of the Transferor. (Agreement, Sections
2.02 and 4.02).
Pursuant to the Agreement, the Transferor will represent and warrant that
immediately prior to the transfer and assignment of the SUBI Certificate to the
Trustee, it had good title to, and was the sole legal and beneficial owner of
the SUBI Certificate, free and clear of liens and claims. (Agreement, Section
5.01).
REALLOCATION PAYMENTS AND REALLOCATION DEPOSIT AMOUNTS
As more fully described under "The Contracts -- Representations, Warranties
and Covenants" and "Additional Document Provisions -- The Servicing
Agreement -- Collections", under certain circumstances World Omni will be
required to make Reallocation Payments in respect of certain Contracts (and the
related
51
<PAGE> 54
Leased Vehicles) discovered not to be in compliance with World Omni's
representations or warranties or Contracts as to which certain servicing
procedures have not been followed, in either case that materially and adversely
affects such Contract. Upon any such payment during the Amortization Period (but
not during the Revolving Period), the Aggregate Net Investment Value will
decline by an amount equal to the Discounted Principal Balance of such Contract,
thereby reducing the amount of the Transferor Interest by the same amount, and
such Contract and the related Leased Vehicle will no longer constitute SUBI
Assets as they will be reallocated and become UTI Assets. If such deduction
would cause the Transferor Interest to become less than zero, World Omni will be
required to deposit (or cause to be deposited) in the SUBI Collection Account
the amount (the "Reallocation Deposit Amount") by which the Transferor Interest
would be reduced to less than zero. Notwithstanding the foregoing, in the event
a Reallocation Deposit Amount is required to be made, reallocation of the
related Contract (and the related Leased Vehicle) will not be considered to have
occurred unless such deposit is actually made. (Servicing Agreement, Section
8.03).
CALCULATION OF INVESTOR PERCENTAGE AND TRANSFEROR PERCENTAGE
Pursuant to the Servicing Agreement, to the extent allocable to the SUBI
Interest, the Servicer will allocate between the Investor Interest and the
Transferor Interest, based on the applicable Investor Percentage and the
Transferor Percentage for the related Collection Period, all Interest
Collections and (during the Amortization Period) Principal Collections collected
or received in respect of the related Collection Period. In addition, similar
allocations will be made by the Servicer at the end of each Collection Period in
respect of (i) an amount equal to the Discounted Principal Balance of any
Contract that became a Charged-off Contract during such Collection Period (all
such amounts in any Collection Period, the "Charged-off Amount"), (ii) the
Residual Value Loss Amount for such Collection Period and (iii) any Additional
Loss Amounts incurred during such Collection Period. A "Charged-off Contract"
will be a Contract (a) with respect to which the related Leased Vehicle has been
repossessed and sold or otherwise disposed of or (b) which has been written off
by the Servicer in accordance with its normal policies for writing off lease
contracts other than with respect to repossessions. (SUBI Trust Agreement,
Section 10.01; Agreement, Sections 1.01 and 3.03; Servicing Agreement, Section
9.02).
For convenience, this Prospectus refers to the Investor Percentage with
respect to Interest Collections, Principal Collections, Charged-off Amounts,
Residual Value Loss Amounts and Additional Loss Amounts as if the Investor
Percentage were the same percentage at all times in each case. The Investor
Percentage may be a different percentage for each Collection Period, and will
vary primarily as a result of changes in the Aggregate Net Investment Value.
The Investor Percentage in respect of any Collection Period will mean, with
respect to (i) Loss Amounts and Interest Collections, in each case that are
allocable to the SUBI Interest, the percentage equivalent of a fraction (not to
exceed 100%) the numerator of which is the Certificate Balance on the last day
of the immediately preceding Collection Period (or, in the case of the first
Collection Period, the Initial Certificate Balance) and the denominator of which
is 99.8% of the Aggregate Net Investment Value on the last day of the
immediately preceding Collection Period (or, in the case of the first Collection
Period, as of the Initial Cutoff Date) and (ii) Principal Collections during the
Amortization Period, the percentage equivalent of a fraction (not to exceed
100%) the numerator of which is the Certificate Balance and the denominator of
which is 99.8% of the Aggregate Net Investment Value, in each case as of the
last day of the last Collection Period preceding (a) the Amortization Date or
(b) the date on which an Early Amortization Event occurs. The "Transferor
Percentage" will in all cases, be equal to 100% minus the applicable Investor
Percentage. (Agreement, Section 1.01).
As a result of the calculations described above, Interest Collections
allocable to the SUBI Interest in each Collection Period will be allocated to
the Certificateholders based on the relationship of the Certificate Balance to
the Aggregate Net Investment Value (which may change daily and from Collection
Period to Collection Period). As described above, the Investor Percentage
applied when allocating Principal Collections allocable to the SUBI Interest may
vary monthly during the Revolving Period, because the Certificate Balance as a
percentage of the Aggregate Net Investment Value may fluctuate monthly. During
the Amortization Period, however, the Principal Allocation will be determined by
reference to a fixed percentage which will
52
<PAGE> 55
equal the Investor Percentage with respect to Principal Collections allocable to
the SUBI Interest as of the last day of the Revolving Period.
CERTAIN PAYMENTS TO THE TRANSFEROR
On each Distribution Date, the Trustee will pay to the Transferor, from
amounts on deposit in the Distribution Account in respect of the related
Collection Period that are allocable to the SUBI Interest, the following amounts
(the "Transferor Amounts"): (i) if such Distribution Date is in respect of the
Revolving Period, the Transferor Percentage of Interest Collections and (ii) if
such Distribution Date occurs in any month following the month in which the
Amortization Period commences, the Transferor Percentage of Interest Collections
and, to the extent that the Transferor Interest is equal to or greater than
zero, the Transferor Percentage of Principal Collections. The foregoing payments
will be made net of the Transferor Percentage of the Servicing Fee, Capped
Origination Trust Administrative Expenses, Capped Trust Administrative Expenses,
Capped Contingent and Excess Liability Premiums and Uncapped Administrative
Expenses payable in respect of the related Collection Period. Any Principal
Collections not paid to the Transferor because the Transferor Interest is less
than or equal to zero ("Unallocated Principal Collections") will be retained in
the Distribution Account for payment to Certificateholders.
Notwithstanding the foregoing, no Transferor Amounts will be paid to the
Transferor on a Distribution Date unless (i) the amounts described in clauses
(i) through (xvi) of the first paragraph under "Description of the
Certificates -- Distributions on the Certificates -- Distributions of Interest"
have been paid in full and (ii) the amount on deposit in the Reserve Fund, after
giving effect to all withdrawals therefrom and other deposits thereto on such
Distribution Date, is at least equal to the Reserve Fund Cash Requirement.
(Agreement, Section 3.03).
DISTRIBUTIONS ON THE CERTIFICATES
General
On the second Business Day prior to each Distribution Date (each, a
"Determination Date"), the Servicer will inform the Trustee of, among other
things, the amount of Interest Collections and Principal Collections allocable
to the SUBI Interest, the Investor Percentage, the Transferor Percentage, the
Class A-1, Class A-2, Class A-3 and Class A-4 Certificate Factors, the Class
A-1, Class A-2, Class A-3, Class A-4 and Class B Allocation Percentages, the
amount of Advances to be made by the Servicer, the Required Amount, if any, to
be withdrawn from the Reserve Fund and the Servicing Fee and other servicing
compensation payable to the Servicer, in each case with respect to the
Collection Period immediately preceding the Collection Period in which such
Determination Date occurs. On or prior to each Determination Date, the Servicer
shall also determine the Reserve Fund Cash Requirement, the amounts to be
distributed to the Certificateholders and to the Transferor in respect of the
Transferor Interest and the Reserve Fund Supplemental Requirement (if any).
(Servicing Agreement, Section 10.01).
Distributions of Interest
On each Distribution Date, the Trustee will make the following payments in
the amounts and order of priority described below. The Trustee will distribute
from amounts on deposit in the Distribution Account the Investor Percentage of
Interest Collections collected during or received in respect of the related
Collection Period allocable to the SUBI Interest, together with (i) Transferor
Amounts that would otherwise be payable to the Transferor in respect of the
Transferor Interest on such Distribution Date, plus (ii) to the extent necessary
to make the distributions described below other than in clause (viii), the sum
of any Insured Residual Value Loss Amounts paid under the Residual Value
Insurance Policy in respect of such Collection Period and the amount withdrawn
from the Reserve Fund in respect of the Required Amount, if any, plus (iii) to
the extent needed to make distributions described in clauses (ix) through (xi),
to the Class A-4 Certificateholders during the Amortization Period, amounts that
would otherwise be distributable to the
53
<PAGE> 56
Class B Certificateholders in respect of the Class B Percentage of the Investor
Percentage of Principal Collections in respect of such Collection Period:
(i) in the event of an Early Amortization Event involving an
Insolvency Event as a result of the Trustee having received written
instructions from holders of Certificates evidencing Voting Interests of
not less than 51% of the Class A Certificates (voting together as a single
class) or 51% of the Class A Certificates and Class B Certificates (voting
together as a single class) to sell or dispose of the SUBI Interest, to the
Trustee, the Investor Percentage of Capped Trust Administrative Expenses;
(ii) to each Class of Class A Certificateholders, interest at the
related Certificate Rate on the Class A-1, Class A-2, Class A-3 or Class
A-4 Certificate Balance, as applicable, as of the immediately preceding
Distribution Date (after giving effect to any reduction in such Certificate
Balance on such immediately preceding Distribution Date) or, in the case of
the first Distribution Date, on the Initial Class A-1, Class A-2, Class A-3
or Class A-4 Certificate Balance, as applicable, for the related Interest
Period, calculated on the basis of a 360-day year consisting of twelve
30-day months, together with any unpaid Class A-1, Class A-2, Class A-3 or
Class A-4 Interest Carryover Shortfall, as applicable;
(iii) to the Class B Certificateholders, interest at a specified rate
per annum not expected to exceed 9.25% (the "Class B Certificate Rate" and,
together with the Class A-1, Class A-2, Class A-3 and Class A-4 Certificate
Rates, the "Certificate Rates"), on the Class B Certificate Balance as of
the immediately preceding Distribution Date (after giving effect to any
reduction in the Class B Certificate Balance on such immediately preceding
Distribution Date) or, in the case of the first Distribution Date, on the
Initial Class B Certificate Balance, for the related Interest Period,
calculated on the basis of a 360-day year consisting of twelve 30-day
months, together with any unpaid Class B Interest Carryover Shortfall;
(iv) to the Servicer, reimbursement of the Investor Percentage of
Capped Contingent and Excess Liability Premiums;
(v) to the Origination Trustee, the Investor Percentage of Capped
Origination Trust Administrative Expenses;
(vi) in circumstances other than as set forth in clause (i) above, to
the Trustee, the Investor Percentage of Capped Trust Administrative
Expenses;
(vii) in the event that World Omni is not the Servicer, to such other
Servicer, the Investor Percentage of (a) the Servicing Fee and (b) any
unpaid Servicing Fees payable in respect of compensation to such other
Servicer with respect to one or more prior Collection Periods;
(viii) to the Reserve Fund, until the amount on deposit therein equals
the Reserve Fund Cash Requirement;
(ix) to each Class of Class A Certificateholders, an amount equal to
the Class A-1, Class A-2 or Class A-3 or Class A-4 Allocation Percentage,
as applicable, multiplied by the Investor Percentage of all Loss Amounts
incurred during the related Collection Period and allocable to the SUBI
Interest;
(x) to each Class of Class A Certificateholders, the aggregate of the
amounts allocable to such Class pursuant to clause (ix) above that were not
previously distributed pursuant to such clause or this clause (each such
amount, a "Class A-1 Certificate Principal Loss Amount", "Class A-2
Certificate Principal Loss Amount," "Class A-3 Certificate Principal Loss
Amount" or "Class A-4 Certificate Principal Loss Amount", respectively);
(xi) to each Class of Class A Certificateholders, accrued and unpaid
interest at the related Certificate Rate, on any unreimbursed Class A-1,
Class A-2, Class A-3 and Class A-4 Certificate Principal Loss Amount, as
applicable;
(xii) to the Class B Certificateholders, an amount equal to the Class
B Allocation Percentage multiplied by the Investor Percentage of all Loss
Amounts incurred during the related Collection Period and allocable to the
SUBI Interest;
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(xiii) to the Class B Certificateholders, the aggregate of the amounts
allocable pursuant to clause (xii) above that were not previously
distributed pursuant to such clause or this clause (each such amount, a
"Class B Certificate Principal Loss Amount"), together with any Class B
Certificate Principal Carryover Shortfall;
(xiv) to the Class B Certificateholders, accrued and unpaid interest
at the Class B Certificate Rate on any unreimbursed Class B Certificate
Principal Loss Amount and any unreimbursed Class B Certificate Principal
Carryover Shortfall;
(xv) in the event that World Omni is the Servicer (and it has not
elected to waive the Servicing Fee with respect to the related Collection
Period), to the Servicer, the Investor Percentage of (a) the Servicing Fee
for the related Collection Period and (b) any unpaid Servicing Fee with
respect to one or more prior Collection Periods; and
(xvi) to the Trustee and the Origination Trustee, the Investor
Percentage of all specified expenses incurred with respect to the Trust or
the Origination Trust in excess of the Capped Administrative Expenses that
have been paid but have not yet been reimbursed (the "Uncapped
Administrative Expenses").
Notwithstanding the foregoing, as more fully described under "Description
of the Certificates -- Distributions on the Certificates -- Application and
Distributions of Principal", on any Distribution Date relating to a Collection
Period during the Revolving Period, for purposes of reinvestment, amounts
otherwise payable to Certificateholders pursuant to clauses (ix), (x), (xii) and
(xiii) above (whether from Interest Collections, Transferor Amounts that
otherwise would be payable to the Transferor, Insured Residual Value Loss
Amounts paid under the Residual Value Insurance Policy, or from amounts on
deposit in the Reserve Fund) will be treated as Principal Collections for the
Collection Period in which such Distribution Date occurs. Accordingly, such
amounts will be available to be reinvested in Subsequent Contracts and
Subsequent Leased Vehicles during the Revolving Period. (Agreement, Section
3.03).
The balance, if any, of the Interest Collections allocated to the Investor
Interest for the related Collection Period, after giving effect to the
distributions in clauses (i) through (xvi) above, will constitute "Excess
Collections". On each Distribution Date that occurs (i) during the Revolving
Period, Excess Collections will be paid to the Transferor and (ii) during the
Amortization Period, an amount equal to the related Accelerated Principal
Distribution Amount will be paid to Certificateholders as a payment of principal
and any remaining Excess Collections will be paid to the Transferor. On any
Distribution Date, the Transferor may (at its option) instruct the Trustee not
to pay any or all of such remaining Excess Collections to it, but instead to
redeposit such amount ("Undistributed Transferor Excess Collections") into the
SUBI Collection Account for application as Collections in respect of the
Collection Period during which such Distribution Date occurs. The Transferor
will have no further claim to any Undistributed Transferor Excess Collections
deposited into the SUBI Collection Account, except insofar as they become Excess
Collections that are payable to the Transferor for a succeeding Collection
Period. To the extent that an Accelerated Principal Distribution Amount is paid
to Certificateholders on a Distribution Date in any month following the month
during which the Amortization Period commences, such amount will be distributed
first to the Class A-1 Certificateholders until the Class A-1 Certificates have
been paid in full, second, to the Class A-3 Certificateholders until the Class
A-2 Certificates have been paid in full, third, to the Class A-3
Certificateholders until the Class A-4 Certificates have been paid in full, and
thereafter the Class A Percentage and the Class B Percentage of any remaining
amount will be distributed to the Class A-4 Certificateholders and the Class B
Certificateholders, respectively. If any Transferor Amounts are required to be
applied to make any of the distributions in clauses (i) through (xvi) above, the
Interest Collections that are part of the Transferor Amounts will be applied
before any Principal Collections that are part of the Transferor Amounts are so
applied. (Agreement, Section 3.03).
In the event on any Distribution Date there remains any shortfall in
amounts required to be distributed to the Class A-1 Certificateholders, Class
A-2 Certificateholders, Class A-3 Certificateholders and Class A-4
Certificateholders under clauses (ii), (ix), (x) or (xi) above, then the amount
available will be distributed pro rata to such Certificateholders based on the
Class A-1 Allocation Percentage, the Class A-2 Allocation
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Percentage, the Class A-3 Allocation Percentage and the Class A-4 Allocation
Percentage, respectively. (Agreement, Section 3.03).
If and to the extent that the full amount distributable on a Distribution
Date pursuant to clauses (i) through (xvi) above exceeds the Investor Percentage
of Interest Collections allocable to the SUBI Interest for the related
Collection Period, then (i) Transferor Amounts otherwise distributable to the
Transferor will be applied to such shortfall, (ii) if such Transferor Amounts
are insufficient to cover such shortfall, then the proceeds of a claim under the
Residual Value Insurance Policy for any Insured Residual Value Loss Amount will
be applied to such shortfall (other than any shortfall in amounts to be
deposited into the Reserve Fund as set forth in clause (viii) above), and (iii)
if available Transferor Amounts and any claim under the Residual Value Insurance
Policy are insufficient to cover such shortfall, then the Required Amount will
be withdrawn from the Reserve Fund and applied to such shortfall (other than any
shortfall in amounts to be deposited into the Reserve Fund as set forth in
clause (viii) above).
"Interest Collections" with respect to any Collection Period will be
calculated as described under "Summary -- The Revolving Period; Subsequent
Contracts and Subsequent Leased Vehicles". (SUBI Trust Agreement, Section
10.01).
"Capped Origination Trust Administrative Expenses" will equal the amounts
sufficient to pay specified administrative costs and expenses of the Origination
Trust that are allocable to the SUBI Interest up to but not exceeding $100,000
in any calendar year. (SUBI Trust Agreement, Section 10.01). "Capped Trust
Administrative Expenses" will equal the amounts sufficient to pay specified
administrative costs and expenses associated with the Certificates such as the
Trustee's compensation, the reasonable fees and disbursements of the
Transferor's accountants and attorneys, up to but not exceeding $50,000 in any
calendar year (or $100,000 in a calendar year in which an Early Amortization
Event occurs with respect to which the Trustee sells or otherwise disposes of
the SUBI Interest). (Agreement, Section 1.01).
"Capped Contingent and Excess Liability Premiums" will equal the amounts
sufficient to pay the premiums then due on the portion of the Contingent and
Excess Liability Insurance Policies allocable to the SUBI Interest, up to but
not exceeding $745,000 in any calendar year.
A "Certificate Principal Loss Amount" with respect to any Distribution Date
will equal the sum of any Class A-1, Class A-2, Class A-3, Class A-4 and Class B
Certificate Principal Loss Amount and will represent a loss of principal in
respect of Loss Amounts allocable to the Investor Interest and will arise when
the Investor Percentage of Interest Collections allocable to the SUBI Interest,
Insured Residual Value Loss Amounts paid under the Residual Value Insurance
Policy, the Required Amount, the Transferor Amounts, the Servicing Fee (so long
as World Omni is the Servicer) and, with respect to any Class A-4 Certificate
Principal Loss Amount, amounts otherwise payable in respect of principal to the
Class B Certificateholders are not sufficient to cover such loss. As described
under "Description of the Certificates -- General", any Certificate Principal
Loss Amounts allocable to a Class of Class A Certificates which are not
reimbursed as provided herein will reduce the Certificate Balance of such Class
of Class A Certificates. (Agreement, Section 1.01).
The "Class A-1 Interest Carryover Shortfall" with respect to any
Distribution Date will equal the excess, if any, of (i) the amount of interest
distributable on the Class A-1 Certificates for such Distribution Date and any
outstanding Class A-1 Interest Carryover Shortfall from the immediately
preceding Distribution Date plus interest at the Class A-1 Certificate Rate on
such outstanding Class A-1 Interest Carryover Shortfall from such immediately
preceding Distribution Date through the current Distribution Date, over (ii) the
amount of interest distributed to the Class A-1 Certificateholders on such
Distribution Date. The "Class A-2 Interest Carryover Shortfall", the "Class A-3
Interest Carryover Shortfall", the "Class A-4 Interest Carryover Shortfall" and
the "Class B Interest Carryover Shortfall" will be calculated in the same manner
as the Class A-1 Interest Carryover Shortfall, appropriately modified to relate
to the Class A-2 Certificates, the Class A-3 Certificates, the Class A-4
Certificates and the Class B Certificates, respectively. (Agreement, Section
1.01).
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The "Class B Certificate Principal Carryover Shortfall", with respect to
any Distribution Date relating to the Amortization Period from and after the
Distribution Date on which the Class A-3 Certificates are paid in full, will
equal the amount, if any, of the Class B Percentage of the Investor Percentage
of Principal Collections allocable to the SUBI Interest for such Distribution
Date that is instead applied to the distribution of principal to the Class A
Certificateholders, pursuant to clauses (ix) through (xi) above. The Class B
Percentage of the Investor Percentage of Principal Collections allocable to the
SUBI Interest will be applied for such purposes only to the extent that the
other amounts available therefor are insufficient.
The "Class B Allocation Percentage" with respect to any Distribution Date
will mean the Class B Certificate Balance as a percentage of the Certificate
Balance, calculated as of the last day of the related Collection Period.
The "Required Amount" will equal the lesser of (i) the amount on deposit in
the Reserve Fund on the related Deposit Date after all deposits thereto
(including pursuant to clause (viii) above) and (ii) the amount, if any, by
which (a) the full amount distributable on the related Distribution Date
pursuant to clauses (i) through (vii) and (ix) through (xvi) above exceeds (b)
the sum of (1) the Investor Percentage of Interest Collections allocable to the
SUBI Interest for the related Collection Period, (2) any Transferor Amounts
applied to cover such distributable amount on such Distribution Date, and (3)
any Insured Residual Value Loss Amounts paid under the Residual Value Insurance
Policy with respect to the related Collection Period. (Agreement, Sections 1.01,
3.03 and 3.04). For further details regarding the Reserve Fund, see "Security
for the Certificates -- The Accounts -- The Reserve Fund".
Application and Distributions of Principal
Revolving Period. No principal will be payable to the Class A
Certificateholders until the June 1998 Distribution Date or, upon the occurrence
of an Early Amortization Event, until the Distribution Date in the month
immediately succeeding the month in which such Early Amortization Event occurs.
On a Transfer Date related to any Collection Period during the Revolving
Period, the Servicer will identify lease contracts and the related leased
vehicles of the Origination Trust that meet the eligibility criteria described
under "The Contracts" and are not evidenced by the SUBI or any Other SUBI. On
each Transfer Date, the Servicer, acting on behalf of the Origination Trustee,
will allocate as SUBI Assets additional lease contracts and related leased
vehicles so identified having aggregate Discounted Principal Balances as of the
last day of the preceding Collection Period (each, a "Subsequent Cutoff Date"
and, together with the Initial Cutoff Date, the "Cutoff Dates") approximately
equal to, but not greater than, all Principal Collections collected or received
since the Initial Cutoff Date (including Loss Amounts that otherwise would be
reimbursed to the Certificateholders which for this purpose are treated as
Principal Collections, as described under "Description of the
Certificates -- Distributions on the Certificates -- Distributions of Interest")
that have not yet been reinvested in Subsequent Contracts and Subsequent Leased
Vehicles as described herein. Upon such allocation, the related lease contracts
and leased vehicles will become Subsequent Contracts and Subsequent Leased
Vehicles and accordingly will become SUBI Assets. No partial interest in lease
contracts (and the related leased vehicles) will be so allocated as SUBI Assets.
Coincident with such allocation, the Servicer, acting on behalf of the
Origination Trustee, will transfer from the SUBI Collection Account an amount of
unreinvested Principal Collections equal to the aggregate Discounted Principal
Balances of the related Subsequent Contracts as of the related Subsequent Cutoff
Date to an account maintained by the Origination Trustee to hold collections
with respect to the Origination Trust Assets that are not SUBI Assets.
Any Principal Collections (and Loss Amounts that otherwise would be
reimbursed to the Certificateholders) that are not so reinvested may be
reinvested in additional Subsequent Contracts and Subsequent Leased Vehicles on
one or more subsequent Transfer Dates prior to the end of the Revolving Period.
In the event that on the twenty-fifth day of any month (beginning May 1997)
during the Revolving Period the amount of such Principal Collections and Loss
Amounts as of the last day of the immediately preceding month that have not been
reinvested in Subsequent Contracts and Subsequent Leased Vehicles exceeds
$1,000,000, an Early Amortization Event will occur, the Revolving Period will
terminate prior to the Amortization Date and any unreinvested Principal
Collections at the end of the Revolving Period will be
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distributed as principal to the Trust and then to Certificateholders on the
immediately succeeding Distribution Date. (Servicing Agreement, Section 8.02;
SUBI Trust Agreement, Section 11.02; Agreement, Section 8.01).
"Collections" and "Principal Collections" with respect to any Collection
Period will be calculated as described under "Summary -- The Revolving Period;
Subsequent Contracts and Subsequent Leased Vehicles". (SUBI Trust Agreement,
Section 10.01).
Amortization Period. On each Distribution Date beginning with the
Distribution Date in the month following the month in which the Amortization
Period commences and ending on the Distribution Date on which the Class A-3
Certificates have been paid in full, the Trustee will distribute an amount equal
to the Investor Percentage of all Principal Collections collected or received in
respect of the related Collection Period allocable to the Investor Interest as
principal first to the Class A-1 Certificateholders until the Class A-1
Certificates have been paid in full, second, to the Class A-2 Certificateholders
until the Class A-2 Certificates have been paid in full, third, to the Class A-3
Certificateholders until the Class A-3 Certificates have been paid in full, and
thereafter the Class A Percentage and the Class B Percentage of any such
remaining Principal Collections will be distributed as principal to the Class
A-4 Certificateholders and the Class B Certificateholders, respectively. The
Trustee will also distribute to Class A-1 Certificateholders on the Distribution
Date in the month following the month in which the Amortization Period commences
the Class A Percentage of the Investor Percentage of the sum of (i) any
Principal Collections allocable to the SUBI Interest that were not reinvested in
Subsequent Contracts and Subsequent Leased Vehicles as of the end of the
Revolving Period and (ii) any Unallocated Principal Collections on deposit in
the Distribution Account at the time the Amortization Period commences. The
aggregate distributions of principal to the Certificateholders of each Class of
Class A Certificates will not exceed the Initial Certificate Balances of such
Class of Certificates. (SUBI Trust Agreement, Section 11.02; Agreement, Section
3.03).
In general, no principal payments will be made on the Class A-2
Certificates until the Class A-1 Certificates have been paid in full, on the
Class A-3 Certificates until the Class A-1 and Class A-2 Certificates have been
paid in full, or on the Class A-4 or Class B Certificates until the Class A-1,
Class A-2 and Class A-3 Certificates have been paid in full. The Investor
Percentage of Loss Amounts will be allocated among Certificateholders on a pro
rata basis, based on the Class A-1 Allocation Percentage, the Class A-2
Allocation Percentage, the Class A-3 Allocation Percentage, the Class A-4
Allocation Percentage and the Class B Allocation Percentage, as the case may be,
and then reimbursed out of available funds in the amounts and order of priority
described in "Description of the Certificates -- Distributions on the
Certificates -- Distributions of Interest". Loss Amounts will not be allocated
or reimbursed to any Certificateholder once the related Certificates have been
paid in full. In addition, the Investor Percentage of the net proceeds of any
sale or other disposition of the SUBI Interest, the SUBI Certificate or other
property of the Trust, which may occur under certain circumstances involving an
Insolvency Event with respect to the Transferor (as described under "Description
of the Certificates -- Early Amortization Events"), to the extent such net
proceeds constitute Principal Collections, will be distributed on a pro rata
basis, first, to the Class A-1, Class A-2, Class A-3 and Class A-4
Certificateholders based on their respective Class Certificate Balances until
the Class A Certificates have been paid in full, and second, to the Class B
Certificateholders.
In addition, on any Distribution Date relating to the Amortization Period
from and after the Distribution Date on which the Class A-3 Certificates are
paid in full, but only to the extent that other amounts available therefor are
insufficient, amounts that would otherwise be distributable to the Class B
Certificateholders in respect of the Class B Percentage of the Investor
Percentage of Principal Collections collected or received in respect of the
related Collection Period and allocable to the SUBI Interest will instead be
distributed as principal payments to the Class A-4 Certificateholders up to an
amount equal to the sum of (i) the Class A-4 Allocation Percentage of the
Investor Percentage of Loss Amounts incurred during the related Collection
Period and allocable to the SUBI Interest, (ii) any Class A-4 Certificate
Principal Loss Amounts and (iii) accrued and unpaid interest on any Class A-4
Certificate Principal Loss Amounts, as set forth under "Description of the
Certificates -- Distributions on the Certificates -- Distributions of Interest."
Principal payments made during the Amortization Period in respect of the
Class A-1 Certificates, the Class A-2 Certificates or Class A-3 Certificates, as
applicable, will consist primarily of the Investor Percentage
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of all Principal Collections during the related Collection Period allocable to
the SUBI Interest. However, principal payments made in respect of the Class A-4
Certificates and the Class B Certificates (once the Class A-1 Certificates,
Class A-2 Certificates and Class A-3 Certificates have been paid in full) will
be based upon a calculation of the Class A Percentage and the Class B Percentage
of the Investor Percentage of such Principal Collections.
EARLY AMORTIZATION EVENTS
As described above, the Revolving Period will continue until the close of
business on the last day of April 1998 and the Amortization Period will begin on
May 1, 1998 and continue to the earlier of the payment in full of the
Certificates and the termination of the Trust, unless an Early Amortization
Event occurs prior to any of such dates, thereby commencing the Amortization
Period. An "Early Amortization Event" will mean any of the following events:
(i) failure by the Servicer (a) to make any payment or deposit
required with respect to the SUBI, the SUBI Interest or the Certificates
under the Agreement, the SUBI Trust Agreement or the Servicing Agreement,
within five Business Days after the date the payment or deposit is required
to be made, or (b) to deliver a Servicer's Certificate within ten Business
Days after any Determination Date;
(ii) failure by the Transferor or the Servicer duly to observe or
perform in any material respect any other of its covenants or agreements in
the Agreement (other than those described in clause (i) above), the SUBI
Trust Agreement or the Servicing Agreement, which failure materially and
adversely affects the rights of holders of the SUBI Interest or
Certificateholders and which continues unremedied for 60 days after the
giving of written notice of such failure (a) to the Transferor or the
Servicer, as the case may be, by the Trustee or the Origination Trustee or
(b) to the Transferor or the Servicer, as the case may be, and to the
Trustee by holders of Certificates evidencing not less than 25% of the
Voting Interests of the Class A Certificates and the Class B Certificates,
voting together as a single class;
(iii) failure to cure the inaccuracy of certain representations,
warranties and certificates of the Transferor or the Servicer in the
Agreement, the SUBI Trust Agreement or the Servicing Agreement, which
failure materially and adversely affects the rights of holders of the SUBI
Interest or Certificateholders and which continues uncured for 60 days
after notice is given as described in clause (ii) above; provided that an
Early Amortization Event pursuant to this subparagraph (iii) will not be
deemed to occur if a related Reallocation Payment is due in connection with
such breach and has been paid by the Servicer in accordance with the
Servicing Agreement;
(iv) the occurrence of certain Insolvency Events relating to the
Transferor;
(v) creation of any lien or encumbrance not otherwise permitted by the
Agreement, the SUBI Trust Agreement or the Servicing Agreement on the SUBI
Assets, which lien or encumbrance is not released within 60 days of its
creation;
(vi) transfer of, or imposition of a lien or encumbrance on, the
Retained SUBI Interest held by the Transferor except as permitted by the
Agreement, which, in the case of the imposition of a lien or encumbrance,
is not released within 30 days of its creation;
(vii) the Transferor, the Trust or the Origination Trust becomes
subject to registration as an "investment company" for purposes of the
Investment Company Act of 1940, as amended;
(viii) if on the twenty-fifth day of any month (beginning May 1997)
the amount of Principal Collections and Loss Amounts that otherwise would
be available to be reimbursed to the Certificateholders as of the last day
of the immediately preceding month that have not been reinvested in
Subsequent Contracts and Subsequent Leased Vehicles exceeds $1,000,000;
(ix) an Event of Servicing Termination occurs;
(x) if on any Distribution Date the aggregate amount withdrawn from
the Reserve Fund and deposited into the Distribution Account on or prior to
such Distribution Date (without giving effect to any deposits into the
Reserve Fund) exceeds $2,992,697 (i.e., 0.25% multiplied by 99.8% of the
Aggregate Net Investment Value as of the Initial Cutoff Date); or
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(xi) any Leased Vehicle is no longer covered by the Residual Value
Insurance Policy or one or more policies with substantially similar
coverage and provisions issued by an insurer acceptable to each Rating
Agency, or an alternative mechanism to support Residual Values of Leased
Vehicles implemented in accordance with the procedures required for
amendment of the Agreement (as described in "Additional Document
Provisions -- Additional Agreement Provisions -- Amendment").
The Amortization Period will commence on the day as of which an Early
Amortization Event is deemed to have occurred. (Agreement, Section 8.01). In
such event, distributions of principal to the Certificateholders will begin on
the Distribution Date in the month following the month in which the Early
Amortization Event occurs. If, because of the occurrence of an Early
Amortization Event, the Amortization Period begins earlier than the Amortization
Date, Class A-1 Certificateholders will begin receiving distributions of
principal earlier than they would otherwise have under the Agreement, and Class
A-2, Class A-3 and Class A-4 Certificateholders may begin receiving
distributions of principal earlier than they would otherwise have under the
Agreement, which may shorten the final maturity of the related Class of Class A
Certificates.
In addition to the consequences of an Early Amortization Event discussed
above, if an Insolvency Event with respect to the Transferor were to occur
during the Revolving Period, the Agreement will require the Transferor to
promptly give notice of such Insolvency Event to the Trustee. Pursuant to the
Agreement, within 15 days of such notice, the Trustee may, and upon receipt of
written instructions from holders of Certificates evidencing Voting Interests of
not less than 51% of the Class A Certificates (voting together as a single
class) or 51% of the Class A Certificates and Class B Certificates (voting
together as a single class) shall, publish a notice of the Insolvency Event
stating that the Trustee intends to sell or dispose of the SUBI Interest and the
SUBI Certificate and the other property of the Trust in a commercially
reasonable manner. Following such publication, unless otherwise prohibited by
applicable law, the Trustee will sell or otherwise dispose of the SUBI Interest,
the SUBI Certificate and such other property in a commercially reasonable manner
and on commercially reasonable terms; provided that such sale shall not be made
without the consent of all the Certificateholders if a net loss would be
realized as a result of such sale. The net sale or disposition proceeds of the
SUBI Interest, the SUBI Certificate and such other property will be deposited
into the SUBI Collection Account and treated as Collections on or in respect of
the SUBI Assets. The interest portion of the Investor Percentage of such
proceeds will be distributed to the Certificateholders in the priority provided
for herein, and the principal portion of the Investor Percentage of such
proceeds will be distributed first, on a pro rata basis, to the Class A-1, Class
A-2, Class A-3 and Class A-4 Certificateholders based on their respective Class
Certificate Balances until the Class A-1, Class A-2, Class A-3 and Class A-4
Certificates have been paid in full, and second, to the Class B
Certificateholders. (Agreement, Section 8.02). If such proceeds, together with
all amounts on deposit in the Accounts, the Reserve Fund and the Residual Value
Surplus Account, amounts otherwise payable to the Transferor in respect of the
Transferor Interest, Insured Residual Value Loss Amounts paid under the Residual
Value Insurance Policy, the Servicing Fee (if World Omni is the Servicer) and,
in the case of the Class A-4 Certificates, certain amounts otherwise
distributable in respect of the Class B Certificates, are insufficient to pay
the Certificate Balance of a Class of Class A Certificates, any unreimbursed
Certificate Principal Loss Amount in respect of such Class of Class A
Certificates and any accrued and unpaid interest thereon in full, the related
Class A Certificateholders will suffer a corresponding loss.
The "Voting Interests" of the (i) Class A Certificates will be allocated
among the Class A-1, Class A-2, Class A-3 and Class A-4 Certificateholders or
Certificate Owners, as the case may be, in accordance with their respective
Class Certificate Balances, as the context may require, and (ii) Class B
Certificates will be allocated among the Class B Certificateholders in
accordance with the Class B Certificate Balance represented thereby.
Notwithstanding the foregoing, in certain circumstances, any Class A
Certificates or Class B Certificates, as the case may be, held or beneficially
owned by ALFI, ALFI L.P., the Transferor, WOLSI, World Omni or any of their
respective affiliates shall be excluded from such determination. (Agreement,
Section 1.01).
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STATEMENTS TO CERTIFICATEHOLDERS
On each Distribution Date, the Trustee will include with each distribution
to each Certificateholder as of the close of business on the related Record Date
(which, in the case of the Class A Certificates, shall be Cede as the nominee of
DTC unless Definitive Certificates are issued under the limited circumstances
described herein) a statement, setting forth with respect to such Distribution
Date or the related Collection Period, among other things, the following:
(i) the Investor Percentages for Interest Collections and Principal
Collections allocable to the SUBI Interest for such Collection Period;
(ii) the amount being distributed to Certificateholders (the
"Certificate Distribution Amount");
(iii) the amount of the Certificate Distribution Amount allocable to
interest and to principal on each Class of Certificates;
(iv) the amount of the Certificate Distribution Amount allocable to
any Class A-1 Interest Carryover Shortfall, any Class A-2 Interest
Carryover Shortfall, any Class A-3 Interest Carryover Shortfall, any Class
A-4 Interest Carryover Shortfall and any Class B Interest Carryover
Shortfall;
(v) the amount, if any, of any unpaid Class A-1 Interest Carryover
Shortfall, unpaid Class A-2 Interest Carryover Shortfall, unpaid Class A-3
Interest Carryover Shortfall, unpaid Class A-4 Interest Carryover Shortfall
and unpaid Class B Interest Carryover Shortfall, after giving effect to
distribution of the Certificate Distribution Amount;
(vi) the Certificate Balance, the Class A-1 Certificate Balance, the
Class A-2 Certificate Balance, the Class A-3 Certificate Balance, the Class
A-4 Certificate Balance, the Class A-1 Certificate Factor, the Class A-2
Certificate Factor, the Class A-3 Certificate Factor, the Class A-4
Certificate Factor, the Class A-1 Allocation Percentage, the Class A-2
Allocation Percentage, the Class A-3 Allocation Percentage, the Class A-4
Allocation Percentage and the Class B Allocation Percentage as of such
Distribution Date, in each case after giving effect to distribution of the
Certificate Distribution Amount;
(vii) the aggregate amount, if any, of the reimbursement of Loss
Amounts included in distribution of the Certificate Distribution Amount and
the amount thereof allocated to each Class of Certificateholders;
(viii) the amount of the Certificate Distribution Amount allocable to
reimbursement of previous Class A-1 Certificate Principal Loss Amounts,
Class A-2 Certificate Principal Loss Amounts, Class A-3 Certificate
Principal Loss Amounts, Class A-4 Certificate Principal Loss Amounts and
Class B Certificate Principal Loss Amounts, in each case together with the
amount of accrued interest thereon included in such distribution;
(ix) the amount, if any, of the aggregate unreimbursed Class A-1
Certificate Principal Loss Amounts, Class A-2 Certificate Principal Loss
Amounts, Class A-3 Certificate Principal Loss Amounts, Class A-4
Certificate Principal Loss Amounts and Class B Certificate Principal Loss
Amounts, after giving effect to distribution of the Certificate
Distribution Amount;
(x) the amount of any unreimbursed Class B Certificate Principal
Carryover Shortfall;
(xi) the Investor Percentage of the Servicing Fee;
(xii) the amount of any Required Amount included in the Certificate
Distribution Amount, the balance on deposit in the Reserve Fund on such
Distribution Date, after giving effect to withdrawals therefrom and
deposits thereto on such Distribution Date, the change in such balance from
the immediately preceding Distribution Date, the Reserve Fund Cash
Requirement and any Reserve Fund supplemental requirement;
(xiii) the amount of Transferor Amounts, if any, included in the
Certificate Distribution Amount;
(xiv) the Aggregate Net Investment Value as of the end of such
Collection Period;
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(xv) the aggregate amount of Payments Ahead on deposit in the SUBI
Collection Account and the change in such amount from the immediately
preceding Distribution Date;
(xvi) the amounts of Advances made in respect of such Collection
Period and the amount of unreimbursed Advances on such Distribution Date;
(xvii) the balance on deposit in the Residual Value Surplus Account on
the related Deposit Date, after giving effect to the change in such balance
from the immediately preceding Deposit Date, and the aggregate amount of
Residual Value Surplus deposited into or withdrawn from the Residual Value
Surplus Account on the related Deposit Date;
(xviii) certain information used in determining compliance with the
Charge-off Test Rate and the Delinquency Test; and
(xix) the Insured Residual Value Loss Amount, if any, for such
Distribution Date.
Each amount set forth pursuant to clauses (ii) through (v) and (vii)
through (x) above will be expressed in the aggregate and as a dollar amount per
$1,000 of original principal balance of a Class A Certificate or Class B
Certificate, as applicable. Copies of such statements may be obtained by
Certificateholders or Certificate Owners by a request in writing addressed to
the Trustee. In addition, within the prescribed period of time for tax reporting
purposes after the end of each calendar year during the term of the Agreement,
the Trustee will mail to each person who at any time during such calendar year
shall have been a Class A or Class B Certificateholder or a Certificate Owner, a
statement containing the sum of the amounts described in clauses (ii) through
(vi) and (viii) through (xi) above for the purpose of preparing such person's
federal income tax return. (Agreement, Section 3.06).
TERMINATION OF THE TRUST; RETIREMENT OF THE CERTIFICATES
The respective obligations and responsibilities of the Transferor and the
Trustee created by the Agreement will terminate upon the earliest to occur of
(i) the maturity, sale or other liquidation, as the case may be, of the last
outstanding Contract and Leased Vehicle evidenced by the SUBI and the
distribution of all proceeds thereof, together with all amounts on deposit in
the Accounts and the Reserve Fund, in the manner to be prescribed in the
Agreement, (ii) the day following the Distribution Date on which the
Certificates have been paid in full and after which there is no unreimbursed
Certificate Principal Loss Amount or Class B Certificate Principal Carryover
Shortfall (together with accrued interest thereon) and (iii) the occurrence of
the event described below. In order to avoid excessive administrative expenses,
the Transferor will be permitted at its option to purchase the SUBI Interest
evidenced by the SUBI Certificate from the Trust on any Distribution Date if,
either before or after giving effect to any payment of principal required to be
made on such Distribution Date, the Certificate Balance is less than or equal to
10% of the Initial Certificate Balance. The purchase price will be equal to the
greater of (i) the sum of the Class A Certificate Balance and the Class B
Certificate Balance, in each case plus accrued and unpaid interest thereon at
the related Certificate Rate, plus certain other accrued and unpaid amounts, if
any, due to the Investor Certificateholders or the Servicer, and (ii) 99.8% of
the Aggregate Net Investment Value as of the last day of the preceding
Collection Period. The Trustee will give written notice of termination of the
Trust to each Certificateholder of record. In connection with any such
termination, except as otherwise provided in the Agreement, the Transferor will
be deemed to relinquish all claims it may have against the assets of the Trust
in respect of Transferor Amounts that were not paid to the Transferor.
(Agreement, Sections 7.01 and 7.02).
The final distribution to any Certificateholder will be made only upon
surrender and cancellation of such Certificateholder's Certificate at an office
or agency of the Trustee specified in the notice of termination. Any funds
remaining that are payable in such final distribution to a Certificateholder,
after the Trustee has taken certain measures to locate such Certificateholder
and such measures have failed, will be distributed to the United Way.
(Agreement, Section 7.01).
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BOOK-ENTRY REGISTRATION
Certificate Owners may hold through DTC (in the United States), or Cedel or
Euroclear (in Europe), which in turn hold through DTC, if they are participants
in such systems, or indirectly through organizations that are participants in
such systems ("Participants").
Cede, as nominee for DTC, will hold the Class A Certificates. Cedel and
Euroclear will hold omnibus positions on behalf of their Participants through
customers' securities accounts in the Depositaries which in turn will hold such
positions in customers' securities accounts in the Depositaries' names on the
books of DTC. Unless and until Definitive Certificates are issued, it is
anticipated that the only Class A Certificateholder will be Cede, as the nominee
of DTC. Certificate Owners will only be permitted to exercise their rights
indirectly through DTC.
Transfers between Participants in DTC ("DTC Participants") will occur in
accordance with DTC rules. Transfers between Participants in Cedel ("Cedel
Participants") and Participants in Euroclear ("Euroclear Participants") will
occur in accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of Cedel or Euroclear by its Depositary.
However, each such cross-market transaction will require delivery of
instructions to Cedel or Euroclear by the counterparty in such system in
accordance with its rules and procedures and within its established deadlines
(European time). Cedel or Euroclear will, if the transaction meets its
settlement requirements, deliver instructions to its Depositary to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. Cedel Participants and Euroclear
Participants may not deliver instructions directly to the related Depositaries.
Because of time-zone differences, credits of securities received in Cedel
or Euroclear as a result of a transaction with a DTC Participant will be made
during subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant Cedel
Participants or Euroclear Participants on such business day. Cash received in
Cedel or Euroclear as a result of sales of Class A Certificates by or through a
Cedel Participant or Euroclear Participant to a DTC Participant will be received
with value on the DTC settlement date but will be available in the relevant
Cedel or Euroclear cash account only as of the business day following settlement
in DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, 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 UCC in effect in the State of New York and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that DTC Participants deposit with DTC. DTC also facilitates
the clearance and settlement of securities transactions among DTC Participants
through electronic computerized book-entry changes in accounts of DTC
Participants, thereby eliminating the need for physical movement of securities
certificates. DTC Participants include securities brokers and dealers (including
the Underwriters), banks, trust companies, clearing corporations and certain
other organizations. 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 DTC Participant, either directly or indirectly
(the "Indirect DTC Participants"). The rules applicable to DTC and DTC
Participants are on file with the Commission.
Certificate Owners that are not DTC Participants or Indirect DTC
Participants but that desire to purchase, sell or otherwise transfer ownership
of, or an interest in, Class A Certificates under the DTC System may do so only
through DTC Participants or Indirect DTC Participants. DTC Participants will
receive a credit for the Class A Certificates in DTC's records. The ownership
interest of each Certificate Owner in turn will be recorded on the DTC
Participants' and Indirect DTC Participants' respective records. Certificate
Owners will not receive written confirmation from DTC of their purchase, but
Certificate Owners are expected
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to receive written confirmations providing details of the transaction, as well
as periodic statements of their holdings, from the DTC Participant or Indirect
DTC Participant through which the Certificate Owner entered into the
transaction. Transfers of ownership interests in the Class A Certificates will
be accomplished by entries made on the books of DTC Participants acting on
behalf of Certificate Owners.
To facilitate subsequent transfers, all Class A Certificates deposited by
DTC Participants with DTC will be registered in the name of Cede, as nominee of
DTC. The deposit of Class A Certificates with DTC and their registration in the
name of Cede will effect no change in beneficial ownership. DTC will have no
knowledge of the actual Certificate Owners and its records will reflect only the
identity of the DTC Participants to whose accounts such Class A Certificates are
credited, which may or may not be the Certificate Owners. DTC Participants and
Indirect DTC Participants will remain responsible for keeping account of their
holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to DTC Participants,
by DTC Participants to Indirect DTC Participants and by DTC Participants and
Indirect DTC Participants to Certificate Owners will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time.
Principal and interest payments with respect to the Class A Certificates
will be made to DTC. DTC's practice is to credit DTC Participants' accounts on
each Distribution Date in accordance with their respective holdings shown on
DTC's records unless DTC has reason to believe that it will not receive payment
on such Distribution Date. Payments by DTC Participants and Indirect DTC
Participants to Certificate Owners will be governed by standing instructions and
customary practices, as in 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 DTC Participant and Indirect DTC Participant and not of
DTC, the Trustee, the Origination Trustee, the Servicer or the Transferor,
subject to any statutory or regulatory requirements as may be in effect from
time to time. Payment of principal of and interest on the Class A Certificates
to DTC will be the responsibility of the Trustee, disbursement of such payments
to DTC Participants will be the responsibility of DTC and disbursement of such
payments to Certificate Owners will be the responsibility of DTC Participants
and Indirect DTC Participants. As a result, under the book-entry format,
Certificate Owners may experience some delay in their receipt of payments.
Because DTC can only act on behalf of DTC Participants, who in turn act on
behalf of Indirect DTC Participants and certain banks, the ability of a
Certificate Owner to pledge Class A Certificates to persons or entities that do
not participate in the DTC system, or otherwise take actions with respect to
such Class A Certificates, may be limited due to the lack of a physical
certificate for such Class A Certificates.
Neither DTC nor Cede will consent or vote with respect to the Class A
Certificates. Under its usual procedures, DTC mails an "Omnibus Proxy" to the
Trustee as soon as possible after any applicable record date for such a consent
or vote. The Omnibus Proxy assigns Cede's consenting or voting rights to those
DTC Participants to whose accounts the Class A Certificates are credited on that
record date (identified in a listing attached to the Omnibus Proxy).
None of the Transferor, the Servicer, the Origination Trustee nor the
Trustee will have any liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests of the Class A
Certificates held by Cede, as nominee of DTC, or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
Cedel is incorporated under the laws of Luxembourg as a professional
depository. Cedel holds securities for Cedel Participants and facilitates the
clearance and settlement of securities transactions between Cedel Participants
through electronic book-entry changes in accounts of Cedel Participants, thereby
eliminating the need for physical movement of certificates. Transactions may be
settled in Cedel in any of 28 currencies, including United States dollars. Cedel
provides to Cedel Participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Cedel interfaces with domestic markets in
several countries. As a professional depositary, Cedel is subject to regulation
by the Luxembourg Monetary Institute. Cedel Participants are
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recognized financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations. Indirect access to Cedel is also available to
others, such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Cedel Participant, either directly
or indirectly.
Euroclear was created in 1968 to hold securities for Euroclear Participants
and to clear and settle transactions between Euroclear Participants through
simultaneous electronic book-entry delivery against payment, thereby eliminating
the need for physical movement of certificates and any risk from lack of
simultaneous transfers of securities and cash. Transactions may now be settled
in any of 32 currencies, including United States dollars. The Euroclear System
includes various other services, including securities lending and borrowing, and
interfaces with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC described above. Euroclear is
operated by the Brussels, Belgium office of Morgan Guaranty Trust Company of New
York (the "Euroclear Operator"), under contract with Euroclear Clearance System
S.C., a Belgian cooperative corporation (the "Cooperative"). All operations are
conducted by the Euroclear Operator, and all Euroclear securities clearance
accounts and Euroclear cash accounts are accounts with the Euroclear Operator,
not the Cooperative. The Cooperative establishes policy for the Euroclear System
on behalf of Euroclear Participants. Euroclear Participants include banks
(including central banks), securities brokers and dealers and other professional
financial intermediaries. Indirect access to the Euroclear System is also
available to other firms that clear through or maintain a custodial relationship
with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions with respect to Class A Certificates held through Cedel or
Euroclear will be credited to the cash accounts of Cedel Participants or
Euroclear Participants in accordance with the relevant system's rules and
procedures, to the extent received by its Depositary. Such distributions will be
subject to tax reporting and withholding in accordance with relevant United
States tax laws and regulations. For further information in this regard, see
"Material Income Tax Considerations -- Federal Taxation -- Federal Income Tax
Consequences to Foreign Investors" herein and "Global Clearance, Settlement and
Tax Documentation Procedures -- Certain U.S. Federal Income Tax Documentation
Requirements" in Annex I hereto. Cedel or the Euroclear Operator, as the case
may be, will take any other action permitted to be taken by a Class A
Certificateholder on behalf of a Cedel Participant or Euroclear Participant only
in accordance with its relevant rules and procedures and subject to the related
Depositary's ability to effect such actions on its behalf through DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Class A Certificates among Participants of
DTC, Cedel and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
DEFINITIVE CERTIFICATES
Definitive Certificates will be issued to Certificate Owners rather than to
DTC only if (i) DTC is no longer willing or able to discharge its
responsibilities with respect to the Class A Certificates, and neither the
Trustee nor the Transferor is able to locate a qualified successor, (ii) the
Transferor, at its option, elects to
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terminate the book-entry system through DTC or (iii) after an Early Amortization
Event, Certificate Owners representing in the aggregate not less than 51% of the
Voting Interests of the Class A Certificates (voting together as a single class)
advise the Trustee through DTC or its successor in writing that the continuation
of a book-entry system through DTC or its successor is no longer in the best
interest of Certificate Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all Certificate
Owners, through Participants, of the availability through DTC of Definitive
Certificates. Upon surrender by DTC of the certificates representing the related
Class A Certificates and the receipt of instructions for re-registration, the
Trustee will issue Definitive Certificates to Certificate Owners, who thereupon
will become Certificateholders for all purposes of the Agreement. (Agreement,
Section 4.11).
Payments on the related Class A Certificates will thereafter be made by the
Trustee directly to holders of such Class A Certificates in accordance with the
procedures set forth herein and to be set forth in the Agreement. Interest
payments and any principal payments on the Definitive Certificates on each
Distribution Date will be made to holders in whose names the Definitive
Certificates were registered at the close of business on the Record Date with
respect to such Distribution Date. Payments will be made by check mailed to the
address of such holders as they appear on the Certificate Register or, under the
circumstances to be provided by the Agreement, by wire transfer to a bank or
depository institution located in the United States and having appropriate
facilities therefor. (Agreement, Section 3.03). The final payment on any Class A
Certificates (whether Definitive Certificates or global certificates registered
in the name of Cede representing the Class A Certificates), however, will be
made only upon presentation and surrender of such Definitive Certificates or
global certificates at the office or agency specified in the notice of final
distribution to Class A Certificateholders. (Agreement, Section 7.01).
Definitive Certificates will be transferable and exchangeable at the
offices of the Trustee or the Certificate Registrar to be set forth in the
Agreement. No service charge will be imposed for any registration of transfer or
exchange, but the Trustee may require payment of a sum sufficient to cover any
tax or other governmental charge imposed in connection therewith. (Agreement,
Section 4.07).
SECURITY FOR THE CERTIFICATES
GENERAL
The property of the Trust will primarily consist of the SUBI Interest
evidenced by the SUBI Certificate, which is more fully described under "The
Trust and the SUBI -- The SUBI". The property of the Trust will also include
such amounts as from time to time are held in the Reserve Fund and the
Distribution Account. The Trust will also have the collateral benefit of monies
on deposit in the SUBI Collection Account and the Residual Value Surplus
Account, the Contingent and Excess Liability Insurance Policies and the Residual
Value Insurance Policy described below and the Trustee's rights as a third-party
beneficiary of the SUBI Trust Agreement and the Servicing Agreement.
As described under "Certain Legal Aspects of the Origination Trust and the
SUBI -- The SUBI" and "Certain Legal Aspects of the Contracts and the Leased
Vehicles -- Back-up Security Interests", the Trustee generally will be deemed to
have ownership of the SUBI Certificate and, through such ownership, an indirect
beneficial ownership interest in the Contracts and Leased Vehicles. If a court
of competent jurisdiction recharacterizes the transfer of the SUBI Interest to
the Trust, the Trustee may instead be deemed to have a perfected security
interest in the SUBI Certificate, the Contracts and Contract Rights susceptible
of perfection under the UCC, but in no event will the Trustee be deemed to have
a perfected security interest in the Leased Vehicles.
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THE ACCOUNTS
The Distribution Account
On or prior to the Closing Date, the Transferor will establish a trust
account with the Trustee for the exclusive benefit of the Certificateholders and
the Transferor, in its capacity as holder of the Transferor Interest, from which
all payments with respect to the Certificates will be made (the "Distribution
Account"). (Agreement, Section 3.01). Within one Business Day of receipt, the
Servicer will deposit all Insured Residual Value Loss Amounts paid under the
Residual Value Insurance Policy (if they relate to the Amortization Period) into
the Distribution Account. On each Deposit Date, all Principal Collections and
Interest Collections with respect to the related Collection Period allocable to
the SUBI Interest will be remitted to the Distribution Account. Such deposits
will be made from, among other sources, (i) monies on deposit in the SUBI
Collection Account or the Reserve Fund and (ii) the Transferor in the case of
exercise of its right to purchase the SUBI Interest represented by the SUBI
Certificate when the Certificate Balance is less than or equal to 10% of the
Initial Certificate Balance.
The SUBI Collection Account
On or prior to the Closing Date, the Origination Trustee will establish a
trust account for the exclusive benefit of the holders of interests in the SUBI
into which collections on or in respect of the Contracts and the Leased Vehicles
generally will be deposited (the "SUBI Collection Account"). (SUBI Trust
Agreement, Section 12.01).
Deposits into the SUBI Collection Account. Deposits into the SUBI
Collection Account will include, but will not be limited to, the following
payments made in respect of the SUBI Assets: (i) Monthly Payments; (ii) early
payments of the Outstanding Principal Balance of a Contract, including an amount
equal to the Residual Value of the related Leased Vehicle (each, a
"Prepayment"); (iii) Matured Leased Vehicle Proceeds, Repossessed Vehicle
Proceeds and other Liquidation Proceeds, and Insurance Proceeds; (iv) Extension
Fees; (v) Payments Ahead; (vi) Advances made by the Servicer; (vii) Reallocation
Payments by World Omni (together with, under certain circumstances during the
Amortization Period, Reallocation Deposit Amounts) in respect of certain
Contracts as to which an uncured breach of certain representations and
warranties or certain servicing covenants has occurred; (viii) Undistributed
Transferor Excess Collections; (ix) Insured Residual Value Loss Amounts paid
under the Residual Value Insurance Policy with respect to the Revolving Period;
and (x) certain amounts in respect of certain shortfalls in the Residual Values
of Leased Vehicles relating to Matured Contracts, as described under "Security
for the Certificates -- The Accounts -- The Residual Value Surplus Account".
(Servicing Agreement, Sections 2.02, 8.02, 9.02 and 9.04; SUBI Trust Agreement,
Section 12.01).
"Insurance Proceeds" will include recoveries pursuant to the Contingent and
Excess Liability Insurance Policies and the comprehensive, collision, public
liability and property damage insurance policy required to be obtained and
maintained by the lessee pursuant to each Contract (or payment by the Servicer
under the Servicing Agreement of such amounts under the circumstances described
in "Additional Document Provisions -- The Servicing Agreement -- Insurance on
Leased Vehicles"), and amounts paid by any insurer under any other insurance
policy relating to the Contracts, the related lessees or the Leased Vehicles,
but will not include Insured Residual Value Loss Amounts paid under the Residual
Value Insurance Policy. (SUBI Trust Agreement, Section 10.01).
Monthly Payments made by the lessees under the Contracts normally will be
paid by mail and deposited into a lock box maintained by the Servicer, and then
deposited in the SUBI Collection Account within two Business Days after receipt.
Within two Business Days after receipt by the Servicer of all other payments on
or in respect of the Contracts or the Leased Vehicles other than Security
Deposits and Insured Residual Value Loss Amounts paid under the Residual Value
Insurance Policy, including without limitation any Monthly Payments delivered
directly to the Servicer or World Omni (in the event that World Omni is no
longer the Servicer), Matured Leased Vehicle Proceeds, Repossessed Vehicle
Proceeds and other Liquidation Proceeds, Insurance Proceeds, Extension Fees,
Payments Ahead and Prepayments (regardless of whether made by
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lessees or other persons), such payments shall be remitted to the SUBI
Collection Account. (Servicing Agreement, Sections 2.02 and 9.02).
Notwithstanding the foregoing, the Servicer may remit all payments
collected or received by it on or in respect of the Contracts and the Leased
Vehicles to the SUBI Collection Account on a less frequent basis if (i) it
obtains a letter of credit, surety bond or insurance policy (collectively, the
"Servicer Letter of Credit") under which demands for payment may be made to
secure timely remittance of monthly collections to the SUBI Collection Account
and (ii) the Trustee is provided with confirmation (written or oral) from each
Rating Agency to the effect that the use of such alternative remittance schedule
will not result in the qualification, reduction or withdrawal of its
then-current rating of any Class of Certificates. (Servicing Agreement, Section
9.02).
Net Deposits. So long as World Omni is the Servicer, the Servicer will be
permitted to deposit in the Distribution Account only the net amount
distributable to the Trustee, as holder of the SUBI Interest, and the Transferor
on the related Deposit Date. The Servicer, however, will account to the Trustee,
the Origination Trustee, the Certificateholders and the Transferor as if all of
the deposits and distributions described herein were made individually.
(Agreement, Section 3.05; Servicing Agreement, Section 9.02). This "net deposit"
provision will be for the administrative convenience of the parties involved and
will not affect amounts required to be deposited into the Accounts.
Withdrawals from the SUBI Collection Account. On each Deposit Date, all
Principal Collections and Interest Collections in respect of the SUBI Interest
on deposit in the SUBI Collection Account in respect of the related Collection
Period (including that portion of Payments Ahead representing Monthly Payments
due in such Collection Period) will be deposited into the Distribution Account.
During the Revolving Period, however, Principal Collections will be retained in
the SUBI Collection Account for reinvestment in Subsequent Contracts and
Subsequent Leased Vehicles as described under "Description of the
Certificates -- Distributions on the Certificates -- Application and
Distributions of Principal -- Revolving Period". (Agreement, Section 3.02; SUBI
Trust Agreement, Section 12.01; Servicing Agreement, Sections 2.02, 8.02 and
9.02).
In the event that on any date the Servicer supplies the Origination Trustee
and the Trustee with an officer's certificate setting forth the basis for such
withdrawal, the Origination Trustee shall remit to the Servicer, without
interest and prior to any other distribution from the SUBI Collection Account on
such date, monies from the SUBI Collection Account representing (i) unreimbursed
Matured Leased Vehicle Expenses (after reimbursements thereof from the Residual
Value Surplus Account, if any), Repossessed Vehicle Expenses and other
Liquidation Expenses; (ii) delinquent Monthly Payments with respect to which the
Servicer has made an unreimbursed Advance; and (iii) an amount equal to any
unreimbursed Advances that the Servicer has concluded are Nonrecoverable
Advances. (Servicing Agreement, Section 9.02). For further information regarding
Nonrecoverable Advances, see "Additional Document Provisions -- The Servicing
Agreement -- Advances".
The Residual Value Surplus Account
On or prior to the Closing Date, the Origination Trustee will establish a
trust account for the exclusive benefit of the holders of interests in the SUBI
into which all Residual Value Surplus with respect to a Collection Period will
be deposited on the related Deposit Date (the "Residual Value Surplus Account"
and, together with the Distribution Account, the SUBI Collection Account and the
Reserve Fund, the "Accounts"). (SUBI Trust Agreement, Section 12.03).
On each Deposit Date, funds on deposit in the Residual Value Surplus
Account shall be withdrawn by the Origination Trustee and deposited into the
SUBI Collection Account up to an amount equal to the sum of (a) the aggregate of
the Residual Values of Leased Vehicles that were a part of Matured Leased
Vehicle Inventory but had not been sold or otherwise disposed of for at least
two full Collection Periods as of the end of the related Collection Period, (b)
the amount by which Net Matured Leased Vehicle Proceeds (after application of
amounts withdrawn pursuant to the next sentence) for the related Collection
Period are less than the aggregate of the Residual Values of Leased Vehicles
that were a part of Matured Leased Vehicle
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Inventory but were sold or otherwise disposed of during such Collection Period
and (c) any losses on Contracts terminated on or prior to their Maturity Dates
during such Collection Period by agreement between the Servicer and the lessee
in connection with the payment of less than their respective Outstanding
Principal Balances. In the event that the Servicer supplies the Origination
Trustee and the Trustee with an officer's certificate setting forth the basis
for such withdrawal, funds on deposit in the Residual Value Surplus Account will
be withdrawn and paid to the Servicer in reimbursement for any Matured Leased
Vehicle Expenses incurred during such Collection Period, but only to the extent
that, after reimbursement of such Matured Leased Vehicle Expenses (exclusive of
any other reimbursement thereof), Net Matured Leased Vehicle Proceeds would be
no more than the aggregate of the Residual Values of Leased Vehicles sold or
otherwise disposed of from Matured Leased Vehicle Inventory during such
Collection Period.
Maintenance of the Accounts
The Distribution Account and the Reserve Fund will be maintained with the
Trustee and the SUBI Collection Account and the Residual Value Surplus Account
will be maintained with the Trust Agent so long as either (i) the short-term
unsecured debt obligations of the Trustee or the Trust Agent, as the case may
be, are rated at least P-1 by Moody's and A-1 by Standard & Poor's (the
"Required Deposit Ratings") or (ii) the Trustee or the Trust Agent, as the case
may be, is a depository institution or trust company having a long-term
unsecured debt rating from Moody's of at least Baa3 and corporate trust powers
and the related Account is maintained in a segregated trust account in the
corporate trust department of the Trustee or the Trust Agent, as the case may
be. If the Trustee or the Trust Agent at any time does not qualify under either
of these criteria, the Servicer shall, with the assistance of the Trustee or the
Trust Agent, as the case may be, as necessary, cause the related Account to be
moved to a depository institution organized under the laws of the United States
or any state thereof whose short-term unsecured debt obligations are rated at
least equal to the Required Deposit Ratings or moved to a segregated trust
account located in a corporate trust department of a depository institution or
trust company as described above. (Agreement, Sections 3.01 and 3.04; SUBI Trust
Agreement, Sections 12.01 and 12.03; Servicing Agreement, Section 9.02).
Permitted Investments
Upon receipt of directions from the Servicer, the Trustee or the
Origination Trustee, as the case may be, shall invest funds on deposit in the
Accounts in one or more Permitted Investments maturing (i) no later than the
Business Day immediately preceding the Deposit Date immediately succeeding the
date of such investment, in the case of amounts on deposit in the SUBI
Collection Account, the Reserve Fund or the Residual Value Surplus Account or
(ii) on the Business Day immediately preceding the Distribution Date immediately
succeeding the date of such investment in the case of amounts on deposit in the
Distribution Account. Notwithstanding the foregoing, (a) investments on which
the entity at which the related Account is located is the obligor may mature on
the related Deposit Date or Distribution Date, as the case may be, and (b)
investments during the Revolving Period of Principal Collections on deposit in
the SUBI Collection Account may mature on such dates as in the Servicer's
discretion will maintain sufficient cash to acquire Subsequent Contracts and
Subsequent Leased Vehicles on the related Transfer Dates.
All income or other gain from the foregoing investments generally shall be
retained in the related Account with such gain in respect of funds in the SUBI
Collection Account and the Distribution Account generally being treated as
Interest Collections received in respect of the related Collection Period. Any
loss resulting from such investments shall be charged to the related Account.
(SUBI Trust Agreement, Sections 11.01 and 12.01; Agreement, Section 3.01;
Servicing Agreement, Section 9.02). "Permitted Investments" will be specified in
the SUBI Trust Agreement and will be limited to investments that meet the
criteria of each Rating Agency from time to time as being consistent with its
then-current rating of each Class of Certificates. (Agreement, Section 1.01).
The Reserve Fund
On or prior to the Closing Date, the Servicer will establish a trust
account with the Trustee for the exclusive benefit of the Certificateholders and
the Transferor, as holder of the Transferor Interest (the
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"Reserve Fund"). The monies on deposit in the Reserve Fund will, as described
below, be applied on each Distribution Date to pay certain shortfalls in respect
of amounts collected with respect to the related Collection Period to be paid
from the Distribution Account and certain other shortfalls in respect of the
Residual Values of the Leased Vehicles, should, among other things, Transferor
Amounts and Insured Residual Value Loss Amounts paid under the Residual Value
Insurance Policy with respect to such Collection Period not be sufficient to
cover such shortfalls. In addition, to the extent not otherwise required to make
any of the payments described under "Description of the
Certificates -- Distributions on the Certificates -- Distributions of Interest",
monies on deposit in the Reserve Fund will be available to make payments to the
Certificateholders should Collections ultimately be insufficient to reduce the
Class A-1 Certificate Balance, the Class A-2 Certificate Balance, the Class A-3
Certificate Balance, the Class A-4 Certificate Balance or the Class B
Certificate Balance to zero. (Agreement, Sections 3.03 and 3.04).
The Reserve Fund Cash Requirement. The Reserve Fund will be created on or
prior to the Closing Date with the deposit by the Transferor of the Initial
Deposit. On each Distribution Date, the funds in the Reserve Fund will be
supplemented by (i) certain Interest Collections, (ii) all income realized on
the investment of amounts on deposit in the Reserve Fund in Permitted
Investments, net of losses resulting from such investments, and (iii) the
deposit of monies in respect of the related Collection Period remaining in the
Distribution Account after making all payments required to be made therefrom on
such Distribution Date prior to such deposit, including monies that otherwise
would be distributed to the Transferor as Transferor Amounts, until the amount
on deposit therein equals the Reserve Fund Cash Requirement then in effect.
Except as otherwise described below, the "Reserve Fund Cash Requirement" with
respect to any Distribution Date will equal the lesser of (i) $11,970,788 (i.e.,
1.0% of 99.8% of the Aggregate Net Investment Value as of the Initial Cutoff
Date) and (ii) the Certificate Balance as of the related Distribution Date
(after giving effect to reductions in the Certificate Balance on such
Distribution Date).
So long as all of the Reserve Fund Tests (as described under "Security for
the Certificates -- The Accounts -- The Reserve Fund -- Reserve Fund Tests") are
satisfied and there is no AISLIC Trigger Event or Downgrade Trigger Event, the
Reserve Fund Cash Requirement is expected to be $11,970,788 for each
Distribution Date relating to the Revolving Period.
Other Reserve Fund Requirements. On each Deposit Date on which withdrawals
are to be made from the Reserve Fund in order (a) to deposit into the
Distribution Account an amount equal to the Required Amount, or (b) to make any
other payments to Certificateholders or otherwise from the Reserve Fund, as
described under "Description of the Certificates -- Distributions on the
Certificates -- Distributions of Interest", to the extent that the amount on
deposit in the Reserve Fund is insufficient to make such deposits or payments (a
"Reserve Fund Deficiency"), the Transferor shall be required to deposit into the
Reserve Fund an additional cash amount which is limited to the lesser of (i)
such Reserve Fund Deficiency, and (ii) $5,985,394 (i.e., 0.5% of 99.8% of the
Aggregate Net Investment Value as of the Initial Cutoff Date), less all amounts
previously deposited by or on behalf of the Transferor into the Reserve Fund to
satisfy a Reserve Fund Deficiency (the "Reserve Fund Supplemental Requirement").
In the event (i) a conservator, receiver or bankruptcy trustee is appointed
by AISLIC, or if certain other events relating to the bankruptcy or insolvency
of AISLIC occur, or (ii) the Residual Value Insurance Policy has been declared
void or unenforceable by a court of competent jurisdiction in a final judgment
as to which the time for noting an appeal has expired and all appeals have been
decided, if one or more policies with substantially similar aggregate coverage
and provisions have not been issued by an insurer acceptable to each Rating
Agency nor has an alternative mechanism been implemented to support the Residual
Values of the Leased Vehicles in accordance with the procedures required for
amendment of the Agreement (as described in "Additional Document
Provisions -- Additional Agreement Provisions -- Amendment") (each such event,
an "AISLIC Trigger Event"), then, within 60 days of notice thereof, the
Transferor shall be required to deposit into the Reserve Fund an additional cash
amount equal to the difference between (x) the greater of the Initial Deposit
and the amount then on deposit in the Reserve Fund, and (y) $41,897,757 (i.e.,
3.5% of 99.8% of the Aggregate Net Investment Value as of the Initial Cutoff
Date) (the "AISLIC Reserve Fund Supplemental Requirement"). From such time until
one or more policies are issued with substantially similar aggregate coverage
and provisions issued by an insurer acceptable to each Rating Agency, or an
alternative
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mechanism is implemented to support the Residual Values of the Leased Vehicles
as described above, the Reserve Fund Cash Requirement shall be $41,897,757
(i.e., 3.5% of 99.8% of the Aggregate Net Investment Value as of the Initial
Cutoff Date).
In the event that AISLIC's claims paying ability is downgraded to "Aa3" or
lower by Moody's, or below "AAA" by Standard & Poor's (a "Downgrade Trigger
Event"), then within 60 days thereof, the Transferor shall either (i) cause one
or more policies to be issued with substantially similar aggregate coverage and
provisions by an insurer acceptable to each Rating Agency, or cause an
alternative mechanism to be implemented to support the Residual Values of the
Leased Vehicles in accordance with the procedures required for amendment of the
Agreement (as described in "Additional Document Provisions -- Additional
Agreement Provisions -- Amendment"), or (ii) deposit into the Reserve Fund any
amount that the Rating Agencies may require in order to maintain their
then-current ratings on each Class of Certificates (the "Downgrade Reserve Fund
Supplemental Requirement"). For so long as the Transferor elects to comply with
the requirements of clause (ii) rather than clause (i), the Reserve Fund Cash
Requirement shall be such amount as the Rating Agencies may require in order to
maintain their then-current ratings on each Class of Certificates and the Rating
Agencies may impose additional conditions to the maintenance of their then-
current ratings on each Class of Certificates, including the addition of further
triggers for the application of the Alternate Reserve Fund Formula described
below (which tests generally would be expected to relate to the Residual Values
of the Leased Vehicles). If the Transferor cannot comply with either clause (i)
or clause (ii), or determines in good faith that such compliance would not be
commercially reasonable, then all Excess Collections in respect of any
Distribution Date, after giving effect to all payments required to be made
therefrom on such Distribution Date, will be deposited into the Reserve Fund,
rather than being paid to the Transferor, regardless of the Reserve Fund Cash
Requirement, and the then-current ratings on each Class of Certificates may be
downgraded. On the Distribution Date following the date on which the Transferor
complies with clause (i) or clause (ii), monies on deposit in the Reserve Fund
in excess of the Reserve Fund Cash Requirement shall be distributed to the
Transferor (or to the Certificateholders to the extent allocable to the
Accelerated Principal Distribution Amount).
Payment of the Reserve Fund Supplemental Requirement, the AISLIC Reserve
Fund Supplemental Requirement and the Downgrade Reserve Fund Supplemental
Requirement will be obligations of the Transferor with respect to the Reserve
Fund. In the event that there is a Reserve Fund Deficiency, an AISLIC Trigger
Event or a Downgrade Trigger Event, the Reserve Fund Supplemental Requirement,
the AISLIC Reserve Fund Supplemental Requirement or the Downgrade Reserve Fund
Supplemental Requirement, as the case may be, will supplement the cash available
in the Reserve Fund to the limited extent described above. There can be no
assurance that the Transferor will have sufficient cash to fund all or a part of
any Reserve Fund Deficiency or to meet its obligation to pay any Reserve Fund
Supplemental Requirement, AISLIC Reserve Fund Supplemental Requirement or
Downgrade Reserve Fund Supplemental Requirement. However, pursuant to the
Support Agreement, World Omni has agreed under certain circumstances to provide
or arrange for financial assistance in order to ensure that the Transferor
maintains positive partners' capital. The Support Agreement will not constitute
a guarantee by World Omni of any obligations of the Transferor, including
payment of any Reserve Fund Supplemental Requirement, AISLIC Reserve Fund
Supplemental Requirement or Downgrade Reserve Fund Supplemental Requirement. See
"The Transferor" for further information in this regard.
Reserve Fund Tests. Notwithstanding the foregoing calculations of the
Reserve Fund Cash Requirement and the supplemental requirements discussed above,
in the event that the Charge-off Rate Test or the Delinquency Test
(collectively, the "Reserve Fund Tests") is not satisfied as of any
Determination Date and no AISLIC Trigger Event or Downgrade Trigger Event has
occurred and is continuing, the Reserve Fund Cash Requirement for the related
Distribution Date will be an amount calculated pursuant to a formula (the
"Alternate Reserve Fund Formula") that will be equal to the lesser of (i) two
times the Reserve Fund Cash Requirement and (ii) the Certificate Balance as of
such Distribution Date (after giving effect to any reduction in the Certificate
Balance on such Distribution Date). The Alternate Reserve Fund Formula will be
utilized to determine the Reserve Fund Cash Requirement on all future
Distribution Dates until the Distribution Date as of which the related Reserve
Fund Test is satisfied and all other Reserve Fund Tests are satisfied.
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Notwithstanding the foregoing, as described under "Additional Document
Provisions -- The Servicing Agreement -- Compliance with ERISA", in the event
that the ERISA Compliance Test is not satisfied on any Determination Date, all
Excess Collections (as described under "Description of the Certificates --
Distributions on the Certificates -- Distribution of Interest") in respect of
each Distribution Date thereafter will be deposited in the Reserve Fund until
the Distribution Date following the Determination Date on which the ERISA
Compliance Test has been satisfied. (Agreement, Section 1.01).
The "Charge-off Rate Test" will not be satisfied if, with respect to any
Determination Date the average of the Charge-off Rates for the three immediately
preceding calendar months (or the months of March and April 1997 in the case of
the May 1997 Determination Date) is greater than 2.75%. The "Delinquency Test"
will not be satisfied if, with respect to any Determination Date the average of
the Delinquency Rates for the three immediately preceding calendar months (or
the months of March and April 1997 in the case of the May 1997 Determination
Date) is greater than 1.75%. The "Charge-off Rate" with respect to any calendar
month will be the Discounted Principal Balance of all Contracts that became
Charged-off Contracts during such month, less all Net Repossessed Vehicle
Proceeds and other Net Liquidation Proceeds collected during such month with
respect to Charged-off Contracts, all divided by the average of the Aggregate
Net Investment Value as of the last day of such month and the preceding month.
Such result will then be multiplied by twelve to produce an annualized rate. The
"Delinquency Rate" for any calendar month will be the number of Current
Contracts that are 61 days or more delinquent, whether or not the related Leased
Vehicles have been repossessed (or repossession proceedings in respect thereof
have been initiated), but which have not yet been sold or otherwise disposed of,
divided by the aggregate number of Current Contracts, in each case as of the
last day of such month. (Agreement, Section 1.01).
"Current Contracts" will be all Contracts other than Charged-off,
Liquidated, Matured and Additional Loss Contracts. A "Liquidated Contract" will
be a Contract that has been the subject of a Prepayment in full or otherwise has
been paid in full. An "Additional Loss Contract" will be a Contract that has
been sold or otherwise disposed of by the Servicer, acting on behalf of the
Origination Trust, to pay an Additional Loss Amount.
The Transferor may, from time to time after the date of this Prospectus,
request each Rating Agency to approve (a) a formula for determining the Reserve
Fund Cash Requirement, the Reserve Fund Supplemental Requirement, the AISLIC
Reserve Fund Supplemental Requirement and/or the Downgrade Reserve Fund
Supplemental Requirement that is different from the one described above
(including using different Reserve Fund Tests or different cures for failures
thereof) that would result in a decrease in the amount of the Reserve Fund Cash
Requirement, the Reserve Fund Supplemental Requirement, the AISLIC Reserve Fund
Supplemental Requirement and/or the Downgrade Reserve Fund Supplemental
Requirement or (b) a change in the manner by which the Reserve Fund is funded,
which change could include borrowings by the Transferor to fund all or a portion
of the Initial Deposit (which borrowings would be payable from assets or cash
flow otherwise payable to the Transferor) or to meet the Reserve Fund Cash
Requirement, the Reserve Fund Supplemental Requirement, the AISLIC Reserve Fund
Supplemental Requirement and/or the Downgrade Reserve Fund Supplemental
Requirement. If each Rating Agency confirms (in writing or orally) to the
Trustee to the effect that the use of any such new formula or change will not
result in a qualification, reduction or withdrawal of its then-current rating of
any Class of Certificates, and the Transferor's counsel delivers an opinion as
and to the extent required, as described under "Additional Document
Provisions -- Additional Agreement Provisions -- Amendment", then such new
formula or change will be implemented and, to the extent necessary, the
Agreement will be amended, without the consent of any Certificateholder or
Certificate Owner. (Agreement, Section 9.01).
Withdrawals from the Reserve Fund. On each Deposit Date the Trustee shall
withdraw from the Reserve Fund, to the extent available, and deposit in the
Distribution Account an amount equal to the Required Amount. Amounts on deposit
in the Reserve Fund will also be available to make certain other payments to
Certificateholders and the Transferor as described under "Security for the
Certificates -- The Accounts -- The Reserve Fund". Monies on deposit in the
Reserve Fund on a Distribution Date in excess of the Reserve Fund Cash
Requirement will be released to the Transferor. Any such amounts received by the
Transferor shall be free of any claim of the Trust, the Trustee or the Investor
Certificateholders and shall not
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be available to the Trustee or the Trust for the purpose of making deposits to
the Reserve Fund or making payments to the Investor Certificateholders, nor
shall the Transferor be required to refund any amount properly received by it.
(Agreement, Sections 3.03 and 3.04).
THE RESIDUAL VALUE INSURANCE POLICY
On or prior to the Closing Date, American International Specialty Lines
Insurance Company ("AISLIC") will issue the Residual Value Insurance Policy to
the Transferor (with the Origination Trustee, the Trustee, the Servicer and ALFI
L.P. also named as insureds), which will provide coverage for the Insured
Residual Value Loss Amount for any Collection Period, and will cover only the
Leased Vehicles and not any UTI Asset or Other SUBI Asset. Insured Residual
Value Loss Amounts payable under the Residual Value Insurance Policy will only
arise in connection with the disposition of Leased Vehicles relating to Matured
Contracts and in connection with losses on Contracts terminated on or prior to
their Maturity Dates by agreement between the Servicer and the lessee in
connection with the payment of less than their respective Outstanding Principal
Balances. The Residual Value Insurance Policy may not be cancelled by AISLIC.
The Residual Value Insurance Policy will not have any deductibles or provide for
co-insurance, but the aggregate maximum amount payable under the Residual Value
Insurance Policy with respect to any Leased Vehicle will be the lesser of
$60,000 and its insured residual value. Additionally, the aggregate maximum
amount payable under the Residual Value Insurance Policy will not exceed the
aggregate insured residual values of all Leased Vehicles. For these purposes,
the residual value of a Leased Vehicle generally will be determined by reference
to World Omni's residual value lease policies communicated to its Dealers, as
amended or supplemented from time to time (which amount generally will be equal
to its Residual Value), as adjusted for extensions of the related Contract.
On the fifteenth day of each calendar month, the Servicer will determine
whether, on the upcoming Distribution Date, there will be any Insured Residual
Value Loss Amount for the related Collection Period. If so, the Servicer will
make a claim for the Insured Residual Value Loss Amount under the Residual Value
Insurance Policy. Pursuant to the Residual Value Insurance Policy, so long as
all conditions precedent to liability set forth therein are satisfied and no
exclusions apply, AISLIC will pay any such claim within five days. Within one
Business Day after receipt, the Servicer will deposit the proceeds of any such
claim into the SUBI Collection Account, if the payment relates to the Revolving
Period, so that the proceeds will be available for reinvestment in Subsequent
Contracts and Subsequent Leased Vehicles, and into the Distribution Account, if
the payment relates to the Amortization Period, so that the proceeds will be
available to make the payments described under "Description of the
Certificates -- Distributions on the Certificates -- Distributions of Interest"
by the relevant Distribution Date.
AISLIC is an insurance company incorporated under the laws of the State of
Alaska and is wholly owned by National Union Fire Insurance Company of
Pittsburgh, Pa. ("National Union"), The Insurance Company of the State of
Pennsylvania, and Birmingham Fire Insurance Company of Pennsylvania all of which
are wholly-owned subsidiaries of American International Group, Inc. ("AIG"), a
publicly-held holding company incorporated under the laws of the State of
Delaware. The Residual Value Insurance Policy is an obligation of AISLIC and not
of AIG or any other affiliate of AISLIC. AISLIC is located at American
International Specialty Lines Insurance Company, c/o American International
Surplus Lines Agency, Inc., Harborside Financial Center, 401 Plaza 3, Jersey
City, New Jersey 07311 and its telephone number is (201) 309-1100.
For the year ended December 31, 1996, AISLIC had Total Assets of
approximately $509 million, Total Liabilities of approximately $317 million and
a Capital Surplus Account of approximately $192 million, in each case as
reported on a statutory accounting basis (which varies from generally accepted
accounting principles in certain respects) in accordance with guidelines
established by the National Association of Insurance Commissioners. As of the
date of this Prospectus, AISLIC's claims paying ability was rated "Aaa" by
Moody's and "AAA" by Standard & Poor's.
AISLIC files Annual Statements with the insurance departments of the State
of Alaska and other states in which it is eligible to write insurance. Copies of
the Annual Statement of AISLIC for the year ended December 31, 1996 are
available on request from the Trustee. Audited financial statements of AISLIC,
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prepared in accordance with Alaska insurance regulations, for the two years
ended December 31, 1995 and the two years ended December 31, 1994, are included
in this Prospectus.
Under its current overall reinsurance arrangements, AISLIC reinsures
approximately 80% of its business with National Union. AISLIC also has ceded
additional reinsurance of its obligations under the Residual Value Insurance
Policy to National Union. As a result of these reinsurance arrangements, which
do not relieve AISLIC from its direct obligations to the insureds under the
Residual Value Insurance Policy, 95% of the Insured Residual Value Loss Amounts
paid by AISLIC under that policy will be reinsured by National Union. None of
the insureds under the Residual Value Insurance Policy (including the Trustee on
behalf of the Certificateholders) will have any rights against National Union as
a result of these reinsurance arrangements.
For the year ended December 31, 1996, National Union had Total Assets of
approximately $12.7 billion, Total Liabilities of approximately $8.5 billion and
a Capital Surplus Account of approximately $4.2 billion, in each case as
reported on a statutory accounting basis (which varies from generally accepted
accounting principles in certain respects) in accordance with the guidelines
established by the National Association of Insurance Commissioners. As of the
date of this Prospectus, National Union's claims paying ability was rated "Aaa"
by Moody's and "AAA" by Standard & Poor's.
AIG and AISLIC have entered into a Support Agreement (the "AIG Support
Agreement"). Under the AIG Support Agreement, AIG has agreed that AIG will cause
AISLIC to maintain a policyholders' surplus of not less than $1 million or such
greater amount as shall be sufficient to enable AISLIC to perform its
obligations under any policy issued by it. The AIG Support Agreement also
provides that if AISLIC needs funds not otherwise available to make timely
payment of its obligations under policies issued by it or otherwise, AIG will
provide such funds at the request of AISLIC. The AIG Support Agreement is not a
direct or indirect guarantee by AIG to any person of any obligation of AISLIC.
AIG may terminate the AIG Support Agreement only under circumstances in which
AISLIC attains an "AAA" rating of its claims paying ability by Standard & Poor's
(or, if Standard & Poor's shall not make such a rating available, an equivalent
rating from another nationally recognized statistical rating organization)
without the AIG Support Agreement. Policyholders (including the Trustee on
behalf of the Certificateholders) may enforce the AIG Support Agreement only if
AIG fails to meet its obligations thereunder on demand.
For the year ended December 31, 1996, AIG had Total Assets of approximately
$148.4 billion, Total Capital Funds of approximately $22.0 billion and Net
Income of approximately $2.9 billion, in each case as reported in accordance
with generally accepted accounting principles.
The Servicing Agreement will require that World Omni pay the premiums due
on the Residual Value Insurance Policy, and will provide that as long as any
Certificates are outstanding, no insured party may terminate or cause the
termination of any Residual Value Insurance Policy unless one or more policies
are issued with substantially similar aggregate coverage and provisions issued
by an insurer acceptable to each Rating Agency, or an alternative mechanism is
implemented to support the Residual Values of the Leased Vehicles in accordance
with the procedures required for amendment of the Agreement (as described in
"Additional Document Provisions -- Additional Agreement
Provisions -- Amendment"). The foregoing obligations of World Omni will survive
any termination of World Omni as Servicer under the Servicing Agreement.
(Servicing Agreement, Section 9.10). World Omni will be obligated to reimburse
AISLIC for a specified percentage of claims paid under the Residual Value
Insurance Policy, although the failure to make such reimbursement will not
affect AISLIC's obligation to pay claims under the Residual Value Insurance
Policy.
THE CONTINGENT AND EXCESS LIABILITY INSURANCE POLICIES
In addition to the physical damage and liability insurance coverage
required to be obtained and maintained by the lessees pursuant to the Contracts,
and as additional protection in the event that any lessee fails to maintain all
such required insurance, World Omni maintains contingent liability insurance
with Lexington Insurance Company which provides coverage of up to $2.0 million
per occurrence (with no annual or aggregate cap on the number of claims
thereunder) for bodily injury and property damage suffered by third
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persons caused by any vehicle owned by any insured. World Omni also maintains
substantial amounts of excess insurance coverage for which the Origination
Trustee is an additional named insured (together with the aforementioned primary
contingent liability insurance policy, the "Contingent and Excess Liability
Insurance Policies"). These insurance policies collectively provide insurance
coverage in excess of $10 million per accident, and permit multiple claims in
any policy period. To the extent that such coverage were exhausted and damages
were assessed against the Origination Trust, claims could be imposed against the
assets of the Origination Trust. In such event, investors in the Class A
Certificates could incur a loss on their investment. However, the Origination
Trustee will be an additional named insured under the Contingent and Excess
Liability Insurance Policies and payments made thereunder will constitute SUBI
Assets. To the extent that payments under the Contingent and Excess Liability
Insurance Policies are made to third party claimants, they will reduce the
Additional Loss Amounts that otherwise would be required to be paid out of the
SUBI Assets. See "Risk Factors -- Vicarious Tort Liability", "Certain Legal
Aspects of the Origination Trust and the SUBI -- The SUBI" and "Certain Legal
Aspects of the Contracts and the Leased Vehicles -- Vicarious Tort Liability"
for a discussion of related risks.
With respect to damage to the Leased Vehicles, each lessee is required by
the related Contract to maintain comprehensive and collision insurance. As more
fully described under "Additional Document Provisions -- The Servicing
Agreement -- Insurance on Leased Vehicles", World Omni will be required to
police the maintenance of lessee-required insurance and, under certain
circumstances, will be required to make payments in respect thereof. In the
event that all of the foregoing insurance coverage were exhausted and no
third-party reimbursement for such damage to a Leased Vehicle were available,
investors in the Class A Certificates could incur a loss on their investment.
The Servicing Agreement will provide that so long as any Certificates are
outstanding, neither the Origination Trustee nor World Omni may terminate or
cause the termination of any Contingent and Excess Liability Insurance Policy
unless, among other things, a replacement insurance policy providing at least
the same amount of coverage and which does not provide for any annual or
aggregate cap on payments thereunder is obtained and each Rating Agency has
delivered a letter to the Trustee to the effect that the obtaining of any such
replacement insurance will not cause its then-current rating of any Class of
Certificates to be qualified, reduced or withdrawn. The foregoing obligations of
World Omni will survive any termination of World Omni as Servicer under the
Servicing Agreement. (Servicing Agreement, Section 9.10).
ADDITIONAL DOCUMENT PROVISIONS
ADDITIONAL AGREEMENT PROVISIONS
Certain provisions of the Agreement are described under "Description of the
Certificates". The following summarizes certain additional provisions of the
Agreement.
No Petition
The Trustee will agree not to institute, or join in, any bankruptcy or
similar proceeding against the Transferor, WOLSI, ALFI L.P., ALFI, the
Origination Trust or the Origination Trustee until one year and one day after
the later of (i) payment of the Certificates in full and (ii) final payment of
all other financings involving interests in the Origination Trust (including the
transaction described herein and all other transactions involving the UTI and
each Other SUBI). (Agreement, Section 6.16).
Amendment
The Agreement may be amended by the Transferor and the Trustee, without the
consent of the Certificateholders, to cure any ambiguity, to correct or
supplement any provision therein which may be inconsistent with any other
provision therein, to add any other provisions with respect to matters or
questions arising under the Agreement which are not inconsistent with the
provisions of the Agreement or to add or amend any provision therein in
connection with permitting transfers of the Class B Certificates; provided that
any such action will not, in the good faith judgment of the parties, materially
and adversely affect the interest
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of any Certificateholder and the Trustee shall have been furnished with an
opinion of counsel to the effect that such amendment will not adversely and
materially affect the interest of any Certificateholder. (Agreement, Section
9.01). See "Security for the Certificates -- The Accounts -- The Reserve
Fund -- The Reserve Fund Cash Requirement".
The Agreement may also be amended from time to time by the Transferor and
the Trustee (including with respect to changing the formula for determining the
Reserve Fund Cash Requirement, the Reserve Fund Supplemental Requirement, the
AISLIC Reserve Fund Supplemental Requirement and/or the Downgrade Reserve Fund
Supplemental Requirement, the manner in which the Reserve Fund or Residual Value
Surplus Account is funded, the need for the Residual Value Surplus Account,
changing the remittance schedule for collection deposits in the Distribution
Account, changing the definition of "Permitted Investments", or replacing the
Residual Value Insurance Policy with an alternative mechanism) if (a) the
Trustee has been furnished with confirmation (written or oral) from each Rating
Agency to the effect that such amendment would not cause its then-current rating
on any Class of Certificates to be qualified, reduced or withdrawn or (b) the
Trustee has received the consent of the holders of Certificates evidencing not
less than 51% of the Voting Interests of the Class A Certificates and the Class
B Certificates, voting together as a single class, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Agreement or of modifying in any manner the rights of each Class of
Certificateholders; provided, however, that: (i) any amendment eliminating the
Reserve Fund or the Residual Value Insurance Policy, reducing the Reserve Fund
Cash Requirement to less than the lesser of (A) $11,970,788 and (B) the
Certificate Balance as of the related Distribution Date (after giving effect to
reductions in the Certificate Balance on such Distribution Date), or eliminating
or reducing the AISLIC Reserve Fund Supplemental Requirement shall also require
an opinion of the Transferor's counsel to the effect that, after such amendment,
for federal income tax purposes the Trust will not be treated as an association
taxable as a corporation, and the Class A Certificates will, and the Class B
Certificates should, properly be characterized as indebtedness that is secured
by the assets of the Trust; and (ii) (A) no such amendment shall increase or
reduce in any manner the amount of, or accelerate or delay the timing of,
collections of payments on the SUBI or the SUBI Certificate or distributions
that shall be required to be made on any Class of Certificates or the applicable
Certificate Rate and (B) no amendment of any type shall reduce the percentage of
the aggregate Voting Interests of the Certificates of any Class required to
consent to any such amendment, in each case without the consent of all
Certificateholders and Certificate Owners.
List of Certificateholders
Upon a written request of the Servicer, the Trustee, as Certificate
Registrar, will provide to the Servicer within 15 days after receipt of such
request a list of the names and addresses of all Certificateholders. In
addition, three or more Certificateholders or holders of Certificates evidencing
not less than 25% of the Voting Interests of any Class of Certificates, upon
compliance by such Certificateholders with certain provisions of the Agreement,
may request that the Trustee, as Certificate Registrar, afford such
Certificateholders access during business hours to the current list of
Certificateholders for purposes of communicating with other Certificateholders
with respect to their rights under the Agreement. (Agreement, Section 4.06). See
"Description of the Certificates -- Book-Entry Registration" and "-- Definitive
Certificates".
The Agreement will not provide for the holding of any annual or other
meetings of Certificateholders.
The Trustee
First Bank will be the Trustee under the Agreement. The Corporate Trust
Office of the Trustee is located at One Illinois Center, 111 East Wacker Drive,
Suite 3000, Chicago, Illinois 60601. First Bank is not affiliated with World
Omni, although it does act as a service provider to World Omni.
The Trustee may resign at any time, in which event the Transferor will be
obligated to appoint a successor Trustee. The Transferor may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Agreement, becomes legally unable to act or becomes insolvent. In such
circumstances, the Transferor will be obligated to appoint a successor Trustee.
Any resignation or removal of the Trustee and
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appointment of a successor Trustee will not become effective until acceptance of
the appointment by such successor Trustee. (Agreement, Section 6.07).
The Trustee must be a corporation organized under the laws of a state of
the United States, the District of Columbia or the Commonwealth of Puerto Rico,
authorized to exercise corporate trust powers under those laws, and subject to
supervision or examination by federal or state laws, with a combined capital and
surplus of at least $50,000,000 and a long-term deposit rating no lower than
Baa3 by Moody's, or must be otherwise acceptable to each Rating Agency. A
co-trustee or separate trustee need not meet these eligibility requirements.
(Agreement, Sections 6.06 and 6.10).
Holders of Certificates evidencing not less than 25% of the Voting
Interests of the Class A Certificates and the Class B Certificates, voting
together as a single class, generally will have the power to direct any
proceeding for any remedy available to the Trustee under the Agreement, and the
exercise of any trust or power conferred on the Trustee by the Agreement
(including actions by the Trustee in its capacity as a party to, or a
third-party beneficiary of, the SUBI Trust Agreement or the Servicing
Agreement). However, the Trustee will not be required to follow such a direction
if, after being advised by counsel, it concludes that the action is unlawful, or
if it in good faith determines that the proceedings directed would be illegal,
would subject it to personal liability or would be unduly prejudicial to the
rights of other Certificateholders. (Agreement, Section 6.15).
A Certificateholder may institute proceedings under the Agreement, but only
if such holder previously has given to the Trustee written notice of default and
unless the holders of Certificates evidencing not less than 25% of the Voting
Interests of the Class A Certificates and the Class B Certificates, voting
together as a single class, have made written request upon the Trustee to
institute such proceeding in its own name as Trustee and have offered to the
Trustee reasonable indemnity and the Trustee for 30 days has neglected or
refused to institute any such proceeding. (Agreement, Section 9.03). The Trustee
will be under no obligation to exercise any of the rights or powers vested in it
by the Agreement 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 Certificateholders, unless such
holders have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which may be incurred therein or thereby.
(Agreement, Section 6.02). Certificateholders will have no express right to
institute a proceeding directly under the SUBI Trust Agreement or the Servicing
Agreement.
Governing Law
The Agreement will be governed by the laws of the State of Illinois.
THE SUBI TRUST AGREEMENT
The SUBI, the Other SUBIs and the UTI
ALFI L.P. is the grantor and (as holder of the UTI) a beneficiary of the
Origination Trust. In its capacity as grantor, ALFI L.P. will from time to time
assign, transfer, grant and convey (or cause to be assigned, transferred,
granted and conveyed) to the Origination Trustee in trust the Origination Trust
Assets. (SUBI Trust Agreement, Section 2.01). ALFI L.P. will hold the UTI, which
represents a beneficial interest in all Origination Trust Assets other than the
SUBI Assets and the Other SUBI Assets. (SUBI Trust Agreement, Section 4.01).
ALFI L.P. has pledged (and may in the future pledge) the UTI as security for
obligations to third-party lenders, and has created and sold (and may in the
future create and sell or pledge) Other SUBIs in connection with financings
similar to the transaction described herein. Each holder or pledgee of the UTI
and any Other SUBI will be required to expressly disclaim any interest in the
Origination Trust Assets other than the UTI Assets or the Other SUBI Assets,
respectively, and to fully subordinate any claims to such other Origination
Trust Assets in the event that this disclaimer is not given effect. Except under
the limited circumstances described under "Certain Legal Aspects of the
Origination Trust and The SUBI -- The SUBI" and "Additional Document
Provisions -- The SUBI Trust Agreement -- The SUBI, The Other SUBIs and the
UTI", the SUBI Assets will not be available to make payments in respect of, or
pay expenses relating to,
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the UTI or any Other SUBIs, and the Other SUBI Assets evidenced by any Other
SUBIs will not be available to make payments on, or pay expenses relating to,
the SUBI, the UTI or any other Other SUBI.
Each Other SUBI will be created pursuant to a supplement to the Origination
Trust Agreement (each, an "Other SUBI Supplement") which will amend the
Origination Trust Agreement only with respect to the Other SUBI to which it
relates. The SUBI Supplement will amend the Origination Trust Agreement only as
it relates to the SUBI and no Other SUBI Supplement will amend the Origination
Trust Agreement as it relates to the SUBI. (SUBI Trust Agreement, Section 4.02).
All Origination Trust Assets, including the SUBI Assets, will be owned by
the Origination Trustee on behalf of the beneficiaries of the Origination Trust.
The SUBI Assets will be segregated from the rest of the Origination Trust Assets
on the books and records of the Origination Trustee and the Servicer and the
holders of other beneficial interests in the Origination Trust (including the
UTI and any Other SUBIs) will have no rights to the SUBI Assets. Liabilities of
the Origination Trust shall be allocated to the SUBI Assets, the UTI Assets or
Other SUBI Assets, respectively, if incurred with respect thereto, or will be
allocated pro rata among all Origination Trust Assets if incurred with respect
to the Trust Assets generally. (SUBI Trust Agreement, Section 7.01; Servicing
Agreement, Section 2.02).
Additional Loss Amounts will be incurred in the event of any uninsured
liability to third parties (i.e., litigation risk) on the part of the
Origination Trust as ultimately is borne by the SUBI Assets, whether such
liability is incurred (i) with respect to the SUBI Assets and is therefore
allocated to the SUBI Assets pursuant to the SUBI Trust Agreement, (ii) with
respect to the Origination Trust Assets generally and therefore a pro rata
portion of such liability is allocated to the SUBI Assets pursuant to the SUBI
Trust Agreement or (iii) with respect to UTI Assets or Other SUBI Assets if such
UTI Assets or Other SUBI Assets are insufficient to pay such liability. See
"Certain Legal Aspects of the Origination Trust and The SUBI -- The SUBI" for a
discussion of related risks. For purposes of making calculations with respect to
distributions on the Certificates, "Additional Loss Amounts" will include both
losses incurred with respect to the foregoing uninsured liabilities and monies
reserved within the SUBI Collection Account against future losses in respect of
such liabilities by the Servicer on behalf of the Trustee. (SUBI Trust
Agreement, Sections 7.01 and 10.01).
Special Obligations of ALFI L.P. as Beneficiary and Grantor
ALFI L.P., as grantor, will be liable for all debts and obligations arising
with respect to the Origination Trust Assets or the operation of the Origination
Trust; provided, however, that its liability with respect to any pledge of the
UTI and any assignee or pledgee of a SUBI or SUBI Certificate or Other SUBI or
Other SUBI Certificate shall be as set forth in the financing documents relating
thereto. ALFI, as the general partner of ALFI L.P., the grantor, is required at
all times to maintain a minimum net worth of $10 million. To the extent that
ALFI L.P. shall have paid or suffered any liability or expense with respect to
the Origination Trust Assets or the operation of the Origination Trust, ALFI
L.P. shall be indemnified, defended and held harmless out of the assets of the
Origination Trust against any such liability or expense (including reasonable
attorneys' fees and expenses). (SUBI Trust Agreement, Sections 4.03 and 11.10).
Origination Trustee Duties and Powers; Fees and Expenses
Pursuant to the SUBI Trust Agreement, the Origination Trustee will be
required to, among other things, (i) apply for and maintain (or cause to be
applied for and maintained) all licenses, permits and authorizations necessary
and appropriate to accept assignments of the Contracts and the Leased Vehicles
and to carry out its duties as Origination Trustee, including motor vehicle
dealer licenses, and (ii) file (or cause to be filed) applications for
certificates of title as are necessary and appropriate so as to cause the
Origination Trustee to be recorded as the holder of legal title of record to the
Leased Vehicles. (SUBI Trust Agreement, Section 5.01). In carrying out the
foregoing duties, the Origination Trustee will be required to exercise the same
degree of care and skill as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs. (SUBI Trust
Agreement, Section 5.02).
The Origination Trustee may be replaced by ALFI L.P. only if it ceases to
be qualified in accordance with the terms of the SUBI Trust Agreement and shall
be removed if certain representations and warranties
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made by the Origination Trustee therein prove to have been materially incorrect
when made, or in certain events of bankruptcy or insolvency. (SUBI Trust
Agreement, Section 6.03). The Securitization Trustee, as holder of the SUBI
Certificate, on behalf of the Certificateholders may, or at the direction of
holders of Certificates evidencing not less than 51% of the Voting Interests of
the Class A Certificates and the Class B Certificates, voting together as a
single class, will, exercise its powers under the Origination Trust Agreement to
cause the Trust Agent to be removed or replaced for a material breach of its
obligations. (SUBI Trust Agreement, Sections 5.03 and 10.02).
The Origination Trustee will make no representations as to the validity or
sufficiency of the SUBI, the SUBI Certificate or the Retained SUBI Interest
(other than the execution and authentication of the SUBI Certificate and the
certificate evidencing the Retained SUBI Interest), or of any Contract, Leased
Vehicle or related document, will not be responsible for performing any of the
duties of ALFI L.P. or the Servicer and will not be accountable for the use or
application by any owners of beneficial interests in the Origination Trust
Assets of any funds paid in respect of the Origination Trust Assets, or the
investment of any of such monies before such monies are deposited into the
accounts relating to the SUBI, the Other SUBIs and the UTI. The Origination
Trustee will not independently verify the Contracts or the Leased Vehicles.
(SUBI Trust Agreement, Section 5.04). The duties of the Origination Trustee will
generally be limited to the acceptance of assignments of lease contracts, the
titling of the related leased vehicles in the name of the Origination Trustee,
the creation of the SUBI, the Other SUBIs and the UTI, the maintenance of the
SUBI Collection Account, the Residual Value Surplus Account and accounts
relating to the Other SUBIs and the UTI and the receipt of the various
certificates, reports or other instruments required to be furnished to the
Origination Trustee under the SUBI Trust Agreement, in which case it will only
be required to examine them to determine whether they conform to the
requirements of the SUBI Trust Agreement. (SUBI Trust Agreement, Section 5.01).
The Origination Trustee will be under no obligation to exercise any of the
rights or powers vested in it by the SUBI Trust Agreement 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 ALFI L.P., the Servicer or by the holders of a majority in interest
in the SUBI, unless such party or parties have offered to the Origination
Trustee reasonable security or indemnity against the costs, expenses and
liabilities that may be incurred therein or thereby. The reasonable expenses of
every such exercise of rights or powers or examination shall be paid by the
party or parties requesting such exercise or examination or, if paid by the
Origination Trustee, shall be a reimbursable expense of the Origination Trustee.
(SUBI Trust Agreement, Sections 5.03 and 6.08).
The Origination Trustee may enter from time to time into one or more agency
agreements (each, an "Agency Agreement") with such person or persons, including
without limitation any affiliate of the Origination Trustee (each, a "Trust
Agent"), as are by experience and expertise qualified to act in a trustee
capacity and otherwise acceptable to ALFI. The Origination Trustee has engaged
First Bank as the Trust Agent. Pursuant to the Agency Agreement (which currently
is a part of the SUBI Trust Agreement), the Trust Agent shall perform each and
every obligation of the Origination Trustee under the SUBI Trust Agreement.
(SUBI Trust Agreement, Section 5.03).
The Origination Trustee shall be paid out of Origination Trust Assets
reasonable compensation and reimbursement of all reasonable expenses (including
reasonable attorneys' fees). (SUBI Trust Agreement, Section 6.08). However, with
regard to the SUBI Assets allocable to the SUBI Interest, this requirement is
subject to the provisions regarding Capped Origination Trust Administrative
Expenses described under "Description of the Certificates -- Distributions on
the Certificates -- Distributions of Interest".
Indemnity of Trustee and Trust Agents
The Origination Trustee and each Trust Agent will be indemnified and held
harmless out of and to the extent of the Origination Trust Assets with respect
to any loss, liability or expense, including reasonable attorneys' fees and
expenses (collectively "Claims"), arising out of or incurred in connection with
(i) any of the Origination Trust Assets (including without limitation any Claims
relating to lease contracts or leased vehicles of the Origination Trust, any
personal injury or property damage claims arising with respect to any
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such leased vehicle or any claim with respect to any tax arising with respect to
any Origination Trust Asset) or (ii) the Origination Trustee's or the Trust
Agent's acceptance or performance of the trusts and duties contained in the
Agreement or any Agency Agreement. Notwithstanding the foregoing, neither the
Origination Trustee nor any Trust Agent will be indemnified or held harmless out
of the Origination Trust Assets as to any Claim (i) for which World Omni shall
be liable pursuant to the Servicing Agreement, (ii) incurred by reason of the
Origination Trustee's or such Trust Agent's willful misfeasance, bad faith or
negligence or (iii) incurred by reason of the Origination Trustee's or Trust
Agent's breach of its respective representations and warranties pursuant to the
SUBI Trust Agreement or the Servicing Agreement. Such indemnities may result in
Additional Loss Amounts to the extent payable in respect of the SUBI Assets or
allocated to the SUBI. (SUBI Trust Agreement, Section 5.05).
Termination
The Origination Trust and the respective obligations and responsibilities
of ALFI L.P. and the Origination Trustee shall terminate upon the last to occur
of (i) the payment to ALFI L.P. and each permitted purchaser, assignee and
pledgee of any of ALFI L.P.'s interests in the Origination Trust (including the
Trustee, with respect to the SUBI Interest) of all amounts and obligations
required to be paid to them, and the expiration or termination of all financings
secured by the Origination Trust Assets by their respective terms and (ii) the
maturity or liquidation and the disposition of all Origination Trust Assets and
the disposition to or upon the order of ALFI L.P. or any permitted purchaser,
assignee or pledgee of all net proceeds thereof. (SUBI Trust Agreement, Section
8.01).
No Petition
The Origination Trustee and the Trust Agent will agree not to institute, or
join in, any bankruptcy or similar proceeding against the Transferor, WOLSI,
ALFI L.P. or ALFI until one year and one day after final payment of all
financings involving interests in the Origination Trust. (SUBI Trust Agreement,
Section 6.09). Each pledgee or assignee of any UTI or other SUBI must give a
similar non-petition covenant. (SUBI Trust Agreement, Sections 4.01 and 4.02).
Amendment
The SUBI Trust Agreement may be amended by written agreement between ALFI
L.P. and the Origination Trustee, with the approval of the Trustee (which may be
given in the circumstances described under "Additional Document
Provisions -- Additional Agreement Provisions -- Amendment"). To the extent that
any such amendment relates to or affects the UTI or any Other SUBI in addition
to the SUBI, the SUBI Certificate or the SUBI Assets, such amendment may require
certain other approvals. (SUBI Trust Agreement, Sections 9.01 and 13.01).
Governing Law
The SUBI Trust Agreement will be governed by the laws of the State of
Alabama. (SUBI Trust Agreement, Sections 9.02 and 13.02).
Trustee as Third-Party Beneficiary
As the holder of the SUBI Interest, the Trustee will be a third-party
beneficiary of the SUBI Trust Agreement. Therefore, the Trustee may, and, upon
the direction of Certificateholders representing at least 51% of the Voting
Interests of the Class A Certificates and the Class B Certificates (voting
together as a single class) will, exercise any right conferred by the SUBI Trust
Agreement upon a holder of any interest in the SUBI. (SUBI Trust Agreement,
Section 10.02).
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THE SERVICING AGREEMENT
General
Pursuant to the Servicing Agreement, the Servicer will perform on behalf of
the Origination Trustee all of the obligations of the lessor under the
Contracts, including, but not limited to, collecting and posting payments,
responding to inquiries of the lessees, investigating delinquencies, sending
payment statements and reporting tax information to the lessees, paying costs of
disposition of Leased Vehicles related to Charged-off Contracts, Matured
Contracts and Additional Loss Contracts and policing the Contracts, commencing
legal proceedings to enforce a Contract on behalf of the Origination Trust,
administering the Contracts, including accounting for collections and furnishing
monthly and annual statements to the Origination Trustee with respect to
distributions and generating federal income tax information. The Origination
Trustee will furnish the Servicer with all powers of attorney and other
documents necessary or appropriate to enable the Servicer to carry out such
servicing and administrative duties under the Servicing Agreement. The Trustee
will be a third-party beneficiary of the Servicing Agreement. (Servicing
Agreement, Sections 2.01 and 12.12).
Custody of Contract Documents and Certificates of Title
To assure uniform quality in servicing the Contracts and World Omni's own
portfolio of automobile and light duty truck lease contracts and to reduce
administrative costs, the Origination Trustee will appoint World Omni, as
Servicer, to be its agent, bailee and custodian of the Contracts, the
certificates of title relating to the Leased Vehicles and insurance policies and
other documents relating to the Contracts, the related lessees and the Leased
Vehicles. Such documents will not be physically segregated from other automobile
and light duty truck lease contracts, certificates of title and insurance
policies and other documents relating to such lease contracts and leased
vehicles of World Omni, or those which World Omni services for others, including
those leased vehicles constituting Origination Trust Assets that are not
evidenced by the SUBI. The accounting records and computer systems of World Omni
will reflect the interests of the holders of interest in the SUBI in the Initial
Contracts, the Subsequent Contracts, the Initial Leased Vehicles, the Subsequent
Leased Vehicles and all related Contract Rights, and "protective" UCC financing
statements reflecting certain interests in the Contracts and the Contract Rights
will be filed, as more fully described under "Certain Legal Aspects of the
Contracts and Leased Vehicles -- Back-up Security Interests". The Servicer will
be responsible for filing all periodic sales and use tax or property (real or
personal) tax reports, periodic renewals of licenses and permits, periodic
renewals of qualification to act as a trust and a business trust and other
periodic governmental filings, registration or approvals arising with respect to
or required of the Origination Trustee or the Origination Trust. (Servicing
Agreement, Sections 2.01 and 2.07).
Collections
The Servicer will service, administer and collect all amounts due on or in
respect of the Contracts. The Servicer will make reasonable efforts to collect
all such amounts and, in a manner consistent with the Servicing Agreement, will
be obligated to service the Contracts generally in accordance with customary and
usual procedures of institutions which service closed-end automobile and light
duty truck lease contracts and, to the extent more exacting, the procedures used
by the Servicer in respect of lease contracts serviced by it for its own
account. (Servicing Agreement, Sections 2.01 and 2.02).
Consistent with its usual procedures, the Servicer may, in its discretion,
extend the Maturity Date of any Contract by up to five months in the aggregate,
provided that no Contract may be extended more than five times and that the new
Maturity Date of any Contract so extended must not be later than the last day of
the month immediately preceding the month in which the Final Scheduled
Distribution Date occurs. The amount of any Extension Fee received by the
Servicer in connection with the extension of a Contract will be deposited into
the SUBI Collection Account. In the event that the Servicer extends a Contract
in contravention of the foregoing, the Servicing Agreement will require the
Servicer to deposit into the SUBI Collection Account an amount equal to the
Reallocation Payment in respect of such Contract on the Deposit Date relating to
the Collection Period in which such extension was granted, at which time such
Contracts and the related Leased Vehicles will no longer constitute SUBI Assets
as they will be reallocated as UTI Assets. (Servicing
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Agreement, Sections 2.02 and 9.02). See "World Omni -- Collection, Repossession
and Disposition Procedures" for further details regarding collection procedures.
As more fully described under "Security for the Certificates -- The
Accounts -- The SUBI Collection Account", unless the Servicer obtains a Servicer
Letter of Credit, the Servicer will deposit or cause to be deposited all
payments received on or in respect of the Contracts and the Leased Vehicles
(other than Security Deposits) into the SUBI Collection Account within two
Business Days after receipt.
Notification of Liens and Claims
The Servicer will be required to notify the Transferor (in the event that
World Omni is not acting as the Servicer), the Trustee and the Origination
Trustee as soon as practicable of all liens or claims of whatever kind made by a
third party that would materially adversely affect the interests of, among
others, the Transferor, the Origination Trust or any SUBI Asset (with respect
to, among other things, any Contract or Leased Vehicle). Following its learning
of any such lien or claim with respect to any Leased Vehicle, the Servicer will
take whatever actions it deems reasonably necessary to cause such lien or claim
to be removed. (Servicing Agreement, Sections 2.08 and 9.09). See "Certain Legal
Aspects of the Origination Trust and the SUBI -- The SUBI" and "Certain Legal
Aspects of the Contracts and the Leased Vehicles -- Back-up Security Interests"
for a discussion of the risk of liens on SUBI Assets and other Origination Trust
Assets.
Advances
On each Deposit Date, the Servicer will be obligated to make, by deposit
into the SUBI Collection Account, an advance in an amount equal to the aggregate
Monthly Payments due but not received during the related Collection Period with
respect to Contracts that are 31 days or more past due as of the end of the
related Collection Period, and the Servicer may (but shall not be required to)
make such an advance with respect to Contracts that are one or more days, but
less than 31 days, past due as of the end of the related Collection Period
(collectively, an "Advance"). (Servicing Agreement, Section 9.04).
Notwithstanding the foregoing, the Servicer will not be required to make an
Advance to the extent that such Advance would constitute a Nonrecoverable
Advance. (Servicing Agreement, Section 9.04). A "Nonrecoverable Advance" will be
any Advance that, in the reasonable judgment of the Servicer, may not be
ultimately recoverable by the Servicer from Net Liquidation Proceeds or
otherwise. (Servicing Agreement, Section 6.01). In making Advances, the Servicer
will assist in maintaining a regular flow of scheduled principal and interest
payments on the Contracts, rather than to guarantee or insure against losses.
Accordingly, all Advances shall be reimbursable to the Servicer, without
interest, if and when a payment relating to a Contract with respect to which an
Advance has previously been made is subsequently received. In addition, the
Servicer will be reimbursed for all Nonrecoverable Advances from collections on
or in respect of the Contracts and Leased Vehicles in general. (Servicing
Agreement, Section 9.02).
Security Deposits
The Origination Trustee's rights related to the Contracts will include all
rights under the Contracts to the security deposits paid by the lessees at the
time of origination of the Contracts (the "Security Deposits"). As part of its
general servicing obligations, the Servicer will retain possession of each
Security Deposit remitted by the lessees as an agent for the Origination Trust
and will apply the proceeds of such Security Deposits in accordance with the
terms of the Contracts, its customary and usual servicing procedures and
applicable law. However, in the event that any Contract becomes a Charged-off
Contract or the related Leased Vehicle is repossessed, the related Security
Deposit will, to the extent provided by applicable law and such Contract,
constitute Liquidation Proceeds. (Servicing Agreement, Section 2.04). The
Origination Trustee may not have an interest in the Security Deposits that is
enforceable against third parties until such time as they are deposited into the
SUBI Collection Account. The Servicer will not be required to segregate Security
Deposits from its own funds, and any income earned from any investment thereof
by the Servicer shall be for the account of the Servicer as additional servicing
compensation.
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Insurance on Leased Vehicles
Each lessee is required to maintain in full force and effect during the
term of a Contract a comprehensive collision and physical damage insurance
policy covering the actual cash value of the related Leased Vehicle and naming
the Origination Trustee, on behalf of the Origination Trust, as loss payee. Each
lessee also is required to maintain bodily injury and property damage liability
insurance in amounts equal to the greater of the amount prescribed by applicable
state law or industry standards as set forth in the Contract and naming the
Origination Trustee, on behalf of the Origination Trust, as an additional
insured. (Servicing Agreement, Section 2.11). Since lessees may choose their own
insurers to provide the required coverage, the specific terms and conditions of
their policies vary. If a lessee fails to obtain or maintain the required
insurance, the related Contract will be in default. It is the practice of World
Omni not to obtain insurance on behalf of and at the expense of the related
lessee but rather to repossess the related Leased Vehicle. In the event that a
required insurance policy has lapsed, has not been maintained in full force and
effect or the Servicer has failed to maintain the right to receive the proceeds
thereof for damage to or destruction of the related Leased Vehicle, the
Servicing Agreement will require World Omni to pay promptly into the SUBI
Collection Account all such amounts as would otherwise have been recoverable as
Insurance Proceeds. This obligation will survive any termination of World Omni
as Servicer under the Servicing Agreement. (Servicing Agreement, Section 2.11).
World Omni does not require lessees to carry credit disability, credit life
or credit health insurance or other similar insurance coverage which provides
for payments to be made on the Contracts on behalf of such lessees in the event
of disability or death. To the extent that such insurance coverage is obtained
on behalf of a lessee, payments received in respect of such coverage may be
applied to payments on the related Contract to the extent that the lessee's
beneficiary chooses to do so.
Realization Upon Charged-off Contracts
The Servicer will use commercially reasonable efforts to repossess and
liquidate the Leased Vehicle relating to a Contract that comes into and
continues in default and for which no satisfactory arrangements can be made for
collection of delinquent payments. Such liquidation may be through repossession
of such Leased Vehicle and disposition at a public or private sale, or the
Servicer may take any other action permitted by applicable law. The Servicer may
enforce all rights under any such Contract, sell the Leased Vehicle in
accordance with the Contract and commence and prosecute any proceedings in
connection with the Contract. In connection with any such repossession, the
Servicer will follow such practices and procedures as it deems necessary or
advisable and as are normal and usual for responsible holders of closed-end
automobile and light duty truck lease contracts and, to the extent more
exacting, the practices and procedures used by the Servicer in respect of any
such lease contracts serviced by it for its own account, and in any event in
compliance with all applicable laws. The Servicer will be required to repair the
Leased Vehicle if it reasonably determines that such repairs will increase the
related Net Repossessed Vehicle Proceeds. The Servicer will be responsible for
all costs and expenses incurred in connection with the sale or other disposition
of Leased Vehicles related to Charged-off Contracts and other Contracts as to
which a lessee has defaulted and the related Leased Vehicles, but will be
entitled to reimbursement to the extent that such costs constitute Repossessed
Vehicle Expenses or other Liquidation Expenses or expenses recoverable under an
applicable insurance policy. Proceeds from the sale or other disposition of
repossessed Leased Vehicles will constitute Repossessed Vehicle Proceeds and
will be deposited into the SUBI Collection Account. The Servicer will be
entitled to reimbursement of all related Repossessed Vehicle Expenses from
amounts on deposit in the SUBI Collection Account upon presentation to the
Trustee of an officer's certificate of the Servicer and Principal Collections in
respect of a Collection Period will include all Net Repossessed Vehicle Proceeds
collected during such Collection Period. (Servicing Agreement, Sections 2.06 and
9.02).
Matured Leased Vehicle Inventory
Upon the scheduled maturity of a Contract, the related lessee has the
option to acquire the related Leased Vehicle for an amount equal to its Residual
Value plus any applicable taxes and all other incidental charges which may be
due under such Contract. If the lessee chooses not to exercise this option but
instead returns the Leased Vehicle to the Servicer, such Leased Vehicle will be
placed in Matured Leased Vehicle
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Inventory, and the Servicer, acting on behalf of the Origination Trust, will
sell or otherwise dispose of the Leased Vehicle in a manner similar to that for
other off-lease Leased Vehicles. (Servicing Agreement, Section 2.06).
Principal Collections in respect of a Collection Period will include all
Net Matured Leased Vehicle Proceeds collected during such Collection Period. All
related Matured Leased Vehicle Proceeds will be deposited into the SUBI
Collection Account. Related Matured Leased Vehicle Expenses may be released from
amounts on deposit in the SUBI Collection Account or the Residual Value Surplus
Account upon presentation of an officer's certificate by the Servicer. Any
Residual Value Surplus for a Collection Period will be deposited into the
Residual Value Surplus Account. (SUBI Trust Agreement, Section 10.01; Servicing
Agreement, Section 9.02).
Records, Servicer Determinations and Reports
The Servicer will retain or cause to be retained all data (including,
without limitation, computerized records, operating software and related
documentation) relating directly to or maintained in connection with the
servicing of the Contracts. Upon the occurrence and continuance of an Event of
Servicing Termination and termination of the Servicer's obligations under the
Servicing Agreement, the Servicer will use commercially reasonable efforts to
effect the orderly and efficient transfer of the servicing of the Contracts to a
successor servicer. (Servicing Agreement, Sections 2.03 and 9.03).
The Servicer will perform certain monitoring and reporting functions on
behalf of the Transferor, the Trustee, the Origination Trustee and
Certificateholders, including the preparation and delivery to the Trustee, the
Origination Trustee and each Rating Agency of a monthly certificate, on or
before each Determination Date, setting forth all information necessary to make
all distributions required in respect of the related Collection Period (the
"Servicer's Certificate"), and the preparation and delivery of monthly
statements setting forth information described under "Description of the
Certificates -- Statements to Certificateholders", and an annual officer's
certificate specifying the occurrence and status of any Event of Servicing
Termination. (Servicing Agreement, Section 10.01).
Evidence as to Compliance
The Servicing Agreement will provide that a firm of nationally recognized
independent accountants will furnish to the Trustee on or before April 30 of
each year, beginning April 30, 1998, a statement as to compliance by the
Servicer during the preceding twelve months ended December 31 (or since the
Closing Date in the case of the first such statement) with certain standards
relating to the servicing of the Contracts, the Servicer's accounting records
and computer files with respect thereto and certain other matters. (Servicing
Agreement, Sections 3.02 and 10.02).
The Servicing Agreement will also provide for delivery to the Trustee, on
or before April 30 of such year, beginning April 30, 1998, of a certificate
signed by an officer of the Servicer stating that the Servicer has fulfilled its
obligations under the Agreement throughout the preceding twelve months ended
December 31 (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. (Servicing Agreement, Sections 3.03
and 10.03).
Copies of such statements and certificates may be obtained by Certificate
Owners or Class A Certificateholders by a request in writing addressed to the
Trustee at its Corporate Trust Office. (Agreement, Section 3.06).
Compliance with ERISA
On or before each Determination Date, the Servicer shall provide the
Trustee and each Rating Agency with an officer's certificate stating that none
of SET, JMFE, World Omni nor any of their respective affiliates for purposes of
ERISA (i) maintains an ERISA plan which, as of its last valuation date, had
unfunded current liability, (ii) anticipates that the value of the assets of any
ERISA plan it maintains would not be sufficient to cover any current liability
and (iii) is contemplating benefit improvements with respect to any
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plans then maintained or the establishment of any new ERISA plans, either of
which would cause it to maintain an ERISA plan with unfunded current liability
(the "ERISA Compliance Test"). In the event that the Servicer does not timely
make the foregoing certifications, or any such certification is incorrect, all
Excess Collections in respect of any Distribution Date, after giving effect to
all payments required to be made therefrom on such Distribution Date, will be
deposited into the Reserve Fund, regardless of the Reserve Fund Cash
Requirement. On the Distribution Date following the date on which the ERISA
Compliance Test is satisfied, monies on deposit in the Reserve Fund in excess of
the Reserve Fund Cash Requirement shall be distributed to the Transferor (or to
the Certificateholders to the extent allocable to the Accelerated Principal
Distribution Amount). See "Security for the Certificates -- The Accounts -- The
Reserve Fund -- The Reserve Fund Cash Requirement" for a more complete
description of the Reserve Fund Cash Requirement. (Servicing Agreement, Section
10.03; Agreement, Sections 1.01, 3.03 and 3.04).
Servicing Compensation
The Servicer will be entitled to compensation for the performance of its
servicing obligations under the Servicing Agreement. The Servicer will be
entitled to receive on each Distribution Date, the Servicing Fee in respect of
the related Collection Period equal to one-twelfth of the product of 1.00% and
the Aggregate Net Investment Value as of the first day of the month preceding
the month in which such Distribution Date occurs (or, in the case of the first
Distribution Date, as of the Initial Cutoff Date); the portion of the Servicing
Fee allocable to the SUBI Interest will be 99.8% thereof. The Servicing Fee will
be calculated and paid based upon a 360-day year consisting of twelve 30-day
months. So long as World Omni is the Servicer, it may, by notice to the Trustee
and the Origination Trustee, on or before a Determination Date, elect to waive
the Servicing Fee with respect to the related Collection Period, so long as
World Omni believes that sufficient collections will be available from Interest
Collections on one or more future Distribution Dates to pay such waived
Servicing Fee, without interest. In such event, the Servicing Fee for such
Collection Period shall be deemed to equal zero for all purposes of the
Agreement and the Servicing Agreement.
The Servicer will also be entitled to additional servicing compensation in
the form of late fees and other administrative fees or similar charges paid with
respect to the Contracts, and earnings from the investment of Security Deposits
as described above under "Additional Document Provisions -- The Servicing
Agreement -- Security Deposits". The Servicer will not be entitled to retain any
Extension Fee paid in connection with an extended Contract, as such amounts will
be required to be deposited into the SUBI Collection Account. The Servicer will
pay all expenses incurred by it in connection with its servicing activities
under the Servicing Agreement, including the payment of Uncapped Administrative
Expenses allocable to the SUBI Interest, and will not be entitled to
reimbursement of such expenses except to the extent any such expenses constitute
Liquidation Expenses in respect of a Contract or Leased Vehicle or reasonable
issuance expenses under an applicable insurance policy, or to the extent that
Uncapped Administrative Expenses are reimbursed out of Interest Collections.
(Servicing Agreement, Sections 2.05 and 9.06).
The Servicing Fee will compensate the Servicer for performing the functions
of a third party servicer of the Contracts as an agent for the Trustee under the
Servicing Agreement, including collecting and posting payments, responding to
inquiries of lessees on the Contracts, investigating delinquencies, sending
payment statements and reporting tax information to lessees, paying costs of
sale or other disposition of Leased Vehicles relating to defaulted Contracts and
Leased Vehicles included in Matured Leased Vehicle Inventory, policing the SUBI
Assets, administering the Contracts, including making Advances, accounting for
collections, furnishing monthly and annual statements to the Trustee with
respect to distributions and generating federal income tax information.
(Servicing Agreement, Section 2.05).
Servicer Resignation and Termination
The Servicer may not resign from its obligations and duties under the
Servicing Agreement unless it determines that its duties thereunder are no
longer permissible by reason of a change in applicable law or regulations. No
such resignation will become effective until a successor servicer has assumed
the Servicer's obligations under the Servicing Agreement. The Servicer may not
assign the Servicing Agreement or any of its rights, powers, duties or
obligations thereunder except as otherwise provided therein or except in
connection
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with a consolidation, merger, conveyance, transfer or lease made in compliance
with the Servicing Agreement. (Servicing Agreement, Sections 2.10 and 9.11).
The rights and obligations of the Servicer under the Servicing Agreement
may be terminated following the occurrence and continuance of an Event of
Servicing Termination, as described under "Additional Document Provisions -- The
Servicing Agreement -- Rights Upon Event of Servicing Termination". (Servicing
Agreement, Sections 4.01 and 11.01).
Indemnification by the Servicer
The Servicer will indemnify the Trustee and its agents for any and all
liabilities, losses, damages and expenses that may be incurred by them as a
result of any act or omission by the Servicer in connection with the performance
of its duties under the Servicing Agreement. (Servicing Agreement, Section
9.08).
Events of Servicing Termination
"Events of Servicing Termination" under the Servicing Agreement with
respect to the SUBI Assets will consist of, among other things: (i) any failure
by the Servicer to deliver to the Origination Trustee for distribution to
holders of interests in the SUBI or to the Trustee for distribution to the
Certificateholders any required payment, which failure continues unremedied for
five Business Days after discovery of such failure by an officer of the Servicer
or receipt by the Servicer of notice thereof from the Trustee, the Origination
Trustee or holders of Certificates evidencing not less than 25% of the Voting
Interests of the Class A Certificates and the Class B Certificates, voting
together as a single class; (ii) any failure by the Servicer duly to observe or
perform in any material respect any other of its covenants or agreements in the
Servicing Agreement which failure materially and adversely affects the rights of
holders of interests in the SUBI or the Certificateholders and which continues
unremedied for 60 days after written notice of such failure is given as
described in clause (i) above; (iii) failure by the Servicer to deliver to the
Origination Trustee or the Trustee any report required to be delivered to the
Origination Trustee or the Trustee pursuant to the Servicing Agreement within
ten Business Days after the date such report is due; (iv) any representation,
warranty or statement of the Servicer made in the Servicing Agreement or any
other document relating to the Origination Trust to which the Servicer is a
party or by which it is bound or any certificate, report or other writing
delivered pursuant to the Servicing Agreement shall prove to be incorrect in any
material respect as of the time when the same shall be made which continues
unremedied for 30 days after written notice of such failure is given as
described in clause (i) above; (v) failure by the Servicer to maintain or pay
when due the premium in respect of any Contingent and Excess Liability Insurance
Policy or the Residual Value Insurance Policy; (vi) any failure by the
Transferor to timely deposit into the Reserve Fund an amount equal to the AISLIC
Reserve Fund Supplemental Requirement after an AISLIC Trigger Event; and (vii)
the occurrence of certain Insolvency Events relating to the Servicer.
Notwithstanding the foregoing, a delay in or failure of performance referred to
under clause (i) for a period of ten Business Days, under clause (ii) for a
period of 90 days, under clause (iii) for a period of 20 Business Days or under
clause (iv) for a period of 60 days, shall not constitute an Event of Servicing
Termination if such failure or delay was caused by act of God or other similar
occurrence. Upon the occurrence of any such event, the Servicer shall not be
relieved from using all commercially reasonable efforts to perform its
obligations in a timely manner in accordance with the terms of the Servicing
Agreement and the Servicer shall provide to the Trustee, the Origination
Trustee, the Transferor and the Certificateholders prompt notice of such failure
or delay by it, together with a description of its efforts to so perform its
obligations. (Servicing Agreement, Sections 4.01 and 11.01).
Rights Upon Event of Servicing Termination
As long as an Event of Servicing Termination remains unremedied, the
Origination Trustee, upon the direction of the Trustee or holders of
Certificates evidencing not less than 51% of the Voting Interests of the Class A
Certificates and the Class B Certificates, voting together as a single class,
may terminate all of the rights and obligations of the Servicer under the
Servicing Agreement with respect to the SUBI Assets. In the event of such a
termination affecting the SUBI Assets, the Trust Agent generally will succeed to
the rights, powers, responsibilities, duties and liabilities of the Servicer
under the Servicing Agreement with respect to
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the SUBI Assets (excluding certain specific obligations listed in the Servicing
Agreement) or provide for a new Servicer to be approved by each Rating Agency.
The Trust Agent or other new Servicer, will receive substantially the same
servicing compensation to which the Servicer otherwise would have been entitled.
If, however, a bankruptcy trustee or similar official has been appointed for the
Servicer, and no Event of Servicing Termination other than such appointment has
occurred, such trustee or official may have the power to prevent the Origination
Trustee, the Trustee or such Certificateholders from effecting a transfer of
servicing. Notwithstanding the termination of the Servicer's rights and powers
in such event, the Servicer will remain obligated to perform certain specific
obligations listed in the Servicing Agreement and to reimburse the Trust Agent
for any losses incurred in performing certain such obligations, and will be
entitled to payment of certain amounts payable to it for services rendered prior
to such termination. (Servicing Agreement, Sections 4.01 and 11.01).
The holders of Certificates evidencing not less than 51% of the Voting
Interests of the Class A Certificates and the Class B Certificates, voting
together as a single class, with the consent of the Origination Trustee and the
Trustee (which consents shall not be unreasonably withheld) may waive any
default by the Servicer in the performance of its obligations under the
Servicing Agreement and its consequences with respect to the SUBI Assets, other
than a default in making any required deposits to or payments from an Account in
accordance with the Servicing Agreement or in respect of a covenant or provision
of the Servicing Agreement that cannot be modified or amended without the
consent of each Certificateholder (in which event the related waiver will
require the approval of holders of all of the Certificates). No such waiver will
impair the rights of the Certificateholders with respect to subsequent defaults.
(Servicing Agreement, Section 4.01; Agreement, Sections 8.02 and 9.03).
No Petition
The Servicer will agree not to institute, or join in, any bankruptcy or
similar proceeding against the Transferor, WOLSI, ALFI L.P., ALFI, the
Origination Trustee or the Origination Trust until one year and one day after
final payment of all financings involving interests in the Origination Trust.
(Servicing Agreement, Section 5.14).
Amendment
The Servicing Agreement may be amended from time to time in a writing
signed by the Origination Trustee and the Servicer, with the approval of the
Trustee (which approval may be given in the circumstances described under
"Additional Document Provisions -- Additional Agreement
Provisions -- Amendment"). Any such amendment relating to the UTI or any Other
SUBI may require certain other approvals. (Servicing Agreement, Sections 5.02
and 12.02).
Termination
The Servicing Agreement shall terminate upon the earlier to occur of (i)
the termination of the Origination Trust, (ii) the discharge of the Servicer in
accordance with its terms or (iii) the termination of the Agreement. (Servicing
Agreement, Section 5.01).
Governing Law
The Servicing Agreement will be governed by the laws of the State of
Alabama.
Trustee as Third-Party Beneficiary
As the holder of the SUBI Interest, the Trustee will be a third-party
beneficiary of the Servicing Agreement. (Servicing Agreement, Section 12.12).
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CERTAIN LEGAL ASPECTS OF THE ORIGINATION TRUST AND THE SUBI
THE ORIGINATION TRUST
The Origination Trust may be deemed to be a business trust under Alabama
law. In an Alabama business trust, the trust property is managed for the profit
of the beneficiaries, as opposed to a common "asset preservation" trust, in
which the trustee is charged with the mere maintenance of trust property. The
principal requirement for the formation of a business trust in Alabama is the
filing of the trust instrument with the appropriate state authority. The
Origination Trust Agreement has been, and the SUBI Trust Agreement will be, so
filed. The Origination Trust also has been qualified as a business trust
authorized to transact business in certain other states where it is required to
be qualified.
Because the Origination Trust has been registered as a business trust for
Alabama and other state law purposes, like a corporation, it may be eligible to
be a debtor in its own right under the United States Bankruptcy Code, as further
described under "Risk Factors -- Insolvency of World Omni; Substantive
Consolidation with World Omni".
THE SUBI
The SUBI will be issued pursuant to the SUBI Trust Agreement and will
evidence a beneficial interest in the SUBI Assets. The SUBI will not represent a
direct interest in the SUBI Assets, nor will it represent an interest in any
Origination Trust Assets other than the SUBI Assets. Under the allocation of
Origination Trust liabilities described under "Additional Document
Provisions -- The SUBI Trust Agreement -- The SUBI, the Other SUBIs and the
UTI", payments made on or in respect of such other Origination Trust Assets will
not be available to make payments on the Certificates or to cover expenses of
the Origination Trust allocable to the SUBI Assets. Any liability to third
parties arising from or in respect of a Contract or Leased Vehicle will be borne
by the holders of interests in the SUBI (including the Trust). If any such
liability arises from a contract or leased vehicle that is an Other SUBI Asset
or a UTI Asset, the Origination Trust Assets (including the SUBI Assets) will
not be subject to such liability unless such Other SUBI Assets or UTI Assets are
insufficient to pay the liability. In such event, because there will be no other
assets from which to satisfy any such liability, to the extent that it is owed
to entities other than the Origination Trustee and the beneficiaries of the
Origination Trust, the other Origination Trust Assets, including the SUBI
Assets, will be available to satisfy such liabilities. Under such circumstances,
investors in the Class A Certificates could incur a loss on their investment.
Similarly, to the extent that a third-party claim that otherwise would be
allocable to an Other SUBI or UTI is satisfied out of the SUBI Assets rather
than Other SUBI Assets or UTI Assets, and the claim exceeds the value of the
portfolio to which it should be allocated, the Origination Trustee will not be
able to reallocate the remaining Origination Trust Assets so that each portfolio
will bear the expense of the claim as nearly as possible if the claim has been
properly allocated. In such circumstances, investors in the Class A Certificates
could incur a loss on their investment.
Because the Trustee will not own directly the SUBI Assets, and since its
interest therein generally will be an indirect beneficial ownership interest,
perfected liens of third-party creditors of the Origination Trust in one or more
SUBI Assets will take priority over the interest of the Trustee in such SUBI
Assets. Therefore, a general creditor of the Origination Trust may obtain a lien
on one or more SUBI Assets regardless of whether its claim would be allocated to
such SUBI Assets under the terms of the Origination Trust Agreement. Potentially
material examples of such liens could include tax liens arising against the
Transferor or the Trust, liens arising under various federal and state criminal
statutes, certain liens in favor of the Pension Benefit Guaranty Corporation
(the "PBGC"), judgment liens arising from successful claims under federal and
state consumer protection laws and Lemon Laws with respect to leases and leased
vehicles included in the Origination Trust Assets and judgment liens arising
from successful claims against the Origination Trust arising from the operation
of the leased vehicles constituting Origination Trust Assets. See "Risk
Factors -- Consumer Protection Laws", "-- ERISA Liabilities" and "-- Vicarious
Tort Liability" and "Certain Legal
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Aspects of the Contracts and the Leased Vehicles -- Vicarious Tort Liability"
and "-- Consumer Protection Laws" for a further discussion of these risks.
The Origination Trust Agreement provides that, to the extent that such a
third-party claim is satisfied out of one or more SUBI Assets rather than Other
SUBI Assets or UTI Assets, as the case may be, the Origination Trustee will
reallocate the remaining Origination Trust Assets (i.e., the Other SUBI Assets
and the UTI Assets) so that each portfolio will bear the expense of the claim as
nearly as possible as if the claim had been allocated as provided in the
Origination Trust Agreement as set forth under "Additional Document
Provisions -- The SUBI Trust Agreement -- The SUBI, the Other SUBIs and the
UTI".
INSOLVENCY RELATED MATTERS
As described under "The Origination Trust -- Allocation of SUBI Assets" and
"Certain Legal Aspects of the Origination Trust and the SUBI -- The SUBI," each
holder or pledgee of the UTI and any Other SUBI will be required to expressly
disclaim any interest in the SUBI Assets, and to fully subordinate any claims to
the SUBI Assets in the event that this disclaimer is not given effect. Although
no assurance can be given, in the unlikely event of a bankruptcy of ALFI L.P.,
the Transferor believes that the SUBI Assets would not be treated as part of
ALFI L.P.'s bankruptcy estate and that, even if they were so treated, the
subordination by holders and pledgees of the UTI and Other SUBIs should be
enforceable. In addition, as described under "Risk Factors -- Insolvency of
World Omni; Substantive Consolidation with World Omni", the Transferor has taken
steps in structuring the transactions contemplated hereby that are intended to
make it unlikely that the voluntary or involuntary application for relief by
World Omni under any Insolvency Laws will result in consolidation of the assets
and liabilities of ALFI, ALFI L.P., WOLSI, the Transferor, the Origination Trust
or the Trust with those of World Omni. If, however, (i) a court concluded that
the assets and liabilities of ALFI, ALFI L.P., the Transferor, WOLSI, the
Origination Trust or the Trust should be consolidated with those of World Omni
in the event of the application of applicable Insolvency Laws to World Omni,
(ii) a filing were made under any Insolvency Law by or against ALFI, ALFI L.P.,
the Transferor, WOLSI, the Origination Trust or the Trust or (iii) an attempt
were made to litigate any of the foregoing issues, delays in payments on the
Certificates and possible reductions in the amount of such payments could occur.
LEGAL PROCEEDINGS
None of ALFI, ALFI L.P., the Transferor or WOLSI is a party to any legal
proceeding. World Omni is a party to, and is vigorously defending, numerous
legal proceedings, all of which it believes constitute ordinary routine
litigation incidental to the business and activities conducted by World Omni.
The Origination Trustee, on behalf of the Origination Trust, has been named as a
defendant in various cases which it believes constitute ordinary routine
litigation incidental to the business and activities conducted by the
Origination Trustee as an assignee of lease contracts and leased vehicles.
CERTAIN LEGAL ASPECTS OF THE
CONTRACTS AND THE LEASED VEHICLES
BACK-UP SECURITY INTERESTS
As described under "Risk Factors -- Insolvency of World Omni; Substantive
Consolidation with World Omni", the transfer of the SUBI Certificate by the
Transferor to the Trust is intended to constitute a sale of the SUBI Certificate
and of the beneficial interest in the SUBI Assets evidenced thereby, subject in
each case to the rights of the Transferor as the holder of the Transferor
Interest and the Retained SUBI Interest. Although deemed highly unlikely by the
Transferor, theoretically it is possible that a court could recharacterize (for
accounting and general state law purposes) the transactions contemplated by the
SUBI Trust Agreement as a financing secured by a pledge of the SUBI Certificate,
or even the underlying SUBI Assets, to the Trustee on behalf of the
Certificateholders, rather than as a sale. In such an event, absent prior
perfection of the Trustee's security interest in the SUBI Assets, the holder of
a perfected lien in one or more SUBI Assets would have priority over the
interest of the Trustee in such SUBI Assets. Therefore, certain actions have
been taken to ensure that, were the Certificates to be so recharacterized as
secured loans, the Trustee
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would be deemed to have a perfected security interest in the SUBI Certificate
(and the SUBI Interest evidenced thereby) and in the Contracts and the rights
thereunder susceptible of perfection under the Uniform Commercial Code (the
"UCC") in effect in the States of Alabama, Illinois and Florida. In particular,
on or prior to the Closing Date, "protective" UCC-1 financing statements will be
filed in the States of Alabama, Florida and Illinois to effect this perfection.
By virtue of its possession of the SUBI Certificate, the Trustee also will be
deemed to have a perfected security interest therein (and in the SUBI Interest
evidenced thereby). However, no action will be taken to perfect the lien that
the Trustee would be deemed to have in the Leased Vehicles in the event of such
a recharacterization. Therefore, to the extent that a valid lien is imposed by a
third party against a Leased Vehicle, the interest of the lienholder will be
superior to the unperfected beneficial interest of the Trustee in such Leased
Vehicle. Although the Servicing Agreement will require the Servicer to contest
all such liens and cause the removal of any liens that may be imposed, if any
such liens are imposed against the Leased Vehicles, investors in the Class A
Certificates could incur a loss on their investment. For further information
relating to potential liens on the SUBI Assets, see "Additional Document
Provisions -- The Servicing Agreement -- Notification of Liens and Claims" and
"Certain Legal Aspects of the Origination Trust and the SUBI -- The SUBI".
The Trustee's back-up security interest in the Contracts could be
subordinate to the interest of certain other parties who take possession of the
Contracts before the filing described above has been completed. Specifically,
the Trustee's security interest in a Contract could be subordinate to the rights
of a purchaser of such Contract who takes possession thereof without knowledge
or actual notice of the Trustee's security interest. The Contracts will not be
stamped to reflect the foregoing back-up security arrangements.
As noted under "Certain Legal Aspects of the Origination Trust and the
SUBI -- The SUBI", various liens could be imposed upon all or part of the SUBI
Assets that, by operation of law, would take priority over the Trustee's
interest therein. Such liens would include tax liens arising against the
Transferor or the Trust, mechanic's, repairmen's, garagemen's and motor vehicle
accident liens and certain liens for personal property taxes, in each case
arising with respect to a particular Leased Vehicle, liens arising under various
state and federal criminal statutes and certain liens, more fully described
under "Risk Factors -- ERISA Liabilities", in favor of the PBGC. Additionally,
any perfected security interest of the Trustee in all or part of the property of
the Trust could also be subordinate to claims of any trustee in bankruptcy or
debtor-in-possession in the event of a bankruptcy of the Transferor prior to any
perfection of the transfer of the assets transferred by the Transferor to the
Trust pursuant to the Agreement, as more fully described under "Risk
Factors -- Insolvency of World Omni; Substantive Consolidation with World Omni".
VICARIOUS TORT LIABILITY
Although the Origination Trust will own the leased vehicles, they will be
operated by the lessees and their respective invitees. State laws, including the
laws in the Five State Area, differ as to whether anyone suffering injury to
person or property involving a leased vehicle may bring an action against the
owner of the vehicle merely by virtue of that ownership.
In Alabama and Georgia, a victim of such an accident has no such cause of
action against the owner of a leased vehicle arising from the negligent
operation of such leased vehicle unless the owner has negligently entrusted or
negligently continues to entrust the vehicle to an inappropriate lessee.
In Florida, under Section 324.021(9)(b), Florida Statutes, the owner of a
motor vehicle that is subject to a lease having an initial term of at least one
year is exempt from liability arising out of an accident in which the leased
vehicle is involved if the lessee is required under the lease to maintain
certain specified levels of insurance and such insurance is in effect. In 1991,
in a case involving finance leases, the Florida Supreme Court ruled that this
statute is constitutional and that a Florida owner/lessor that complies with the
statute will not be deemed the owner of the leased vehicle for purposes of
financial responsibility for liability or tort claims arising out of the
negligent operation of the leased vehicle or the negligent acts of the operator.
In 1992, the Florida Supreme Court held that this statute is applicable to true
leases as well as finance leases. In March 1996, the Florida Supreme Court
strictly interpreted the requirements of Section 324.021(9)(b), ruling that the
existence of a lessor's blanket contingent liability insurance policy did not
satisfy the statutory requirement
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that the lessee have insurance in effect at the time of the accident and denying
the lessor the liability exemption provided in the statute. However, effective
with respect to actions brought on or after June 1, 1996, the statute was
amended to provide that a lessor's blanket contingent liability insurance policy
with certain required policy limits will be deemed to satisfy the statute's
requirements for the liability exemption. The Origination Trust's insurance
coverage meets these requirements.
In North Carolina, a lessor of a motor vehicle generally is not responsible
to injured parties for a lessee's negligent use of the leased vehicle when all
control has been relinquished to the lessee, unless the lessor knew or in the
exercise of reasonable care should have known that the leased vehicle was
defective or unsafe at the time of delivery to the lessee and the defect or
unsafe condition caused injury, or if the lessor negligently entrusted the
vehicle to an incompetent lessee.
As more fully described under "Risk Factors -- Vicarious Tort Liability",
following an accident involving a Leased Vehicle, under certain circumstances
the Origination Trust may be the subject of an action for damages as a result of
its ownership of such Leased Vehicle. To the extent that applicable state law
permits such an action, the Origination Trust and the Origination Trust Assets
may be subject to liability. However, the laws of many States, including each of
the States in the Five State Area, either do not permit such suits, or the
lessor's liability is capped at the amount of any liability insurance that the
lessee was required to, but failed to, maintain. Although the Origination
Trust's insurance coverage is substantial, in the event that all applicable
insurance coverage were exhausted and damages were assessed against the
Origination Trust, claims could be imposed against the assets of the Origination
Trust, including the Leased Vehicles. However, such claims would not take
priority over any SUBI Assets to the extent that the Trustee has a prior
perfected security interest therein (such as would be the case, in certain
limited circumstances, with respect to the Contracts) as further described under
"Certain Legal Aspects of the Contracts and the Leased Vehicles -- Back-up
Security Interests". If any such claims were imposed against the assets of the
Origination Trust, investors in the Class A Certificates could incur a loss on
their investment.
REPOSSESSION OF LEASED VEHICLES
In the event that a default by a lessee has not been cured within a certain
period of time after notice, the Servicer will ordinarily retake possession of
the related leased vehicle. Some jurisdictions require that the lessee be
notified of the default and be given a time period within which to cure the
default prior to repossession. Generally, this right to cure may be exercised on
a limited number of occasions in any one-year period. In these jurisdictions, if
the lessee objects or raises a defense to repossession, an order must be
obtained from the appropriate state court, and the vehicle must then be
repossessed in accordance with that order. Other jurisdictions permit
repossession without notice (although in Florida, Georgia and North Carolina a
course of conduct in which the lessor has accepted late payments has been held
to create a right of the lessee to receive prior notice), but only if the
repossession can be accomplished peacefully. If a breach of the peace cannot be
avoided, judicial action is required.
In Georgia, a leased vehicle may be repossessed without notice, but only if
the repossession can be accomplished without a breach of the peace. If a breach
of the peace cannot be avoided, the lessor must seek a writ of possession in a
state court action or pursue other judicial action to repossess such leased
vehicle.
After the Servicer has repossessed a Leased Vehicle, it may provide the
lessee with a period of time within which to cure the default under the related
Contract. If by the end of such period the default has not been cured, the
Servicer will attempt to sell the Leased Vehicle. The Net Repossessed Vehicle
Proceeds therefrom may be less than the remaining amounts due under the Contract
at the time of default by the lessee.
DEFICIENCY JUDGMENTS
The proceeds of sale of a leased vehicle generally will be applied first to
the expenses of resale and repossession and then to the satisfaction of the
amounts due under the related lease contract. While some states impose
prohibitions or limitations on deficiency judgments if the net proceeds from
resale of a leased vehicle do not cover the full amounts due under the related
lease contract, a deficiency judgment can be sought in those states (including
each of the States in the Five State Area) that do not prohibit directly or
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limit such judgments. However, in some states (including Florida), a lessee may
be allowed an offsetting recovery for any amount not recovered at resale because
the terms of the resale were not commercially reasonable. In any event, a
deficiency judgment would be a personal judgment against the lessee for the
shortfall, and a defaulting lessee would be expected to have little capital or
sources of income available following repossession. Therefore, in many cases, it
may not be useful to seek a deficiency judgment. Even if a deficiency judgment
is obtained, it may be settled at a significant discount.
In Georgia, amounts recoverable by the lessor of a leased vehicle from a
lessee upon default or early termination are not considered to be "deficiency
judgments", but damages for breach or early termination of the related lease
contract. In the case of liquidated damages provided for in the Contracts, the
only limitation or prohibition on such damages is that they are reasonable in
light of the anticipated harm caused by the default. Georgia law does not
require that any excess proceeds from disposition of a leased vehicle be paid to
a lessee. Under the Georgia Motor Vehicle Warranty Rights Act, however, where a
lessor or lessee has exercised its rights against the manufacturer and obtained
a replacement vehicle and the lessor realizes a gain from disposition of the
replacement vehicle, the lessor must refund to the lessee the lesser of any
offset for use paid by the lessee to the manufacturer or the gain realized by
the lessor.
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws impose requirements
upon lessors and servicers involved in consumer leasing. The federal Consumer
Leasing Act of 1976 and Regulation M, issued by the Board of Governors of the
Federal Reserve System, for example, require that a number of disclosures be
made at the time a vehicle is leased, including the amount of any down payment,
a description of the lessee's liability at the end of the lease term, the amount
of any periodic payments and the circumstances under which the lessee may
terminate the lease prior to the end of the lease term, and (beginning in
October 1997) the capitalized cost of the vehicle and a warning regarding
possible charges for early termination. The various consumer protection laws
would apply to the Origination Trustee as a "co-lessor" of the Contracts and may
also apply to the Trust as holder of a beneficial interest in the Contracts. The
failure to comply with such consumer protection laws may give rise to
liabilities on the part of the Servicer, the Origination Trust and the
Origination Trustee, including liabilities for statutory damages and attorneys'
fees. In addition, claims by the Servicer, the Origination Trust and the
Origination Trustee may be subject to set-off as a result of such noncompliance.
Courts have applied general equitable principles in litigation relating to
repossession and deficiency balances. These equitable principles may have the
effect of relieving a lessee from some or all of the legal consequences of a
default.
In several cases, consumers have asserted that the self-help remedies of
lessors violate the due process protection provided under the Fourteenth
Amendment to the Constitution of the United States. Courts have generally found
that repossession and resale by a lessor do not involve sufficient state action
to afford constitutional protection to consumers.
Many states, including each State in the Five State Area, have adopted laws
(each, a "Lemon Law") providing redress to consumers who purchase or lease a
vehicle that remains out of conformance with its manufacturer's warranty after a
specified number of attempts to correct a problem or after a specific time
period. Should any Leased Vehicle become subject to a Lemon Law, a lessee could
compel the Origination Trust to terminate the related Contract and refund all or
a portion of payments that previously have been paid. Although the Origination
Trust may be able to assert a claim against the manufacturer of any such
defective Leased Vehicle, there can be no assurance any such claim would be
successful.
Historically, less than one-half of one percent of all automobiles and
light duty trucks leased by World Omni (including lease contracts owned by the
Origination Trustee on behalf of the Origination Trust or by certain special
purpose subsidiaries of World Omni) have become the subject of an action under
any of the Lemon Laws of any jurisdiction. As noted below, World Omni will
represent and warrant to the Trustee as of the Initial Cutoff Date and as of
each Subsequent Cutoff Date that none of the Initial Leased Vehicles or the
related Subsequent Leased Vehicles, as the case may be, is out of compliance
with any law, including a
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Lemon Law. Nevertheless, there can be no assurance that one or more Leased
Vehicles will not become subject to return (and the related Contract terminated)
in the future under a Lemon Law.
Representations and warranties will be made in the SUBI Trust Agreement
that each Contract complies with all requirements of law in all material
respects. If any such representation and warranty proves to be incorrect with
respect to any Contract, and is not timely cured, World Omni will be required
under the Servicing Agreement to deposit an amount equal to the Reallocation
Payment (together with, in certain circumstances during the Amortization Period,
an amount equal to the Reallocation Deposit Amount) in respect of such Contract
into the SUBI Collection Account unless the breach is cured. See "Additional
Document Provisions -- The SUBI Trust Agreement -- The SUBI, the Other SUBIs and
the UTI" and "The Contracts -- Representations, Warranties and Covenants" for
further information regarding the foregoing representations and warranties.
OTHER LIMITATIONS
In addition to laws limiting or prohibiting deficiency judgments, numerous
other statutory provisions, including applicable Insolvency Laws, may interfere
with or affect the ability of a lessor to enforce its rights under an automobile
or light duty truck lease contract. For example, if a lessee commences
bankruptcy proceedings, the lessor's receipt of rental payments due under the
lease contract is likely to be delayed. In addition, a lessee who commences
bankruptcy proceedings might be able to assign the lease contract to another
party even though the lease prohibits assignment.
MATERIAL INCOME TAX CONSIDERATIONS
FEDERAL TAXATION
General
Set forth below is a discussion representing the opinion of Brown & Wood
LLP, special federal income tax counsel to the Transferor and counsel for the
Underwriters, as to material federal income tax consequences to holders of the
Class A Certificates who are original owners and who hold the Class A
Certificates as capital assets under the Internal Revenue Code of 1986, as
amended (the "Code"). This discussion does not purport to be complete or to deal
with all aspects of federal income taxation or any aspects of state or local
taxation that may be relevant to Class A Certificateholders or Certificate
Owners in light of their particular circumstances, nor to certain types of Class
A Certificateholders or Certificate Owners subject to special treatment under
the federal income tax laws (for example, banks and life insurance companies).
This discussion is based upon present provisions of the Code, the regulations
promulgated thereunder and judicial and ruling authorities, all of which are
subject to change, which change may be retroactive. The parties do not intend to
seek a ruling from the Internal Revenue Service ("IRS") on any of the issues
discussed below. Moreover, there can be no assurance that if such a ruling were
sought, the IRS would rule favorably. Taxpayers and preparers of tax returns
(including those filed by any partnership or other issuer) should be aware that
under applicable Treasury Regulations a provider of advice on specific issues of
law is not considered an income tax return preparer unless the advice is (i)
given with respect to events that have occurred at the time the advice is
rendered and is not given with respect to the consequences of contemplated
actions and (ii) is directly relevant to the determination of an entry on a tax
return. Accordingly, taxpayers should consult their respective tax advisors and
tax return preparers regarding the preparation of any item on a tax return, even
where the anticipated tax treatment has been discussed herein. Prospective
investors should consult their own tax advisors with regard to the federal
income tax consequences of the purchase, ownership or disposition of the Class A
Certificates, as well as the tax consequences arising under the laws of any
state, foreign country or other taxing jurisdiction.
Characterization of the Class A Certificates as Indebtedness
The Transferor, the Trustee, each Certificateholder, and each Certificate
Owner (by acquiring a beneficial interest in a Class A Certificate) will express
in the Agreement their intent that, for federal, state
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and local income and franchise tax purposes, the Class A Certificates will be
indebtedness, secured by the assets of the Trust. The Transferor and the
Trustee, by entering into the Agreement, and each Certificateholder and each
Certificate Owner, by acquiring a beneficial interest in a Class A Certificate,
will agree to treat the Class A Certificates as indebtedness for federal, state
and local income and franchise tax purposes. However, because different criteria
are used to determine the non-tax accounting characterization of the
transaction, the Transferor will treat the transaction, for financial accounting
purposes, as a sale of an ownership interest in the Origination Trust Assets and
not as the issuance of a debt obligation.
In general, the characterization of a transaction for federal income tax
purposes is based upon economic substance, and the substance of the transaction
in which the Class A Certificates are issued is consistent with the treatment of
the Class A Certificates as debt for federal income tax purposes. Although there
are certain judicial precedents holding that under appropriate circumstances a
taxpayer should be required to treat a transaction in accordance with the form
chosen by the taxpayer regardless of the transaction's substance, the operative
provisions of the transaction and the Agreement will not be inconsistent with
treating the Class A Certificates as debt and, accordingly, these authorities
should not be applied to require sale characterization for federal income tax
purposes. The determination of whether the economic substance of a property
transfer is a sale or a loan secured by the transferred property depends upon
numerous factors designed to determine whether the transferor has relinquished
(and the transferee has obtained) substantial incidents of ownership in the
property. The primary factors examined are whether the transferee has the
opportunity to gain if the property increases in value, and has the risk of loss
if the property decreases in value. Based upon its analysis of such factors,
Brown & Wood LLP is of the opinion that, for federal income tax purposes the
characterization of the Class A Certificates should be governed by the substance
of the transaction and accordingly, (i) the Trust will not be treated as an
association taxable as a corporation and (ii) the Class A Certificates will
properly be characterized as indebtedness that is secured by the Trust assets.
Taxation of Interest and Discount Income
Assuming that the Certificate Owners are owners of debt obligations for
federal income tax purposes, interest generally will be taxable as ordinary
income for federal income tax purposes when received by the Certificate Owners
utilizing the cash method of accounting and when accrued by Certificate Owners
utilizing the accrual method of accounting. Interest received on the Class A
Certificates may also constitute "investment income" for purposes of certain
limitations of the Code concerning the deductibility of investment interest
expense.
Original Issue Discount. Under regulations issued with respect to the
original issue discount ("OID") provisions of the Code, the Class A Certificates
will be deemed to have been issued with OID in an amount equal to the excess of
the "stated redemption price at maturity" of the Class A-1, Class A-2, Class A-3
or Class A-4 Certificates, as the case may be (generally equal to their
principal amount as of the date of original issuance plus all interest other
than "qualified stated interest" payable prior to or at maturity), over their
original issue price (in this case, the initial offering price at which a
substantial amount of the related Class of Class A Certificates is sold to the
public). Qualified stated interest generally means interest payable at a single
fixed rate or qualified variable rate provided that such interest payments are
unconditionally payable at intervals of one year or less during the entire term
of the Class A-1, Class A-2, Class A-3 or Class A-4 Certificates, as the case
may be. Under the OID provisions of the Code, interest will only be treated as
qualified stated interest if it is "unconditionally payable". Interest will be
treated as "unconditionally payable" only if Certificateholders have reasonable
remedies to compel payment of interest deficiencies (e.g., default and
acceleration rights). Because Class A Certificateholders will not be entitled to
penalty payments of interest on interest deficiencies, and Class A
Certificateholders will have no default and acceleration rights in the event of
interest shortfalls, interest paid on the Class A Certificates may not be
treated by the IRS as qualified stated interest, and, in such event, would be
treated as OID. A Class A Certificateholder must include OID income over the
term of the related Class A Certificate under a constant yield method. In
general, OID must be included in income in advance of the receipt of cash
representing that income, regardless of the Certificateholder's method of
accounting.
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In general, OID, if any, will equal the difference between the stated
redemption price at maturity of a Class A Certificate and its issue price. A
holder of a Class A Certificate must include such OID in gross income as
ordinary interest income as it accrues under a method taking into account an
economic accrual of the discount. In general, OID must be included in income in
advance of the receipt of the cash representing that income. The amount of OID
on a Class A Certificate will be considered to be zero if it is less than a de
minimis amount determined under the Code.
The issue price of a Class A Certificate is the first price at which a
substantial amount of Class A Certificates are sold to the public (excluding
bond, bonuses, brokers, underwriters or wholesalers). If less than a substantial
amount of a particular Class of Class A Certificates is sold for cash on or
prior to the Closing Date, the issue price of such Class will be treated as the
fair market value of such Class on the Closing Date. The issue price of a Class
A Certificate also includes the amount paid by a Class A Certificateholder for
accrued interest that relates to a period prior to the issue date of the Class A
Certificate. The stated redemption price at maturity of a Class A Certificate
includes the original principal amount of the Class A Certificate, but generally
will not include distributions of interest if such distributions constitute
"qualified stated interest."
Under the de minimis rule, OID on a Class A Certificate will be considered
to be zero if such OID is less than 0.25% of the stated redemption price at
maturity of the Class A Certificate multiplied by the weighted average maturity
of the Class A Certificate. Certificateholders generally must report de minimis
OID pro rata as principal payments are received, and such income will be capital
gain if the Class A Certificate is held as a capital asset. However, accrual
method holders may elect to accrue all de minimis OID as well as market discount
under a constant interest method.
The holder of a Class A Certificate issued with OID must include in gross
income, for all days during its taxable year on which it holds such Class A
Certificate, the sum of the "daily portions" of such original issue discount.
The amount of OID includible in income by a Certificateholder will be computed
by allocating to each day during a taxable year a pro rata portion of the
original issue discount that accrued during the relevant accrual period.
If a Certificateholder purchases a Class A Certificate issued with OID at
an "acquisition premium" (i.e., at a price in excess of the adjusted issue price
of the Class A Certificate, but less than or equal to the "stated redemption
price at maturity"), the amount includible by such Certificateholder in income
in each taxable year as OID will be reduced by that portion of the premium
properly allocable to such year.
Although the matter is not entirely clear, the Transferor currently intends
to report all stated interest on the Class A Certificates as qualified stated
interest and not as OID.
Market Discount. Certificate Owners should be aware that the resale of a
Class A Certificate may be affected by the market discount rules of the Code.
These rules generally provide that, subject to a de minimis exception, if a
holder acquires a Class A Certificate at a market discount (i.e., at a price
below its "adjusted issue price") and thereafter recognizes gain upon a
disposition of the Class A Certificate, the lesser of such gain or the portion
of the market discount that accrued while the Class A Certificate was held by
such holder will be treated as ordinary interest income realized at the time of
the disposition. A taxpayer may elect to include market discount currently in
gross income in taxable years to which it is attributable, computed using either
a ratable accrual or a yield to maturity method.
Premium. A Certificate Owner who purchases a Class A Certificate for more
than its stated redemption price at maturity will be subject to the premium
amortization rules of the Code. Under those rules, the Certificate Owner may
elect to amortize such premium on a constant yield method. Amortizable premium
reduces interest income on the related Class A Certificate. If the Certificate
Owner does not make such an election, the premium paid for the Class A
Certificate generally will be included in the tax basis of the Class A
Certificate in determining the gain or loss on its disposition.
Each Certificate Owner should consult his own tax advisor regarding the
impact of the original issue discount, market discount, and premium amortization
rules.
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Sales of Class A Certificates
In general, a Certificate Owner will recognize gain or loss upon the sale,
exchange, redemption or other taxable disposition of a Class A Certificate
measured by the difference between (i) the amount of cash and the fair market
value of any property received (other than amounts attributable to, and taxable
as, accrued stated interest) and (ii) the Certificate Owner's tax basis in the
Class A Certificate (as increased by any OID or market discount previously
included in income by the holder and decreased by any deductions previously
allowed for amortizable bond premium and by any payments, other than qualified
stated interest payments, received with respect to such Class A Certificate).
Subject to the market discount rules discussed above and to the more than
one-year holding period requirement for long-term capital gain treatment, any
such gain or loss generally will be long-term capital gain or loss, provided
that the Class A Certificate was held as a capital asset. The federal income tax
rates applicable to capital gains for taxpayers other than individuals, estates
and trusts are currently the same as those applicable to ordinary income;
however, the maximum ordinary income rate for individuals, estates and trusts is
generally 39.6%, whereas the maximum long-term capital gains rate for such
taxpayers is 28%. Moreover, capital losses generally may be used only to offset
capital gains.
Federal Income Tax Consequences to Foreign Investors
The following information describes the United States federal income tax
treatment of investors that are not United States persons ("Foreign Investors")
if the Class A Certificates are treated as debt. The term "Foreign Investor"
means any person other than (i) a citizen or resident of the United States, (ii)
a corporation, partnership or other entity organized in or under the laws of the
United States or any state or political subdivision thereof, (iii) an estate or
trust the income of which is includible in gross income for United States
federal income tax purposes, regardless of its source or (iv) for trusts whose
taxable years begin after December 31, 1996, a trust whose administration is
subject to the primary supervision of a United States court and which has one or
more United States fiduciaries who have authority to control all substantial
decisions of the trust.
The Code and Treasury regulations generally subject interest paid to a
Foreign Investor to a withholding tax at a rate of 30% (unless such rate were
changed by an applicable treaty). The withholding tax, however, is eliminated
with respect to certain "portfolio debt investments" issued to Foreign
Investors. Portfolio debt investments include debt instruments issued in
registered form for which the United States payor receives a statement that the
beneficial owner of the instrument is a Foreign Investor. The Class A
Certificates will be issued in registered form; therefore, if the information
required by the Code is furnished (as described below) and no other exceptions
to the withholding tax exemption are applicable, no withholding tax will apply
to the Class A Certificates.
For the Class A Certificates to constitute portfolio debt investments
exempt from United States withholding tax, the withholding agent must receive
from the Certificate Owner an executed IRS Form W-8 signed under penalty of
perjury by the Certificate Owner stating that the Certificate Owner is a Foreign
Investor and providing such Certificate Owner's name and address. The statement
must be received by the withholding agent in the calendar year in which the
interest payment is made, or in either of the two preceding calendar years.
A Certificate Owner that is a nonresident alien or foreign corporation will
not be subject to United States federal income tax on gain realized on the sale,
exchange or redemption of such Class A Certificate, provided that (i) such gain
is not effectively connected with a trade or business carried on by the
Certificate Owner in the United States, (ii) in the case of a Certificate Owner
that is an individual, such Certificate Owner is not present in the United
States for 183 days or more during the taxable year in which such sale, exchange
or redemption occurs and (iii) in the case of gain representing accrued
interest, the conditions described in the immediately preceding paragraph are
satisfied.
Backup Withholding
A Certificate Owner may be subject to a backup withholding at the rate of
31% with respect to interest paid on the Class A Certificates if the Certificate
Owner, upon issuance, fails to supply the Trustee or his
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broker with such Certificate Owner's taxpayer identification number, fails to
report interest, dividends or other "reportable payments" (as defined in the
Code) properly, or under certain circumstances, fails to provide the Trustee or
his broker with a certified statement, under penalty of perjury, that such
Certificate Owner is not subject to backup withholding. Information returns will
be sent annually to the IRS and to each Certificate Owner setting forth the
amount of interest paid on the Class A Certificates and the amount of tax
withheld thereon.
Possible Alternative Treatment of the Class A Certificates
Although, as described above, it is the opinion of Brown & Wood LLP that
the Class A Certificates will properly be characterized as debt for federal
income tax purposes, such opinion will not be binding on the IRS and thus no
assurance can be given that such a characterization shall prevail. If the IRS
were to contend successfully that the Class A Certificates did not represent
debt for federal income tax purposes, certain adverse tax consequences to the
Class A Certificateholders could result. For example, the Trust generally should
be required to pay corporate income tax on its taxable income (thus reducing the
cash available to make payments on the Class A Certificates). In addition,
income to certain tax-exempt entities (including pension funds) generally should
be "unrelated business taxable income", and income to foreign holders generally
should be subject to U.S. withholding tax and reporting requirements. As part of
its regular examination process, the IRS currently is reviewing transactions
consummated in prior years that are similar to the transaction described in this
Prospectus. While World Omni strongly believes that any challenge by the IRS, if
made, would be unsuccessful, there can be no assurance of this result.
Prospective investors are advised to consult with their own tax advisors
regarding the federal income tax consequences of the purchase, ownership and
disposition of the Class A Certificates.
FLORIDA INCOME TAXATION
The Florida Administrative Code includes a rule (the "Loan Rule"),
promulgated under the Florida Income Tax Code, which provides that a financial
organization earning or receiving interest from loans secured by tangible
property located in Florida will be deemed to be conducting business or earning
or receiving income in Florida, and will be subject to Florida corporate income
tax irrespective of the place of receipt of such interest. A "financial
organization" is defined to include any bank, trust company, savings bank,
industrial bank, land bank, safe deposit company, private banker, savings and
loan association, credit union, cooperative bank, small loan company, sales
finance company or investment company. If the Loan Rule were to apply to an
investment in the Class A Certificates, then a financial organization investing
in the Class A Certificates would be subject to Florida corporate income tax on
a portion of its income at a maximum rate of 5.5%, and would be required to file
an income tax return in Florida, even if it has no other Florida contacts.
English, McCaughan & O'Bryan, P.A., special Florida counsel to the Transferor,
is of the opinion that if the matter were properly presented to a court having
jurisdiction, and assuming interpretation of relevant law on a basis consistent
with existing authority, such court would hold that the Loan Rule would not
apply to an investment in the Class A Certificates or the receipt of interest
thereon by a financial organization with no other Florida contacts.
Consequently, prospective investors are urged to consult their own tax advisers
as to the applicability of Florida taxation to their investments in the
Certificates and to their ability to offset any such Florida tax against any
other state tax liabilities that such investors might have.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and Section 4975 of the Code prohibit pension, profit sharing
or other employee benefit plans ("Benefit Plans") from engaging in certain
transactions with persons that are "parties in interest" under ERISA or
"disqualified persons" under the Code with respect to such Benefit Plans. ERISA
also imposes certain duties on persons who are fiduciaries of Benefit Plans
subject to ERISA. Under ERISA, any person who exercises any authority or control
with respect to the management or disposition of the assets of a Benefit Plan is
considered to be a fiduciary of such Benefit Plan (subject to certain exceptions
not here relevant). A violation of these "prohibited transaction" rules may
result in liability under ERISA and the Code for such persons.
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Neither ERISA nor the Code defines the terms "plan assets". Under Section
2510.3-101 of the United States Department of Labor ("DOL") regulations (the
"Regulation"), a Plan's assets may include an interest in the underlying assets
of an entity (such as a trust) for certain purposes, including the prohibited
transaction provisions of ERISA and the Code, if the Plan acquires an "equity
interest" in such entity. The Transferor believes that the Certificates will
give Certificateholders an equity interest in the Trust for purposes of the
Regulation. Under the Regulation, when a Plan acquires an equity interest that
is neither a "publicly offered security" nor a security issued by an investment
company registered under the Investment Company Act of 1940, the underlying
assets of the entity will be considered "plan assets" unless the entity is an
"operating company" or equity participation in the entity by benefit plan
investors is not "significant". For this purpose, such participation is
significant if immediately after the most recent acquisition of any equity
interest in the entity, whether or not from an issuer or an underwriter, 25% or
more of the value of any class of equity interest is held by "benefit plan
investors", which are defined as Benefit Plans and employee benefit plans not
subject to ERISA (e.g., governmental plans).
The Trust will not be an "operating company" as defined in the Regulation,
and it will not be an investment company registered under the Investment Company
Act of 1940. A "publicly-offered security" is defined under the Regulation as a
security that is "freely transferable" (which is presumed if the face amount of
each Certificate is $10,000 or less), "widely held" (with at least 100 holders
of each of the Class A-1 Certificates, the Class A-2 Certificates, the Class A-3
Certificates and the Class A-4 Certificates independent of the Trust and of one
another as of the initial offering) and part of a class of securities registered
under Sections 12(b) or 12(g) of the Exchange Act or sold to the public pursuant
to an effective registration statement under the Securities Act, and the class
of which the Class A Certificates are a part is required to be registered under
the Exchange Act within 120 days after the end of the Trust's fiscal year. The
Transferor anticipates that the Class A Certificates will be freely
transferable, but does not expect that the registration requirements under the
Exchange Act will be met. The Underwriters can give no assurances that there
will be at least 100 holders of each of the Class A-1 Certificates, the Class
A-2 Certificates, the Class A-3 Certificates and the Class A-4 Certificates
(independent of the Trustee and each other) who will purchase the Class A
Certificates as of the initial offering in order to satisfy the "widely held"
requirement.
If at any time immediately after the most recent acquisition of any Class A
Certificates, 25% or more of the value of any Class of Certificates is held by
benefit plan investors, then all or some portion of the assets of the Trust
would constitute plan assets. There can be no assurance that less than 25% of
the value of any Class of Certificates will be held by benefit plan investors.
Accordingly, the assets of the Trust may be deemed to include the assets of
Benefit Plans that are Class A Certificateholders, and transactions between the
Trust and "parties in interest" or "disqualified persons" with respect to such
Benefit Plans might be prohibited transactions under Section 406 of ERISA and
Section 4975 of the Code. Thus, for example, if a participant in a Benefit Plan
that is a Class A Certificateholder is a lessee in respect of a Contract, a
prohibited transaction could occur.
The DOL has granted to World Omni and its affiliates, including the
Transferor, an administrative exemption (Prohibited Transaction Exemption 96-12;
Exemption Application No. D-09840, et al., 61 Fed. Reg. 10025-31 (March 12,
1996)) (the "Exemption") from certain of the prohibited transaction rules of
ERISA. The Exemption applies to the initial purchase, the holding and the
subsequent resale by Benefit Plans of certificates similar to the Class A
Certificates, provided that certain specified conditions (certain of which are
specified below) are met. The Transferor believes all conditions of the
Exemption other than those within the control of the investors have been or will
be met.
For the Exemption to apply to the acquisition by a Benefit Plan of Class A
Certificates, the Class A Certificates would be required to be offered and sold
initially to the public (including Benefit Plans) pursuant to an underwriting
arrangement with one or more underwriters which have received one of a group of
administrative exemptions from certain of the prohibited transaction rules of
ERISA. Such exemptions apply with respect to the initial purchase, the holding
and the subsequent resale by Benefit Plans of certificates representing
interests in asset backed pass-through trusts that consist of certain
receivables, loans and other obligations that meet the conditions and
requirements of such exemption. The DOL has granted such an
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<PAGE> 101
administrative exemption to the managing Underwriter (Prohibited Transaction
Exemption 90-29; Exemption Application No. D-8012, 55 Fed. Reg. 21,459 (1990),
as amended.
Among the other conditions that are required to be satisfied for the
Exemption to apply to the acquisition by a Benefit Plan of the Class A
Certificates are the following (each of which the Transferor believes has been
or will be met in connection with the Class A Certificates):
(i) The acquisition of the Class A Certificates by a Benefit Plan is
on terms (including the price for the Class A Certificates) that are at
least as favorable to the Benefit Plan as they would be in an arm's length
transaction with an unrelated party.
(ii) The rights and interests evidenced by the Class A Certificates
acquired by the Benefit Plan are not subordinated to the rights and
interests evidenced by any other Class of Certificates, and the rights and
interests evidenced by the SUBI Interest are not subordinated to the rights
and interests evidenced by Other SUBI Certificates or UTI Certificates.
(iii) The Class A Certificates acquired by the Benefit Plan have
received a rating at the time of such acquisition that is in one of the
three highest generic rating categories from Standard & Poor's, Moody's,
Duff & Phelps Credit Rating Co. ("Duff & Phelps") or Fitch Investors
Service, Inc. ("Fitch").
(iv) The sum of all payments made to the Underwriters in connection
with the distribution of the Class A Certificates represents not more than
reasonable compensation for underwriting the Class A Certificates. The sum
of all payments made to and retained by the Transferor pursuant to the sale
of the SUBI Interest to the Trust represents not more than the fair market
value of the interest in the Contracts and Leased Vehicles represented
thereby. The sum of all payments made to and retained by the Servicer with
regard to the SUBI Assets represents not more than reasonable compensation
for the Servicer's services under the Servicing Agreement and reimbursement
of the Servicer's reasonable expenses in connection therewith.
(v) The Revolving Period ends no more than 15 consecutive months from
the Closing Date and (A) all Subsequent Contracts meet the same terms and
conditions for eligibility as the Initial Contracts, and (B) the addition
of Subsequent Contracts does not result in the reduction of the ratings on
the Class A Certificates received from any of Moody's, Standard & Poor's,
Duff & Phelps or Fitch.
(vi) After the Revolving Period ends, the average Lease Rate for the
Contracts included in the SUBI Assets shall not be more than 200 basis
points greater than the average Lease Rate for the Initial Contracts.
(vii) Principal Collections that are reinvested in Subsequent
Contracts during the Revolving Period are first invested in an eligible
lease contract with the earliest origination date, then in an eligible
lease contract with the next earliest origination date and so forth,
beginning with the lease contracts that have been reserved specifically for
such purpose at the time of the initial allocation of lease contracts to
the SUBI, but excluding those specific lease contracts reserved for
allocation to or allocated to Other SUBIs.
In addition, it is a condition that the Benefit Plan investing in the Class
A Certificates be an "accredited investor" as defined in Rule 501(a)(1) of
Regulation D of the Commission under the Securities Act.
The Exemption does not apply to Benefit Plans sponsored by the Transferor,
the Underwriters, the Trustee, the Servicer, any lessee with respect to
Contracts allocated to the SUBI Assets constituting more than 5% of the
aggregate unamortized principal balance of the SUBI Assets, or any affiliate of
such parties (the "Restricted Group"). As of the date hereof, no lessee with
respect to the Contracts allocated to the SUBI Assets constitutes more than 5%
of the aggregate unamortized principal balance of the Trust (i.e., more than 5%
of 99.8% of the Aggregate Net Investment Value as of the Initial Cutoff Date).
Moreover, the Exemption provides relief for sales, exchanges or transfers
between a Benefit Plan and the underwriter or sponsor with discretionary
investment authority over such Benefit Plan's assets, from certain
self-dealing/conflict of interest prohibited transactions, only if, among other
requirements, (i) a Benefit Plan's investment in the Class A Certificates does
not exceed 25% of all of the Class A Certificates outstanding at the time of the
acquisition,
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<PAGE> 102
and (ii) immediately after the acquisition, no more than 25% of the assets of a
Benefit Plan with respect to which the person who has discretionary authority or
renders investment advice are invested in Class A Certificates representing an
interest in a trust containing assets sold or serviced by the same entity.
Due to the complexities of these rules and the penalties imposed upon
persons involved in prohibited transactions, it is important that the fiduciary
of a Benefit Plan considering the purchase of Class A Certificates consult with
its counsel regarding the applicability of Exemption and the prohibited
transaction provisions of ERISA and the Code to such investment. Moreover, each
Benefit Plan fiduciary should determine whether, under the general fiduciary
standards of investment prudence and diversification, an investment in the Class
A Certificates is appropriate for the Benefit Plan, taking into account the
overall investment policy of the Benefit Plan and the composition of the Benefit
Plan's investment portfolio.
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated April 29, 1997 (the "Underwriting Agreement"), the Underwriters
named below (the "Underwriters"), for whom Merrill Lynch, Pierce, Fenner & Smith
Incorporated is acting as representative (the "Representative"), have severally
but not jointly agreed to purchase from the Transferor the following respective
principal amounts of Class A-1 Certificates, Class A-2 Certificates, Class A-3
Certificates and Class A-4 Certificates:
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4
UNDERWRITER CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............... $ 62,500,000 $ 72,500,000 $ 72,500,000 $ 69,324,465
BancAmerica Securities, Inc............. 62,500,000 72,500,000 72,500,000 69,324,464
Credit Suisse First Boston
Corporation........................... 62,500,000 72,500,000 72,500,000 69,324,464
Salomon Brothers Inc.................... 62,500,000 72,500,000 72,500,000 69,324,464
------------ ------------ ------------ ------------
Total...................... $250,000,000 $290,000,000 $290,000,000 $277,297,857
============ ============ ============ ============
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent that the Underwriters
will be obligated to purchase all the Class A Certificates if any are purchased.
The Underwriting Agreement provides that, in the event of a default by an
Underwriter, in certain circumstances the purchase commitments of the
non-defaulting Underwriter may be increased or the Underwriting Agreement may be
terminated. The Underwriters have agreed to reimburse the Transferor for certain
of its expenses incurred in connection with the offering of the Class A
Certificates.
The Transferor has been advised by the Representative that the Underwriters
propose to offer the Class A-1 Certificates, the Class A-2 Certificates, the
Class A-3 Certificates and the Class A-4 Certificates to the public initially at
the public offering prices set forth on the cover page of this Prospectus and to
certain dealers at such prices less a concession of 0.14%, 0.16%, 0.17% and
0.19% of the principal amount per Class A-1 Certificate, Class A-2 Certificate,
Class A-3 Certificate and Class A-4 Certificate, respectively, and the
Underwriters and such dealers may allow a discount of 0.125%, 0.125%, 0.125% and
0.125% of such principal amount per Class A-1 Certificate, Class A-2
Certificate, Class A-3 Certificate and Class A-4 Certificate, respectively, on
sales to certain other dealers. After the initial public offering, the public
offering price and concessions and discounts to dealers may be changed by the
Underwriters.
The Transferor and World Omni have jointly and severally agreed to
indemnify the Underwriters against certain liabilities, including civil
liabilities under the Securities Act, or contribute to payments which the
Underwriters may be required to make in respect thereof.
It is expected that delivery of the Class A Certificates will be made
against payment therefor on or about the date specified in the last paragraph of
the cover page of this Prospectus, which is the fourth business day following
the date hereof. Under Rule 15c6-1 of the Commission under the Exchange Act,
trades in the secondary market generally are required to settle in three
business days, unless the parties to any such trade
100
<PAGE> 103
expressly agree otherwise. Accordingly, purchasers who wish to trade Class A
Certificates on the date hereof will be required, by virtue of the fact that the
Class A Certificates initially will settle four business days after the date
hereof, to specify an alternate settlement cycle at the time of any such trade
to prevent a failed settlement. Purchasers of Class A Certificates who wish to
trade Class A Certificates on the date hereof should consult their own advisor.
Upon receipt of a request by an investor who has received an electronic
Prospectus from an Underwriter or a request by such investor's representative
within the period during which there is an obligation to deliver a Prospectus,
the Transferor or the Underwriters will promptly deliver, or cause to be
delivered, without charge, a paper copy of the Prospectus.
Until the distribution of the Class A Certificates is complete, rules of
the Commission may limit the ability of the Underwriters and certain selling
group members to bid for and purchase the Class A Certificates. As an exception
to these rules, the Underwriters are permitted to engage in certain transactions
that stabilize the price of the Class A Certificates. Such transactions consist
of bids or purchases for the purpose of pegging, fixing or maintaining the price
of the Class A Certificates.
Neither the Transferor nor any Underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the prices of the Class A Certificates. In addition,
neither the Transferor nor any Underwriter makes any representation that the
Underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Class A Certificates in Canada is being made only
on a private placement basis exempt from the requirement that the Transferor
prepare and file a prospectus with the securities regulatory authorities in each
province where trades of the Class A Certificates are effected. Accordingly, any
resale of the Class A Certificates in Canada must be made in accordance with
applicable securities laws which will vary depending on the relevant
jurisdiction, and which may require resales to be made in accordance with
available statutory exemptions or pursuant to a discretionary exemption granted
by the applicable Canadian securities regulatory authority. Purchasers are
advised to seek legal advice prior to any resale of the Class A Certificates.
REPRESENTATIONS OF PURCHASERS
Each purchaser of Class A Certificates in Canada who receives a purchase
confirmation will be deemed to represent to the Transferor and the dealer from
whom such purchase confirmation is received that (i) such purchaser is entitled
under applicable provincial securities laws to purchase such Class A
Certificates without the benefit of a prospectus qualified under such securities
laws, (ii) where required by law, that such purchaser is purchasing as principal
and not as agent, and (iii) such purchaser has reviewed the text above under
"Notice to Canadian Residents -- Resale Restrictions".
RIGHTS OF ACTION AND ENFORCEMENT
The securities being offered are those of foreign issuers and Ontario
purchasers will not receive the contractual right of action prescribed by
Section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liabilities provisions of the U.S. federal securities laws.
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Ontario purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons
101
<PAGE> 104
may be located outside of Canada and, as a result, it may not be possible to
satisfy a judgment against the issuer or such persons in Canada or to enforce a
judgment obtained in Canadian courts against such issuer or persons outside of
Canada. Following a recent decision of the U.S. Supreme Court, it is possible
that Ontario purchasers will not be able to rely upon the remedies set out in
Section 12(2) of the Securities Act if the securities are being offered under a
U.S. private placement memorandum.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Class A Certificates to whom the Securities Act (British
Columbia) applies is advised that such purchaser is required to file with the
British Columbia Securities Commission a report within ten days of the sale of
any Class A Certificates acquired by such purchaser pursuant to this offering.
Such report must be in the form attached to British Columbia Securities
Commission Blanket Order BOR #95/17, a copy of which may be obtained from the
Transferor. Only one such report must be filed in respect of Class A
Certificates acquired on the same date and under the same prospectus exemption.
RATINGS OF THE CLASS A CERTIFICATES
It is a condition of issuance that each of Moody's and Standard & Poor's
rates each Class of Class A Certificates in its highest rating category. The
ratings of the Class A Certificates will be based primarily upon the value of
the Initial Contracts, the Residual Value Insurance Policy, the Reserve Fund and
the terms of the Transferor Interest and the Class B Certificates. There is no
assurance that any such rating will not be lowered or withdrawn by the assigning
Rating Agency if, in its judgment, circumstances so warrant. In the event that a
rating with respect to any Class of Class A Certificates is qualified, reduced
or withdrawn, no person or entity will be obligated to provide any additional
credit enhancement with respect to such Class of Class A Certificates.
The ratings of the Class A Certificates should be evaluated independently
from similar ratings on other types of securities. A rating is not a
recommendation to buy, sell or hold the related Class A Certificates, inasmuch
as such rating does not comment as to market price or suitability for a
particular investor. The ratings of each Class of Class A Certificates addresses
the likelihood of the payment of principal of and interest on such Certificates
pursuant to their terms.
There can be no assurance as to whether any rating agency other than
Moody's and Standard & Poor's will rate the Class A Certificates, or, if one
does, what rating will be assigned by such other rating agency. A rating on any
Class of Class A Certificates by another rating agency, if assigned at all, may
be lower than the ratings assigned to such Class A Certificates by each of
Moody's and Standard & Poor's.
LEGAL MATTERS
Certain legal matters with respect to the Class A Certificates will be
passed upon for the Transferor by Williams & Connolly, Washington, D.C. Certain
other legal matters will be passed upon for the Transferor with respect to New
York and Illinois law, by McDermott, Will & Emery, New York, New York and
Chicago, Illinois, with respect to Alabama law, by Hand Arendall, L.L.C.,
Birmingham, Alabama, and with respect to Florida law, by English, McCaughan &
O'Bryan, P.A., Fort Lauderdale, Florida. Brown & Wood LLP, San Francisco,
California will act as special federal income tax counsel to the Transferor and
as counsel for the Underwriters.
102
<PAGE> 105
EXPERTS
The Statement of Admitted Assets, Liabilities, Capital and Surplus
(Statutory Basis) as of December 31, 1995 and 1994, the Statement of Income and
Capital Surplus Account (Statutory Basis) for the Years Ended December 31, 1995
and 1994, the Statement of Cash Flows (Statutory Basis) for the Years Ended
December 31, 1995 and 1994, the Statement of Admitted Assets, Liabilities,
Capital and Surplus (Statutory Basis) as of December 31, 1994 and 1993, the
Statement of Income and Capital and Surplus Account (Statutory Basis) for the
Years Ended December 31, 1994 and 1993, the Statement of Cash Flows (Statutory
Basis) for the Years Ended December 31, 1994 and 1993, all of AISLIC, have been
included herein in reliance on the reports of Coopers & Lybrand L.L.P.,
independent certified public accountants (which reports express an adverse
opinion under generally accepted accounting principles and an unqualified
opinion as to the statutory basis of accounting), given on the authority of that
firm as experts in accounting and auditing.
103
<PAGE> 106
INDEX OF CAPITALIZED TERMS
Set forth below is a list of the 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>
ABS............................................. 47
Accelerated Principal Distribution Amount....... 14
Accounts........................................ 68
Additional Loss Amounts......................... 78
Additional Loss Contract........................ 72
Advance......................................... 21,82
Administrative Lien............................. 33
Administrative Lienholders...................... 33
Agency Agreement................................ 79
Aggregate Net Investment Value.................. 16
Agreement....................................... 5
AIG............................................. 19,73
AISLIC.......................................... 19,73
AISLIC Reserve Fund Supplemental Requirement.... 70
AISLIC Trigger Event............................ 70
ALFI............................................ 5
ALFI L.P........................................ 5
Alternate Reserve Fund Formula.................. 71
Amortization Date............................... 13
Amortization Period............................. 13
Benefit Plans................................... 97
Business Day.................................... 10
Capped Contingent and Excess Liability
Premiums...................................... 56
Capped Origination Trust Administrative
Expenses...................................... 56
Capped Trust Administrative Expenses............ 56
Cede............................................ 9
Cedel........................................... 9
Cedel Participants.............................. 63
Certificate Balance............................. 9
Certificate Distribution Amount................. 61
Certificate Owner............................... 9
Certificate Principal Loss Amount............... 56
Certificate Rates............................... 54
Certificateholders.............................. 13
Certificates.................................... 1,7
Charge-off Rate................................. 72
Charge-off Rate Test............................ 72
Charged-off Amount.............................. 52
Charged-off Contract............................ 52
Claims.......................................... 79
Class........................................... 50
Class A Certificate Balance..................... 9
Class A Certificateholders...................... 10
Class A Certificates............................ 2,7
Class A Interest................................ 8
Class A Percentage.............................. 13
Class A-1 Allocation Percentage................. 23
Class A-1 Certificate Balance................... 8
Class A-1 Certificate Factor.................... 50
Class A-1 Certificate Principal Loss Amount..... 54
Class A-1 Certificate Rate...................... 10
Class A-1 Certificateholders.................... 10
Class A-1 Certificates.......................... 2,7
Class A-1 Interest.............................. 8
Class A-1 Interest Carryover Shortfall.......... 56
Class A-2 Allocation Percentage................. 23
Class A-2 Certificate Balance................... 8
Class A-2 Certificate Factor.................... 50
Class A-2 Certificate Principal Loss Amount..... 54
Class A-2 Certificate Rate...................... 10
Class A-2 Certificateholders.................... 10
Class A-2 Certificates.......................... 2,7
Class A-2 Interest.............................. 8
Class A-2 Interest Carryover Shortfall.......... 56
Class A-3 Allocation Percentage................. 23
Class A-3 Certificate Balance................... 8
Class A-3 Certificate Factor.................... 50
</TABLE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Class A-3 Certificate Principal Loss Amount..... 54
Class A-3 Certificate Rate...................... 10
Class A-3 Certificateholders.................... 10
Class A-3 Certificates.......................... 2,7
Class A-3 Interest.............................. 8
Class A-3 Interest Carryover Shortfall.......... 56
Class A-4 Allocation Percentage................. 23
Class A-4 Certificate Balance................... 8
Class A-4 Certificate Factor.................... 50
Class A-4 Certificate Principal Loss Amount..... 54
Class A-4 Certificate Rate...................... 10
Class A-4 Certificateholders.................... 10
Class A-4 Certificates.......................... 2,7
Class A-4 Interest.............................. 8
Class A-4 Interest Carryover Shortfall.......... 56
Class B Allocation Percentage................... 57
Class B Certificate Balance..................... 8
Class B Certificate Principal Carryover
Shortfall..................................... 57
Class B Certificate Principal Loss Amount....... 55
Class B Certificate Rate........................ 54
Class B Certificateholders...................... 13
Class B Certificates............................ 2,7
Class B Interest................................ 8
Class B Interest Carryover Shortfall............ 56
Class B Percentage.............................. 13
Class Certificate Balance....................... 9
Closing Date.................................... 8
Code............................................ 93
Collection Period............................... 12
Collections..................................... 12,58
Commission...................................... 2
Contingent and Excess Liability Insurance
Policies...................................... 75
Contracts....................................... 6
Cooperative..................................... 65
Current Contracts............................... 72
Cutoff Dates.................................... 57
Dealers......................................... 5
Deerfield Office................................ 34
Definitive Certificates......................... 50
Delinquency Rate................................ 72
Delinquency Test................................ 72
Deposit Date.................................... 17
Depositaries.................................... 9
Determination Date.............................. 53
Discounted Contract............................. 12
Discounted Principal Balance.................... 16
Distribution Account............................ 67
Distribution Date............................... 2,10
DOL............................................. 98
Downgrade Reserve Fund Supplemental
Requirement................................... 71
Downgrade Trigger Event......................... 71
DTC............................................. 9
DTC Participants................................ 63
Duff & Phelps................................... 99
Early Amortization Event........................ 59
Early Termination Charge........................ 41
ERISA........................................... 21,97
ERISA Compliance Test........................... 85
Euroclear....................................... 9
Euroclear Operator.............................. 65
Euroclear Participants.......................... 63
Events of Servicing Termination................. 86
Excess Collections.............................. 55
Exchange Act.................................... 2
Exemption....................................... 98
Extension Fee................................... 37
Fair, Isaac..................................... 35
</TABLE>
104
<PAGE> 107
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Final Scheduled Distribution Date............... 10
First Bank...................................... 5
Fitch........................................... 99
Five State Area................................. 7
Foreign Investors............................... 96
Full Termination Ratio.......................... 38
Global Securities............................... A-1
Indirect DTC Participants....................... 63
Initial Certificate Balance..................... 9
Initial Class A Certificate Balance............. 9
Initial Class A-1 Certificate Balance........... 8
Initial Class A-2 Certificate Balance........... 8
Initial Class A-3 Certificate Balance........... 8
Initial Class A-4 Certificate Balance........... 8
Initial Class B Certificate Balance............. 9
Initial Contracts............................... 6
Initial Cutoff Date............................. 6
Initial Deposit................................. 20
Initial Leased Vehicles......................... 6
Insolvency Event................................ 28
Insolvency Laws................................. 28
Insurance Proceeds.............................. 67
Insured Residual Value Loss Amount.............. 19
Interest Collections............................ 12,56
Interest Period................................. 10
Investor Interest............................... 8
Investor Percentage............................. 14
IRS............................................. 93
JMFE............................................ 7,34
Lease Rate...................................... 15
Leased Vehicles................................. 6
Lemon Law....................................... 92
Liquidated Contract............................. 72
Liquidation Expenses............................ 17
Liquidation Proceeds............................ 17
Loan Rule....................................... 97
Loss Amounts.................................... 23
Matured Contract................................ 16
Matured Leased Vehicle Expenses................. 17
Matured Leased Vehicle Inventory................ 16
Matured Leased Vehicle Proceeds................. 17
Maturity Date................................... 41
Mobile Center................................... 34
Monthly Payments................................ 15
Moody's......................................... 21
National Union.................................. 73
Net Liquidation Proceeds........................ 13
Net Matured Leased Vehicle Proceeds............. 18
Net Repossessed Vehicle Proceeds................ 13
Nonrecoverable Advance.......................... 82
OID............................................. 94
Omnibus Proxy................................... 64
Origination Trust............................... 1,5
Origination Trust Agreement..................... 15
Origination Trust Assets........................ 1,32
Origination Trustee............................. 5
Other SUBI Assets............................... 31
Other SUBI Certificates......................... 31
Other SUBI Supplement........................... 78
Other SUBIs..................................... 5
Outstanding Principal Balance................... 15
Participants.................................... 63
Payment Ahead................................... 17
PBGC............................................ 88
Permitted Investments........................... 69
Prepayment...................................... 67
Prepayment Assumption........................... 47
Principal Allocation............................ 14
Principal Collections........................... 12,58
Rating Agencies................................. 21
</TABLE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Realized Value.................................. 41
Reallocation Deposit Amount..................... 52
Reallocation Payment............................ 45
Record Date..................................... 10
Registration Statement.......................... 2
Regulation...................................... 98
Repossessed Vehicle Expenses.................... 17
Repossessed Vehicle Proceeds.................... 17
Representative.................................. 100
Required Amount................................. 57
Required Deposit Ratings........................ 69
Reserve Fund.................................... 69
Reserve Fund Cash Requirement................... 70
Reserve Fund Deficiency......................... 70
Reserve Fund Supplemental Requirement........... 70
Reserve Fund Tests.............................. 71
Residual Value.................................. 15
Residual Value Insurance Policy................. 19
Residual Value Loss Amount...................... 23
Residual Value Surplus.......................... 18
Residual Value Surplus Account.................. 68
Restricted Group................................ 99
Retained SUBI Interest.......................... 7
Revolving Period................................ 11
Schedule of Contracts and Leased Vehicles....... 44
Securities Act.................................. 2
Security Deposits............................... 82
Servicer........................................ 7
Servicer Letter of Credit....................... 68
Servicer's Certificate.......................... 84
Servicing Agreement............................. 7
Servicing Fee................................... 21
SET............................................. 7,34
St. Louis Center................................ 34
Standard & Poor's............................... 21
SUBI............................................ 1,5
SUBI Assets..................................... 2,6
SUBI Certificate................................ 15
SUBI Collection Account......................... 67
SUBI Interest................................... 5
SUBI Supplement................................. 15
SUBI Trust Agreement............................ 15
Subsequent Contracts............................ 6
Subsequent Cutoff Date.......................... 57
Subsequent Leased Vehicles...................... 6
Support Agreement............................... 33
Terms and Conditions............................ 65
TMS............................................. 34
Transfer Date................................... 11
Transferor...................................... 1,5
Transferor Amounts.............................. 53
Transferor Interest............................. 2,8
Transferor Percentage........................... 52
Trust........................................... 1,5
Trust Agent..................................... 15,79
Trustee......................................... 1,5
UCC............................................. 90
Unallocated Principal Collections............... 53
Uncapped Administrative Expenses................ 55
Underwriters.................................... 100
Underwriting Agreement.......................... 100
Undistributed Transferor Excess Collections..... 55
U.S. Person..................................... A-3
UTI............................................. 5
UTI Assets...................................... 31
UTI Certificates................................ 31
Voting Interests................................ 60
WOLSI........................................... 7
World Omni...................................... 1,5
</TABLE>
105
<PAGE> 108
INDEX TO FINANCIAL STATEMENTS
OF
AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY
<TABLE>
<S> <C>
Report of Coopers & Lybrand L.L.P........................... F-1
Statement of Admitted Assets, Liabilities, Capital and
Surplus (Statutory Basis) of American International
Specialty Lines Insurance Company as of December 31, 1995
and 1994.................................................. F-2
Statement of Income and Capital Surplus Account (Statutory
Basis) of American International Specialty Lines Insurance
Company for the Years Ended December 31, 1995 and 1994.... F-3
Statement of Cash Flows (Statutory Basis) of American
International Specialty Lines Insurance Company for the
Years Ended December 31, 1995 and 1994.................... F-4
Notes to Financial Statements of American International
Specialty Lines Insurance Company for the Two Years Ended
December 31, 1995......................................... F-5
Report of Coopers & Lybrand L.L.P........................... F-11
Statement of Admitted Assets, Liabilities, Capital and
Surplus (Statutory Basis) of American International
Specialty Lines Insurance Company as of December 31, 1994
and 1993.................................................. F-12
Statement of Income and Capital Surplus Account (Statutory
Basis) of American International Specialty Lines Insurance
Company for the Years Ended December 31, 1994 and 1993.... F-13
Statement of Cash Flows (Statutory Basis) of American
International Specialty Lines Insurance Company for the
Years Ended December 31, 1994 and 1993.................... F-14
Notes to Financial Statements of American International
Specialty Lines Insurance Company for the Two Years Ended
December 31, 1994......................................... F-15
</TABLE>
106
<PAGE> 109
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
American International Specialty Lines Insurance Company:
We have audited the accompanying statements of admitted assets,
liabilities, capital and surplus (statutory basis) of American International
Specialty Lines Insurance Company (the "Company") as of December 31, 1995 and
1994, and related statements of income and changes in capital and surplus
account and cash flows (statutory basis) for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described more fully in Note 1 to the financial statements, the Company
prepared these financial statements using accounting practices prescribed or
permitted by the State of Alaska Department of Commerce and Economic Development
Division of Insurance, which practices differ from generally accepted accounting
principles. The effects on the financial statements of the variances between the
statutory basis of accounting and generally accepted accounting principles,
although not reasonably determinable, are presumed to be material.
In our opinion, because of the effects of the matter discussed in the
preceding paragraph, the financial statements referred to above do not present
fairly, in conformity with generally accepted accounting principles, the
financial position of American International Specialty Lines Insurance Company
as of December 31, 1995 and 1994 or the results of its operations or its cash
flows for the years then ended.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the admitted assets, liabilities, and capital and
surplus of American International Specialty Lines Insurance Company as of
December 31, 1995 and 1994, and the results of its operations and its cash flows
for the years then ended, on the basis of accounting described in Note 1.
COOPERS & LYBRAND L.L.P.
New York, New York
May 17, 1996
F-1
<PAGE> 110
AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY
STATEMENT OF ADMITTED ASSETS, LIABILITIES, CAPITAL AND SURPLUS
(STATUTORY BASIS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------
1995 1994
------------- -------------
<S> <C> <C>
ADMITTED ASSETS
Bonds, at amortized cost (market value:
1995 -- $364,071,111; 1994 -- $337,898,167)............... $ 342,660,008 $ 346,191,559
Short-term investments at amortized cost (approximates
market)................................................... 1,816,577 4,265,432
Cash........................................................ 7,093,727 638,666
Other invested assets, at cost (approximates market)........ 13,536,699 212,499
------------- -------------
Total invested assets and cash.................... 365,107,011 351,308,156
Agents' balances or uncollected premiums:
Premiums in course of collection (net of ceded reinsurance
balances payable: 1995 -- $51,082,419;
1994 -- $59,792,510)................................... (7,984,299) (11,277,890)
Premiums and installments booked but deferred and not yet
due (net of ceded reinsurance balances payable:
1995 -- $15,045,483; 1994 -- $21,564,427)................. 73,458,478 15,638,632
Reinsurance recoverable on loss and loss adjustment expense
payments.................................................. 11,231,396 785,390
Interest and dividends due and accrued...................... 7,031,860 6,874,819
Receivable from parent and affiliates....................... -- 1,707,614
Other assets................................................ 1,258,000 119,207
------------- -------------
Total admitted assets............................. $ 450,102,446 $ 365,155,928
============= =============
LIABILITIES
Unpaid losses............................................... $ 137,464,053 $ 117,873,934
Reinsurance payable on paid loss and loss adjustment
expenses.................................................. 9,247,912 7,408,248
Unpaid loss adjustment expenses............................. 34,805,997 24,421,583
Unearned premiums........................................... 64,227,729 45,273,152
Funds held under reinsurance treaties....................... 7,315 4,063,394
Provision for reinsurance................................... 7,738,123 5,322,193
Federal income tax payable.................................. 1,981,087 263,786
Drafts outstanding.......................................... 19,581,459 9,766,673
Payable to parent and affiliates............................ 1,955,319 --
Other liabilities........................................... 2,655,650 1,218,443
------------- -------------
Total liabilities................................. $ 279,664,644 $ 215,611,406
============= =============
CAPITAL AND SURPLUS:
Capital stock, $33.35 par value, 150,000 shares authorized,
issued and outstanding.................................... $ 5,002,500 $ 5,002,500
Capital in excess of par value.............................. 98,377,500 98,377,500
Unassigned surplus.......................................... 67,057,802 46,164,522
------------- -------------
Total capital and surplus......................... 170,437,802 149,544,522
============= =============
Total liabilities, capital and surplus............ $ 450,102,446 $ 365,155,928
============= =============
</TABLE>
See Notes to Financial Statements
F-2
<PAGE> 111
AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY
STATEMENT OF INCOME AND CAPITAL SURPLUS ACCOUNT
(STATUTORY BASIS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1995 1994
--------------- ---------------
<S> <C> <C>
Underwriting income:
Premiums earned........................................... $ 81,810,517 $ 68,811,681
Deductions:
Losses incurred........................................ 48,588,886 52,678,015
Loss adjustment expenses incurred...................... 17,797,396 5,529,561
Other underwriting expenses incurred................... 8,604,097 7,754,832
------------- -------------
Total underwriting deductions..................... 74,990,379 65,962,408
------------- -------------
Net underwriting gains...................................... 6,820,138 2,849,273
------------- -------------
Investment income:
Net investment income earned.............................. 22,771,754 18,601,805
Net realized capital gains (losses)......................... 301,028 (79,435)
------------- -------------
Net investment gain......................................... 23,072,782 18,522,370
------------- -------------
Net income before Federal income taxes...................... 29,892,920 21,371,643
Federal income taxes........................................ 6,900,296 5,364,568
------------- -------------
Net income........................................ $ 22,992,624 $ 16,007,075
------------- -------------
CAPITAL and SURPLUS ACCOUNT:
Total capital and surplus, December 31, previous year....... $ 149,544,522 $ 132,405,702
Gains and (losses) in surplus:
Net income.................................................. 22,992,624 16,007,075
Change in non-admitted assets............................... 316,586 2,182,688
Change in provision for reinsurance......................... (2,415,930) (1,050,943)
------------- -------------
Change in surplus as regards policyholders for the year..... 20,893,280 17,138,820
------------- -------------
Total capital and surplus, December 31, current
year............................................ $ 170,437,802 $ 149,544,522
============= =============
</TABLE>
See Notes to Financial Statements
F-3
<PAGE> 112
AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY
STATEMENT OF CASH FLOWS
(STATUTORY BASIS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
Premiums collected (net of reinsurance)..................... $ 39,968,249 $ 86,830,498
Loss and loss adjustment expenses paid (net of salvage,
subrogation and reinsurance).............................. 35,203,305 14,255,116
Underwriting expenses paid.................................. 8,866,433 7,498,564
------------ ------------
Net cash flow from underwriting............................. (4,101,489) 65,076,818
Investment income collected (net of investment expenses
paid)..................................................... 22,659,696 17,352,918
Federal income taxes paid................................... (5,182,995) (3,842,441)
------------ ------------
Net cash flow from operations..................... 13,375,212 78,587,295
Proceeds from investments sold, matured or repaid:
Bonds..................................................... 95,416,214 37,259,908
Other invested assets..................................... 89,750,000 --
------------ ------------
Total investment proceeds......................... 185,166,214 37,259,908
------------ ------------
Other cash provided:
Net transfers to affiliates............................... 3,662,933 --
Other sources............................................. -- 2,276,874
------------ ------------
Total other cash provided......................... 3,662,933 2,276,874
------------ ------------
Total............................................. 202,204,359 118,124,077
------------ ------------
Cost of investments acquired (long-term only):
Bonds..................................................... 91,338,032 110,886,243
Other invested assets..................................... 103,364,787 7,183
------------ ------------
Total investments acquired........................ 194,702,819 110,893,426
------------ ------------
Other cash applied:
Net transfers to affiliates............................... -- 119,959
Other applications........................................ 3,495,334 9,686,196
------------ ------------
Total other cash applied.......................... 3,495,334 9,806,155
------------ ------------
Total............................................. 198,198,153 120,699,581
------------ ------------
Net change in cash and short-term investments............... 4,006,206 (2,575,504)
RECONCILIATION:
Cash and short-term investments:
Beginning of year...................................... 4,904,098 7,479,602
------------ ------------
End of year............................................ $ 8,910,304 $ 4,904,098
------------ ------------
</TABLE>
See Notes to Financial Statements
F-4
<PAGE> 113
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT POLICIES:
(A) ORGANIZATION
American International Specialty Lines Insurance Company ("the Company") is
owned by the following wholly owned subsidiaries of American International
Group, Inc. ("the Parent"): National Union Fire Insurance Company of Pittsburgh,
PA (National Union) (70%); The Insurance Company of the State of Pennsylvania
(20%); and Birmingham Fire Insurance Company of Pennsylvania (10%). The Company
has significant transactions with the Parent and affiliates (see Notes 3 and 4).
The Company is predominantly a writer of property and casualty excess and
surplus lines.
(B) BASIS OF PRESENTATION
The accompanying financial statements were prepared in conformity with the
statutory accounting practices (SAP) of the National Association of Insurance
Commissioners (NAIC) and prescribed or permitted by the State of Alaska
Department of Commerce and Economic Development Division of Insurance, which is
a comprehensive basis of accounting other than generally accepted accounting
principles (GAAP). SAP varies in certain respects from GAAP. Under GAAP: (1)
costs incidental to acquiring business related to premiums written and costs
allowed by assuming reinsurers related to premiums ceded are deferred and
amortized over the periods covered by the underlying policies or reinsurance
agreements; (2) provision is made for deferred income taxes relating to
temporary differences between financial reporting and taxable income; (3)
non-admitted assets and statutory basis reserves are restored to surplus; (4)
the reserve for losses and loss expenses and reserve for unearned premiums are
presented gross of ceded reinsurance by establishing a reinsurance asset; (5)
debt securities deemed to be available for sale and trading are reported at fair
value.
Other significant accounting practices are as follows:
A. The preparation of the financial statements in conformity with the
accounting practices prescribed or permitted by the State of Alaska
Department of Commerce and Economic Development, Division of Insurance,
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of income and expenses during the period. Actual results
could differ from those estimates.
B. Investments are carried at values designated by the NAIC. Bonds are
carried at amortized cost, except those bonds not in good standing, which
are carried at NAIC-designated values. Investment income is recorded as
earned. Realized gains or losses on the disposition of investments are
determined on the basis of specific identification.
C. Premiums written are primarily earned on a daily pro-rata basis
over the terms of the policies to which they relate. Accordingly, unearned
premiums represent the portion of premiums written which is applicable to
the unexpired terms of policies in force. Premium estimates for
retrospectively rated policies are recognized within the periods in which
the related losses are incurred.
D. Certain assets, principally furniture, equipment, and leasehold
improvements and certain overdue agents' balances, are designated
"non-admitted assets" and are directly charged to unassigned surplus.
E. The liabilities for unpaid losses and loss adjustment expenses,
including incurred but not reported losses, are determined on the basis of
claims adjusters' evaluations and other estimates, including historical
loss experience. The methods of making such estimates and for establishing
the resulting
F-5
<PAGE> 114
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
reserves are continually reviewed and updated, and any resulting
adjustments are recorded in the current period. Accordingly, losses and
loss adjustment expenses are charged to income as incurred.
F. Certain required statutory basis reserves, principally the
provision for reinsurance, are charged to surplus and reflected as a
liability of the Company.
G. Commissions, premium taxes, and certain other underwriting expenses
related to premiums written are charged to income at the time the premiums
are written and are included in "Other underwriting expenses incurred."
H. Unpaid losses and loss adjustment expenses have been reduced by
anticipated salvage and subrogation in the amount of approximately $686,000
and $485,000 at December 31, 1995 and December 31, 1994, respectively.
I. The Company considers all highly liquid debt securities with
maturities of twelve months or less to be short-term investments. Such
investments are deemed to be cash equivalents for purposes of the statement
of cash flows.
J. Other invested assets consist primarily of shares of an
intermediate bond mutual fund. The intermediate bond mutual fund is carried
principally at cost which approximates market.
K. Federal income taxes are provided on the basis of amounts currently
payable. Adjustments relating to the difference between the amount recorded
for financial statement purposes and the amount subsequently filed on the
tax return are charged or credited directly to federal income taxes on the
statement of income.
Certain amounts have been reclassified in order to conform with the current
year presentation.
2. FEDERAL INCOME TAXES:
The Company files a consolidated U.S. federal income tax return with the
Parent pursuant to a consolidated tax sharing agreement. The agreement provides
that the Parent will not charge the Company a greater portion of the
consolidated tax liability than would have been paid by the Company if it had
filed a separate federal income tax return. In addition, the agreement provides
that the Company will be reimbursed by the Parent for tax benefits relating to
any net losses of the Company utilized in filing the consolidated return. The
"Federal income tax payable" in the accompanying statement of admitted assets,
liabilities, capital and surplus are due to/due from the Parent.
The U.S. federal income tax rate applicable to ordinary income is 35% for
1995 and 1994. Actual tax expense on income from operations differs from the
"expected" amount principally as a result of tax-exempt investment income,
unearned premiums and the discounting of unpaid losses and loss adjustment
expenses.
3. MANAGEMENT AGREEMENT:
The Company is managed and operated by American International Surplus Lines
Agency, Inc. (Agency), a wholly owned subsidiary of the Parent. The management
agreement provides the Agency with the authority to conduct all business affairs
of the Company. As compensation for these services, the management agreement
provides that the Company pay the Agency an annual management fee of $100,000
plus actual expenses incurred on behalf of managing the Company. The management
fee and expense reimbursement paid to the Agency was $2,257,932 and $1,574,912
in 1995 and 1994, respectively.
4. RELATED PARTY TRANSACTIONS:
The Company cedes all agency business written in the State of Alaska to the
New Hampshire Insurance Company (a wholly owned subsidiary of the Parent). The
Company cedes 80% of its surplus lines insurance to National Union Fire
Insurance Company of Pittsburgh, PA (a wholly owned subsidiary of the Parent)
F-6
<PAGE> 115
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
through a reinsurance quota share agreement. The Company also assumes
reinsurance from Lexington Insurance Company, an affiliate.
5. INVESTMENTS:
The amortized cost and NAIC market values of investments in fixed
maturities carried at December 31, 1995 and December 31, 1994, are as follows:
<TABLE>
<CAPTION>
GROSS GROSS NAIC
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1995
Fixed maturities:
States, municipalities and political
subdivisions....................... $342,660 $21,765 $ 354 $364,071
-------- ------- ------- --------
Total bonds................... $342,660 $21,765 $ 354 $364,071
======== ======= ======= ========
1994
Fixed maturities:
States, municipalities and political
subdivisions....................... $346,192 $ 4,038 $12,332 $337,898
-------- ------- ------- --------
Total bonds................... $346,192 $ 4,038 $12,332 $337,898
======== ======= ======= ========
</TABLE>
The amortized cost and NAIC market values of fixed maturities at December
31, 1995, by contractual maturity, are shown below. Actual maturities may differ
from contractual maturities because borrowers may have the right to call or
prepay certain obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED NAIC MARKET
COST VALUE
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Due after one year through five years....................... $ 29,305 $ 31,136
Due after five years through ten years...................... 60,958 64,767
Due after ten years......................................... 252,397 268,168
-------- --------
Total............................................. $342,660 $364,071
======== ========
</TABLE>
Proceeds from sales of investments in fixed maturities during 1995 and 1994
were $91,960,014 and $11,785,392, respectively. Gross gains of $1,822,167 and $0
and gross losses of $1,155,012 and $239,200 were realized on those sales in 1995
and 1994, respectively.
Securities carried at amortized cost, of $10,020,220 and $9,935,076 were
deposited with regulatory authorities, as required by law, at December 31, 1995
and December 31, 1994, respectively.
Included in "Net investment income earned" are investment expenses of
$200,564 and $184,557 for 1995 and 1994, respectively.
6. REINSURANCE:
In the ordinary course of business, the Company reinsures certain risks
with affiliated and non-affiliated companies. Such arrangements serve to limit
the Company's maximum loss on catastrophes, large risks and unusually hazardous
risks. To the extent that any reinsuring company might be unable to meet its
obligations, the Company would be liable for its respective participation in
such defaulted amounts.
F-7
<PAGE> 116
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Reserves for unearned premiums and reinsurance recoverables on paid and
unpaid losses and loss adjustment expenses, including those incurred but not
reported to the Company, have been reduced for reinsurance ceded as follows:
<TABLE>
<CAPTION>
UNEARNED PREMIUM LOSSES AND LOSS
RESERVES ADJUSTMENT EXPENSES
---------------- -------------------
(IN THOUSANDS)
<S> <C> <C>
1995
Affiliates...................................... $ 330,190 $1,126,806
Non-affiliates.................................. 52,364 161,213
--------- ----------
Total................................... $ 382,554 $1,288,019
========= ==========
1994
Affiliated...................................... $ 251,556 $ 820,440
Non-affiliates.................................. 31,323 58,993
--------- ----------
Total................................... $ 282,879 $ 879,433
========= ==========
</TABLE>
Net premiums written and earned comprise the following:
<TABLE>
<CAPTION>
WRITTEN EARNED
---------------- -------------------
(IN THOUSANDS)
<S> <C> <C>
1995
Direct business................................... $ 793,131 $ 672,857
Reinsurance assumed
Affiliates...................................... 18,966 20,634
Non-affiliates.................................. 45 22
Reinsurance ceded
Affiliates...................................... (621,827) (543,193)
Non-affiliates.................................. (89,550) (68,509)
--------- ----------
Net premiums............................ $ 100,765 $ 81,811
--------- ----------
1994
Direct business................................... $ 606,103 $ 497,818
Reinsurance assumed
Affiliates...................................... 18,111 17,327
Non-affiliates.................................. 0 0
Reinsurance ceded
Affiliates...................................... (485,279) (399,575)
Non-affiliates.................................. (59,016) (46,758)
--------- ----------
Net premiums............................ $ 79,919 $ 68,812
--------- ----------
</TABLE>
For the years ended December 31, 1995 and 1994, reinsurance recoveries,
which reduced loss and loss expenses incurred, amounted to $588,295,952 and
$430,310,953, respectively.
F-8
<PAGE> 117
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following unsecured reinsurance recoverables exceeded 3% of the capital
and surplus of the Company at December 31, 1995:
<TABLE>
<CAPTION>
REINSURER AMOUNT
- --------- ----------
(IN
THOUSANDS)
<S> <C>
Affiliates.................................................. $1,390,188
General Reinsurance Company................................. 58,375
Lloyd's Underwriters........................................ 12,989
Transatlantic Reinsurance Company........................... 32,275
American Re-Insurance Company............................... 9,368
Skandian America Reinsurance Corporation.................... 8,335
St Paul Fire & Marine Insurance Company..................... 5,661
TIG......................................................... 5,518
Overseas Partners, Ltd...................................... 14,787
----------
Total............................................. $1,537,496
==========
</TABLE>
7. DIVIDEND RESTRICTION:
Under Alaska law, the Company may pay cash dividends only from earned
surplus determined on a statutory basis. Further, the Company is restricted (on
the basis of the lower of 10% of the Company's statutory surplus at the end of
the preceding twelve-month period or 100% of the Company's adjusted net
investment income for the preceding twelve-month period) as to the amount of
dividends it may declare or pay in any twelve-month period without the prior
approval of the State of Alaska Department of Commerce and Economic Development
Division of Insurance. The maximum dividend payable without prior approval at
December 31, 1995, amounted to approximately $17,044,000.
8. PENSION PLANS AND DEFERRED COMPENSATION:
The Company's employees participate in benefit plans sponsored by the
Parent, including a noncontributory defined benefit pension plan, and a
voluntary savings plan (a 401(k) plan) which provides certain matching
contributions. These plans cover substantially all of the Company's employees.
The Parent's plans do not separately identify plan benefits and plan assets
attributable to employees of participating companies.
Some of the Company's officers and key employees are participants in the
Parent's Stock Option Plan.
9. CONTINGENCY:
The Company, in common with the insurance industry in general, is subject
to litigation, including claims for punitive damages, in the normal course of
its business. The Company does not believe that such litigation will have a
material adverse affect on its financial condition.
F-9
<PAGE> 118
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. LIABILITY FOR UNPAID CLAIMS AND CLAIM ADJUSTMENT EXPENSES:
Activity in the liability for unpaid claims and claim adjustment expenses
is summarized as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net Balance at January 1.................................... $142,296 $110,314
Incurred related to:
Current year.............................................. 71,109 58,215
Prior years............................................... (4,723) (7)
-------- --------
Total incurred.................................... 66,386 58,208
-------- --------
Paid related to:
Current year.............................................. 3,277 5,163
Prior years............................................... 33,135 21,063
-------- --------
Total paid........................................ 36,412 26,226
-------- --------
Net Balance at December 31.................................. $172,270 $142,296
-------- --------
</TABLE>
F-10
<PAGE> 119
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
American International Specialty Lines Insurance Company:
We have audited the accompanying statements of admitted assets,
liabilities, capital and surplus (statutory basis) of American International
Specialty Lines Insurance Company (the "Company") as of December 31, 1994 and
1993, and related statements of income and changes in capital and surplus
account and cash flows (statutory basis) for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described more fully in Note 1 to the financial statements, the Company
prepared these financial statements using accounting practices prescribed or
permitted by the State of Alaska Department of Commerce and Economic Development
Division of Insurance, which practices differ from generally accepted accounting
principles. The effects on the financial statements of the variances between the
statutory basis of accounting and generally accepted accounting principles,
although not reasonably determinable, are presumed to be material.
In our opinion, because of the effects of the matter discussed in the
preceding paragraph, the financial statements referred to above do not present
fairly, in conformity with generally accepted accounting principles, the
financial position of American International Specialty Lines Insurance Company
as of December 31, 1994 and 1993 or the results of its operations or its cash
flows for the years then ended.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the admitted assets, liabilities, and capital and
surplus of American International Specialty Lines Insurance Company as of
December 31, 1994 and 1993, and the results of its operations and its cash flows
for the years then ended, on the basis of accounting described in Note 1.
COOPERS & LYBRAND L.L.P.
New York, New York
May 22, 1995
F-11
<PAGE> 120
AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY
STATEMENT OF ADMITTED ASSETS, LIABILITIES, CAPITAL AND SURPLUS
(STATUTORY BASIS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------
1994 1993
------------ ------------
<S> <C> <C>
ADMITTED ASSETS:
Bonds, at amortized cost (market value:
1994 -- $337,898,167; 1993 -- $289,545,115)............... $346,191,559 $272,781,270
Short-term investments, at amortized cost (approximates
market)................................................... 4,265,432 3,715,436
Cash........................................................ 638,666 3,764,166
Other invested assets, at cost (approximates market)........ 212,499 205,316
------------ ------------
Total invested assets and cash.................... 351,308,156 280,466,188
Agents' balances or uncollected premiums:
Premiums in course of collection (net of ceded reinsurance
balances payable: 1994 -- $59,792,510;
1993 -- $17,507,295)................................... (11,277,890) 5,410,876
Premiums and installments booked but deferred and not yet
due (net of ceded reinsurance balances payable:
1994 -- $21,564,427; 1993 -- $0)....................... 15,638,632 3,678,562
Reinsurance recoverable on loss and loss adjustment expense
payments.................................................. 785,390 1,869,731
Federal income tax recoverable.............................. 0 1,258,341
Interest and dividends due and accrued...................... 6,874,819 5,489,320
Receivable from parent and affiliates....................... 1,707,614 1,587,655
Other assets................................................ 119,207 2,058
------------ ------------
Total admitted assets............................. $365,155,928 $299,762,731
============ ============
LIABILITIES:
Unpaid losses............................................... $117,873,934 $ 87,101,311
Reinsurance payable on paid loss and loss adjustment
expenses.................................................. 7,408,248 4,420,404
Unpaid loss adjustment expenses............................. 24,421,583 23,212,238
Payable to parent and affiliates............................ 774,078 517,805
Unearned premiums........................................... 45,273,152 34,165,723
Funds held under reinsurance treaties....................... 4,063,394 1,795,761
Provision for reinsurance................................... 5,322,193 4,271,250
Federal income tax payable.................................. 263,786 0
Drafts outstanding.......................................... 9,766,673 1,868,366
Brokers balance on investments.............................. 0 8,083,547
Other liabilities........................................... 444,365 1,920,624
------------ ------------
Total liabilities................................. 215,611,406 167,357,029
------------ ------------
CAPITAL AND SURPLUS:
Capital stock, $33.35 par value, 150,000 shares
authorized, issued and outstanding..................... 5,002,500 5,002,500
Capital in excess of par value............................ 98,377,500 98,377,500
Unassigned surplus........................................ 46,164,522 29,025,702
------------ ------------
Total capital and surplus......................... 149,544,522 132,405,702
------------ ------------
Total liabilities, capital and surplus............ $365,155,928 $299,762,731
============ ============
</TABLE>
See Notes to Financial Statements
F-12
<PAGE> 121
AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY
STATEMENT OF INCOME AND CAPITAL AND SURPLUS ACCOUNT
(STATUTORY BASIS)
FOR THE YEARS ENDED, DECEMBER 31,
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
Underwriting income:
Premiums earned........................................... $ 68,811,681 $ 63,528,607
------------ ------------
Deductions:
Losses incurred........................................... 52,678,015 42,738,686
Loss adjustment expenses incurred......................... 5,529,561 11,955,107
Other underwriting expenses incurred...................... 7,754,832 6,425,284
------------ ------------
Total underwriting deductions..................... 65,962,408 61,119,077
------------ ------------
Net underwriting gain....................................... 2,849,273 2,409,530
------------ ------------
Investment income:
Net investment income earned.............................. 18,601,805 15,238,282
Net realized capital losses............................... (79,435) (103,896)
------------ ------------
Net investment gain......................................... 18,522,370 15,134,386
------------ ------------
Net income before federal income taxes...................... 21,371,643 17,543,916
Federal income taxes........................................ 5,364,568 6,197,273
------------ ------------
Net income........................................ $ 16,007,075 $ 11,346,643
============ ============
CAPITAL and SURPLUS ACCOUNT:
Total capital and surplus, December 31, previous year..... $132,405,702 $127,658,819
Gains and (losses) in surplus:
Net income................................................ 16,007,075 11,346,643
Change in non-admitted assets............................. 2,182,688 (4,332,648)
Change in provision for reinsurance....................... (1,050,943) (2,267,112)
------------ ------------
Change in surplus as regards policyholders for the year... 17,138,820 4,746,883
------------ ------------
Total capital and surplus, December 31, current
year........................................... $149,544,522 $132,405,702
============ ============
</TABLE>
See Notes to Financial Statements
F-13
<PAGE> 122
AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY
STATEMENT OF CASH FLOWS
(STATUTORY BASIS)
FOR THE YEARS ENDED, DECEMBER 31,
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
Premiums collected (net of reinsurance)..................... $ 86,830,498 $ 68,317,237
Loss and loss adjustment expenses paid (net of salvage,
subrogation and reinsurance).............................. 14,255,116 5,766,917
Underwriting expenses paid.................................. 7,498,564 6,484,100
Other underwriting income received.......................... 0 1,795,761
------------ ------------
Net cash flows from underwriting.................. 65,076,818 57,861,981
Investment income collected (net of investment expense
paid)..................................................... 17,352,918 14,431,261
Federal income taxes paid................................... (3,842,441) (7,801,097)
------------ ------------
Net cash flows from operations.................... 78,587,295 64,492,145
Proceeds from investments sold, matured or repaid:
Bonds..................................................... 37,259,908 2,695,000
Other invested assets..................................... 0 1,117,824
------------ ------------
Total investment proceeds......................... 37,259,908 3,812,824
------------ ------------
Other cash provided:
Other sources............................................. 2,276,874 0
------------ ------------
Total other cash provided......................... 2,276,874 0
------------ ------------
Total............................................. 118,124,077 68,304,969
------------ ------------
Cost of investments acquired (long term only):
Bonds..................................................... 110,886,243 62,124,749
Other invested assets..................................... 7,183 87,434
------------ ------------
Total investments acquired........................ 110,893,426 62,212,183
------------ ------------
Other cash applied:
Net transfers to affiliates............................... 119,959 15,179,218
Other applications........................................ 9,686,196 1,395,700
------------ ------------
Total other cash applied.......................... 9,806,155 16,574,918
------------ ------------
Total............................................. 120,699,581 78,787,101
------------ ------------
Net change in cash and short-term investments............... (2,575,504) (10,482,132)
RECONCILIATION:
Cash and short-term investments:
Beginning of year...................................... 7,479,602 17,961,734
------------ ------------
End of year............................................ $ 4,904,098 $ 7,479,602
============ ============
</TABLE>
See Notes to Financial Statements
F-14
<PAGE> 123
NOTES TO FINANCIAL STATEMENTS
1. ACCOUNTING PRACTICES:
American International Specialty Lines Insurance Company (Company) is owned
by the following wholly owned subsidiaries of American International Group, Inc.
(Parent): National Union Fire Insurance Company of Pittsburgh, PA (National
Union) (70%); The Insurance Company of the State of Pennsylvania (20%); and
Birmingham Fire Insurance Company of Pennsylvania (10%). The Company has
significant transactions with the Parent and affiliates (see Notes 3 and 4).
The accompanying financial statements were prepared in conformity with the
accounting practices prescribed or permitted by the National Association of
Insurance Commissioners (NAIC) and the State of Alaska Department of Commerce
and Economic Development Division of Insurance, which is a comprehensive basis
of accounting other than generally accepted accounting principles. Certain
accounts have been reclassified in the 1993 financial statements to conform to
the 1994 presentation.
The following is a description of the significant accounting practices
employed by the Company:
A. Investments are carried at values designated by the NAIC. Bonds are
carried at amortized cost. Investment income is recorded as earned.
Realized gains or losses on the disposition of investments are determined
on the basis of specific identification.
B. Premiums written are primarily earned on a daily pro-rata basis
over the terms of the policies to which they relate. Accordingly, unearned
premiums represent the portion of premiums written which is applicable to
the unexpired terms of policies in force. Premium estimates for
retrospectively rated policies are recognized within the periods in which
the related losses are incurred.
C. Certain assets, principally furniture, equipment, and leasehold
improvements and certain overdue agents' balances, are designated
"non-admitted assets" and are charged directly to unassigned surplus.
D. The liabilities for unpaid losses and loss adjustment expenses are
determined on the basis of claims adjusters' evaluations and various
actuarial procedures. An amount is included for losses and loss expenses
incurred but not reported on the basis of past experience of the Company.
The methods of making such estimates and for establishing the resulting
reserves are continually reviewed and updated, and any resulting
adjustments are recorded in the current period. Accordingly, losses and
loss adjustment expenses are charged to income as incurred.
E. Certain required statutory basis reserves, principally the
provision for reinsurance, are charged to surplus and reflected as a
liability of the Company.
F. Federal income taxes are provided on the basis of amounts currently
payable. Adjustments relating to the difference between the amount recorded
for financial statement purposes and the amount subsequently filed on the
tax return are charged or credited directly to federal income taxes on the
statement of income.
G. Acquisition costs related to premiums written are charged to income
at the time the premiums are written and are included in "Other
underwriting expenses incurred."
H. Unpaid losses and loss adjustment expenses have been reduced by
anticipated salvage and subrogation in the amount of approximately $485,000
and $244,000 at December 31, 1994 and December 31, 1993, respectively.
I. The Company considers all highly liquid debt securities with
maturities of twelve months or less to be short-term investments. Such
investments are deemed to be cash equivalents for purposes of the statement
of cash flows.
F-15
<PAGE> 124
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Statutory accounting practices vary in certain respects from generally
accepted accounting principles. Under generally accepted accounting principles:
(1) costs incidental to acquiring business related to premiums written and costs
allowed by assuming reinsurers related to premiums ceded are deferred and
amortized over the periods covered by the underlying policies or reinsurance
agreements; (2) provision is made for deferred income taxes relating to
temporary differences between financial reporting and taxable income; (3) non-
admitted assets and statutory basis reserves are restored to surplus; (4) the
reserve for losses and loss expenses and reserve for unearned premiums are
presented gross of ceded reinsurance by establishing a reinsurance asset; and
(5) debt securities deemed to be available for sale or trading are reported at
fair value.
2. FEDERAL INCOME TAXES:
The Company files a consolidated U.S. federal income tax return with the
Parent pursuant to a consolidated tax sharing agreement. The agreement provides
that the Parent will not charge the Company a greater portion of the
consolidated tax liability than would have been paid by the Company if it had
filed a separate federal income tax return. In addition, the agreement provides
that the Company will be reimbursed by the Parent for tax benefits relating to
any net losses of the Company utilized in filing the consolidated return. The
"Federal income tax payable" and "Federal income tax recoverable" in the
accompanying statement of admitted assets, liabilities, capital and surplus are
due to/due from the Parent.
The U.S. federal income tax rate applicable to ordinary income is 35% for
1994 and 1993. Actual tax expense on income from operations differs from the
"expected" amount principally as a result of tax-exempt investment income,
unearned premiums and the discounting of unpaid losses and loss adjustment
expenses.
3. MANAGEMENT AGREEMENT:
The Company is managed and operated by American International Surplus Lines
Agency, Inc. (Agency), a wholly owned subsidiary of the Parent. The management
agreement provides the Agency with the authority to conduct all business affairs
of the Company. As compensation for these services, the management agreement
provides that the Company pay the Agency an annual management fee of $100,000
plus actual expenses incurred on behalf of managing the Company. The management
fee and expense reimbursement paid to the Agency was $1,574,912 and $1,602,069
in 1994 and 1993, respectively.
4. RELATED PARTY TRANSACTIONS:
The Company cedes all agency business written in the State of Alaska to the
New Hampshire Insurance Company (a wholly owned subsidiary of the Parent). The
Company cedes 80% of its surplus lines insurance to National Union Fire
Insurance Company of Pittsburgh, PA (a wholly owned subsidiary of the Parent)
through a reinsurance quota share agreement. The Company also assumes
reinsurance from Lexington Insurance Company, an affiliate.
F-16
<PAGE> 125
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. INVESTMENTS:
The amortized cost and NAIC market values of investments in fixed
maturities carried at December 31, 1994 and December 31, 1993, are as follows:
<TABLE>
<CAPTION>
GROSS GROSS NAIC
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1994
Fixed maturities:
States, municipalities and political
subdivisions........................... $346,192 $ 4,038 $12,332 $337,898
-------- ------- ------- --------
Total bonds....................... $346,192 $ 4,038 $12,332 $337,898
-------- ------- ------- --------
1993
Fixed maturities:
States, municipalities and political
subdivisions........................... $272,781 $16,985 $ 221 $289,545
-------- ------- ------- --------
Total bonds....................... $272,781 $16,985 $ 221 $289,545
======== ======= ======= ========
</TABLE>
The amortized cost and NAIC market values of fixed maturities at December
31, 1994, by contractual maturity, are shown below. Actual maturities could
differ from contractual maturities because borrowers may have the right to call
or prepay certain obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED NAIC MARKET
COST VALUE
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Due after one year through five years....................... $ 18,959 $ 19,537
Due after five years through ten years...................... 60,960 63,010
Due after ten years......................................... 266,273 255,352
-------- --------
Total............................................. $346,192 $337,899
======== ========
</TABLE>
Proceeds from sales of investments in fixed maturities during 1994 and 1993
were $11,785,392 and $0, respectively. Gross gains of $0 and gross losses of
$239,200 were realized on those sales in 1994.
Securities carried at $9,935,076 and $6,669,965 were deposited with
regulatory authorities, as required by law, at December 31, 1994 and December
31, 1993, respectively. Included in "Net investment income earned" are
investment expenses of $184,557 and $168,922 for 1994 and 1993, respectively.
6. REINSURANCE:
In the ordinary course of business, the Company reinsures certain risks
with affiliated and non-affiliated companies. Such arrangements serve to limit
the Company's maximum loss on catastrophes, large risks and unusually hazardous
risks. To the extent that any reinsuring company might be unable to meet its
obligations, the Company would be liable for its respective participation in
such defaulted amounts.
F-17
<PAGE> 126
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Reserves for unearned premiums and reinsurance recoverables on paid and
unpaid losses and loss adjustment expenses, including those incurred but not
reported to the Company, have been reduced for reinsurance ceded as follows:
<TABLE>
<CAPTION>
UNEARNED PREMIUM REINSURANCE
RESERVES RECOVERABLES
---------------- ------------
(IN THOUSANDS)
<S> <C> <C>
1994
Affiliates............................................ $251,556 $820,440
Non-affiliates........................................ 31,323 58,993
-------- --------
Total......................................... $282,879 $879,433
======== ========
1993
Affiliated............................................ $165,851 $558,452
Non-affiliates........................................ 19,066 37,746
-------- --------
Total......................................... $184,917 $596,198
======== ========
</TABLE>
Net premiums written and earned comprise the following:
<TABLE>
<CAPTION>
WRITTEN EARNED
--------- --------
(IN THOUSANDS)
<S> <C> <C>
1994
Direct business............................................. $ 606,103 $497,818
Reinsurance assumed
Affiliates................................................ 18,111 17,327
Non-affiliates............................................ -- --
Reinsurance ceded
Affiliates................................................ (485,279) (399,575)
Non-affiliates............................................ (59,016) (46,758)
--------- --------
Net premiums...................................... $ 79,919 $ 68,812
========= ========
1993
Direct business............................................. $ 453,706 $388,162
Reinsurance assumed
Affiliates................................................ 15,876 17,245
Non-affiliates............................................ -- --
Reinsurance ceded
Affiliates................................................ (359,640) (310,605)
Non-affiliates............................................ (40,776) (31,273)
--------- --------
Net premiums...................................... $ 69,166 $ 63,529
========= ========
</TABLE>
For the years ended December 31, 1994 and 1993, reinsurance recoveries,
which reduced loss and loss expenses incurred, amounted to $430,310,953 and
$303,963,684, respectively.
F-18
<PAGE> 127
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following unsecured reinsurance recoverables exceeded 3% of the capital
and surplus of the Company at December 31, 1994:
<TABLE>
<CAPTION>
REINSURER AMOUNT
- --------- --------------
(IN THOUSANDS)
<S> <C>
Affiliates.................................................. $1,002,260
General Reinsurance Company................................. 15,107
Lloyd's Underwriters........................................ 6,372
Transatlantic Reinsurance Company........................... 20,014
----------
Total............................................. $1,043,753
==========
</TABLE>
7. DIVIDEND RESTRICTION:
Under Alaska law, the Company may pay cash dividends only from earned
surplus determined on a statutory basis. Further, the Company is restricted (on
the basis of the lower of 10% of the Company's statutory surplus at the end of
the preceding twelve-month period or 100% of the Company's adjusted net
investment income for the preceding twelve-month period) as to the amount of
dividends it may declare or pay in any twelve-month period without the prior
approval of the State of Alaska Department of Commerce and Economic Development
Division of Insurance. The maximum dividend payable without prior approval at
December 31, 1994, amounted to approximately $14,954,000.
8. PENSION PLANS AND DEFERRED COMPENSATION:
The Company's employees participate in benefit plans sponsored by the
Parent, including a noncontributory defined benefit pension plan, and a
voluntary savings plan (a 401(k) plan) which provides certain matching
contributions. These plans cover substantially all of the Company's employees.
The Parent's plans do not separately identify plan benefits and plan assets
attributable to employees of participating companies.
Some of the Company's officers and key employees are participants in the
Parent's Stock Option Plan.
9. CONTINGENCY:
The Company, in common with the insurance industry in general, is subject
to litigation, including claims for punitive damages, in the normal course of
its business. The Company does not believe that such litigation will have a
material adverse effect on its financial condition.
10. LIABILITY FOR UNPAID CLAIMS AND CLAIM ADJUSTMENT EXPENSES:
Activity in the liability for unpaid claims and claim adjustment expenses
is summarized as follows:
<TABLE>
<CAPTION>
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net Balance at January 1.................................... $110,314 $ 61,187
Incurred related to:
Current year.............................................. 58,215 54,769
Prior years............................................... (7) (75)
-------- --------
Total incurred.................................... 58,208 54,694
-------- --------
Paid related to:
Current year.............................................. 5,163 889
Prior years............................................... 21,063 4,678
-------- --------
Total paid........................................ 26,226 5,567
-------- --------
Net Balance at December 31........................ $142,296 $110,314
======== ========
</TABLE>
F-19
<PAGE> 128
ANNEX 1
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Class A
Certificates (the "Global Securities") will be available only in book-entry
form. Investors in the Global Securities may hold such Global Securities through
any of DTC, Cedel or Euroclear. The Global Securities will be tradeable as home
market instruments in both the European and U.S. domestic markets. Initial
settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through Cedel and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of Cedel and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
Initial Settlement
All Global Securities will be held in book-entry form by DTC in the name of
Cede, as nominee of DTC. Investors' interests in the Global Securities will be
represented through financial institutions acting on their behalf as direct and
indirect Participants in DTC. As a result, Cedel and Euroclear will hold
positions on behalf of their participants through their respective Depositaries,
which in turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to conventional eurobonds, except that there
will be no temporary global security and no "lock-up" or restricted period.
Investor securities custody accounts will be credited with their holdings
against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in the
same-day funds.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to book-entry
securities in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and Cedel or Euroclear Purchaser. When Global
Securities are to be transferred from the account of a DTC Participant to the
accounts of a Cedel Participant or a Euroclear Participant, the purchaser will
send instructions to Cedel or Euroclear through a Cedel Participant or
A-1
<PAGE> 129
Euroclear Participant at least one business day prior to settlement. Cedel or
Euroclear will instruct the respective Depositary, as the case may be, to
receive the Global Securities against payment. Payment will include interest
accrued on the Global Securities from and including the last coupon payment date
to and excluding the settlement date, on the basis of actual days elapsed and a
360 day year. Payment will then be made by the respective Depositary to the DTC
Participant account against delivery of the Global Securities. After settlement
has been completed, the Global Securities will be credited to the respective
clearing system and by the clearing system, in accordance with its usual
procedures, to the Cedel Participant's or Euroclear Participant's account. The
Global Securities credit will appear the next day (European time) and the cash
debit will be back-valued to, and the interest on the Global Securities will
accrue from, the value date (which would be the preceding day when settlement
occurred in New York). If settlement is not completed on the intended value date
(i.e., the trade fails), the Cedel or Euroclear cash debit will be valued
instead as of the actual settlement date.
Cedel Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Cedel or Euroclear. Under this approach,
they may take on credit exposure to Cedel or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, Cedel Participants or Euroclear Participants can elect not to pre-position
funds and allow that credit line to be drawn upon to finance settlement. Under
this procedure, Cedel Participants or Euroclear Participants purchasing Global
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each Cedel Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective Depositary for the benefit of Cedel Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participants a cross-market transaction will
settle no differently than a trade between two DTC Participants.
Trading between Cedel or Euroclear seller and DTC purchaser. Due to time
zone differences in their favor, Cedel Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing systems, through the
respective Depositaries, to a DTC Participant. The seller will send instructions
to Cedel or Euroclear through a Cedel Participant or Euroclear Participant at
least one business day prior to settlement. In these cases, Cedel or Euroclear
will instruct the respective Depositaries, as appropriate, to deliver the bonds
to the DTC Participant's account against payment. Payment will include interest
accrued on the Global Securities from and including the last coupon payment date
to and excluding the settlement date on the basis of actual days elapsed and a
360 day year. The payment will then be reflected in the account of the Cedel
Participant or Euroclear Participant the following day, and receipt of the cash
proceeds in the Cedel Participant's or Euroclear Participant's account would be
back-valued to the value date (which would be the preceding day, when settlement
occurred in New York). Should the Cedel Participant or Euroclear Participant
have a line of credit with its respective clearing system and elect to be in
debit in anticipation of receipt of the sale proceeds in its account, the
back-valuation will extinguish any overdraft charges incurred over that one-day
period. If settlement is not completed on the intended value date (i.e., the
trade fails), receipt of the cash proceeds in the Cedel Participant's or
Euroclear Participant's account would instead be value as of the actual
settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase Global
Securities from DTC Participants for delivery to Cedel Participants or Euroclear
Participants should note that these trades would
A-2
<PAGE> 130
automatically fail on the sale side unless affirmative action were taken. At
least three techniques should be readily available to eliminate this potential
problem:
(a) borrowing through Cedel or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedel or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Cedel or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the Cedel Participant
or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding through Cedel or Euroclear
(or through DTC if the holder has an address outside the U.S.) will be subject
to the 30% U.S. withholding tax that generally applies to payments of interest
(including original issue discount) on registered debt issued by U.S. Persons,
unless (i) each clearing system, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business in the
chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of Global
Securities that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 or the Tax Certificate changes, a new Form W-8
or Tax Certificate, as the case may be, must be filed within 30 days of such
change.
Exemption for non-U.S. Person with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
Exemption or reduced rate for non-U.S. persons resident in treaty countries
(Form 1001). Non-U.S. Persons that are beneficial owners of Global Securities
residing in a country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate (depending on the treaty terms) by filing Form
1001 (Ownership, Exemption or Reduced Rate Certificate). If the treaty provides
only for a reduced rate, withholding tax will be imposed at that rate unless the
filer alternatively files Form W-8. Form 1001 may be filed by the Certificate
Owner or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The beneficial owner of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, his agent,
files by submitting the appropriate form to the person through whom it holds
(the clearing agency, in the case of persons holding directly on the books of
the clearing agency). Form W-8 and form 1001 are effective for three calendar
years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof or (iii) an estate, the
income of which is includible in gross income for United States tax purposes,
regardless of its source, or a trust if a court within the United States is able
to exercise primary supervision over the administration of the trust and one or
more United States trustees have authority to control all substantial decisions
of the trust. This summary does not deal with all aspects of U.S. Federal income
tax withholding that may be relevant to foreign holders of the Global
Securities. Investors are advised to consult their own tax advisors for specific
tax advice concerning their holding and disposing of the Global Securities.
A-3
<PAGE> 131
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE TRANSFEROR OR ANY UNDERWRITER. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE TRANSFEROR SINCE SUCH DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................... 2
Index.................................... 3
Overview of Transaction.................. 4
Summary.................................. 5
Risk Factors............................. 23
The Trust and the SUBI................... 29
The Origination Trust.................... 31
Use of Proceeds.......................... 33
The Transferor........................... 33
World Omni............................... 34
The Contracts............................ 39
Maturity, Prepayment and Yield
Considerations......................... 45
Class A Certificate Factors and Trading
Information; Reports to Class A
Certificateholders..................... 50
Description of the Certificates.......... 50
Security for the Certificates............ 66
Additional Document Provisions........... 75
Certain Legal Aspects of the Origination
Trust and the SUBI..................... 88
Certain Legal Aspects of the Contracts
and the Leased Vehicles................ 89
Material Income Tax Considerations....... 93
ERISA Considerations..................... 97
Underwriting............................. 100
Notice to Canadian Residents............. 101
Ratings of the Class A Certificates...... 102
Legal Matters............................ 102
Experts.................................. 103
Index of Capitalized Terms............... 104
Index to Financial Statements of American
International Specialty Lines Insurance
Company................................ 106
Global Clearance, Settlement and Tax
Documentation Procedures............... A-1
</TABLE>
------------------
UNTIL JULY 28, 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. UPON RECEIPT OF A REQUEST BY AN INVESTOR WHO
HAS RECEIVED AN ELECTRONIC PROSPECTUS OR A REQUEST BY SUCH INVESTOR'S
REPRESENTATIVE WITHIN THE PERIOD DURING WHICH THERE IS A PROSPECTUS DELIVERY
OBLIGATION, THE TRANSFEROR OR THE UNDERWRITERS WILL PROMPTLY DELIVER, OR CAUSE
TO BE DELIVERED, WITHOUT CHARGE, A PAPER COPY OF THE PROSPECTUS.
======================================================
======================================================
[WORLD OMNI LOGO]
WORLD OMNI
1997-A AUTOMOBILE LEASE
SECURITIZATION TRUST
$1,107,297,857
$250,000,000
6.60% AUTOMOBILE LEASE
ASSET BACKED CERTIFICATES,
CLASS A-1
$290,000,000
6.75% AUTOMOBILE LEASE
ASSET BACKED CERTIFICATES,
CLASS A-2
$290,000,000
6.85% AUTOMOBILE LEASE
ASSET BACKED CERTIFICATES,
CLASS A-3
$277,297,857
6.90% AUTOMOBILE LEASE
ASSET BACKED CERTIFICATES,
CLASS A-4
WORLD OMNI LEASE
SECURITIZATION L.P.
(TRANSFEROR)
WORLD OMNI FINANCIAL CORP.
(SERVICER)
--------------------
PROSPECTUS
--------------------
MERRILL LYNCH & CO.
BANCAMERICA SECURITIES, INC.
CREDIT SUISSE FIRST BOSTON
SALOMON BROTHERS INC
APRIL 29, 1997
======================================================
<PAGE> 132
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND PAYMENT.
Expenses in connection with the offering of the Class A Certificates being
registered herein are estimated as follows:
<TABLE>
<S> <C>
SEC registration fee........................................ $335,500
Legal fees and expenses..................................... 250,000
Accounting fees and expenses................................ 60,000
Blue sky fees and expenses.................................. 25,000
Rating agency fees.......................................... 175,000
Trustee fees and expenses................................... 25,000
Printing.................................................... 70,000
Miscellaneous............................................... 9,500
--------
Total............................................. $950,000*
========
</TABLE>
- ---------------
* Does not include premium (4.0% of total residual values of all Contracts) for
Residual Value Insurance Policy, which will be paid by the Servicer.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 17-108 of the Delaware Revised Uniform Limited Partnership Act
provides that, subject to such standards and restrictions, if any, as are set
forth in its partnership agreement, a limited partnership may, and shall have
the power to, indemnify and hold harmless any partner or other person from and
against any and all claims and demands whatsoever.
Pursuant to Section 4.08 of the Agreement of Limited Partnership of World
Omni Lease Securitization L.P. (the "Transferor"), the Transferor will, to the
fullest extent permitted by law, indemnify World Omni Lease Securitization,
Inc., the general partner of the Transferor, and its directors, officers,
shareholders, agents, affiliates and employees acting within the scope of their
authority against their losses and expenses sustained by reason of their acts on
behalf of the Transferor or in furtherance of the interests of the Transferor,
if the acts were not fraudulent or in bad faith and did not constitute willful
or wanton misconduct or gross negligence.
Pursuant to Section 4.08 of the Agreement of Limited Partnership of Auto
Lease Finance L.P. ("ALFI L.P."), ALFI L.P. will, to the fullest extent
permitted by law, indemnify Auto Lease Finance, Inc., the general partner of
ALFI L.P., and its directors, officers, shareholders, agents, affiliates and
employees acting within the scope of their authority against their losses and
expenses sustained by reason of their acts on behalf of ALFI L.P. or in
furtherance of the interests of ALFI L.P., if the acts were not fraudulent or in
bad faith and did not constitute willful or wanton misconduct or gross
negligence.
Reference is also made to Section 7 of the Underwriting Agreement (see
Exhibit 1.1), which provides for indemnification by the Transferor under certain
circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Not applicable.
II-1
<PAGE> 133
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
a. Exhibits:
<TABLE>
<S> <C> <S>
1.1 -- Form of Underwriting Agreement*
3.1 -- Articles of Incorporation of World Omni Lease
Securitization, Inc. (incorporated by reference from Exhibit
3.1 to Registration Statement on Form S-1, File No. 33-85036
(the "1994-B Registration Statement"))
3.2 -- Bylaws of World Omni Lease Securitization, Inc.
(incorporated by reference from Exhibit 3.2 to the 1994-B
Registration Statement)
3.3 -- Amended and Restated Agreement of Limited Partnership of
World Omni Lease Securitization L.P. between World Omni
Lease Securitization, Inc. and World Omni Financial Corp.,
dated as of July 1, 1994 (incorporated by reference from
Exhibit 3.3 to the 1994-B Registration Statement)
3.4 -- Articles of Incorporation of Auto Lease Finance Inc.
(incorporated by reference from Exhibit 10.5 to the 1994-B
Registration Statement)
3.5 -- Bylaws of Auto Lease Finance, Inc. (incorporated by
reference from Exhibit 10.6 to the 1994-B Registration
Statement)
3.6 -- Amended and Restated Agreement of Limited Partnership of
Auto Lease Finance L.P. between Auto Lease Finance Inc. and
World Omni Financial Corp., dated as of July 1, 1994
(incorporated by reference from Exhibit 10.7 to the 1994-B
Registration Statement)
4.1 -- Form of Securitization Trust Agreement between World Omni
Lease Securitization L.P. and First Bank National
Association, as Trustee (including forms of Class A
Certificates)*
5.1 -- Opinion of McDermott, Will & Emery with respect to legality*
8.1 -- Opinion of Brown & Wood LLP with respect to federal income
tax matters*
8.2 -- Opinion of English, McCaughan & O'Bryan, P.A. with respect
to certain Florida tax matters*
10.1 -- Second Amended and Restated Trust Agreement among Auto Lease
Finance L.P., VT Inc. and First Bank National Association
(as successor to Bank of America Illinois), dated as of July
1, 1994 (incorporated by reference from Exhibit 10.1 to the
1994-B Registration Statement)
10.2 -- Form of Supplement 1997-A to Trust Agreement among Auto
Lease Finance L.P., VT Inc. and First Bank National
Association (as successor to Bank of America Illinois)
(including form of the SUBI Certificate)*
10.3 -- Second Amended and Restated Servicing Agreement between VT
Inc. and World Omni Financial Corp., dated as of July 1,
1994 (incorporated by reference from Exhibit 10.3 to the
1994-B Registration Statement)
10.4 -- Form of Supplement 1997-A to Servicing Agreement between VT
Inc. and World Omni Financial Corp.*
10.5 -- Amendment No. 1 to Second Amended and Restated Trust
Agreement among Auto Lease Finance L.P., VT Inc. and First
Bank National Association (as successor to Bank of America
Illinois), dated as of November 1, 1994 (incorporated by
reference from Exhibit 10.8 to the 1994-B Registration
Statement)
10.6 -- Second Amended and Restated Assignment Agreement among World
Omni Financial Corp., Auto Lease Finance L.P. and VT Inc.,
dated as of July 1, 1994 (incorporated by reference from
Exhibit 10.9 to Registration Statement on Form S-1, File No.
33-95404)
10.7 -- Amendment No. 1 to Second Amended and Restated Assignment
Agreement among World Omni Financial Corp., Auto Lease
Finance L.P. and VT Inc., dated as of October 1, 1995
(incorporated by reference from Exhibit 10.10 to
Registration Statement on Form S-1, File No. 333-00794 (the
"1996-A Registration Statement"))
10.8 -- Support Agreement, dated as of October 1, 1995 between World
Omni Financial Corp. and World Omni Lease Securitization
L.P. (incorporated by reference from Exhibit 10.11 to the
1996-A Registration Statement)
</TABLE>
II-2
<PAGE> 134
10.9 -- Amendment No. 1 to Support Agreement between World Omni
Financial Corp. and World Omni Lease Securitization L.P.,
dated as of May 1, 1996 (incorporated by reference from
Exhibit 10.12 to Registration Statement on Form S-1, File
No. 333-11449 (the "1996-B Registration Statement"))
10.10 -- Amendment No. 2 to Support Agreement, dated as of October 1,
1996 between World Omni Financial Corp., and World Omni
Lease Securitization L.P., dated as of October 1, 1996*
10.11 -- Form of Amendment No. 3 to Support Agreement between World
Omni Financial Corp. and World Omni Lease Securitization
L.P.*
10.12 -- Form of Residual Value Insurance Policy*
23.1 -- Consent of McDermott, Will & Emery*
23.2 -- Consent of Brown & Wood LLP*
23.3 -- Consent of English, McCaughan & O'Bryan, P.A.*
23.4 -- Consent of Williams & Connolly*
23.5 -- Consent of Hand Arendall, L.L.C.*
23.6 -- Consent of Coopers & Lybrand L.L.P.
24.1 -- Power of Attorney*
- ---------------
* Previously filed.
b. Financial Statement Schedules:
Not applicable.
ITEM 17. UNDERTAKINGS.
The undersigned registrants hereby undertake as follows:
(a) 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 (the "Act");
(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 change 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) if, in the aggregate, the changes in volume and
price represent no more than a 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 the paragraphs (a)(i) and (a)(ii) do not apply if
the registration statement is on Form S-3, Form S-8, or Form F-3, and 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 any 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.
II-3
<PAGE> 135
(b) That, for the purpose of determining any liability under the Act, 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.
(c) 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.
(d) 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.
(e) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of any registrant
pursuant to the foregoing provisions, or otherwise, each registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable. In the event that a claim for indemnification against
such liabilities (other than payment by a registrant of expenses incurred or
paid by a director, officer or controlling person of such registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, each registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(f) 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 each registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Act will be deemed to be part of this registration statement as of the
time it was declared effective.
(g) For purposes of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus will be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time will be deemed to be the initial bona
fide offering thereof.
II-4
<PAGE> 136
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, EACH REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 3 TO REGISTRATION STATEMENT ON FORM S-1 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY
OF DEERFIELD BEACH AND STATE OF FLORIDA, ON THE 28TH DAY OF APRIL, 1997.
WORLD OMNI LEASE SECURITIZATION L.P.,
on behalf of itself and as originator of
the World Omni 1997-A Automobile Lease
Securitization Trust
By: WORLD OMNI LEASE SECURITIZATION, INC.,
as General Partner
By: /s/ A. TUCKER ALLEN
---------------------------------------
Name: A. Tucker Allen
Title: Vice President and Corporate
Treasurer
(Principal Financial and
Accounting Officer)
AUTO LEASE FINANCE L.P., on behalf of
itself and as originator of World Omni LT
By: AUTO LEASE FINANCE, INC.,
as General Partner
By: /s/ A. TUCKER ALLEN
---------------------------------------
Name: A. Tucker Allen
Title: Vice President and Corporate
Treasurer
(Principal Financial and
Accounting Officer)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS AMENDMENT NO. 3 TO REGISTRATION STATEMENT ON FORM S-1 HAS BEEN SIGNED BELOW
BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ A. TUCKER ALLEN Director and Vice President and April 28, 1997
- --------------------------------------------------- Corporate Treasurer of the
A. Tucker Allen General Partner of each of World
Omni Lease Securitization L.P.
and Auto Lease Finance L.P.
(Principal Financial and
Accounting Officer)
* Director of the General Partner of April 28, 1997
- --------------------------------------------------- each of World Omni Lease
Colin W. Brown Securitization L.P. and Auto
Lease Finance L.P.
* Director of the General Partner of April 28, 1997
- --------------------------------------------------- each of World Omni Lease
Jeffrey B. Shapiro Securitization L.P. and Auto
Lease Finance L.P.
* Director of the General Partner of April 28, 1997
- --------------------------------------------------- each of World Omni Lease
Christopher C. Wheeler Securitization L.P. and Auto
Lease Finance L.P.
</TABLE>
II-5
<PAGE> 137
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Director and President of the April 28, 1997
- --------------------------------------------------- General Partner of each of World
Daryl P. Smith Omni Lease Securitization L.P.
and Auto Lease Finance L.P.
(Principal Executive Officer)
</TABLE>
* /s/ A. TUCKER ALLEN
----------------------------------
A. Tucker Allen
Attorney-in-Fact
II-6
<PAGE> 138
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT DESCRIPTION PAGE
- ------- ----------- ------------
<C> <C> <S> <C>
1.1 -- Form of Underwriting Agreement*
3.1 -- Articles of Incorporation of World Omni Lease
Securitization, Inc. (incorporated by reference from Exhibit
3.1 to Registration Statement on Form S-1, File No. 33-85036
(the "1994-B Registration Statement"))
3.2 -- Bylaws of World Omni Lease Securitization, Inc.
(incorporated by reference from Exhibit 3.2 to the 1994-B
Registration Statement)
3.3 -- Amended and Restated Agreement of Limited Partnership of
World Omni Lease Securitization L.P. between World Omni
Lease Securitization, Inc. and World Omni Financial Corp.,
dated as of July 1, 1994 (incorporated by reference from
Exhibit 3.3 to the 1994-B Registration Statement)
3.4 -- Articles of Incorporation of Auto Lease Finance Inc.
(incorporated by reference from Exhibit 10.5 to the 1994-B
Registration Statement)
3.5 -- Bylaws of Auto Lease Finance, Inc. (incorporated by
reference from Exhibit 10.6 to the 1994-B Registration
Statement)
3.6 -- Amended and Restated Agreement of Limited Partnership of
Auto Lease Finance L.P. between Auto Lease Finance Inc. and
World Omni Financial Corp., dated as of July 1, 1994
(incorporated by reference from Exhibit 10.7 to the 1994-B
Registration Statement)
4.1 -- Form of Securitization Trust Agreement between World Omni
Lease Securitization L.P. and First Bank National
Association, as Trustee (including forms of Class A
Certificates)*
5.1 -- Opinion of McDermott, Will & Emery with respect to legality*
8.1 -- Opinion of Brown & Wood LLP with respect to federal income
tax matters*
8.2 -- Opinion of English, McCaughan & O'Bryan, P.A. with respect
to certain Florida tax matters*
10.1 -- Second Amended and Restated Trust Agreement among Auto Lease
Finance L.P., VT Inc. and First Bank National Association
(as successor to Bank of America Illinois), dated as of July
1, 1994 (incorporated by reference from Exhibit 10.1 to the
1994-B Registration Statement)
10.2 -- Form of Supplement 1997-A to Trust Agreement among Auto
Lease Finance L.P., VT Inc. and First Bank National
Association (as successor to Bank of America Illinois)
(including form of the SUBI Certificate)*
10.3 -- Second Amended and Restated Servicing Agreement between VT
Inc. and World Omni Financial Corp., dated as of July 1,
1994 (incorporated by reference from Exhibit 10.3 to the
1994-B Registration Statement)
10.4 -- Form of Supplement 1997-A to Servicing Agreement between VT
Inc. and World Omni Financial Corp.*
10.5 -- Amendment No. 1 to Second Amended and Restated Trust
Agreement among Auto Lease Finance L.P., VT Inc. and First
Bank National Association (as successor to Bank of America
Illinois), dated as of November 1, 1994 (incorporated by
reference from Exhibit 10.8 to the 1994-B Registration
Statement)
</TABLE>
<PAGE> 139
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT DESCRIPTION PAGE
- ------- ----------- ------------
<C> <C> <S> <C>
10.6 -- Second Amended and Restated Assignment Agreement among World
Omni Financial Corp., Auto Lease Finance L.P. and VT Inc.,
dated as of July 1, 1994 (incorporated by reference from
Exhibit 10.9 to Registration Statement on Form S-1, File No.
33-95404)
10.7 -- Amendment No. 1 to Second Amended and Restated Assignment
Agreement among World Omni Financial Corp., Auto Lease
Finance L.P. and VT Inc., dated as of October 1, 1995
(incorporated by reference from Exhibit 10.10 to
Registration Statement on Form S-1, File No. 333-00794 (the
"1996-A Registration Statement"))
10.8 -- Support Agreement, dated as of October 1, 1995 between World
Omni Financial Corp. and World Omni Lease Securitization
L.P. (incorporated by reference from Exhibit 10.11 to the
1996-A Registration Statement)
10.9 -- Amendment No. 1 to Support Agreement between World Omni
Financial Corp. and World Omni Lease Securitization L.P.,
dated as of May 1, 1996 (incorporated by reference from
Exhibit 10.12 to Registration Statement on Form S-1, File
No. 333-11449 (the "1996-B Registration Statement"))
10.10 -- Amendment No. 2 to Support Agreement between World Omni
Financial Corp. and World Omni Lease Securitization L.P.,
dated as of October 1, 1996*
10.11 -- Form of Amendment No. 3 to Support Agreement between World
Omni Financial Corp. and World Omni Lease Securitization
L.P.*
10.12 -- Form of Residual Value Insurance Policy*
23.1 -- Consent of McDermott, Will & Emery*
23.2 -- Consent of Brown & Wood LLP*
23.3 -- Consent of English, McCaughan & O'Bryan, P.A.*
23.4 -- Consent of Williams & Connolly*
23.5 -- Consent of Hand Arendall, L.L.C.*
23.6 -- Consent of Coopers & Lybrand L.L.P.
24.1 -- Power of Attorney*
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
Exhibit 23.6
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the inclusion in Amendment No. 3 to Form S-1 of World Omni
1997-A Automobile Lease Securitization Trust of our report dated May 17, 1996
(which report expresses an adverse opinion under generally accepted accounting
principles and an unqualified opinion as to the statutory-basis of accounting)
on our audits of the statutory-basis financial statements of American
International Specialty Lines Insurance Company as of December 31, 1995 and
1994 and for each of the two years in the period ended December 31, 1995. We
also consent to the inclusion of our report dated May 22, 1995 (which report
expresses an adverse opinion under generally accepted accounting principles and
an unqualified opinion as to the statutory-basis of accounting) on our audits
of the statutory-basis financial statements of American International Specialty
Lines Insurance Company as of December 31, 1994 and 1993 and for each of the
two years in the period ended December 31, 1994. Furthermore, we consent to
the reference to our firm under the caption "Experts".
/s/ Coopers & Lybrand, L.L.P.
Coopers & Lybrand, L.L.P.
New York, New York
April 21, 1997
